<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
REGISTRATION NO. 333-58913
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE IMPERIAL HOME DECOR GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2679 51-0370302
(STATE OF INCORPORATION) (PRIMARY SIC NO.) (I.R.S. EMPLOYER ID. NO)
------------------------
THE IMPERIAL HOME DECOR GROUP INC.
23645 MERCANTILE ROAD
CLEVELAND, OHIO 44122
(216) 464-3700
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES P. TOOHEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE IMPERIAL HOME DECOR GROUP INC.
23645 MERCANTILE ROAD
CLEVELAND, OHIO 44122
(216) 464-3700
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
ROBERT A. PROFUSEK, ESQ.
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 326-3939
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statements
for the same offering. / /
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
OTHER REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS AND TELEPHONE NUMBER
JURISDICTION OF OF PRINCIPAL EXECUTIVE
NAME INCORPORATION PRIMARY SIC NO. IRS EMPLOYER ID. NO. OFFICE
- ---------------------------- --------------- --------------- -------------------- ----------------------------
<S> <C> <C> <C> <C>
Vernon Plastics, Inc. Delaware 2671 04-3411142 Shelley Road--Ward Hill
P.O. Box 8248
Haverhill, MA 01835
(978) 373-1551
WDP Investments, Inc. Delaware 2679 51-0370304 23645 Mercantile Road
Cleveland, OH 44122
(216) 464-3700
Marketing Service, Inc. Delaware 2782 34-1765225 23645 Mercantile Road
Cleveland, OH 44122
(216) 464-3700
The Imperial Home Decor Delaware 2679 51-0370302 23645 Mercantile Road
Group (US) LLC Cleveland, OH 44122
(216) 464-3700
Imperial Home Decor Group UK 2679 Not Applicable Belgrave Mills
Holdings I Limited Limited Belgrave Road
Darwen, Lancashire BB3 2RR
U.K.
44-1254-870-700
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
SUBJECT TO COMPLETION, DATED AUGUST 28, 1998
THE IMPERIAL HOME DECOR GROUP INC.
OFFER TO EXCHANGE
ITS 11% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B,
FOR ANY AND ALL OF ITS OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2008
Vernon Plastics, Inc., WDP Investments, Inc., Marketing Service, Inc., The
Imperial Home Decor Group (US) LLC and Imperial Home Decor Group Holdings I
Limited, as Subsidiary Guarantors of the 11% Senior Subordinated Notes Due 2008.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON 1998, UNLESS EXTENDED.
The Imperial Home Decor Group Inc., a Delaware corporation (the 'Company'),
hereby offers (the 'Exchange Offer'), upon the terms and conditions set forth in
this Prospectus (the 'Prospectus') and the accompanying Letter of Transmittal
(the 'Letter of Transmittal'), to exchange $1,000 principal amount of its 11%
Senior Subordinated Notes due 2008, Series B (the 'Exchange Notes'), registered
under the Securities Act of 1933, as amended (the 'Securities Act'), pursuant to
a registration statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 11% Senior Subordinated Notes due 2008 (the
'Old Notes' and together with the Exchange Notes, the 'Notes') of which
$125,000,000 aggregate principal amount is outstanding. The form and terms of
the Exchange Notes are the same as the form and terms of the Old Notes in all
material respects except that (i) the Exchange Notes will bear a Series B
designation, (ii) the Exchange Notes will have been registered under the
Securities Act and will not bear legends restricting the transfer thereof, and
(iii) holders of the Exchange Notes will not be entitled to the rights of
holders of Old Notes under the Exchange and Registration Rights Agreement (as
defined). The Exchange Notes will evidence the same debt as the Old Notes (which
they replace) and will be issued under and be entitled to the benefits of the
Indenture, dated as of March 13, 1998, as supplemented (the 'Indenture'), by and
among the Company, the Subsidiary Guarantors and The Bank of New York, as
trustee. See 'The Exchange Offer' and 'Description of the Exchange Notes.'
Interest on the Exchange Notes will be payable semi-annually on March 15 and
September 15 of each year, commencing on March 15, 1999. The Exchange Notes will
mature on March 15, 2008. Except as described below, the Company may not redeem
the Exchange Notes prior to March 15, 2003. On or after such date, the Company
may redeem the Exchange Notes, in whole or in part, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior to March 15, 2001, the Company
may, subject to certain requirements, redeem up to 33 1/3% of the original
aggregate principal amount of the Exchange Notes with the Net Cash Proceeds (as
defined) of one or more Equity Offerings (as defined) by the Company, at a price
equal to 111% of the principal amount to be redeemed, together with accrued and
unpaid interest, if any, to the date of redemption, provided that at least
66 2/3% of the original aggregate principal amount of the Exchange Notes remains
outstanding immediately after each such redemption and provided further that
such redemption occurs within 360 days after the date on which any such Equity
Offering is consummated. The Exchange Notes will not be subject to any sinking
fund requirement. Upon a Change of Control (as defined), (i) the Company will
have the option, at any time on or prior to March 15, 2003, to redeem the
Exchange Notes in whole, but not in part, at a redemption price equal to 100% of
the principal amount of the Exchange Notes plus the Applicable Premium (as
defined) as of, together with accrued but unpaid interest, if any, to, the date
of redemption, and (ii) if the Company does not so redeem the Exchange Notes, or
if a Change of Control occurs after March 15, 2003, each holder of the Exchange
Notes will have the right to require the Company to make an offer to repurchase
such holder's Exchange Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase. No assurance can be given that the Company will have sufficient
funds available to satisfy its repurchase obligation with respect to the
Exchange Notes following a Change of Control. See 'Description of the Exchange
Notes.'
The Exchange Notes will be unsecured and will be subordinated in right of
payment to all existing and future Senior Indebtedness (as defined) of the
Company. The Exchange Notes will rank equally in right of payment with all Pari
Passu Indebtedness (as defined) of the Company and will rank senior in right of
payment to all other Subordinate Indebtedness (as defined) of the Company. The
Exchange Notes will be effectively subordinated in right of payment to all
Secured Indebtedness (as defined) of the Company or of any Subsidiary Guarantor
(as defined) to the extent of the value of the assets securing any such
indebtedness and to any indebtedness or other liabilities of any of the
Company's subsidiaries that are not Subsidiary Guarantors (as defined). The
Exchange Notes will be fully, unconditionally and irrevocably guaranteed (the
'Subsidiary Guarantees') jointly and severally on an unsecured, senior
subordinated basis by a holding company for the Company's U.K. operating
subsidiaries (which itself is not an operating subsidiary), all the Company's
direct and indirect U.S. subsidiaries on the issue date of the Exchange Notes
and all future U.S. Restricted Subsidiaries (as defined) that incur indebtedness
(collectively, the 'Subsidiary Guarantors'). The Exchange Notes will not be
guaranteed by any of the Company's operating subsidiaries organized outside of
the United States (the 'Non-Guarantor Subsidiaries'). The Indenture permits the
Company and the Subsidiary Guarantors to incur additional indebtedness,
including Senior Indebtedness, subject to certain restrictions. As of June 27,
1998, after giving effect to the Transactions (which as defined includes the
Initial Offering, as defined), (i) the Company had $221.9 million aggregate
principal amount of Senior Indebtedness outstanding (exclusive of unused
commitments), all of which was Secured Indebtedness (as defined), (ii) the
Company had no Pari Passu Indebtedness outstanding other than the Old Notes and
no Subordinate Indebtedness, (iii) the Subsidiary Guarantors had no Senior
Indebtedness outstanding (exclusive of guarantees of the Senior Credit
Facilities (as defined)), (iv) the Subsidiary Guarantors had no Pari Passu
Indebtedness outstanding (exclusive of the Subsidiary Guarantees), no
Subordinate
(cover continued on following page)
---------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 17 FOR A DISCUSSION OF MATERIAL RISK
FACTORS THAT SHOULD BE CONSIDERED IN THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
Indebtedness and total liabilities (excluding indebtedness and liabilities owed
to the Company or any Subsidiary Guarantor) of $55.9 million, and (v) the
Non-Guarantor Subsidiaries had total liabilities (excluding liabilities owed to
the Company or any Subsidiary Guarantor) of $85.9 million. The preceding
sentence describes all of the Indebtedness (as defined) of the Company and the
Subsidiary Guarantors outstanding as of June 27, 1998. As of June 27, 1998, the
Indebtedness of the Company included $221.9 million aggregate principal amount
outstanding under the Senior Credit Facilities and the Company had an additional
$78.1 million aggregate principal amount available for borrowing under the
Senior Credit Facilities, subject to certain conditions, which will be secured
by the assets of the Company and the Subsidiary Guarantors and will mature prior
to the maturity of the Exchange Notes. See 'Description of the Exchange Notes'
and 'Description of the Senior Credit Facilities.' Other than as described
herein under 'Description of the Exchange Notes' and 'Description of the Senior
Credit Facilities,' which describe various limitations under the Indenture, the
Subsidiary Guarantees and the Senior Credit Facilities, there is no limitation
on Indebtedness or other liabilities that may be incurred by the Company or any
Subsidiary Guarantor or Non-Guarantor Subsidiary.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1998,
unless extended by the Company in its sole discretion (the 'Expiration Date').
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. In the event the Company terminates the Exchange Offer and does
not accept for exchange any Old Notes with respect to the Exchange Offer, the
Company will promptly return the Old Notes to the holders thereof. The Exchange
Offer is not conditioned upon any minimum amount of Old Notes being tendered for
exchange, but is otherwise subject to certain customary conditions. The Old
Notes may be tendered only in integral multiples of $1,000. The Old Notes were
sold by the Company on March 13, 1998 (the 'Issue Date') to Chase Securities
Inc. and Bear, Stearns & Co. Inc. (the 'Initial Purchasers') in a transaction
not registered under the Securities Act in reliance upon an exemption under the
Securities Act (the 'Initial Offering'). The Initial Purchasers subsequently
placed the Old Notes with (i) qualified institutional buyers in reliance upon
Rule 144A under the Securities Act, (ii) a limited number of institutional
accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act), and (iii) qualified buyers outside of the United States in
reliance upon Regulation S under the Securities Act. Accordingly, the Old Notes
may not be reoffered, resold or otherwise transferred in the United States
unless registered under the Securities Act or unless anapplicable exemption from
the registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of the
Company under the Exchange and Registration Rights Agreement entered into by the
Company, the Subsidiary Guarantors and the Initial Purchasers (the 'Exchange and
Registration Rights Agreement') in connection with the Initial Offering. See
'The Exchange Offer.'
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the 'Commission') set forth in certain no-action letters issued to
third parties in similar transactions, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is (i) an 'affiliate' of the Company within the meaning of Rule 405 under the
Securities Act or (ii) a broker-dealer that acquired the Old Notes in a
transaction other than part of its market-making or other trading activities)
without compliance with the registration and prospectus delivery requirements of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. See 'The Exchange Offer--Resale of the Exchange Notes.' Holders
of Old Notes wishing to accept the Exchange Offer must represent to the Company,
as required by the Exchange and Registration Rights Agreement, that such
conditions have been met. Each broker-dealer (a 'Participating Broker-Dealer')
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an 'underwriter' within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See 'Plan of Distribution.'
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See 'Risk Factors--Absence of a Public Market Could
Adversely Affect the Value of Exchange Notes.' Moreover, to the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY SUBSIDIARY GUARANTOR. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
The Exchange Notes will be available initially only in book-entry form and
the Company expects that the Exchange Notes issued pursuant to the Exchange
Offer will be issued in the form of a Global Exchange Note (as defined herein),
which will be deposited with, or on behalf of, The Depository Trust Company
('DTC') and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Note representing the Exchange Notes
will be shown on, and transfers thereof will be effected through, records
maintained by DTC and its participants. After the initial issuance of the Global
Exchange Note, Exchange Notes in certificated form will be issued in exchange
for the Global Exchange Note only under limited circumstances as set forth in
the Indenture. See 'Description of the Exchange Notes' and 'Book-Entry; Delivery
and Form.'
<PAGE>
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed with the Commission a
registration statement on Form S-4 (the 'Exchange Offer Registration Statement,'
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Offer contemplated hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Company and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Exchange Offer Registration Statement, reference is made to the
exhibit for a more complete description of the document or matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Exchange Offer Registration Statement, including the exhibits thereto, can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
inspected at the Commission's regional offices at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such materials can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.gov.
Upon declaration by the Commission that the Exchange Offer Registration
Statement is effective, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of the Company to file
periodic reports and other information with the Commission will be suspended if
the Exchange Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of the Company and the Subsidiary Guarantors other
than the fiscal year in which the Exchange Offer Registration Statement is
declared effective. The Company has agreed that, whether or not it is subject to
the reporting requirements of Section 13 or Section 15(d) of the Exchange Act,
for so long as the Old Notes or the Exchange Notes remain outstanding, it will
file with the Commission and distribute to holders of the Old Notes and the
Exchange Notes, as applicable, copies of the financial information that would
have been contained in such annual reports and quarterly reports, including
management's discussion and analysis of financial conditions and results of
operations, that would have been required to be filed with the Commission
pursuant to the Exchange Act. See 'Description of the Exchange Notes--Certain
Covenants--Reports and Other Information.'
------------------------
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS 'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE 'EXCHANGE ACT'). THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE
COMPANY'S CONTROL. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS PROSPECTUS, INCLUDING THE STATEMENTS UNDER 'SUMMARY-- THE
COMPANY,' 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS,' AND 'BUSINESS--COMPANY OVERVIEW,' '--COMPETITIVE
STRENGTHS,' '--NORTH AMERICAN INTEGRATION PLAN,' '--BUSINESS STRATEGY,'
'--INDUSTRY OVERVIEW' AND 'INDUSTRY TRENDS,' AND LOCATED ELSEWHERE HEREIN
REGARDING THE COMPANY'S FINANCIAL POSITION, PLANS TO INCREASE REVENUES, REDUCE
EXPENSES AND TAKE ADVANTAGE OF SYNERGIES AND ANY STATEMENTS REGARDING OTHER
FUTURE EVENTS OR FUTURE PROSPECTS OF THE COMPANY, ARE FORWARD-LOOKING
STATEMENTS. WHEN USED IN THIS PROSPECTUS, THE WORDS 'BELIEVE,' 'ANTICIPATE,'
'INTEND,' 'ESTIMATE,' 'EXPECT,' 'PROJECT' AND SIMILAR EXPRESSIONS ARE INTENDED
iii
<PAGE>
TO IDENTIFY FORWARD-LOOKING STATEMENTS, ALTHOUGH NOT ALL FORWARD-LOOKING
STATEMENTS CONTAIN SUCH WORDS. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF
THE DATE HEREOF. NONE OF THE COMPANY, ANY SUBSIDIARY GUARANTOR NOR THE INITIAL
PURCHASERS UNDERTAKES ANY OBLIGATION TO UPDATE OR REVISE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE. ALTHOUGH MANAGEMENT BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT OR THAT SAVINGS OR
OTHER BENEFITS ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
MANAGEMENT'S EXPECTATIONS ('CAUTIONARY STATEMENTS') ARE DISCLOSED IN THIS
PROSPECTUS, INCLUDING IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS AND UNDER 'RISK FACTORS.' PROSPECTIVE PURCHASERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY, ANY SUBSIDIARY GUARANTOR OR THE INITIAL PURCHASERS OR PERSONS ACTING ON
THEIR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS. SEE 'RISK FACTORS.'
iv
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Unless the context otherwise requires: (i) the 'Company' refers to
The Imperial Home Decor Group Inc., a Delaware corporation, and its subsidiaries
on a pro forma combined basis after giving effect to the Recapitalization and
the Imperial Acquisition (each, as defined); (ii) 'IHDG' refers to the Imperial
Home Decor Group Inc. (formerly known as Borden Decorative Products Holdings,
Inc., a Delaware corporation ('BDPH') and immediately prior to the
Recapitalization an indirect wholly owned subsidiary of Borden, Inc.
('Borden')), BDPH's subsidiaries, the Canadian wallcoverings business of Borden
('Sunworthy') and the Vernon Plastics business of Borden ('Vernon Plastics');
(iii) 'Imperial U.S.' refers to Imperial Wallcoverings, Inc., a Delaware
corporation, and 'Imperial Canada' refers to Imperial Wallcoverings (Canada),
Inc., a Canadian corporation, each, an indirect wholly owned subsidiary of
Collins & Aikman Corporation, a Delaware corporation ('C&A'); (iv) 'Imperial'
refers to Imperial U.S. and Imperial Canada; (v) 'IHDG UK' refers to Imperial
Home Decor Group Holdings I Limited, a newly formed wholly owned subsidiary of
the Company incorporated in the U.K. and the indirect holding company for the
Company's U.K. operating subsidiaries; (vi) 'Blackstone' refers to Blackstone
Capital Partners III Merchant Banking Fund, L.P., Blackstone Offshore Capital
Partners III L.P. and Blackstone Family Investment Partnership III L.P.; (vii)
'North America' refers to the United States and Canada; (viii) 'Europe' refers
primarily to Western Europe, but also includes Eastern Europe; (ix) 'U.K.'
refers to the United Kingdom; and (x) 'EBITDA, As Defined,' refers to earnings
before net interest expense, income taxes, depreciation and amortization expense
(excluding amortization of product development expenditures), restructuring
charges and other integration costs, merger and other transaction costs
(including monitoring fees), and other non-cash charges. EBITDA, As Defined,
should not be considered in isolation or as a substitute for net income or cash
flow statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity. EBITDA, As Defined, is
included in this Prospectus to provide additional information with respect to
the ability of the Company to satisfy its debt service, capital expenditure and
working capital requirements and because certain covenants in the Company's
borrowing arrangements are tied to similar measures. While EBITDA-based measures
are frequently used as measures of operations and the ability to meet debt
service requirements, they are not necessarily comparable to other similarly
titled captions of other companies due to differences in methods of calculation.
THE COMPANY
COMPANY OVERVIEW
The Company believes it is the world's largest producer and marketer of
residential wallcoverings based on pro forma net sales for 1997. The Company is
the result of the combination of the residential wallcoverings and polyvinyl
chloride ('PVC') sheeting businesses of IHDG, which were previously
substantially wholly owned by Borden, with the Imperial wallcoverings business
previously owned by C&A. On a pro forma basis for 1997, the Company estimates it
would have had a 35.4% and 24.3% share of manufacturer sales of residential
wallcoverings in North America and the U.K., respectively. The Company's
estimated 32.2% share of the combined 1997 North American and U.K. residential
wallcoverings sales is believed to be over three times the level of sales of the
next largest residential wallcoverings manufacturer in North America and the
U.K. The Company designs, manufactures and markets its residential wallcoverings
products under various recognized brand names, including Crown, Sunworthy,
Imperial and Albert Van Luit, as well as under licensing and distribution
agreements with leading designers and consumer brands such as Ralph Lauren,
Lenox, Nautica, Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA
schools. Due to the differences in market conditions and competitive factors in
North America and Europe, the Company operates its residential wallcoverings
business as two separate geographic divisions, North America and Europe, each of
which will coordinate its manufacturing, sales, marketing and distribution
activities.
Vernon Plastics is a leading manufacturer of calendered, flexible PVC
sheeting, printed sheeting and laminated products that operates as a separate
line of business distinct from the Company's residential wallcoverings business.
Vernon Plastics operates on an essentially stand-alone basis, with overhead and
administrative support services provided by the Company. Vernon Plastics' net
sales in 1997 were $49.3 million
1
<PAGE>
and its operating profit was $4.3 million. The Company is engaged in a review of
strategic alternatives with respect to Vernon Plastics which it expects to
complete by the end of this year.
On a pro forma basis for 1997, the Company would have had net sales of
$536.5 million, a net loss of $18.0 million and EBITDA, As Defined, of $32.6
million. On a pro forma basis for 1997, the Company's total sales in North
America and Europe represented approximately 67.3% and 29.3% of the Company's
total sales, respectively. The Company's operations outside North America have
recently contributed substantially all the Company's total consolidated pro
forma EBITDA.
Residential wallcoverings are decorative products produced from paper,
fabric, vinyl and other substrates that are printed, embossed and laminated and
are applied to walls using specially designed adhesives applied to the back of
the wallcovering during the manufacturing process. Residential wallcoverings are
of two types, sidewalls and borders. Sidewalls are produced in broad sheets and
are designed to cover the entire wall. Borders are produced in narrower sheets
and are intended to be applied to the top of the wall or above the wall molding
as a complement to the painted or sidewall covered surface. Residential
wallcoverings compete with paint products for a 'share of the wall' in the
residential decorating market.
COMPETITIVE STRENGTHS
Leading Market Position. In 1997, on a pro forma basis, the Company
generated over three times the revenue of the next largest residential
wallcoverings manufacturer in North America and the U.K. and held a 35.4% share
of manufacturer sales in North America and 24.3% in the U.K. The Company serves
all segments of the residential wallcoverings industry and has one of the most
comprehensive product offerings in the industry. The Company's wallcovering
products include both sidewalls and borders, and are manufactured using a
variety of substrates including paper, fabric and vinyl. The Company currently
maintains approximately 45,000 active SKUs. Management believes that the
Company's ability to supply this full product line is a particular advantage
because many retailers are consolidating their suppliers. The Company's in-house
brands, including Crown, Sunworthy, Imperial and Albert Van Luit, are among the
leading names in the residential wallcoverings industry. Management believes
that consumers associate the Company's brands with superior design, quality and
service.
Licensing and Distribution Agreements with Leading Brands. As the
worldwide revenue share leader in the residential wallcoverings industry, the
Company believes it is uniquely suited to leverage the substantial marketing
power of leading fashion designers and 'name' brands and has secured long-term
licensing and distribution agreements for wallcovering products in North America
with several of these, including Ralph Lauren, Lenox, Nautica, Laura Ashley,
Alexander Julian, Eddie Bauer and the NCAA schools. The majority of these
licensing agreements have been entered into or renewed during 1997 and typically
have a term of not less than two years. The Company also has relationships with
several leading home textiles producers, such as Fieldcrest Cannon, Croscill,
J.P. Stevens, Crown Crafts and West Point, which enable it to provide pattern
and color schemes that are coordinated with the bedding and window treatments
offered by these producers.
Strong Relationships with Leading Chain Stores. The Company believes that
it has particularly strong relationships with leading mass merchants, home
centers and specialty chains (together, 'Chain Stores') in North America and the
U.K. Management believes that these Chain Stores have captured, and are expected
to continue to capture, sales from both smaller Chain Stores and the
lower-priced and middle-priced segments of the independent dealer channel. The
Company has enjoyed long-standing relationships of more than ten years with each
of its top ten Chain Store customers, which together generated approximately
25.8% of its residential wallcoverings sales in North America and Europe in
1997. In the home center channel, the Company is the leading supplier to the
three largest U.S. home center chains, The Home Depot, Lowes and Menards, and is
the first or second leading supplier to each of the five largest chains in the
U.K. The Company is the sole residential wallcoverings supplier to Kmart and the
leading supplier to Wal-Mart and Target. The Company is also the leading
supplier of residential wallcoverings to Sherwin-Williams, the largest specialty
paint and wallpaper chain in the U.S. The Company believes that it is uniquely
suited to attract and retain these large and fast growing retail customers due
to its (i) highly efficient, modern production and distribution facilities, (ii)
strong portfolio of in-house and licensed brands, (iii) willingness to invest in
co-op advertising, in-store fixtures and category management initiatives, and
(iv) ability to achieve consistently high service levels for in-stock
merchandise.
Low Cost, Technologically Advanced Manufacturer. The Company believes that
it is the highest-volume manufacturer of residential wallcoverings in the world,
which, combined with its fully integrated operation across design, manufacturing
and distribution functions, enables it to capitalize upon economies of scale in
purchasing,
2
<PAGE>
manufacturing and distribution. The Company also believes that its key
technological and manufacturing process advances in rapid manufacturing line
changeover, batchless production, 'in-register' embossing and computer aided
design and manufacturing ('CAD/CAM') technology have contributed to its low-cost
position and enhanced its ability to produce a broad range of SKUs cost
efficiently. Management expects that the implementation of the Integration Plan
(as defined), which entails the closure of two of the Company's four North
American printing plants and consolidation of 11 U.S. distribution and finishing
operations into the Company's state-of-the-art Knoxville, Tennessee facility,
will further enhance the Company's low-cost position by maximizing utilization
of the Company's most modern, efficient assets and facilitating substantial head
count reductions. See '--North American Integration Plan.'
Significant Investment in Manufacturing and Distribution
Assets. Management believes that the Company's recent significant investments
in modernizing its manufacturing equipment and distribution facilities provide
it with a competitive advantage. From 1995 through 1997, the Company invested
approximately $90.0 million primarily to improve the efficiency of its existing
operations, including: (i) a $14.0 million investment by IHDG in two new
high-speed gravure print lines and associated finishing equipment at its
facility in Morecambe, U.K., which are achieving productivity levels
significantly greater than that of the prior generation of printing technology;
(ii) a $6.4 million investment by IHDG in batchless production, 'in-register'
embossing and CAD/CAM technology in the U.K., which has contributed to its
low-cost position and enhanced its ability to produce a broad range of SKUs cost
efficiently; (iii) a $23.3 million investment by Imperial in a state-of-the-art
finishing and distribution facility in Knoxville, Tennessee, which is expected
to reduce annual distribution expense; and (iv) a $9.0 million investment by
Imperial in printing equipment, in-line finishing, CAD/CAM technology and
information systems at the Sherbrooke, Canada manufacturing facility, which is
expected to improve manufacturing gross profit. Management anticipates achieving
higher operating margins in future years as it achieves full utilization of
these modern, highly efficient assets by absorbing the capacity of redundant and
less efficient facilities.
Experienced Management Team. The Company has a senior management team with
a wide range of experience in the residential wallcoverings and related
industries. The Company's President and Chief Executive Officer, James P.
Toohey, had 32 years of experience in a primarily marketing oriented
business--Hallmark Cards, where he was most recently President of Hallmark
International--prior to joining Imperial in October 1996 and becoming an
employee of the Company as of March 13, 1998. The Company also benefits from the
industry expertise of its new President--North American Marketing, Michael
Landau, who has 28 years of experience in the wallcovering industry, most
recently as President of F. Schumacher & Co. Wallcoverings, a position he held
from 1990 to 1997. During his tenure as President, F. Schumacher & Co.'s
revenues grew from over $10.0 million to over $100.0 million. The remainder of
the senior management team has been from the management of both Imperial and
IHDG and from outside the Company. The Company's senior managers will be awarded
options or other equity rights, subject to certain performance-based and other
vesting provisions. See 'The Transactions,' 'Management,' 'Executive
Compensation' and 'Security Ownership.'
Product Innovation. The Company has developed a new self-adhesive border
product, 'Stick 'n Play' in cooperation with 3M, which is currently being test
marketed in anticipation of its planned introduction in the Fall of 1998. Other
product innovations introduced by the Company include 'Sculptured Edge' and
'Outlines' borders that have one edge die-cut to follow the printed design, thus
producing an effect with enhanced visual appeal. Self-adhesive and special-cut
wallcoverings command higher sales prices and better margins and appeal to a
segment of consumers that might not otherwise consider purchasing wallcoverings.
NORTH AMERICAN INTEGRATION PLAN
Cost-Savings Measures. The Company has adopted a plan to integrate IHDG
and Imperial in North America (the 'Integration Plan'), the five principal
components of which are: (i) closing Imperial's inefficient, limited capacity
paper making and coating facilities in Plattsburgh, New York in favor of
leveraging the combined Company's ability to purchase substrate at a lower cost
than either Imperial's present manufacturing cost level or IHDG's outside
purchase cost level; (ii) rationalizing the Company's printing facilities by
consolidating four presently five-day per week, non-continuous printing plants
into two seven-day continuous operations; (iii) rationalizing the Company's
finishing function by consolidating all finishing activities from the four
printing facilities at which they are presently located to the Company's
state-of-the-art finishing and distribution facility in Knoxville, Tennessee;
(iv) rationalizing the Company's distribution network by
3
<PAGE>
consolidating seven existing distribution warehouses into the Knoxville
facility; and (v) substantial employee head count reductions in North America
through the elimination of redundancies in selling, customer service and other
support operations.
Management estimates head count reduction and fixed cost savings from the
Integration Plan to be $28.6 million, net of $10.4 million of incremental
overhead costs (as compared to total pro forma costs for 1997), comprised of the
following components:
<TABLE>
<CAPTION>
COST SAVINGS
INTEGRATION PLAN COMPONENT (DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------- ---------------------
<S> <C>
Rationalization of printing facilities........................................... $ 3.3
Rationalization of finishing facilities(1)....................................... 4.6
Paper making facility closing.................................................... 3.2
Rationalization of distribution facilities(2).................................... 5.1
Elimination of selling, customer service and support redundancies................ 12.4
------
Total.......................................................................... $28.6
------
------
</TABLE>
- ------------------
(1) The amount shown is net of $2.5 million of estimated incremental costs
relating to the rationalization of finishing facilities.
(2) The amount shown is net of $7.9 million of estimated incremental costs
relating to the rationalization of distribution facilities.
The Company's head count reduction plan is as follows:
<TABLE>
<CAPTION>
HEAD COUNT AT
ACQUISITION DATE EXPECTED HEAD COUNT
---------------- -------------------
<S> <C> <C>
Printing facilities.............................................. 629 475
Finishing facilities............................................. 276 201
Substrate/paper making facility.................................. 115 33
Distribution facilities.......................................... 280 220
Elimination of selling, customer service and support
redundancies................................................... 541 355
------ ------
Total.......................................................... 1,841 1,284
------ ------
------ ------
</TABLE>
The foregoing actions will each be commenced in the current year and are
expected to be substantially completed by the end of 2000. Accordingly, 2000 is
the first year in which their effects are expected to be fully realized. The
total of head count and fixed cost savings estimates of the Integration Plan in
1998 and 1999 are presently estimated at $5.0 million and $18.0 million,
respectively. The head count reduction and fixed cost savings estimates do not
give effect to margin improvements expected to result from implementation of the
Integration Plan and new capital budgeted for investment at the rationalized
facilities, as well as the planned revenue improvements expected to result from
the Company's planned product development and remerchandising plan described in
'--Business Strategy.' While there necessarily can be no assurance that any
particular level of cost savings will be achieved (see 'Forward-Looking
Statements' and 'Risk Factors--Integration of Imperial, Implementation of
Business Strategy and Limited Relevance of Historical Financial Information'),
management believes that the parallel structure of Imperial and IHDG's
operations in North America and their substantial recent capital investments in
modern production and distribution assets, which management believes were
underutilized prior to the Transactions, will facilitate the achievement of
these cost savings.
Budgeted Capital Expenditures and Rationalization Expenses. Management has
adopted a North American capital budget of approximately $40.0 million in the
aggregate for 1998 and 1999, substantially all of which relates to the
implementation of the Integration Plan. The Integration Plan will not require
any material capital expenditures in the U.K. In addition, management estimates
that it will incur one-time severance and other cash expenditures of
approximately $23.2 million during 1998 and 1999 relating to the head count
reduction, facility consolidation and other components of the Integration Plan.
Additional Gross Margin Effects. In addition to the head count reduction
and fixed cost savings expected to be achieved through the rationalization of
facilities and operations as described above, the rationalization of the
manufacturing asset base coupled with significant recent and planned capital
expenditures at the facilities are
4
<PAGE>
intended to drive North American gross margins from 47% in 1997 to approximately
59% by 2001. If successfully implemented, this would create an additional $17.0
million of gross profit (based on the Company's pro forma fiscal 1997 net sales)
in addition to the $28.6 million of head count reduction and fixed cost savings.
See 'Business--North American Integration Plan.'
BUSINESS STRATEGY
In addition to improvements in the Company's financial performance expected
to result from head count reductions and fixed cost savings associated with the
Integration Plan, the Company intends to capitalize upon its position as the
world's largest supplier of residential wallcoverings to enhance its sales and
profitability by implementing a growth strategy comprised of the following five
components:
Grow with Leading Chain Stores. The Company intends to maintain and expand
its position as the leading supplier to large, fast-growing Chain Stores in the
U.S. and U.K., especially home centers, and grow along with them as they
continue to roll out new stores and capture sales from both smaller Chain Stores
and the lower-priced and middle-priced segments of the independent dealer
channel. The Company's licensing and distribution agreements with
well-recognized name brands, ability to consistently achieve high service levels
for in-stock merchandise and willingness to invest in co-op advertising,
in-store fixtures and category management initiatives, such as the in-store
gallery concept, are central components of this strategic initiative. The
Company's gallery concept is designed to showcase a selection of both collection
books and in-stock residential wallcoverings products organized by color and
pattern style using a dedicated space within the store to facilitate display,
stocking and consumer selection. The Company is testing the concept at Sherwin
Williams and plans to initiate a rollout at selected Chain Stores later this
year. In Western Europe, where the Company's sales to the large Chain Stores
have historically been restricted to those with central warehousing, the Company
plans to develop local sales and distribution networks to serve Chain Stores
that require store-by-store service.
Leverage Licensing and Distribution Agreements and Build In-House Brand
Recognition. The Company intends to: (i) continue to leverage its existing
licensing and distribution agreements with Ralph Lauren, Lenox, Nautica, Laura
Ashley, Alexander Julian, Eddie Bauer and the NCAA schools to provide clear
design direction, increase the Company's share of retail shelf space and exploit
joint merchandising and promotional opportunities, thereby maximizing sales per
collection; (ii) rationalize its in-house product offering to reduce the amount
of duplicate SKUs between the Imperial and Sunworthy brands; and (iii) increase
advertising dollars from $3.2 million in 1997 to $5.6 million in 1998 and focus
expenditures on the Imperial brand to develop consumer recognition and
differentiate the product. Management expects that the rollout of existing
licenses and continued addition of new licensed brands will provide a platform
for sustainable, long-term growth and increase licensed products' share of the
Company's residential wallcoverings sales.
Rebuild Sales in the High-End, Independent Dealer Segment in North
America. Management believes that the substantial size, premium prices and
highly fragmented nature of the manufacturer base serving the high-end
residential wallcoverings market in the independent dealer channel make it a
structurally attractive segment. The Company's gross margin on its Albert Van
Luit product line in this segment was approximately 76% in 1997 versus the less
than 50% average for its overall North American residential sales. Management
also believes that the Company's highly efficient distribution facility and
network, ability to manufacture short runs of custom SKUs cost effectively and
brand recognition provides it with a competitive advantage in recapturing a
leading position in this segment after having reduced its presence in the early
1990's as part of a cost cutting program. The Company's high-end strategy will
consist of the following initiatives: (i) build on its well recognized Albert
Van Luit, Sterling and Katzenbach & Warren brands by increasing the number of
active high-end collections from 23 to 72 over the next four years and improving
the quality of product introduced under these names; (ii) develop a design
studio presence in New York; (iii) build a regional network of sales agents to
service the designer/dealer community; and (iv) selectively pursue add-on
acquisitions of, and/or strategic joint ventures with, competing high end
brands.
Pursue Add-on Acquisitions and Strategic Joint Ventures. The Company
intends to pursue selected add-on acquisitions of, and/or strategic joint
ventures with, small, niche manufacturers' important product lines and retail
accounts that will increase utilization of its existing manufacturing and
distribution assets. The ongoing consolidation of fragmented North American and
European wallcoverings markets should provide multiple acquisition
opportunities, especially in the high-end product segment.
5
<PAGE>
Increase Share in Growing International Markets. The Company plans to
expand its 32 member export sales team and leverage established contracts with
key distributors in order to continue to increase its sales in the high growth
markets of Eastern Europe, to which the Company's sales have increased from
approximately $2.6 million in 1993 to $51.0 million in 1997. The Company expects
to establish a strong consumer brand position as these markets mature and
develop more sophisticated retail environments. Management believes that as the
major U.S. home improvement chains expand internationally, there will be a
growing need for high-quality, dependable suppliers such as the Company to
establish a direct presence overseas in areas not already fully served by the
European division of the Company.
THE TRANSACTIONS
THE INITIAL OFFERING
The Old Notes were sold by the Company on March 13, 1998 to the Initial
Purchasers pursuant to a Purchase Agreement dated March 11, 1998 (the 'Purchase
Agreement') between BDPI Holdings Corporation ('MergerCo') and the Initial
Purchasers. The Initial Purchasers subsequently resold the Old Notes to (i)
qualified institutional buyers pursuant to Rule 144A under the Securities Act,
(ii) to a limited number of institutional accredited investors (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and (iii) certain
persons in offshore transactions in reliance on Regulation S under the
Securities Act.
Pursuant to the Purchase Agreement, the Company, the Subsidiary Guarantors
and the Initial Purchasers entered into an Exchange and Registration Rights
Agreement dated as of March 13, 1998, which grants the holders of the Old Notes
certain exchange and registration rights. The Exchange Offer is intended to
satisfy such exchange rights which terminate upon the consummation of the
Exchange Offer.
The Initial Offering was consummated on March 13, 1998 and was made in
conjunction with the series of transactions (the 'Transactions') described
below.
THE RECAPITALIZATION
The Initial Offering was made in connection with (i) the recapitalization
(the 'Recapitalization') of BDPH pursuant to a Recapitalization Agreement, dated
as of October 14, 1997, as amended (the 'Recapitalization Agreement'), among
BDPH, MergerCo and Borden and (ii) the Imperial Acquisition pursuant to an
Acquisition Agreement, dated as of November 4, 1997, as amended (the 'Imperial
Acquisition Agreement'), among C&A, Imperial U.S. and MergerCo. MergerCo was
wholly owned by Imperial Home Decor Group Holdings LLC ('Holdings'), an entity
formed by Blackstone for purposes of the Recapitalization.
The Initial Offering, the Recapitalization, the Imperial Acquisition and
the initial borrowings under the Senior Credit Facilities are collectively
referred to as the 'Transactions.'
The closing of the transactions contemplated by the Recapitalization
Agreement, the initial borrowings under the Senior Credit Facilities and the
consummation of the Offering took place immediately prior to, but substantially
simultaneously with, the closing of the Imperial Acquisition, which occurred on
March 13, 1998 (collectively, the 'Closing').
The principal components of the Recapitalization were:
o The transfer of substantially all the assets and liabilities of Sunworthy
to a wholly owned subsidiary of BDPH;
o The contribution of $84.6 million in cash by Blackstone to MergerCo (the
'Equity Contribution');
o The merger of MergerCo with and into BDPH (the 'Merger'); and
o The conversion of all the preferred stock and certain common stock of
BDPH into the right to receive a total of $309.5 million in cash, subject
to adjustment as described in the Recapitalization Agreement (the 'Merger
Consideration'). See 'The Transactions--The Recapitalization.'
Following the Recapitalization, Blackstone owned 89% and Borden retained 11% of
the outstanding BDPH Common Stock (the 'Common Stock').
6
<PAGE>
THE IMPERIAL ACQUISITION
The principal components of the Imperial Acquisition were:
o The acquisition of all the outstanding capital stock of Imperial U.S. by
BDPH;
o The acquisition of substantially all the assets and liabilities of
Imperial Canada by a wholly owned subsidiary of BDPH;
o The payment by BDPH to C&A of the cash purchase price for the Imperial
Acquisition of $71.2 million, subject to adjustment as described in the
Imperial Acquisition Agreement; and
o The grant to C&A by BDPH of an option (the 'C&A Option') to purchase
newly issued shares of BDPH's Common Stock equal to 6.7% of BDPH's Common
Stock outstanding as of the Closing. See 'The Transactions--Imperial
Acquisition.'
At the time of the Closing, affiliates of Blackstone held approximately 40%
of the outstanding common stock of C&A. C&A is a manufacturer of component parts
and systems for the automotive industry and its common stock is traded on the
New York Stock Exchange. The Imperial Acquisition was approved by a committee
comprised solely of independent directors of C&A.
Following the Recapitalization and the Imperial Acquisition, BDPH changed
its name to 'The Imperial Home Decor Group Inc.'
THE FINANCINGS
The Recapitalization, the Imperial Acquisition and the payment of related
fees and expenses has been financed by: (i) The Equity Contribution, (ii) the
initial borrowings under the Senior Credit Facilities; and (iii) the Initial
Offering. The Senior Credit Facilities have been provided under the Credit
Agreement by a group of lenders led by The Chase Manhattan Bank, an affiliate of
one of the Initial Purchasers. See 'Description of Senior Credit Facilities.'
There will be no proceeds to the Company from the exchange of Old Notes
pursuant to the Exchange Offer. Upon the consummation of the Recapitalization,
the proceeds from the Initial Offering of $125.0 million were used, together
with the initial borrowings under the Senior Credit Facility as follows: (i)
approximately $309.5 million was paid to existing BDPH stockholders in
connection with the Merger (a purchase price adjustment of $3.5 million was paid
subsequent to the Closing), (ii) approximately $71.2 million was paid pursuant
to the Imperial Acquisition, comprising $58.0 million cash purchase price plus
an estimated $13.2 million purchase price adjustment at the Closing (an
additional $1.6 million was paid subsequent to the Closing), (iii) approximately
$24.3 million was used to fund costs and expenses associated with the
Recapitalization and (iv) approximately $2.6 million was retained as excess
cash.
The following table sets forth a summary of the sources and uses of funds
associated with the Transactions.
<TABLE>
<CAPTION>
AMOUNT
(IN MILLIONS)
<S> <C>
Sources of Funds:
Revolving Credit Facility............................................ $ --
Term loans........................................................... 198.0
Senior subordinated notes............................................ 125.0
Equity contribution and retained equity(1)........................... 95.0
-------------
Total............................................................. $ 418.0
-------------
-------------
Use of Funds:
Merger consideration(2).............................................. $ 309.5
Imperial acquisition(3).............................................. 71.2
Equity retained by Borden............................................ 10.4
Transaction fees and expenses........................................ 24.3
Excess cash.......................................................... 2.6
-------------
Total............................................................. $ 418.0
-------------
-------------
</TABLE>
(Footnotes on next page)
7
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Includes the Equity Contribution of $84.6 million in cash by Blackstone and
the retained equity interest of Borden ($10.4 million based upon the per
share amount paid by Blackstone for the Company's Common Stock in the
Merger.)
(2) Represents the cash consideration paid to the existing BDPH stockholders of
$309.5 million in connection with the Merger. Subsequent to the Closing, a
purchase price adjustment of $3.5 million was paid, which is based on the
difference between BDPH's net working capital on the Closing and a target
working capital described in the Recapitalization Agreement.
(3) Represent the Imperial Acquisition cash purchase price of $58.0 million plus
the estimated purchase price adjustment of $13.2 million based on actual
cash balances as of the Closing and Imperial's net cash flows (as defined in
the Imperial Acquisition Agreement) between November 2, 1997 and the
Closing. Subsequent to the Closing, an additional purchase price of
adjustment of $1.6 million was paid.
EQUITY INVESTORS
89% of the Company's Common Stock is held by Holdings and 11% of the
Company's Common Stock is held by Borden. C&A has the right, pursuant to the C&A
Option, to purchase newly issued shares of the Company's Common Stock equal to
6.7% of the Company's Common Stock outstanding as of the Closing. All of
Holdings's equity securities are held by Blackstone. Holdings was organized in
December 1997 for the purpose of consummating the Recapitalization.
Blackstone is a private investment bank based in New York and founded in
1985 by Peter G. Peterson, its current Chairman, and Stephen A. Schwarzman, its
current President and Chief Executive Officer. Blackstone's main businesses
include private equity investments, merger and acquisition advisory services,
restructuring advisory services, real estate investing and asset management. The
firm's primary private equity investment vehicle is Blackstone Capital Partners
III Merchant Banking Fund L.P. ('BCP III'), which had its final closing in
October 1997 and has approximately $3.8 billion of committed equity capital. BCP
III is the successor to Blackstone Capital Partners II Merchant Banking Fund
L.P. ('BCP II'), which was established in 1993 with approximately $1.3 billion
of committed equity capital, substantially all of which has been invested.
Beginning with Blackstone Capital Partners I Merchant Banking Fund L.P. in 1987,
Blackstone has invested approximately $2.2 billion of equity in 30 transactions
having an aggregate transaction value of approximately $19.0 billion.
Blackstone is not and will not be a party to any agreement relating to the
Recapitalization, the Imperial Acquisition, the Senior Credit Facilities, the
sale of the Notes or any related transaction. While Blackstone made the Equity
Contribution, in no event will Blackstone have any obligation or liability to
contribute additional equity capital or to provide other credit support to the
Company and Blackstone will not be liable for any loss, damage or other amounts
arising directly or indirectly in respect of the Exchange Notes or any other
obligation or liability of the Company or any of its subsidiaries.
8
<PAGE>
CORPORATE ORGANIZATION
The following chart depicts the current ownership structure of the Company
and its primary operating subsidiaries.
--------------
| Blackstone |
-------------
|
| 100%
-------------- -----------
| Holdings | | Borden |
------------- -----------
| |
| 89% | 11%
- -----------------------------------------------------------------------------
| The Company |
| (The Imperial Home Decor Group Inc.; |
| formerly Borden Decorative Products Holdings, Inc.)* |
| . Issuer of the Notes |
| . Borrower under the Senior Credit Facilities |
- -----------------------------------------------------------------------------
|
-------------------------------|--------------------------
| | |
- --------------------------------- ------------------------ -------------------
| Imperial Home Decor || U.S. and Canadian | | |
|Group Holdings I Limited (UK)** ||operating subsidiaries**| |Vernon Plastics**|
- --------------------------------- ------------------------- --------------------
|
- ----------------------------------
| Imperial Home Decor |
|Group Holdings II Limited (UK)**|
- ----------------------------------
|
- ----------------------------------
| UK operating |
| subsidiaries |
- ----------------------------------
- -----------------
* C & A will also have an option to acquire newly issued shares of the
Company's Common Stock equal to 6.7% of the Company's Common Stock
outstanding as of the closing.
** Imperial Home Decor Group Holdings I Limited, Vernon Plastics and the U.S.
operating subsidiaries are Subsidiary Guarantors.
9
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer........................ $1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of Old Notes. As of the date hereof, $125,000,000
aggregate principal amount of Old Notes are outstanding. The Company
will issue the Exchange Notes on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the Commission set forth
in no-action letters issued to third parties, the Company believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such holder which
is an 'affiliate' of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that
such Exchange Notes are acquired in the ordinary course of such
holder's business and that such holder does not intend to participate
and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Each holder
accepting the Exchange Offer is required to represent to the Company
in the Letter of Transmittal that, among other things the Exchange
Notes will be acquired by the holder in the ordinary course of
business and the holder does not intend to participate and has no
arrangement or understanding with any person to participate in the
distribution of such Exchange Notes.
Any Participating Broker Dealer that acquired Old Notes for its own
account as a result of market making activities or other trading
activities may be a statutory underwriter. Each Participating Broker
Dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker Dealer will not be deemed to admit
that it is an 'underwriter' within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating Broker Dealer as a
result of market making activities or other trading activities. The
Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any
Participating Broker Dealer for use in connection with any such
resale. See 'Plan of Distribution.'
Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution
of the Exchange Notes cannot rely on the position of the staff of the
Commission enunciated in no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
resale transaction. Failure to comply with such requirements in such
instance may result in such holder incurring
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
liability under the Securities Act for which the holder is not
indemnified by the Company.
Expiration Date........................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer is extended, in which
case the term 'Expiration Date' means the latest date and time to
which the Exchange Offer is extended.
Accrued Interest on the Exchange Notes and
the Old Notes........................... Each Exchange Note will bear interest from its issuance date. Holders
of Old Notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the issuance date of
the Exchange Notes. Such interest will be paid with the first
interest payment on the Exchange Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the
Exchange Notes.
Conditions to the Exchange Offer.......... The Exchange Offer is subject to certain customary conditions, which
may be waived by the Company. See 'The Exchange Offer--Conditions.'
Procedures for Tendering Old Notes........ Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the accompanying Letter of Transmittal, or a
facsimile thereof or transmit an Agent's Message (as defined herein)
in connection with a book-entry transfer, in accordance with the
instructions contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, such facsimile or such Agent's
Message, together with the Old Notes and any other required
documentation to the Exchange Agent (as defined herein) at the
address set forth herein. By executing the Letter of Transmittal or
Agent's Message, each holder will represent to the Company that,
among other things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business
of the person receiving such Exchange Notes, whether or not such
person is the holder, that neither the holder nor any such other
person (i) has any arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (ii) is
engaging in or intends to engage in the distribution of such Exchange
Notes, or (iii) is an 'affiliate,' as defined under Rule 405 of the
Securities Act, of the Company. See 'The Exchange Offer-- Purpose and
Effect of the Exchange Offer' and '--Procedures for Tendering.'
Untendered Old Notes...................... Following the consummation of the Exchange Offer, holders of Old
Notes eligible to participate but who do not tender their Old Notes
will not have any further exchange rights and such Old Notes will
continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be
adversely affected.
Consequences of Failure to Exchange ...... The Old Notes that are not exchanged pursuant to the Exchange Offer
will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to some other exemption
under the Securities Act, (iii) outside the United States to a
foreign person pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration
statement
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
under the Securities Act. See 'The Exchange Offer--Consequences of
Failure to Exchange.'
Shelf Registration Statement.............. If (i) because of any change in law or applicable interpretations
thereof by the Commission's staff the Company is not permitted to
effect the Exchange Offer, or (ii) any Old Notes validly tendered
pursuant to the Exchange Offer are not exchanged for Exchange Notes
within 210 days after the Issue Date, or (iii) any Initial Purchaser
so requests with respect to Old Notes or notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer and held by it
following the consummation of the Exchange Offer, or (iv) any
applicable law or interpretations do not permit any holder to
participate in the Exchange Offer, or (v) any holder that
participates in the Exchange Offer does not receive freely
transferable Exchange Notes in exchange for tendered Old Notes, or
(vi) the Company so elects, then the Company and the Subsidiary
Guarantors are required to use their reasonable best efforts to file
as promptly as practicable (but in no event more than 120 days after
the Issue Date) with the Commission and thereafter to use their
reasonable best efforts to cause to be declared effective (but in no
event more than 180 days after the Issue Date), a shelf registration
statement on an appropriate form under the Securities Act relating to
the offer and sale of the Old Notes by the holders thereof from time
to time in accordance with the methods of distribution set forth in
such registration statement (the 'Shelf Registration Statement' and,
together with any Exchange Offer Registration Statement, a
'Registration Statement') and the Company and the Subsidiary
Guarantors are required to use their reasonable best efforts to keep
the Shelf Registration Statement continuously effective in order to
permit the prospectus forming part thereof to be used by holders of
Transfer Restricted Securities (as defined) for a period ending on
the earlier of (a) two years from the Issue Date or such shorter
period that will terminate when all the Transfer Restricted
Securities covered by the Shelf Registration Statement have been sold
pursuant thereto and (b) the date on which the Old Notes become
eligible for resale without volume restrictions pursuant to Rule 144
under the Securities Act. See 'The Exchange Offer.'
Acceptance of Old Notes and Delivery of
Exchange Notes.......................... The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly following the
Expiration Date. See 'The Exchange Offer--Terms of the Exchange
Offer.'
Use of Proceeds........................... There will be no cash proceeds to the Company from the exchange
pursuant to the Exchange Offer.
Exchange Agent............................ The Bank of New York (the 'Exchange Agent').
</TABLE>
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider all the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under 'Risk Factors' beginning on page 17 for certain factors
that should be considered in connection with tendering the Old Notes in exchange
for the Exchange Notes.
GENERAL INFORMATION
The Company is a Delaware corporation. The Company's principal offices are
located at 23645 Mercantile Road, Cleveland, Ohio 44122, and its telephone
number is (216) 464-3700. The other registrants' names, jurisdictions of
incorporation, principal offices and addresses are as follows:
<TABLE>
<CAPTION>
JURISDICTION OF ADDRESS AND TELEPHONE NUMBER
NAME INCORPORATION OF PRINCIPAL EXECUTIVE OFFICE
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Vernon Plastics, Inc. Delaware Shelley Road--Ward Hill
P.O. Box 8248
Haverhill, MA 01835
(978) 373-1551
WDP Investments, Inc. Delaware 23645 Mercantile Road
Cleveland, OH 44122
(216) 464-3700
Marketing Service, Inc. Delaware 23645 Mercantile Road
Cleveland, OH 44122
(216) 464-3700
The Imperial Home Decor Delaware 23645 Mercantile Road
Group (US) LLC Cleveland, OH 44122
(216) 464-3700
Imperial Home Decor UK Belgrave Mills
Group Holdings I Limited Belgrave Road
Limited Darwen, Lancashire BB3 2RR
U.K.
44-1254-870-700
</TABLE>
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
AND OTHER FINANCIAL INFORMATION
FOR THE IMPERIAL HOME DECOR GROUP INC.
The following table sets forth summary unaudited pro forma operating and
other data and other financial information (including selected ratio) of the
Company for the year ended December 31, 1997 and the six months ended June 27,
1998 as if the Transactions occurred on January 1, 1997. The information
presented below should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the consolidated
financial statements and notes included elsewhere herein. The unaudited pro
forma financial data and other financial information set forth below are not
necessarily indicative of the results that would have been achieved had such
Transactions been consummated as of the date indicated or that may be achieved
in the future. See 'Unaudited Pro Forma Combined Financial Information' and
'Business--North American Integration Plan.'
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 27, 1998
----------------- ------------------
<S> <C> <C>
PRO FORMA OPERATING DATA:
Net sales................................................................ $ 536.5 $248.0
Cost of goods sold....................................................... 348.6 161.0
------- -------
Gross margin............................................................. 187.9 87.0
Selling, general and administrative expenses............................. 170.6 85.7
Restructuring charges and other integration costs........................ -- 7.3
------- -------
Operating income (loss).................................................. 17.3 (6.0)
Other (income) expense, net.............................................. (0.7) 0.7
Interest expense, net.................................................... 33.7 16.9
------- -------
Income (loss) before income taxes........................................ (15.7) (23.6)
Income tax expense....................................................... 2.3 3.8
------- -------
Net loss................................................................. $ (18.0) $(27.4)
------- -------
------- -------
PRO FORMA OTHER DATA:
Cash flows from (used in):
Operating activities................................................... $ (20.1) $(43.2)
Investing activities................................................... (29.6) (83.7)
Financing activities................................................... 25.5 119.1
Depreciation and amortization(2)......................................... 14.1 8.9
Capital expenditures(3).................................................. 29.2 11.5
Product development expenditures(4)...................................... 40.0 24.2
EBITDA, As Defined(5).................................................... 32.6 15.2
Cash interest expense, net............................................... 31.1 15.7
OTHER FINANCIAL INFORMATION:
Adjusted EBITDA(6)....................................................... 61.2 --
Ratio of Adjusted EBITDA to cash interest expense(1)..................... 2.0 --
</TABLE>
- ------------------
(1) Cash interest expense does not include interest expense related to
additional indebtedness that the Company may incur.
(2) Depreciation and amortization excludes amortization of sample book and
design and engraving costs of $33.5 million and $14.8 million, but includes
amortization of cylinder bases of $0.9 million and $0.4 million for the year
ended December 31, 1997 and the six months ended June 27, 1998,
respectively.
(3) Capital expenditures does not include expenditures for product development.
See note (4).
(Footnotes continued on next page)
14
<PAGE>
(Footnotes continued from previous page)
(4) Product development expenditures include expenditures related to sample
books and design and engraving costs, but exclude expenditures related to
cylinder bases.
(5) EBITDA, As Defined, represents earnings before net interest expense, income
taxes, depreciation and amortization expense (excluding amortization of
product development expenditures), restructuring charges and other
integration costs, merger and other transaction costs (including monitoring
fees) and other non-cash charges as described below. EBITDA, As Defined,
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with United States generally accepted accounting
principles ('GAAP') or as a measure of profitability or liquidity. EBITDA,
As Defined, is included in this Prospectus to provide additional information
with respect to the ability of the Company to satisfy its debt service,
capital expenditure and working capital requirements and because certain
covenants in the Company's borrowing arrangements are tied to similar
measures. While EBITDA-based measures are frequently used as measures of
operations and the ability to meet debt service requirements, they are not
necessarily comparable to other similarly titled captions of other companies
due to differences in methods of calculation. The calculation of pro forma
EBITDA, As Defined, is shown below:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 27, 1998
----------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net loss................................................ $ (18.0) $(27.4)
Adjustments:
Interest expense (income), net........................ 33.7 16.9
Income tax expense.................................... 2.3 3.8
Depreciation and amortization......................... 14.1 8.9
------- -------
32.1 2.2
Restructuring charges and other integration
costs(a)........................................... -- 11.9
Non-cash charges relating to management options....... 0.5 0.7
Monitoring fee........................................ -- 0.4
------- -------
EBITDA, As Defined...................................... $ 32.6 $ 15.2
------- -------
------- -------
</TABLE>
- ------------------
(a) Other integration costs related to inventory write-downs for $4.6
million is reported with cost of goods sold and the balance of
$7.3 million is reported as restructuring charges and other
integration costs.
(6) 'Adjusted EBITDA' is shown below to reflect certain benefits that may result
from head count reductions and fixed cost savings anticipated to be fully
realized in 2000 as a result of the implementation of the Company's
Integration Plan as described in 'Business--Integration Plan.' During 1997,
the Company incurred $39.0 million of fixed costs and compensation expense
relating to facilities to be closed and positions to be eliminated.
Management estimates that these costs will be eliminated by the year 2000,
but will be partially offset by $10.4 million of incremental overhead costs,
primarily at the Company's Knoxville, Tennessee facility. Total net fixed
cost savings from the Integration Plan are estimated at $28.6 million for
2000, $18.0 million for 1999 and $5.0 million for 1998. The total capital
expenditures planned by the Company for 1998 and 1999 in North America,
substantially all of which are related to implementation of the Integration
Plan, are budgeted at approximately $40.0 million. The Company anticipates
making an aggregate of approximately $23.2 million of other cash
expenditures in 1998 and 1999 to implement the Integration Plan. The
following adjustments do not give effect to other improvements in
(Footnotes continued on next page)
15
<PAGE>
(Footnotes continued from previous page)
gross margin expected to result from the Integration Plan. See
'Business--North American Integration Plan--Additional Gross Margin
Effects.' Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
AMOUNT
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Pro forma EBITDA, As Defined.......................... $32.6
Rationalization of printing facilities................ 3.3
Rationalization of finishing facilities(a)............ 4.6
Paper making facility closing......................... 3.2
Rationalization of distribution facilities(b)......... 5.1
Elimination of selling, customer service and support
redundancies........................................ 12.4
------
Adjusted EBITDA....................................... $61.2
------
------
</TABLE>
- ------------------
(a) The amount shown is net of $2.5 million of estimated incremental costs
relating to the rationalization of finishing facilities.
(b) The amount shown is net of $7.9 million of estimated incremental costs
relating to the rationalization of distribution facilities.
Adjusted EBITDA contains forward looking estimates and is not intended to
represent pro forma financial information. The foregoing head count reductions
and fixed cost savings estimates are based on a number of estimates and
assumptions that, while considered reasonable in the aggregate by management of
the Company, are inherently uncertain. Accordingly, prospective investors are
cautioned not to place undue reliance on these estimates. See 'Forward Looking
Statements' and 'Risk Factors.'
16
<PAGE>
RISK FACTORS
An investment in the Exchange Notes involves a high degree of risk. Prior
to tendering Old Notes in exchange for Exchange Notes, prospective investors
should consider carefully all the information in this Prospectus and, in
particular, the following considerations.
SUBSTANTIAL LEVERAGE; LIQUIDITY; INABILITY TO MEET FIXED CHARGES
The Company incurred a significant amount of indebtedness in connection
with the Transactions. As of June 27, 1998, the Company's total indebtedness was
approximately $346.9 million (exclusive of unused commitments) and its
stockholders' deficiency was $77.3 million.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend upon its future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond its control.
The Company anticipates that its operating cash flow, together with borrowings
under the Senior Credit Facilities, will be sufficient to meet its operating
expenses, to fund its planned capital expenditures and acquisitions and to
service its debt obligations as they become due. If the Company is unable to
generate sufficient cash flow from operations in the future or borrow under the
Senior Credit Facilities in an amount sufficient to service its indebtedness and
to meet its other commitments, the Company will be required to adopt one or more
alternatives, such as refinancing or restructuring its indebtedness, selling
material assets or operations, reducing or delaying capital expenditures or
seeking to raise additional debt or equity capital. There can be no assurance
that any of these actions could be effected, or if they are effected, that they
could be effected on a timely basis or on satisfactory terms, or that these
actions would enable the Company to continue to satisfy its cash requirements.
In addition, the terms of existing or future debt agreements, including the
Credit Agreement and the Indenture, may prohibit the Company from adopting any
of these alternatives. The failure to generate sufficient cash flow, to make
such borrowings or to effect such alternatives could significantly adversely
affect the market value of the Exchange Notes and the Company's ability to pay
the principal of, and interest on, the Exchange Notes. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations,'
'Description of the Exchange Notes' and 'Description of the Senior Credit
Facilities.'
The degree to which the Company will be leveraged could have important
consequences to holders of the Exchange Notes, including: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to debt
service and will not be available for operations and other business purposes;
(ii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, general corporate purposes or
acquisitions may be impaired; (iii) the Company's level of indebtedness could
limit its flexibility in reacting, and increase its vulnerability, to changes in
the industry, competitive pressures and economic conditions generally; (iv) the
Credit Agreement and the Indenture contain financial and restrictive covenants
with which the failure to comply would result in an event of default which, if
not cured or waived, could have a material adverse effect on the Company; (v)
the Company will be substantially more leveraged than certain of its
competitors, which may place the Company at a competitive disadvantage; (vi)
certain indebtedness under the Senior Credit Facilities will be at variable
rates of interest, which could result in higher interest expense in the event of
increases in interest rates; and (vii) the indebtedness outstanding under the
Senior Credit Facilities will be secured by assets of the Company and the
Subsidiary Guarantors and will mature prior to the maturity of the Exchange
Notes. In addition, the degree to which the Company is leveraged could prevent
it from repurchasing all the Exchange Notes tendered to it upon the occurrence
of a Change of Control. See '--Possible Inability to Repurchase Exchange Notes
Upon Change of Control' and 'Description of the Exchange Notes--Change of
Control.'
After giving pro forma effect to the Transactions, the Company's earnings
for the year ended December 31, 1997, and for the six months ended June 27,
1998, were insufficient to cover fixed charges by approximately $15.7 million
and $23.6 million, respectively. Accordingly, the Company will need to improve
operating results in order to meet its debt service obligations, including its
obligations under the Exchange Notes. While the Company has adopted a strategic
plan to improve its results of operations (see 'Business--North American
Integration Plan' and '--Business Strategy'), the ability of the Company to
improve its operating performance
17
<PAGE>
and financial results will depend upon economic, financial, competitive and
other factors beyond its control, including general economic conditions.
SUBORDINATION; UNSECURED STATUS OF EXCHANGE NOTES AND SUBSIDIARY GUARANTEES
The Exchange Notes will be general unsecured obligations of the Company
that will be subordinated in right of payment to all existing and future Senior
Indebtedness. The Subsidiary Guarantees will be general unsecured obligations of
the Subsidiary Guarantors that will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Subsidiary Guarantors. As of June
27, 1998, on a pro forma basis after giving effect to the Transactions, (i) the
aggregate outstanding amount of all Senior Indebtedness of the Company was
$221.9 million (exclusive of unused commitments), all of which was Secured
Indebtedness, and (ii) the Subsidiary Guarantors had no Senior Indebtedness
outstanding (exclusive of guarantees of the Senior Credit Facilities). Although
the Indenture contains limitations on the amount of additional indebtedness
which the Company and its subsidiaries may incur, under certain circumstances
the amount of such indebtedness could be substantial and such indebtedness could
be Senior Indebtedness. Consequently, in the event of a bankruptcy, liquidation,
reorganization or similar proceeding with respect to the Company, the assets of
the Company will be available to pay obligations on the Exchange Notes only
after all then-outstanding Senior Indebtedness has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all the
Exchange Notes. In addition, under certain circumstances, the Company may not
pay principal or premium, or liquidated damages, if any, or interest on the
Exchange Notes if any Senior Indebtedness is not paid when due or any other
default on any Senior Indebtedness exists. Substantially similar provisions are
applicable to the Subsidiary Guarantees. The Exchange Notes and the Subsidiary
Guarantees are also unsecured and thus, in effect, will rank junior to any
Secured Indebtedness of the Company, the Subsidiary Guarantors or any of the
Company's other subsidiaries to the extent of the value of the assets securing
such indebtedness. The indebtedness outstanding under the Senior Credit
Facilities will be secured by liens on assets of the Company and the Subsidiary
Guarantors. The Non-Guarantor Subsidiaries will be permitted to borrow under the
Revolving Credit Facility and to provide guarantees of borrowings made by other
Non-Guarantor Subsidiaries. In addition, under certain circumstances, the
Subsidiary Guarantee provided by any Subsidiary Guarantor could be set aside
under fraudulent conveyance or similar laws. See '--Fraudulent Transfer
Considerations' and '--U.K. Insolvency Law and Other Considerations.' In any
such case, the Exchange Notes would be effectively subordinated to all
liabilities of such Subsidiary Guarantor, including trade payables. In addition,
the Exchange Notes will be effectively subordinated to all liabilities,
including trade payables, of any Non-Guarantor Subsidiary. See 'Description of
the Exchange Notes' and 'Description of the Senior Credit Facilities.'
The Indenture permits the Company and the Subsidiary Guarantors to incur
certain Secured Indebtedness, including indebtedness under the Senior Credit
Facilities, which will be secured by liens on the assets of the Company and the
Subsidiary Guarantors. The Exchange Notes and the Subsidiary Guarantees are
unsecured and therefore do not have the benefit of such collateral. Accordingly,
if an event of default occurs under any Secured Indebtedness, including the
Senior Credit Facilities, the lenders thereunder may foreclose upon such
collateral to the exclusion of the holders of the Exchange Notes,
notwithstanding the existence of an event of default with respect to the
Exchange Notes. In such event, such assets would first be used to repay in full
such Secured Indebtedness, including the Senior Credit Facilities, resulting in
all or a portion of the Company's and the Subsidiary Guarantors' assets being
unavailable to satisfy the claims of the holders of the Exchange Notes and the
other unsecured indebtedness of the Company and the Subsidiary Guarantors.
RESTRICTIONS IMPOSED BY DEBT COVENANTS
The Credit Agreement and the Indenture impose certain operating and
financial restrictions on the Company. The Credit Agreement requires the Company
to comply with certain financial covenants, including: (i) a minimum interest
coverage ratio and (ii) a maximum net leverage ratio. In addition, the Credit
Agreement and/or the Indenture contain certain covenants with respect to the
Company and its Restricted Subsidiaries that will restrict, among other things,
the ability to (i) pay dividends and make distributions on, or repurchase or
redeem, capital stock or indebtedness; (ii) prepay or repay certain
indebtedness; (iii) incur certain liens and engage in sale/leaseback
transactions; (iv) make certain capital expenditures; (v) make certain loans and
investments; (vi) incur certain indebtedness and guarantees and other contingent
obligations; (vii) engage in
18
<PAGE>
certain mergers, consolidations, acquisitions and asset sales; (viii) enter into
certain transactions with affiliates; (ix) make certain changes in their lines
of business; (x) amend certain debt and other material agreements; and (xi) pay
certain fees to Blackstone and its affiliates. The aforementioned covenants will
be subject to certain materiality concepts and baskets and other exceptions to
be set forth in the definitive loan documentation and could be modified or
waived by action of the lenders. The Company will also be required to maintain
certain interest/exchange rate protection agreements satisfactory to the
Administrative Agent for the lenders under the Credit Agreement. A breach of any
of these covenants could result in a default under the Credit Agreement and/or
the Indenture. Upon the occurrence of an event of default under the Credit
Agreement, depending upon the actions taken by the lenders thereunder, the
Company could be prohibited from making any payments of principal of, or
interest on, the Exchange Notes. In addition, such lenders could elect to
declare all amounts outstanding under the Credit Agreement, together with
accrued and unpaid interest, to be immediately due and payable. If the Company
were unable to repay any such amounts, such lenders could proceed against the
collateral securing such indebtedness. If the lenders under the Credit Agreement
accelerate the payment of such indebtedness, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness and
the other indebtedness of the Company, including the Exchange Notes. See
'Description of the Exchange Notes--Certain Covenants' and 'Description of the
Senior Credit Facilities.'
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION
The Company is a holding company the principal assets of which are the
capital stock of its operating subsidiaries. As a holding company, the Company
is dependent on dividends or other intercompany transfers of funds from its
subsidiaries to meet the Company's debt service and other obligations. Claims of
creditors of the Company's subsidiaries will generally have priority as to the
assets of such subsidiaries over claims of the Company.
Although the Subsidiary Guarantees provide the holders of the Exchange
Notes with a direct claim against the assets of the Subsidiary Guarantors,
enforcement of the Subsidiary Guarantees against any Subsidiary Guarantor may be
subject to legal challenge in a bankruptcy or reorganization case or a lawsuit
by or on behalf of creditors of such Subsidiary Guarantor and would be subject
to certain defenses available to guarantors generally. See '--Fraudulent
Transfer Considerations' and '--U.K. Insolvency Law and Other Considerations.'
To the extent that the Subsidiary Guarantees are not enforceable, the Exchange
Notes would be effectively subordinated to all liabilities of the Subsidiary
Guarantors, including trade payables of the Subsidiary Guarantors, whether or
not such liabilities constitute Senior Indebtedness under the Indenture. In any
event, the Exchange Notes will be effectively subordinated to all liabilities of
the Non-Guarantor Subsidiaries, including borrowings under the Revolving Credit
Facility. The Non-Guarantor Subsidiaries generated, on a pro forma basis, 48.7%
of the Company's net sales and substantially all the Company's total
consolidated pro forma net income and EBITDA, As Defined, for the year ended
December 31, 1997. See Note 14 to 'Borden Decorative Products Holdings, Inc.
Combined Financial Statements.' As of June 27, 1998, after giving effect to the
Transactions, (i) the Company had $221.9 million aggregate principal amount of
Senior Indebtedness outstanding (exclusive of unused commitments), all of which
was Secured Indebtedness, (ii) the Company had no Pari Passu Indebtedness
outstanding other than the Old Notes and no Subordinate Indebtedness, (iii) the
Subsidiary Guarantors had no Senior Indebtedness outstanding (exclusive of
guarantees of the Senior Credit Facilities), (iv) the Subsidiary Guarantors had
no Pari Passu Indebtedness outstanding (exclusive of the Subsidiary Guarantees),
no Subordinate Indebtedness and total liabilities (excluding indebtedness and
liabilities owed to the Company or any Subsidiary Guarantor) of $55.9 million,
and (v) the Non-Guarantor Subsidiaries had total liabilities (excluding
liabilities owed to the Company or any Subsidiary Guarantor) of $85.9 million.
The preceding sentence describes all of the Indebtedness of the Company and the
Subsidiary Guarantors outstanding as of June 27, 1998. As of June 27, 1998, the
Indebtedness of the Company included $221.9 million aggregate principal amount
outstanding under the Senior Credit Facilities and the Company had an additional
$78.1 million aggregate principal amount available for borrowing under the
Senior Credit Facilities, subject to certain conditions, which will be secured
by the assets of the Company and the Subsidiary Guarantors, and will mature
prior to the maturity of the Exchange Notes. See 'Description of the Exchange
Notes' and 'Description of the Senior Credit Facilities.'
19
<PAGE>
In addition, the payment of dividends to the Company by its subsidiaries is
contingent upon the earnings of those subsidiaries and subject to various
business considerations. The Indenture permits restrictive loan covenants to be
contained in the instruments governing the indebtedness of such subsidiaries,
including covenants that restrict in certain circumstances the payment of
dividends and distributions and the transfer of assets to the Company. See 'The
Senior Credit Facilities' and 'Description of the Exchange Notes--Certain
Covenants--Dividend and Other Payment Restrictions Affecting Subsidiaries.'
INTEGRATION OF IMPERIAL, IMPLEMENTATION OF BUSINESS STRATEGY AND LIMITED
RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The Company and Imperial have historically operated independently, and the
success of the Company will depend in large part upon the Company's ability to
successfully implement its business strategy, particularly those components
involving its Integration Plan and the rationalization of the Company's North
American operations. See 'Business--North American Integration Plan.' The
integration of Imperial entails the reorganization of certain functions to
achieve the cost savings and to realize the full potential of the business
opportunities management believes are available to the Company. There can be no
assurance that the Company will be able to successfully integrate Imperial or
achieve such cost savings or that the Company will not encounter delays or incur
unanticipated costs in such integration. In connection with the integration of
Imperial into the Company, certain administrative functions historically
performed by Borden and C&A will continue to be performed by Borden and C&A
pursuant to transition services agreements for a period, in the case of Borden,
until March 13, 1999 and, in the case of C&A, until March 13 of 1999 or 2000
depending upon the service. See 'Certain Transactions--Transition Services
Agreements.' There can be no assurance that following the termination of the
transition services agreements the Company will be able to adequately perform
such administrative functions or obtain such services from third parties or, in
either case, at costs comparable to those historically incurred for such
services.
Implementation of the Company's business strategy (see 'Business--Business
Strategy'), including the integration of Imperial, could be affected by a number
of factors beyond the Company's control, such as operating difficulties,
increased operating costs, regulatory developments, general economic conditions
or increased competition. In addition, after gaining experience with the
Company's operations under its new strategy, the Company may decide to alter or
discontinue certain lines of business or aspects of its strategy. Any such
failure to implement its new strategy may adversely affect the Company's ability
to service its indebtedness, including its ability to make principal and
interest payments on the Exchange Notes.
The Company has reflected in Adjusted EBITDA, certain anticipated benefits
that may result from the operating improvements and cost reduction measures
anticipated as a result of the implementation of the Company's Integration Plan.
The anticipated benefits reflected in Adjusted EBITDA set forth in this
Prospectus are based on a number of estimates and assumptions that, while
considered reasonable by the Company, are inherently uncertain. Accordingly,
prospective investors are cautioned not to place undue reliance on these
estimates. See 'Summary Unaudited Pro Forma Financial Data,' 'Unaudited Pro
Forma Combined Financial Information,' 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and 'Business--North American
Integration Plan.'
The Company operates the businesses of IHDG and Imperial on a combined
basis under a new corporate structure and a new capital structure and has
accounted for the Imperial Acquisition using the purchase method of accounting
under which Imperial's results of operations were included in the Company's
results of operations from the date of Closing. Accordingly, the historical
financial information of IHDG and Imperial presented in this Prospectus is of
limited relevance in understanding what the results of operations, financial
position or cash flows of the Company would have been for the historical periods
presented had the Recapitalization and Imperial Acquisition been consummated and
had the Company owned all of its subsidiaries for such periods. See '--History
of Net Losses,' 'Unaudited Pro Forma Combined Financial Information,' 'Selected
Historical Financial Information--IHDG,' 'Selected Historical Financial
Information--Imperial,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and 'Certain Transactions.'
20
<PAGE>
COMPETITION
The residential wallcovering industry in North America and Western Europe
is highly competitive. The Company competes not only with other manufacturers
and distributors of wallcoverings, but with manufacturers and distributors of
wall paints as well. Particularly in the North American market, sales growth of
wall paints has out paced that of sidewall wallcoverings primarily due to a
perceived greater ease of application. The residential wallcoverings industry
outside of North America and Western Europe is highly fragmented and consists
mainly of local manufacturers. Some of the Company's competitors may have
greater financial resources available to them and are substantially less
leveraged than the Company.
The Company believes that the principal bases of competition in the
residential market are design, style, color coordination, service and price. In
particular, service level and price are important factors, especially among the
Company's customers in the Chain Store segment, and the Company's results of
operations could be adversely affected by increasing competition in this
segment. Management believes that the Company's ability to achieve high service
levels for in-store merchandizing, long-standing relationships with the leading
Chain Stores and willingness to invest in retailer initiatives are important
competitive advantages that have enabled it to maintain its strong position in
the Chain Store segment. No assurance can be given, however, that the Company's
results of operations will not be adversely affected by increasing competition.
CONTROL BY BLACKSTONE
Blackstone, through Holdings, owns 89% of the Company's Common Stock and,
accordingly, controls the policies and operations of the Company. There can be
no assurance that the interests of Blackstone will not conflict with the
interests of the holders of the Exchange Notes. See 'Summary--Equity Investors'
and 'Security Ownership.'
HISTORY OF NET LOSSES
Imperial suffered net losses in each of fiscal 1993, 1994, 1995, 1996 and
1997 and the two and a half months ended March 13, 1998 of $25.0 million, $0.8
million, $34.7 million, $27.9 million, $37.5 million and $10.3 million,
respectively. Management believes that Imperial's financial performance over
this period is largely attributable to underutilized manufacturing capacity and
an ineffective operating strategy implemented by prior management teams. On a
pro forma basis, the Company would also have suffered net losses before the
cumulative effect of the change in accounting policies during the year ended
December 31, 1997 and the six months ended June 27, 1998 of $18.0 million and
$27.4 million, respectively. In addition, Imperial has historically experienced
and, on a pro forma basis for the year ended December 31, 1997 and the six
months ended June 27, 1998, the Company would have experienced, negative cash
flow from operations. The net cash used in operating activities by Imperial for
the 12 months ended December 31, 1997 and the two and a half months ended March
13, 1998 was $25.6 million and $16.9 million, respectively. On a pro forma
basis, the Company would have experienced negative cash flow from operations for
the year ended December 31, 1997 and the six months ended June 27, 1998 of $20.1
million and $43.2 million, respectively. Management believes that the
competitive strengths and business strategy of the Company as well as the
operating improvements expected to result from the implementation of the
Integration Plan will enable the Company to operate profitably and to generate
sufficient cash flow to satisfy the Company's interest and principal payment
obligations and other capital needs. There can be no assurance, however, that
the Company will achieve profitability in the future or be able to generate cash
flow sufficient to meet its interest and principal payment obligations and other
capital needs. See '--Integration of Imperial, Implementation of Business
Strategy and Limited Relevance of Historical Financial Information' and
'Unaudited Pro Forma Combined Financial Information.'
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has significant operations outside the United States and sells
its products in over 60 countries. The Company's operations outside North
America contributed substantially all the Company's total consolidated net
income and pro forma EBITDA, As Defined, for the year ended December 31, 1997.
The Company has three manufacturing facilities and two distribution facilities
located outside North America. In addition, a substantial majority of the
Company's operating income is generated by its operations outside North America.
Accordingly,
21
<PAGE>
the Company is subject to legal, economic and market risks associated with
operating in foreign countries, especially European Union countries, including
devaluations and fluctuations in currency exchange rates, imposition of
limitations on conversion of foreign currencies into dollars or remittance of
dividends and other payments by foreign subsidiaries, imposition or increase of
withholding and other taxes on remittances and other payments by foreign
subsidiaries, hyperinflation in certain foreign countries, imposition or
increase of investment and other restrictions by foreign governments, longer
payment cycles, greater difficulties in accounts receivable collection, the
necessity of paying import and export duties, difficulty of protecting
intellectual property and the requirement of complying with a wide variety of
foreign laws. Although such risks have not had a material adverse effect on
either IHDG or Imperial to date, no assurance can be given that such risks will
not have a material adverse effect on the Company in the future.
ADVERSE EFFECTS OF CERTAIN FOREIGN CURRENCY FLUCTUATIONS
In 1997, sales outside of North America represented approximately 33% of
the Company's pro forma net revenues and contributed substantially all the
Company's consolidated pro forma net income and EBITDA, As Defined, for the year
ended December 31, 1997. The Company expects that sales outside of North America
will continue to account for a significant portion of its net revenues, net
income and EBITDA, As Defined, in the future.
The Company coordinates substantially all of its exporting activities from
the U.K. The Company's policy is to denominate export shipments from the U.K. in
either pound sterling or local currencies according to agreements with local
customers. The operations outside North America generally sell products in local
or other foreign currencies, creating the risk that currency exchange rate
fluctuations could adversely affect their earnings. Foreign exchange gains and
losses are recorded as a charge against net income.
Since the Company also has substantial assets and liabilities denominated
in foreign currencies, there is a risk that fluctuations in exchange rates could
adversely affect its shareholders' equity (deficit) balance. Exchange gains or
losses on balance sheet items are taken directly into equity as a separate
component of shareholders' equity (deficit). At June 27, 1998, non-U.S.
subsidiaries of the Company, after giving effect to the Transactions, had
approximately $46.6 million in liabilities net of assets (excluding indebtedness
and liabilities owed to the Company) and, as of such date, the Company's
shareholders' deficit included accumulated foreign currency translation losses
of approximately $1.3 million.
Certain of the Company's subsidiaries currently engage in limited currency
hedging activities in order to reduce the risks associated with fluctuations in
currency exchange rates. These activities are limited to protection of sales
transactions with a known collection date that are in currency other than the
subsidiary's functional currency. The Company does not engage in hedging for
speculative purposes. There can be no assurance that any current or future
efforts to mitigate the possible adverse effects of foreign currency
fluctuations on the Company's foreign operations and its overall results of
operations will be successful.
RAW MATERIAL PRICE FLUCTUATIONS AND SUPPLY ARRANGEMENTS
The most significant raw materials used by the Company are paper, PVC
resins and plasticizers. Paper is ordered as needed by the various plants at
prices generally established under annual contracts. Paper is a commodity for
which cost and availability are determined by market factors. Historically paper
costs have represented approximately 32% of total cost of goods sold. The most
significant non-paper raw materials are PVC resin and plasticizers, which are
used in wallcoverings operations and by Vernon Plastics. PVC resin is available
to Vernon Plastics through a purchase agreement with Borden Chemical and
Plastics L.P. that provides for 'most favored nation' pricing. PVC resin and
plasticizers are supplied to the wallcoverings operations through short-term
contracts with third party suppliers. See 'Certain Transactions--PVC Supply
Agreement.' The overall supply of paper, PVC resin and plasticizers historically
has been adequate to meet the Company's needs and the Company has diversified
its suppliers so that it is not dependent on any single supply source. No
assurance can be given, however, that the Company will be able to secure
adequate supplies of these materials in the future on favorable terms or at all.
22
<PAGE>
CYCLICAL NATURE OF INDUSTRY
Usage of residential wallcoverings is predominantly influenced by
expenditures on home renovations, home sales and the redecoration requirements
of existing homeowners and, to a lesser extent, new home sales. Such activity is
cyclical and can be affected by the strength of the general economy, prevailing
interest rates and other factors that could lead to cost control measures and
reduced spending by purchasers or owners of residential property.
ENVIRONMENTAL MATTERS
The Company is subject to numerous laws and regulations in the various
jurisdictions in which it operates that (i) govern operations that may have
adverse environmental effects, such as discharges into air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii) impose
liability for response costs and certain damages resulting from past and current
spills, disposals or other releases of hazardous materials (together,
'Environmental Laws'). The Company believes that it currently conducts its
operations in compliance in all material respects with applicable Environmental
Laws. The Company's operations have in the past and may in the future result in
noncompliance with or liability for remediation pursuant to Environmental Laws.
See 'Business--Environmental Matters.' Environmental Laws have changed rapidly
in recent years, and the Company may be subject to more stringent Environmental
Laws in the future. Although environmental matters have not to date had a
material adverse effect on the results of operations or financial condition of
either IHDG or Imperial, there can be no assurance that such matters will not
have a material adverse effect on the Company's results of operations or
financial condition or that more stringent Environmental Laws will not be
enacted which could have a material adverse effect on the Company's results of
operations or financial condition. The Company currently estimates that it will
spend approximately $10.9 million during 1998 and 1999, of which approximately
$6.8 million will be spent, during 1998 to meet regulatory requirements
applicable to its U.K. and North American (including Vernon Plastics)
facilities, respectively.
POSSIBLE INABILITY TO REPURCHASE EXCHANGE NOTES UPON CHANGE OF CONTROL
A Change of Control could require the Company to refinance substantial
amounts of indebtedness. Upon a Change of Control, each holder of Exchange Notes
or Old Notes will have the right to require the Company to repurchase all or a
portion of such holder's Notes at a price equal to 101% of the aggregate
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of repurchase. However, the Credit Agreement will prohibit the Company
from purchasing any of the Notes in the event of a Change of Control unless and
until such time as the outstanding indebtedness under the Senior Credit
Facilities is repaid in full. Any future credit agreements or other agreements
relating to Senior Indebtedness to which the Company becomes a party may contain
similar restrictions and provisions. In the event of a Change of Control, there
can be no assurance that the Company would have sufficient financial resources
available to satisfy all its obligations under the Senior Credit Facilities and
the Notes. The Company's failure to repurchase the Notes would result in an
event of default under the Indenture and the Credit Agreement, each of which
could have adverse consequences for the Company and the holders of the Notes.
See 'Description of the Exchange Notes' and 'Description of the Senior Credit
Facilities.'
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence of indebtedness (such as the Notes) in connection with the
Transactions is subject to review under relevant federal and state fraudulent
conveyance and similar statutes in a bankruptcy or reorganization case or a
lawsuit by or on behalf of creditors of the Company. Under these statutes, if a
court were to find that obligations (such as the Notes) were incurred with the
intent of hindering, delaying or defrauding present or future creditors, that
the Company received less than a reasonably equivalent value or fair
consideration for those obligations and, at the time of the obligations, the
obligor either (i) was insolvent or rendered insolvent by reason thereof, (ii)
was engaged or was about to engage in a business or transaction for which its
remaining unencumbered assets constituted unreasonably small capital, or (iii)
intended to or believed that it would incur debts beyond its ability to pay such
debts as they matured or became due, such court could void or subordinate the
obligations in question.
23
<PAGE>
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair market value of its
assets or if the fair market value of its assets at that time is less than the
amount that would be required to pay its probable liability on its existing
debts as they become absolute and mature. The Company believes that, after
giving effect to the Transactions, it was (i) neither insolvent nor rendered
insolvent by the incurrence of indebtedness in connection with the Transactions,
(ii) in possession of sufficient capital to run its business effectively, and
(iii) incurring debts within its ability to pay as the same mature or become
due.
In addition, the Subsidiary Guarantees may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the Subsidiary Guarantors. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guarantees could also be
subject to the claim that, since the Subsidiary Guarantees were incurred for the
benefit of the Company (and only indirectly for the benefit of the Subsidiary
Guarantors), the obligations of the Subsidiary Guarantors thereunder were
incurred for less than reasonably equivalent value or fair consideration. A
court could void any of the Subsidiary Guarantors' obligations under the
Subsidiary Guarantees, subordinate the Subsidiary Guarantees to other
indebtedness of a Subsidiary Guarantor or take other action detrimental to the
holders of the Exchange Notes. See 'Description of the Exchange Notes' and
'Description of the Senior Credit Facilities.'
U.K. INSOLVENCY LAW AND OTHER CONSIDERATIONS
The procedural and substantive provisions of U.K. insolvency laws generally
are more favorable to secured creditors than comparable provisions of U.S. law
and afford debtors only limited protections from such creditors. As a result,
the ability of the holders of the Exchange Notes to realize upon their claims
against IHDG UK, the Subsidiary Guarantor organized in the U.K., may be more
limited than as against the Company or any other Subsidiary Guarantor in the
U.S. Under U.K. insolvency law, the liabilities of IHDG UK in respect of its
Subsidiary Guaranty will be paid in the event of an insolvency after certain
debts of such Subsidiary Guarantor which are entitled to priority under U.K.
law. Such debts may include all or a portion of (i) amounts owed to U.K. Inland
Revenue, (ii) amounts owed to U.K. Customs and Excise, (iii) amounts owed in
respect of U.K. Social Security contributions, (iv) amounts owed in respect of
certain retirement obligations, and (v) amounts owed to employees.
A liquidator or administrator of IHDG UK could apply to the court to
rescind the issuance of its Subsidiary Guaranty if such liquidator or
administrator believed that issuance of such Subsidiary Guaranty constituted a
transaction at an undervalue (which is similar to less than fair value), if such
Subsidiary Guarantor was insolvent at the time of, or in consequence of, the
transaction and enters into a liquidation or administration within two years of
the completion of the transaction. A transaction might be so challenged if it
involved a gift by IHDG UK or if IHDG UK received consideration of significantly
less value than the consideration given by it. A court generally will not
intervene, however, if such Subsidiary Guarantor entered into the transaction in
good faith and for the purpose of carrying on its business and there were
reasonable grounds for believing the transaction would benefit the company.
Management believes that the Subsidiary Guaranty of IHDG UK was provided in a
transaction at an undervalue and that the Subsidiary Guaranty of IHDG UK will be
provided in good faith and for the purpose of carrying on the business of such
Subsidiary Guarantor and its subsidiaries and that there are reasonable grounds
for believing that the transaction benefits such Subsidiary Guarantor. There can
be no assurance, however, that the provision of the Subsidiary Guaranty of IHDG
UK will not be challenged by a liquidator or administrator or that a court would
support management's analysis. See 'Description of the Exchange Notes.'
ABSENCE OF PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restriction on
transferability to the extent that they are not exchanged for Exchange Notes by
holders who are entitled to participate in this Exchange Offer. The holders of
Old Notes (other than any such holder that is an 'affiliate' of the Company
24
<PAGE>
within the meaning of Rule 405 under the Securities Act) who are not eligible to
participate in the Exchange Offer are entitled to certain registration rights,
and the Company is required to file a Shelf Registration Statement with respect
to such Old Notes. The Exchange Notes will constitute a new issue of securities
with no established trading market. The Company does not intend to list the
Exchange Notes on any national securities exchange or seek the admission thereof
to trading on The Nasdaq Stock Market Inc. or seek approval for quotation
through any automated quotation system. The Initial Purchasers have advised the
Company that they currently intend to make a market in the Exchange Notes, but
they are not obligated to do so and may discontinue such market making at any
time. In addition, such market making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during the
Exchange Offer and the pendency of the Shelf Registration Statement.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of the trading market
for the Exchange Note. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at discount from their
principal amount.
MECHANICS OF THE EXCHANGE
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tender of Old
Notes for exchange. In addition, any holder of Old Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities, and if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See 'Plan of Distribution.' See 'The Exchange Offer.'
FAILURE TO EXCHANGE
Old Notes that are not properly tendered in compliance with the terms of
the Exchange Offer will, following the consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof and,
upon consummation of the Exchange Offer, certain registration rights under the
Exchange and Registration Rights Agreement will terminate. To the extent that
Old Notes are tendered and accepted in the Exchange Offer, the trading market
for those Old Notes not exchanged in the Exchange Offer could be adversely
affected. See 'The Exchange Offer.'
25
<PAGE>
THE TRANSACTIONS
The Initial Offering was consummated on March 13, 1998 and was made in
conjunction with the other Transactions.
THE RECAPITALIZATION
Pursuant to the Recapitalization Agreement, (i) substantially all the
assets and liabilities of Sunworthy were transferred to a wholly owned
subsidiary of BDPH, The Imperial Home Decor Group (Canada) ULC, and (ii)
MergerCo was merged with and into BDPH and MergerCo's common stock was exchanged
for 89% of the Company's Common Stock outstanding as of the Closing. As a result
of the Merger, Holdings owns 89% of the Company's outstanding Common Stock and
the former stockholders of BDPH received cash Merger Consideration of $309.5
million. Subsequent to the Closing, a purchase price adjustment of $3.5 million
was paid and Borden retained approximately 11% of the Company's Common Stock
outstanding as of the Closing.
Prior to the Merger, Blackstone purchased all the equity interests in
Holdings, for an aggregate cash purchase price of $84.6 million and Holdings
purchased all the outstanding capital stock of MergerCo for an aggregate cash
purchase price of $84.6 million, which, as a result of the Merger, was
effectively contributed to BDPH.
The Merger was accounted for as a recapitalization of BDPH which has no
impact on the historical carrying value of BDPH's assets and liabilities.
IMPERIAL ACQUISITION
Pursuant to the Imperial Acquisition Agreement, BDPH acquired all the
outstanding common stock of Imperial U.S. and The Imperial Home Decor Group
(Canada) ULC acquired substantially all the assets and assumed substantially all
the liabilities of Imperial Canada. The purchase price for the Imperial
Acquisition was $71.2 million, comprised of $58.0 million cash purchase price
and an estimated purchase price adjustment of $13.2 million paid at the Closing.
An additional purchase price adjustment of $1.6 million was paid subsequent to
the Closing. Following the Recapitalization and the Imperial Acquisition, BDPH
changed its name to 'The Imperial Home Decor Group Inc.'
In connection with the Imperial Acquisition, C&A was granted the C&A Option
to purchase newly issued shares of the Company's Common Stock equal to 6.7% of
the Company's Common Stock outstanding as of the Closing at a price per share
equal to 130% of the per share amount of the Equity Contribution. As of the
Closing, affiliates of Blackstone held approximately 40% of the outstanding
common stock of C&A. C&A is a manufacturer of component parts and systems for
the automotive industry and its common stock is traded on the New York Stock
Exchange. The Imperial Acquisition was approved by a committee comprised solely
of independent directors of C&A.
The Imperial Acquisition was accounted for using the purchase method of
accounting. The allocation of the aggregate purchase price is preliminary. The
final purchase adjustment to reflect the fair values of the assets acquired and
liabilities assumed will be based upon appraisals and actuarial studies that are
currently in process and management's evaluation of such assets and liabilities
and, accordingly, the adjustments that have been included in the pro forma
combined financial information may change based upon the final allocation of the
total purchase cost of the Imperial Acquisition (including any purchase price
adjustment). Such allocation is not expected to differ materially from the
preliminary allocation included herein. The total purchase cost was allocated to
the Imperial assets acquired and liabilities assumed, based on their respective
fair values. See 'Risk Factors--Integration of Imperial, Implementation of
Business Strategy and Limited Relevance of Historical Financial Information' and
'Unaudited Pro Forma Combined Financial Information.'
The Recapitalization Agreement and the Imperial Acquisition Agreement
contain certain representations, warranties and covenants, including
cross-indemnification provisions that are subject to certain limitations. In
addition, the Company has entered into a number of ancillary agreements in
connection with the Recapitalization and the Imperial Acquisition, including the
Transition Services Agreements and with respect to the use of the 'Borden Home
Wallcoverings' trademark. See 'Certain Transactions.'
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<PAGE>
THE FINANCINGS
The Recapitalization, the Imperial Acquisition and the payment of related
fees and expenses were financed by: (i) the Equity Contribution; (ii) the
initial borrowings under the Senior Credit Facilities; and (iii) the Initial
Offering. The Senior Credit Facilities are provided under the Credit Agreement
by a group of lenders led by The Chase Manhattan Bank, an affiliate of one of
the Initial Purchasers. See 'Description of the Senior Credit Facilities.'
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Old Notes
pursuant to the Exchange Offer. Upon the consummation of the Recapitalization,
the proceeds from the Initial Offering of $125.0 million were used, together
with the initial borrowings under the Senior Credit Facility as follows: (i)
approximately $309.5 million was paid to existing BDPH stockholders in
connection with the Merger (a purchase price adjustment of $3.5 million was paid
subsequent to the Closing), (ii) approximately $71.2 million was paid pursuant
to the Imperial Acquisition, comprising $58.0 million cash purchase price plus
an estimated $13.2 million purchase price adjustment at the Closing (an
additional $1.6 million was paid subsequent to the Closing), (iii) approximately
$24.3 million was used to fund costs and expenses associated with the
Recapitalization and (iv) approximately $2.6 million was retained as excess
cash.
The following table sets forth a summary of the sources and uses of funds
associated with the Transactions.
<TABLE>
<CAPTION>
AMOUNT
(IN MILLIONS)
<S> <C>
Sources of Funds:
Revolving Credit Facility............................................ $ --
Term loans........................................................... 198.0
Senior subordinated notes............................................ 125.0
Equity contribution and retained equity(1)........................... 95.0
-------------
Total............................................................. $ 418.0
-------------
-------------
Use of Funds:
Merger consideration(2).............................................. $ 309.5
Imperial Acquisition(3).............................................. 71.2
Equity retained by Borden............................................ 10.4
Transaction fees and expenses........................................ 24.3
Excess cash.......................................................... 2.6
-------------
Total............................................................. $ 418.0
-------------
-------------
</TABLE>
- ------------------
(1) Includes the Equity Contribution of $84.6 million in cash by Blackstone and
the retained equity interest of Borden ($10.4 million based upon the per
share amount paid by Blackstone for the Company's Common Stock in the
Merger.)
(2) Represents the cash consideration paid to the existing BDPH stockholders of
$309.5 million in connection with the Merger. Subsequent to the Closing, a
purchase price adjustment of $3.5 million was paid, which is based on the
difference between BDPH's net working capital on the Closing and a target
working capital described in the Recapitalization Agreement.
(3) Represent the Imperial Acquisition cash purchase price of $58.0 million plus
the estimated purchase price adjustment of $13.2 million based on actual
cash balances as of the Closing and Imperial's net cash flows (as defined in
the Imperial Acquisition Agreement) between November 2, 1997 and the
Closing. Subsequent to the Closing, an additional purchase price of
adjustment of $1.6 million was paid.
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange and Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. In consideration for issuing the Exchange Notes contemplated in
this Prospectus, the Company will receive Old Notes in like principal amount,
the form and terms of which are the same as the form and terms of the Exchange
Notes in all material respects (which replace the Old Notes), except as
otherwise described herein.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
27, 1998:
<TABLE>
<CAPTION>
JUNE 27,
1998
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Cash and cash equivalents................................................. $ 6.0
-------
-------
Total Debt:
Revolving Credit Facility(1)............................................ $ 23.9
Term Loan A(1)(2)....................................................... 38.0
Term Loan B............................................................. 115.0
Term Loan C............................................................. 45.0
Notes................................................................... 125.0
-------
Total debt........................................................... 346.9
Shareholders' deficiency(3)(4)............................................ (77.3)
-------
Total capitalization................................................. $ 269.6
-------
-------
</TABLE>
- ------------------
(1) Represents additional cash utilized to pay for certain transaction fees and
expenses and purchase price adjustments relating to the Recapitalization and
the Imperial Acquisition.
(2) Under the terms of the Credit Agreement, as of June 27, 1998 the Company may
borrow an additional $27.0 million under the Deferred Draw Term Loan in
addition to the $38.0 million under the Deferred Draw Term Loan and Term
Loan A borrowed at Closing.
(3) Common equity reflects the $6.0 million estimated fair value of the C&A
Option granted to C&A as part of the consideration for the Imperial
Acquisition.
(4) As a result of the Recapitalization, the Company has negative net worth for
accounting purposes. However, Blackstone contributed $84.6 million in cash
for 89% of the Common Stock and Borden retained 11% of the Common Stock
which, based upon the price per share paid by Blackstone, would have an
implied value of approximately $10.4 million.
28
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information gives effect to:
(i) the Recapitalization, including the Equity Contribution by Blackstone; (ii)
the payment of cash consideration and the issuance of the C&A Option to effect
the Imperial Acquisition; (iii) the receipt of proceeds by the Company from the
Initial Offering of the Old Notes and the initial borrowings under the Senior
Credit Facilities; and (iv) the payment of fees and expenses related to the
Transactions.
The unaudited pro forma combined statements of operations for the year
ended December 31, 1997 and the six months ended June 27, 1998 give effect to
the Transactions as if they had occurred on January 1, 1997. The adjustments,
which are based upon available information and upon certain assumptions that
management believes are reasonable, are described in the accompanying notes. The
pro forma combined financial information does not purport to represent what the
financial position or results of operations of the Company would actually have
been had the Transactions in fact occurred on January 1, 1997 or to project the
financial position or results of operations of the Company for any future period
or date.
The Merger has been accounted for as a recapitalization of IHDG, which had
no impact on the historical carrying values of its assets and liabilities. In
the Merger, the existing IHDG stockholders received cash Merger Consideration of
$309.5 million. Subsequent to the Closing, a purchase price adjustment of $3.5
million was paid and Borden retained an 11% equity interest in the Company.
The Imperial Acquisition was accounted for using the purchase method of
accounting. The total purchase cost was allocated to the Imperial assets
acquired and liabilities assumed, based on their respective fair values. The
allocation of the aggregate purchase price is preliminary. The final purchase
adjustment to reflect the fair values of the assets acquired and liabilities
assumed will be based upon appraisals and actuarial studies that are currently
in process and management's evaluation of such assets and liabilities and,
accordingly, the adjustments that have been included in the pro forma combined
financial information may change based upon the final allocation of the total
purchase cost of the Imperial Acquisition. Such allocation is not expected to
differ materially from the preliminary allocation included herein.
The pro forma combined statements of operations do not include any
adjustment for future cost savings or other operating improvements. See
'Business--North American Integration Plan' and '-- Business Strategy.'
This unaudited pro forma financial information should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations,' the Combined Financial Statements of IHDG (including
the accompanying notes thereto), the Consolidated and Combined Financial
Statements of Imperial (including the accompanying notes thereto) and other
financial information included elsewhere in this Prospectus.
29
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
BDPH IMPERIAL ADJUSTMENTS PRO FORMA
------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales....................................................... $372.7 $ 163.8 $ $ 536.5
Cost of goods sold.............................................. 242.7 109.1 (3.2)(a) 348.6
------ --------- ----------- ---------
Gross margin............................................... 130.0 54.7 3.2 187.9
Selling, general and administrative expenses.................... 96.6 78.4 (4.4)(a) 170.6
------ --------- ----------- ---------
Operating income (loss)......................................... 33.4 (23.7) 7.6 17.3
Other (income) expense, net..................................... -- (0.7) (0.7)
Interest (income) expense, net.................................. (0.4) 4.6 29.5(c) 33.7
------ --------- ----------- ---------
Income (loss) before income taxes............................... 33.8 (27.6) (21.9) (15.7)
Income tax expense (benefit).................................... 11.4 (0.1) (9.0)(d) 2.3
------ --------- ----------- ---------
Income (loss) before cumulative effect of change in accounting
policy(e)..................................................... $ 22.4 $ (27.5) $ (12.9) $ (18.0)
------ --------- ----------- ---------
------ --------- ----------- ---------
OTHER DATA:
Cash flows from (used in):
Operating activities....................................... $ 26.0 $ (25.6) $ (20.5) $ (20.1)
Investing activities....................................... (20.8) (8.8) (29.6)
Financing activities....................................... (8.2) 33.7 25.5
EBITDA, As Defined(f)........................................... 44.0 (15.8) 4.4 32.6
Depreciation and amortization(g)................................ 10.1 7.2 (3.2) 14.1
Capital expenditures(h)......................................... 20.8 8.4 29.2
Product development expenditures(i)............................. 17.3 22.7 40.0
Cash interest expense(c)........................................ -- 4.6 26.5 31.1
Pro forma ratio of earnings to fixed charges(j)................. --
</TABLE>
See Notes to Unaudited Pro Forma Combined Statements of Operations.
30
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 27, 1998
(DOLLARS IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
IHDG IMPERIAL ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(72 DAYS)
<S> <C> <C> <C> <C>
Net sales................................................... $ 215.0 $ 33.0 $ $ 248.0
Cost of goods sold.......................................... 146.3 23.5 (8.8)(a) 161.0
-------- -------- ----------- ---------
Gross margin........................................... 68.7 9.5 8.8 87.0
Selling, general and administrative expenses................ 69.8 17.8 (1.9)(a) 85.7
Restructuring charges and other integration costs(e)........ 7.3 -- -- 7.3
-------- -------- ----------- ---------
Operating income (loss)..................................... (8.4) (8.3) 10.7 (6.0 )
Merger costs................................................ 4.0 -- (4.0)(b) --
Other (income) expense, net................................. -- 0.7 0.7
Interest (income) expense, net.............................. 9.9 1.3 5.7(c) 16.9
-------- -------- ----------- ---------
Income (loss) before income taxes........................... (22.3) (10.3) 9.0 (23.6 )
Income tax expense.......................................... 0.1 -- 3.7(d) 3.8
-------- -------- ----------- ---------
Income (loss)(e)............................................ $ (22.4) $ (10.3) $ 5.3 $ (27.4 )
-------- -------- ----------- ---------
-------- -------- ----------- ---------
OTHER DATA:
Cash flows from (used in):
Operating activities................................... $ (16.9) $ (16.9) $ (9.4) $ (43.2 )
Investing activities................................... (81.5) (2.2) (83.7 )
Financing activities................................... 102.1 17.0 119.1
EBITDA, As Defined(f)....................................... 20.2 (7.6) 2.6 15.2
Depreciation and amortization(g)............................ 7.6 1.4 (0.1) 8.9
Capital expenditures(h)..................................... 9.3 2.2 11.5
Product development expenditures(i)......................... 18.0 6.2 24.2
Cash interest expense(c).................................... 9.9 1.3 4.5 15.7
Pro forma ratio of earnings to fixed charges(j)............. --
</TABLE>
See Notes to Unaudited Pro Forma Combined Statements of Operations.
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
(a) Represents the net effect of applying purchase accounting to the Imperial
Acquisition and conforming Imperial's accounting policies for sample books
and design and engraving costs to those of IHDG, as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 27, 1998
----------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Depreciation expense(1)................................. $(4.1) $ (0.5)
Conforming accounting policies(2)....................... (3.5) (2.2)
Amortization of inventory step up(3).................... (8.0)
------ -------
Total adjustment................................... $(7.6) $(10.7)
------ -------
------ -------
</TABLE>
- ------------------
(1) The total purchase price for the Imperial Acquisition of $79.8 million
consisted of $72.8 million of cash (including post-closing adjustments), an
option valued at $6.0 million and $1.0 million of direct acquisition costs.
The historical book value of the net assets acquired exceeded the purchase
price by $22.8 million. This excess was allocated first to adjust the assets
and liabilities acquired to their estimated fair values and then as a
proportionate reduction of property plant and equipment and other
non-current assets. The principal components of this allocation were (a) an
increase of $5.9 million in inventories, (b) the recording of $7.0 million
in assets held for resale, $12.4 million in accruals, and $5.0 million in
deferred tax liabilities, and (c) a reduction of $20.2 million in property,
plant and equipment. This adjustment represents the decrease in depreciation
expense as a result of the decrease in property, plant and equipment. The
adjustment to depreciation expense was computed by reducing Imperial's
historical depreciation expense in the same proportion as the write-down of
property, plant and equipment under purchase accounting.
The allocation of the aggregate purchase price reflected in the pro forma
financial information is preliminary. The final purchase adjustment to
reflect the fair values of the assets acquired and liabilities assumed will
be based upon appraisals and actuarial studies that are currently in process
and management's evaluation of such assets and liabilities. Accordingly, the
adjustments that have been included in the pro forma financial information
will differ from those based on the final allocation. Such allocation is not
expected to differ materially from the allocation included herein.
(2) Represents the adjustment required to conform Imperial's accounting policies
for sample books and designs and engravings to that of IHDG. IHDG has
historically deferred costs associated with sample books and designs and
engravings and amortized these costs over the estimated period of future
benefit. Imperial had also historically deferred these costs, but changed
the estimated period of future benefit for sample books (during fiscal 1996)
and changed its accounting policy with respect to design and engraving costs
(effective at the beginning of fiscal 1997), to expense all these costs as
incurred.
(3) The write-up of the first-in first-out cost basis inventory resulted in a
$8.0 non-recurring non-cash charge to cost of sales for the six months ended
June 27, 1998 and is expected to result in a total non-recurring non-cash
charge of approximately $11.6 million in the first year subsequent to the
Imperial Acquisition.
The total adjustment that results from applying purchase accounting and
conforming accounting policies is allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 27, 1998
----------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cost of goods sold...................................... $(3.2) $ (8.8)
Selling, general and administrative expenses............ (4.4) (1.9)
------ -------
Total adjustment................................... $(7.6) $(10.7)
------ -------
------ -------
</TABLE>
(b) Represents the elimination of non-recurring professional fees and expenses
incurred at the Closing associated with the Recapitalization.
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
(c) Represents the net adjustment to interest expense as a result of the
borrowings under the Senior Credit Facilities and the Old Notes, calculated
as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 27, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Senior Credit Facilities:
Term Loan A(1)..................................... $ 3.1 $ 1.6
Term Loan B(2)..................................... 9.8 4.9
Term Loan C(3)..................................... 3.9 2.0
Commitment fee(4).................................. 0.5 0.3
Old Notes(5)......................................... 13.8 6.9
------ ------
Cash interest expense.............................. 31.1 15.7
Amortization of deferred financing costs(6).......... 2.6 1.2
------ ------
Pro forma interest expense........................... 33.7 16.9
Historical interest expense, net..................... (4.2) (11.2)
------ ------
Net interest expense adjustment...................... $29.5 $ 5.7
------ ------
------ ------
</TABLE>
- ------------------
(1) Represents interest on the $38.0 million of Term Loan A which was drawn down
at Closing using an interest rate of 8.25%.
(2) Represents interest on the $115.0 million Term Loan B using an interest rate
of 8.50%.
(3) Represents interest on the $45.0 million Term Loan C using an interest rate
of 8.75%.
(4) Represents a commitment fee of 0.5% applied to the pro forma $75.0 million
unused balance of the Revolving Credit Facility and the $27.0 million
Deferred Draw Term Loan.
(5) Represents interest on the $125.0 million Old Notes using an interest rate
of 11.0%.
(6) Deferred financing costs are amortized over the term of the related debt
(ten years for the Notes, six years for Term Loan A, seven years for Term
Loan B, eight years for Term Loan C and six years for the Revolving Credit
Facility).
A change of 0.125% in the assumed interest rate would have the following
effect on pro forma interest expense:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 27, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Senior Credit Facilities............................. $ 0.3 $0.2
----- -----
----- -----
</TABLE>
(d) Represents the tax effect of the pro forma adjustments at a 41% effective
tax rate.
(e) In conjunction with the Imperial Acquisition, a plan to integrate the
Company and Imperial in North America has been adopted that includes the
consolidation and rationalization of operations. As it relates to the
Imperial Acquisition, the Company plans to close facilities in Plattsburg,
New York and Ashaway, Rhode Island, dispose of certain assets, and reduce
the salary and hourly workforce by approximately 530 employees. The plan is
expected to be substantially complete by the end of 1999. The liabilities
accrued under purchase accounting relating to the integration plan for the
Imperial Acquisition were $12.4 million.
Additionally, as part of the consolidation and rationalization of operations,
the Company recorded restructuring charges and other integration costs of
$7.3 million in anticipation of the Company's planned exit of two
distribution centers and the finishing and bookmaking operations at one
manufacturing facility. The charge also provided for the restructuring of the
Company's headquarters and sales force, the write-down of certain assets to
be disposed of to net realizable value, lease and other contractual agreement
buyouts, and a reduction in the salary and hourly workforce by approximately
320 employees. The plan is expected to be substantially complete by end of
2000. In addition, the Company recorded $4.6 million for inventory write-
downs which has been reported with cost of goods sold for the first six
months ended June 27, 1998. The
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
Company expects to incur non-recurring cash costs of approximately $23.2
million in 1998 and 1999 and has incurred non-recurring non-cash costs of
$5.4 million in the six months ended June 27, 1998 to integrate the
operations of IHDG and Imperial as described in the table below. See
'Business--North American Integration Plan.'
The components of these anticipated costs and their treatment in the
Company's financial statements are as follows:
<TABLE>
<CAPTION>
CASH COSTS NON-CASH
------------------------------------------------------ COSTS
LEASE -----------
AND OTHER PROPERTY
SEVERANCE AND FACILITY CONTRACTUAL TOTAL AND
OTHER RELATED CLOSURE AGREEMENT CASH INVENTORY
EMPLOYEE BENEFITS COSTS BUYOUTS OTHER COSTS WRITE-DOWNS TOTAL
------------------ ------- ----------- ----- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities accrued under purchase accounting
at March 13, 1998.............................. 6.1 3.9 2.1 0.3 12.4 -- 12.4
Expensed to June 27, 1998:
Restructuring charges and other integration
costs..................................... 5.8 -- 0.6 0.1 6.5 0.8 7.3
Other integration costs for inventory
write-downs............................... -- -- -- -- -- 4.6 4.6
Anticipated future costs that will be expensed
or capitalized as appropriate.................. 4.3 -- -- -- 4.3 -- 4.3
------ ------- ----------- ----- ----- ----------- -----
Total.......................................... 16.2 3.9 2.7 0.4 23.2 5.4 28.6
------ ------- ----------- ----- ----- ----------- -----
------ ------- ----------- ----- ----- ----------- -----
</TABLE>
(f) 'EBITDA, As Defined,' represents earnings before net interest expense,
income taxes, depreciation and amortization expense (excluding amortization
of product development expenditures), restructuring charges and other
integration costs, merger and other transaction costs (including monitoring
fees) and other non-cash charges (as described below). EBITDA, As Defined,
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP or as a measure of profitability or
liquidity. EBITDA, As Defined, is included in this Prospectus to provide
additional information with respect to the ability of the Company to satisfy
its debt service, capital expenditure and working capital requirements and
because certain convenants in the Company's borrowing arrangements are tied
to similar measures. While EBITDA-based measures are frequently used as
measures of operations and the ability to meet debt service requirements,
they are not necessarily comparable to other similarly titled captions of
other companies due to differences in methods of calculation. The
calculation of pro forma EBITDA, As Defined, is shown below:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 27, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net loss............................................. $ (18.0) $(27.4)
Adjustments:
Interest expense (income), net..................... 33.7 16.9
Income tax expense................................. 2.3 3.8
Depreciation and amortization(1)................... 14.1 8.9
------- -------
32.1 2.2
Restructuring charges and other integration
costs(2)........................................ -- 11.9
Non-cash charges relating to management options.... 0.5 0.7
Monitoring fees.................................... -- 0.4
------- -------
EBITDA, As Defined................................... $ 32.6 $ 15.2
------- -------
------- -------
</TABLE>
(Footnotes on next page)
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
(Footnotes from previous page)
- ------------------
(1) Depreciation and amortization excludes amortization of sample book and
design and engraving costs of $33.5 million and $14.8 million, but includes
amortization of cylinder bases of $0.9 million and $0.4 million for the year
ended December 31, 1997 and the six months ended June 27, 1998,
respectively.
(2) Other integration costs related to inventory write-downs for $4.6 million is
reported with cost of goods sold and the balance of $7.3 million is reported
as restructuring charges and other integration costs in the accompanying
statement of operations.
The pro forma combined statements of operations and EBITDA, As Defined, do
not include any adjustments for potential benefits and incremental costs that
may result from cost reduction and other measures anticipated as a result of the
implementation of the Company's Integration Plan as described in
'Business--North American Integration Plan.' During 1997, the Company incurred
$39.0 million of fixed costs and salary expense relating to facilities to be
closed and positions to be eliminated. Management estimates that these costs
will be eliminated by the year 2000, but will be partially offset by $10.4
million of incremental overhead costs, primarily at Knoxville, resulting in
estimated net cost savings of 28.6 million in 2000, as shown below:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Rationalization of printing facilities.................................... $ 3.3
Rationalizing finishing facilities........................................ 7.1
Paper making facilities................................................... 3.2
Rationalization of distribution facilities................................ 13.0
Elimination of selling, customer services and support redundancies........ 12.4
-------
Sub-total............................................................... 39.0
Estimated incremental overhead............................................ (10.4)
-------
Estimated net cost savings................................................ $ 28.6
-------
-------
</TABLE>
The foregoing head count reductions and fixed cost savings are based on a number
of estimates and assumptions that, while considered reasonable in the aggregate
by management of the Company, are inherently uncertain. Accordingly, prospective
investors are cautioned not to place undue reliance on these estimates. See
'Forward-Looking Statements' and 'Risk Factors.'
(g) Pro forma depreciation and amortization includes depreciation and
amortization of property and equipment (including cylinder bases), but
excludes amortization of sample books and designs and engraving. See note
(e).
(h) Capital expenditures do not include expenditures for product development.
See note (i).
(i) Product development expenditures include expenditures related to sample
books, design and engraving, but exclude expenditures related to cylinder
bases.
(j) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as earnings before income taxes and
extraordinary items, plus fixed charges. Fixed charges include interest
expense on all indebtedness, amortization of deferred financing costs, and
one-third of rental expense on operating leases representing that portion of
rental expense deemed by the Company to be attributable to interest. On a
pro forma basis, earnings were insufficient to cover fixed charges by $15.7
million for the year ended December 31, 1997 and $23.6 million for the six
months ended June 27, 1998.
35
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION--IHDG
(DOLLARS IN MILLIONS, EXCEPT RATIOS)
The following table presents selected historical combined financial
information for the IHDG operations of Borden, including the operations of
Borden Decorative Products, Ltd., Sunworthy and Vernon Plastics for all periods
presented. The selected combined financial information of IHDG as of and for the
years ended December 31, 1995, 1996 and 1997 have been derived from the combined
financial statements of IHDG that have been audited by Deloitte & Touche LLP,
independent auditors. The selected historical combined financial information for
the years ended December 31, 1993 and 1994 were derived from the unaudited
combined financial statements of IHDG, which, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information, except that 1993 and 1994
data do not include certain corporate allocations reflected in subsequent
periods. The selected combined financial information of IHDG as of and for the
six months ended June 28, 1997 and June 27, 1998 has been derived from the
unaudited historical combined financial statements of the Company.
The selected financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Combined Financial Statements of IHDG and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
----------------------------------------------- JUNE 28, JUNE 27,
1993 1994 1995 1996(1) 1997 1997 1998
------ ------ ------ ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $306.3 $320.4 $362.3 $ 365.0 $372.7 $197.5 $215.0
Cost of goods sold........................... 196.0 202.0 229.8 237.5 242.7 124.5 146.3
------ ------ ------ ------- ------ -------- --------
Gross margin................................. 110.3 118.4 132.5 127.5 130.0 73.0 68.7
Selling, general and administrative
expenses(2)................................ 83.1 92.4 103.1 96.3 96.6 54.9 69.8
Restructuring charges and other integration
costs(3)................................... -- -- -- -- -- -- 7.3
------ ------ ------ ------- ------ -------- --------
Operating income (loss)...................... 27.2 26.0 29.4 31.2 33.4 18.1 (8.4)
Merger costs................................. -- -- -- -- -- -- 4.0
Interest expense (income), net............... -- (0.1) 0.9 (0.2) (0.4) (0.2) 9.9
------ ------ ------ ------- ------ -------- --------
Income (loss) before income taxes............ 27.2 26.1 28.5 31.4 33.8 18.3 (22.3)
Income tax expenses.......................... 9.5 9.3 11.2 10.6 11.4 6.6 0.1
------ ------ ------ ------- ------ -------- --------
Net income (loss)............................ $ 17.7 $ 16.8 $ 17.3 $ 20.8 $ 22.4 $ 11.7 $(22.4)
------ ------ ------ ------- ------ -------- --------
------ ------ ------ ------- ------ -------- --------
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................. $218.9 $229.3 $242.3 $ 240.8 $239.6 $261.0 $415.2
Shareholders' equity/owner's investment...... 151.7 159.5 161.7 154.1 166.7 171.9 (77.3)
CASH FLOWS FROM (USED IN):
Operating activities......................... $ 32.7 $ 9.1 $ 27.3 $ 43.5 $ 26.0 $ 10.5 $(16.9)
Investing activities......................... $ (5.6) (4.1) (6.4) (21.2) (20.8) (7.0) (81.5)
Financing activities......................... (24.2) (9.0) (15.1) (28.4) (8.2) (4.2) 102.1
OTHER DATA:
EBITDA, As Defined(4)........................ $ 32.7 $ 31.5 $ 35.4 $ 37.8 $ 44.0 $ 22.7 $ 20.2
Depreciation and amortization(5)............. 5.5 5.5 6.0 6.6 10.1 4.6 7.6
Amortization of product development
expenditures(6)............................ 23.0 26.6 22.3 20.7 18.2 9.7 11.5
Capital expenditures(7)...................... 5.6 4.1 6.4 21.2 20.8 7.0 9.3
Product development expenditures(8).......... 26.4 26.2 20.5 16.7 18.7 9.5 19.0
Ratio of earnings to fixed charges(9)........ 17.2x 21.3x 13.8x 24.8x 31.9x 29.5x --
</TABLE>
(Footnotes on next page)
36
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Effective January 1, 1996 IHDG was formed to operate certain of Borden's
decorative products businesses. Under this structure, IHDG was granted
beneficial ownership of the Canadian decorative products operations
(Sunworthy) until such time as local tax transfer issues could be finalized.
(2) Certain administrative expenses incurred by Borden have been allocated to
IHDG generally based on a pro-rata share of Borden's total sales. Management
believes the allocation methods utilized are reasonable. In addition, a
subsidiary of Borden provides certain administrative services to IHDG at
negotiated fees. These services include processing of payroll and active and
retiree group insurance claims, administration of workers compensation
claims and securing insurance coverage for catastrophic claims. Such costs
allocated or charged to IHDG totaled $6.1 million in 1993, $6.8 million in
1994, $6.3 million in 1995, $5.3 million in 1996, $4.2 million in 1997.
Management believes that IHDG could have performed the administrative
services set forth above or obtained such services from third parties at
costs comparable to those historically allocated to IHDG by Borden.
(3) In the six months ended June 27, 1998, the Company recorded a charge for
restructuring and other integration costs of $7.3 million and $4.6 million
for inventory write-downs which is reported with cost of goods sold, in
anticipation of the Company's planned exit of two distribution centers and
the finishing and bookmaking operations at one manufacturing facility. The
charge also provided for the restructuring of the Company's headquarters and
sales force. The charge included property write-downs of $0.8 million for
impaired assets at the impacted distribution centers and $5.8 million
primarily for severance and other related employee benefits, $0.6 million
for lease and other contractual agreement buyouts and $0.1 million for other
integration costs. The restructuring affected approximately 850 employees.
See 'Business--North American Integration Plan'.
(4) 'EBITDA, As Defined,' represents earnings before net interest expense,
income taxes, depreciation and amortization expense (excluding amortization
of product development expenditures), restructuring charges and other
integration costs, merger and other transaction costs (including the
monitoring fees) costs and other non-cash charges (as described below).
EBITDA, As Defined, should not be considered in isolation or as a substitute
for net income, cash flows from operating activities and other income or
cash flow statement data prepared in accordance with GAAP or as a measure of
profitability or liquidity. EBITDA, As Defined, is included in this
Prospectus to provide additional information with respect to the ability of
the Company to satisfy its debt service, capital expenditure and working
capital requirements and because certain covenants in the Company's
borrowing arrangements are tied to similar measures. While EBITDA-based
measurements are frequently used as measures of operations and the ability
to meet debt service requirements, they are not necessarily comparable to
other similarly titled captions of other companies due to the differences in
methods of calculation. The calculation of EBITDA, As Defined, is shown
below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
----------------------------------------------- JUNE 28, JUNE 27,
1993 1994 1995 1996(1) 1997 1997 1998
------ ------ ------ ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income................................... $ 17.7 $ 16.8 $ 17.3 $ 20.8 $ 22.4 $ 11.7 $(22.4)
Adjustments:
Interest expense (income), net............. -- (0.1) 0.9 (0.2) (0.4) (0.2) 9.9
Depreciation and amortization(5)........... 5.5 5.5 6.0 6.6 10.1 4.6 7.6
Income tax expense......................... 9.5 9.3 11.2 10.6 11.4 6.6 0.1
------ ------ ------ ------- ------ -------- --------
32.7 31.5 35.4 37.8 43.5 22.7 (4.8)
Restructuring charges and other integration
costs(3)................................ -- -- -- -- -- -- 11.9
Merger costs............................... -- -- -- -- -- -- 4.0
Monitoring fee............................. -- -- -- -- -- -- 0.4
Non-cash charges:
Management options......................... -- -- -- -- 0.5 -- 0.7
Amortization of
inventory step-up....................... -- -- -- -- -- -- 8.0
------ ------ ------ ------- ------ -------- --------
EBITDA, As Defined........................... $ 32.7 $ 31.5 $ 35.4 $ 37.8 $ 44.0 $ 22.7 $ 20.2
------ ------ ------ ------- ------ -------- --------
------ ------ ------ ------- ------ -------- --------
</TABLE>
(Footnotes continued on next page)
37
<PAGE>
(Footnotes continued from previous page)
(5) Depreciation and amortization does not include amortization of sample book,
design and engraving and cylinder bases costs.
(6) Amortization of product development expenditures includes amortization of
sample book, design and engraving and cylinder bases. The amounts applicable
to sample book, design and engraving costs were $22.7 million for 1993,
$26.2 million for 1994, $21.8 million for 1995, $20.1 million for 1996,
$17.4 million for 1997 and $11.5 million for the six months ended June 27,
1998. The amounts applicable to cylinder bases were $0.3 million for 1993,
$0.4 million for 1994, $0.5 million for 1995, $0.6 million for 1996 and $0.9
million for 1997 and $0.4 million for the six months ended June 27, 1998.
(7) Capital expenditures does not include expenditures for product development.
(8) Product development includes expenditures for sample books, design and
engravings and cylinder bases.
(9) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes plus fixed charges. Fixed
charges include interest expense on all indebtedness, amortization of
financing costs and one-third of rental expense representing that portion of
rental expense deemed to be attributable to interest. For the six months
ended June 27, 1998 earnings were insufficient to cover fixed charges by
$23.6 million.
38
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION--IMPERIAL
(DOLLARS IN MILLIONS, EXCEPT RATIOS)
The following table presents selected historical financial information for
Imperial, which includes Imperial U.S., Imperial Canada, Marketing Service Inc.
and Imperial Wallcoverings Limited. At January 27, 1996, Imperial U.S. and
Imperial Wallcoverings Limited were separate indirect subsidiaries of C&A. On
December 5, 1996, Imperial U.S. purchased Imperial UK from Collins & Aikman
United Kingdom Limited at its net book value. For financial reporting purposes,
this transfer between related entities has been treated in a manner similar to a
pooling of interests. Currently, Imperial U.S. owns approximately 24% of
Imperial Canada while another C&A subsidiary owns the remainder. As part of the
Imperial Acquisition, substantially all of the assets and liabilities of
Imperial Canada will be transferred with Imperial U.S. to the Company. For
purposes of the selected financial information, Imperial Canada has been
presented as if it was wholly owned. The selected consolidated and combined
financial information of Imperial as of and for the years ended January 27,
1996, December 28, 1996 and December 27, 1997 have been derived from the
consolidated and combined financial statements for Imperial Wallcoverings, Inc.
and Subsidiaries with Affiliate and have been audited by Arthur Andersen LLP,
independent public accountants. The selected historical financial information
for the years ended January 29, 1994 and January 28, 1995 was derived from the
unaudited financial statements of Imperial, which, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information.
The selected financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated and Combined Financial Statements of Imperial
and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
JAN. 29, JAN. 28, JAN. 27, DEC. 28, DEC. 27,
1994 1995 1996 1996(1) 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(52 WEEKS) (52 WEEKS) (52 WEEKS) (48 WEEKS) (52 WEEKS)
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $214.7 $212.8 $197.7 $157.6 $163.8
Cost of goods sold(2).............................. 132.9 135.7 141.1 105.6 109.1
---------- ---------- ---------- ---------- ----------
Gross profit....................................... 81.8 77.1 56.6 52.0 54.7
Selling, general and administrative expenses(3).... 72.3 69.7 67.9 71.5 78.4
Goodwill amortization and write-off(4) 30.5 -- -- -- --
Restructuring charge (5)........................... -- -- 12.9 -- --
---------- ---------- ---------- ---------- ----------
Operating income (loss)............................ (21.0) 7.4 (24.2) (19.5) (23.7)
Other expense (income), net........................ 0.1 (0.6) (0.2) 0.4 (0.7)
Interest expense, net.............................. 3.1 6.5 7.9 5.7 4.6
Loss on sale of receivables(6)..................... -- 1.3 4.3 2.6 --
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.................. (24.2) 0.2 (36.2) (28.2) (27.6)
Income tax expense (benefit)(7).................... 0.8 1.0 (1.5) (0.3) (0.1)
---------- ---------- ---------- ---------- ----------
Loss before change in accounting principle......... (25.0) (0.8) (34.7) (27.9) (27.5)
Cumulative effect of change in accounting for
designs and engravings(8)........................ -- -- -- -- (9.9)
---------- ---------- ---------- ---------- ----------
Net loss........................................... $(25.0) $ (0.8) $(34.7) $(27.9) $(37.5)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets....................................... $141.7 $116.6 $119.2 $145.3 $144.0
Total debt, including current maturities........... 29.4 102.0 66.8 56.1 32.3
Investments and advances from (to) C&A............. 58.8 (41.2) (17.3) 17.0 41.9
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
JAN. 29, JAN. 28, JAN. 27, DEC. 28, DEC. 27,
1994 1995 1996 1996(1) 1997
---------- ---------- ---------- ---------- ----------
(52 WEEKS) (52 WEEKS) (52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN):
Operating activities............................... $ 20.9 $ 35.5 $(13.5) $(30.2) $(25.6)
Investing activities............................... (13.1) (16.3) (23.8) (22.8) (8.8)
Financing activities............................... (7.8) (19.3) 37.7 53.4 33.7
OTHER DATA:
EBITDA, As Defined(9).............................. $ 15.0 $ 13.3 $ 5.6 $(14.6) $(15.8)
Depreciation and amortization(10).................. 5.6 5.3 5.9 5.3 7.2
Amortization of product development
expenditures(1)(8)............................... 11.8 15.9 13.9 11.6 16.2
Capital expenditures(11)........................... 5.4 5.3 15.5 16.4 8.4
Product development expenditures(12)............... 13.1 19.4 13.8 11.3 22.7
Ratio of earnings to fixed charges (13)............ -- 1.0x -- -- --
</TABLE>
- ------------------
(1) During fiscal 1996, Imperial changed its fiscal year to end on the last
Saturday in December. Fiscal 1996 was a 48-week period which ended on
December 28, 1996. If fiscal 1996 were adjusted to reflect a 52-week period
ended December 28, 1996, net sales would have been $174.9 million and
EBITDA, As Defined, would have been negative $13.9 million after adding back
non-recurring and non-cash items of $12.9 million and $10.8 million,
respectively, recorded in the month ended January 27, 1996. Fiscal 1995 was
a 52-week period which ended on January 27, 1996. Prior to fiscal 1996,
Imperial deferred certain costs relating to the assembly of sample books
until the sample books were released, at which time the costs were fully
expensed. During fiscal 1996, Imperial prospectively changed its method of
accounting for sample books and is currently expensing these costs as
incurred. Imperial had $2.7 million of sample book costs capitalized at
January 27, 1996 and no amounts capitalized at December 28, 1996 or December
27, 1997 relating to sample books.
(2) During fiscal 1995, as part of a plan to reengineer its business, Imperial
reevaluated its various product offerings and developed plans to reduce the
number of SKUs in certain distribution channels. In view of these plans and
the then-existing conditions in the wallpaper business, Imperial recorded a
charge of approximately $10.8 million for inventory write-downs. This charge
is included in cost of goods sold in fiscal 1995.
(3) C&A has historically performed certain services for Imperial including tax,
treasury, risk management, employee benefits, legal and other general
corporate services. The cost of the services provided by C&A has been
allocated to Imperial based on a combination of estimated use and the
relative sales of the Imperial business. Corporate costs allocated to
Imperial totaled $1.4 million in fiscal 1993, $1.5 million in fiscal 1994,
$2.7 million in fiscal 1995, $2.5 million in fiscal 1996 and $2.1 million in
fiscal 1997. Management believes that Imperial could have performed the
administrative services set forth above or obtained such services from third
parties at costs comparable to those historically allocated to Imperial by
C&A.
(4) In the third quarter of 1993, C&A determined that the goodwill related to
Imperial was impaired and wrote-off all the remaining balance of $30.5
million.
(5) During the month ended January 27, 1996, Imperial provided $12.9 million for
the cost to exit one manufacturing facility and three distribution centers.
The closings affected approximately 200 employees with severances totaling
$1.4 million. Other costs to close and dispose of idled facilities totaled
$2.8 million. In addition, certain property, plant and equipment was
determined to be impaired as a result of the restructuring and was written
down by $8.7 million.
(Footnotes continued on next page)
40
<PAGE>
(Footnotes continued from previous page)
(6) Under the terms of a receivables sale agreement with Carcorp, Inc.
('Carcorp'), Imperial sold receivables to Carcorp at their face amount less
a defined discount. The discount percentage included a yield factor, factors
for Carcorp's servicing and processing expenses, as well as factors, which
were subject to variation, based upon the collectibility and aging of the
receivables purchased. Imperial Canada was terminated as a seller effective
January 29, 1995, and Imperial Wallcoverings, Inc. was terminated as a
seller on September 21, 1996. In connection with the sale of the receivables
to Carcorp, Imperial recorded losses in fiscal 1994, 1995 and 1996. Imperial
retained the responsibility of servicing the receivables sold to Carcorp,
and was compensated by Carcorp for its servicing activities. Servicing fee
income, which has been included as an offset to selling, general and
administrative expenses was $0.3 million for fiscal 1994, $0.6 million for
fiscal 1995, $0.6 million for fiscal 1996.
(7) Imperial's U.S. operations are included in the consolidated federal income
tax return of C&A; however, federal, state and foreign income taxes have
been provided on a separate return basis.
(8) Prior to fiscal 1997, Imperial deferred costs associated with the design and
development of patterns and engraving used in the printing process. These
costs were amortized over a three-year period representing the approximate
life of the related wallpaper line. Effective December 29, 1996, Imperial
changed its method of accounting for such costs and began expensing them as
incurred. The cumulative effect of the change in accounting for designs and
engravings resulted in $9.9 million of expense for fiscal 1997. There was no
income tax benefit or expense recorded in conjunction with this change.
(9) 'EBITDA, As Defined,' represents earnings before net interest expense, loss
on sale of receivables, income taxes, depreciation and amortization expense,
restructuring charge and non-recurring items. EBITDA, As Defined, should not
be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with GAAP or as a measure of profitability or
liquidity. EBITDA, As Defined, is included in this Prospectus to provide
additional information with respect to the ability of the Company to satisfy
its debt service, capital expenditure and working capital requirements and
because certain covenants in the Company's borrowing arrangements are tied
to similar measures. While EBITDA-based measures are frequently used as
measures of operations and the ability to meet debt service requirements,
they are not necessarily comparable to other similarly titled captions of
other companies due to differences in methods of calculation. The
calculation of EBITDA, As Defined, is shown below:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
JANUARY 29, JANUARY 28, JANUARY 27, DECEMBER 28, DECEMBER 27,
1994 1995 1996 1996(A) 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
(52 WEEKS) (52 WEEKS) (52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C> <C> <C>
Loss before cumulative effect of change in
accounting for designs and engraving....... $ (25.0) $ (0.8) $ (34.7) $(27.9) $(27.5)
Adjustments:
Interest expense (income), net............. 3.1 6.5 7.9 5.7 4.6
Income tax expense (benefit)............... 0.8 1.0 (1.5) (0.3) (0.1)
Depreciation and amortization.............. 5.6 5.3 5.9 5.3 7.2
----------- ----------- ----------- ------------ ------------
(15.5) 12.0 (22.4) (17.2) (15.8)
Loss on sale of receivables................ -- 1.3 4.3 2.6 --
Restructuring charge....................... 12.9
Goodwill amortization and write-off........ 30.5
Non-recurring items........................ 10.8
----------- ----------- ----------- ------------ ------------
EBITDA, As Defined........................... $ 15.0 $ 13.3 $ 5.6 $(14.6) $(15.8)
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
(Footnotes continued on next page)
41
<PAGE>
(Footnotes continued from previous page)
(a) EBITDA, As Defined, has not been adjusted for $2.7 million of non-cash
charges included in the 48-week period ended December 28, 1996 as
discussed in note (1). If fiscal 1996 were adjusted to reflect a 52-week
period ended December 28, 1996, net sales would have been $174.9 million
and EBITDA, As Defined, would have been negative $13.9 million after
adding back non-recurring and non-cash items of $12.9 million and $10.8
million, respectively, recorded in the month ended January 27, 1996.
(10) Depreciation and amortization does not include amortization of goodwill,
sample books, design or engraving costs.
(11) Capital expenditures does not include expenditures for product development.
(12) Product development expenditures include expenditures related to sample
books, designs and engraving, but exclude expenditures relating to cylinder
bases.
(13) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes plus fixed charges.
Fixed charges include interest expense on all indebtedness, loss on sale of
receivables, amortization of deferred financing costs and one-third of
rental expense representing that portion of rental expense deemed to be
attributable to interest. Earnings were insufficient to cover fixed charges
by $24.2 million in fiscal 1993, $36.2 million in fiscal 1995, $28.2
million in fiscal 1996 and $27.6 in fiscal 1997.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations of each
of IHDG and Imperial covers periods before the consummation of the Initial
Offering and the other Transactions. Accordingly, the discussion and analysis of
such periods does not fully reflect the significant impact the Transactions will
have on the Company. See 'Risk Factors,' 'Unaudited Pro Forma Combined Financial
Information,' '--Liquidity and Capital Resources' and 'Business--North American
Integration Plan' for further discussion relating to the impact of the
Transactions on the Company. The following discussion should be read in
conjunction with 'Selected Historical Financial Information--IHDG,' 'Selected
Historical Financial Information--Imperial' and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
The Company is the result of the combination of the residential
wallcoverings and PVC sheeting businesses of IHDG, which were previously
substantially wholly owned by Borden, with the Imperial wallcoverings business
previously owned by C&A. This combination was accomplished through the
Recapitalization and the Imperial Acquisition. The Recapitalization, the
Imperial Acquisition and the payment of related fees and expenses was financed
by: (i) the Equity Contribution by Blackstone; (ii) the initial borrowings under
the Senior Credit Facilities; and (iii) the proceeds from the Initial Offering.
As of June 27, 1998, after giving effect to the Transactions, the Company's
consolidated indebtedness was approximately $346.9 million.
The Company is the world's largest producer and marketer of residential
wallcoverings based on pro forma net sales for fiscal 1997. The Company designs,
manufactures and markets its residential wallcoverings products under various
recognized brand names, including Crown, Sunworthy, Imperial and Albert Van
Luit, as well as under licensing and distribution agreements with leading
designers and consumer brands such as Ralph Lauren, Lenox, Nautica, Laura
Ashley, Alexander Julian, Eddie Bauer and the NCAA schools.
The Company has adopted its Integration Plan to integrate IHDG and
Imperial, the principal components of which are the rationalization of the
Company's North American manufacturing and distribution facilities and
operations and employee head count reductions through the elimination of
redundancies in selling, customer service and other support operations.
Management estimates that total cost savings from the Integration Plan will be
$28.6 million, net of $10.4 million of incremental cost (as compared to total
pro forma costs for 1997), by 2000, the first year in which the effects of the
cost savings are expected to be fully realized. See 'Business-- North American
Integration Plan.'
In addition to the substantial improvement in the Company's financial
performance expected to result from the Integration Plan, the Company intends to
capitalize upon its position as the world's largest supplier of residential
wallcoverings to enhance its sales and profitability by implementing its
business strategy which consists of the following five components: (i) grow with
leading Chain Stores; (ii) leverage licensing agreements and distribution
agreements and build in-house brand name recognition; (iii) rebuild revenue
share in the high-end, independent dealer segment in North America; (iv) pursue
add-on acquisitions and strategic joint ventures; and (v) increase share in
growing international markets. The Company's future revenues and profitability
will principally be affected by the Company's ability successfully to implement
its Integration Plan and, more generally, its business strategy.
Historical financial information with respect to IHDG includes its U.K. and
U.S. decorative products operations, Sunworthy and Vernon Plastics. In 1997,
approximately 86.1%, 4.7% and 9.2% of IHDG's net sales were generated from sales
of wallcoverings, heat transfer paper and flexible vinyl film, respectively.
Historical financial information with respect to Imperial includes Imperial
U.S., Imperial Canada and their respective subsidiaries. Substantially all of
Imperial's 1997 net sales were generated from sales of wallcoverings.
43
<PAGE>
RESULTS OF OPERATIONS--IHDG
SIX MONTHS ENDED JUNE 27, 1998 COMPARED TO SIX MONTHS ENDED JUNE 28, 1997
As a result of the Imperial Acquisition on March 13, 1998, IHDG's results
for the six months ended June 27, 1998 were impacted by approximately fifteen
weeks of Imperial sales, cost of sales, and other expenses.
Net Sales. Net sales for the six months ended June 27, 1998 were $215.0
million, of which the Imperial Acquisition accounted for sales of $41.9 million.
Notwithstanding the Imperial Acquisition, $24.4 million or 12.4% decrease in
sales compared to the six months ended June 28, 1997 was due partially to a
decline in North American trade sales of $11.0 million. The decline resulted
from the business interruption of combining and restructuring Imperial's and
IHDG's sales forces and Target's, Hechinger's and Walmart's decisions to reduce
their wallcovering offerings. Trade sales for the U.K. business decreased $11.4
million due mainly to weakness in the export market where the strength of the
Sterling and poor economic conditions in Eastern Europe and the Far East hurt
export sales.
Sales of flexible vinyl films and sheeting at Vernon Plastics fell $1.7
million to $26.3 million in the first six months of 1998. Customer demand
shifted somewhat to lower priced commodity products in the pool liner and
industrial fabrics product lines.
Gross Profit. Gross profit for the first six months of 1998 was 32.0%
compared to 37.0% for the same period in 1997. The Company recorded a $4.6
million charge for excess inventories identified based on production planning
changes, consolidation of manufacturing facilities and distribution centers, the
anticipated effect of consolidating sales forces in North America and assessment
of product and marketing strategies for existing and acquired collections. Gross
margins were also impacted by $8.0 million of amortization related to the
step-up of Imperial inventory to fair market value. Without the impact of the
inventory write-down and amortization of the step-up, margins would have been
37.8%.
Selling, general, and administrative expenses. Selling, general, and
administrative expenses were 35.9% of sales in the first six months of 1998
compared to 27.8% of sales for the same period in 1997. Without the
restructuring and other integration charges described below, selling, general,
and administrative expenses would have been 32.5% of sales. The increase over
1997 was partially due to compensation expense on stock options for IHDG's
management that became exercisable upon the closing of the Recapitalization and
sales bonuses together totaling $1.1 million. Increased professional fees of
approximately $1.9 million relating to preparation of the registration statement
and other transitional issues and increased pension expense and employee costs
in sales force also impacted the first six months of 1998.
Restructuring and other integration costs. In the first six months of
1998, the Company recorded a charge for restructuring and other integration
costs of $7.3 million and $4.6 million for inventory write-downs reported with
cost of goods sold in anticipation of the Company's planned exit of two
distribution centers and the finishing and bookmaking operations at one
manufacturing facility. The charge also provided for the restructuring of the
Company's headquarters and sales force. The charge included property write-downs
of $825,000 for impaired assets at the impacted distribution centers and $6.5
million primarily for anticipated severance and lease costs. The restructuring
affected approximately 320 employees.
Transaction costs. Merger costs totaling $4.0 million were incurred in the
first six months of 1998. The costs consisted of professional fees and expenses.
Taxes. Income tax expense for the first six months of 1998 was $0.1
million compared to $6.6 million for the same period in 1997. The reduction in
income tax expense between the two periods is not proportional to the reduction
in income before taxes primarily due to deferred income taxes provided on
undistributed earnings of the foreign subsidiaries in 1998 and a valuation
allowance which reduced the income tax benefit of the loss on domestic
operations in 1998.
44
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. Net sales for the year ended December 31, 1997 increased by
$7.7 million, or 2.1%, to $372.7 million from $365.0 million for the comparable
period in 1996. Trade sales in Europe increased $8.1 million, or 4.5%, to $189.2
million for the year ended December 31, 1997 from $181.1 million in the
comparable period in 1996. This increase was due primarily to a favorable
currency translation of the U.K. operations' sales from pound sterling into U.S.
dollars. In local currency terms, sales in Europe in fiscal 1997 were
substantially unchanged from 1996 with a decline in sales in the U.K. offset by
an increase in export sales particularly to Eastern Europe.
Wallcovering trade sales in North America of $134.2 million for the year
ended December 31, 1997 were comparable to sales of $134.4 million for the same
period in 1996.
Net sales of flexible vinyl films and sheeting at Vernon Plastics for the
year ended December 31, 1997 were $49.3 million, which were comparable to sales
of $49.4 million for the same period in 1996.
Gross profit. Gross profit percentage remained static between the years
ended December 31, 1996 and 1997 at 34.9%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased slightly for the year ended December 31, 1997
to $96.6 million from $96.3 million for 1996. As a percent of sales, however,
expenses decreased to 25.9% in 1997 from 26.4% in 1996. This decline resulted
from the closure in 1997 of two distribution centers and the one-time start up
costs incurred in 1996 associated with the establishment of a major account with
Kmart.
Net income. Net income increased $1.6 million, or 7.7%, to $22.4 million
for the year ended December 31, 1997 from $20.8 million for the comparable
period in 1996. This increase was primarily due to the factors discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales. Net sales increased $2.7 million, or 0.7%, to $365.0 million
for 1996 from $362.3 million for 1995. Sales of wallcoverings increased $0.6
million, or 0.2%, to $292.4 million in 1996, from $291.8 million in 1995 due
primarily to increases in export sales of wallcoverings to Eastern Europe,
partially offset by decreases in North American sales and a management
initiative to rationalize low volume and unprofitable accounts. Heat transfer
paper sales for 1996 increased $2.1 million, or 10.0%, to $23.2 million from
$21.1 million in 1995 primarily due to increases in export sales. For both
wallcoverings and heat transfer paper, a price increase in 1996 was partially
offset by unfavorable currency translation of U.K. sales from pound sterling to
U.S. dollars. Net sales of flexible vinyl film and sheeting at Vernon Plastics
of $49.4 million in 1996 was unchanged from 1995.
Gross profit. Gross profit decreased $5.0 million, or 3.8%, to $127.5
million for 1996 from $132.5 million for 1995. As a percentage of net sales,
gross profit declined in 1996 to 34.9% from 36.6% in 1995. In wallcoverings,
these decreases were primarily due to lower sales volumes, reduced factory
throughput and changes in sales mix in North America, partially offset by
increased prices and improved factory efficiencies in the U.K. Gross margins, in
part, were reduced due to increased costs of new products and costs relating to
the acquisition of printing cylinders from a U.K. competitor. Gross margins at
Vernon Plastics declined to 17.6% in 1996 from 17.9% in 1995 primarily due to
increased costs for insurance and unemployment taxes.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $6.8 million, or 6.6%, in 1996 to $96.3
million from $103.1 million in 1995. This decrease was primarily due to a $4.4
million reduction in one-time selling and merchandising costs incurred in 1995
associated with obtaining the Kmart account.
Net income. Net income increased $3.5 million, or 20.2%, to $20.8 million
in 1996 from $17.3 million in 1995 due to the factors discussed above.
45
<PAGE>
RESULTS OF OPERATIONS--IMPERIAL
FISCAL YEAR ENDED DECEMBER 28, 1996 COMPARED TO FISCAL YEAR ENDED JANUARY 27,
1996
As a result of Imperial's decision to change its fiscal year-end from
January to December in fiscal 1996, the fiscal year ended December 28, 1996
('fiscal 1996') was a 48-week period as compared to the fiscal year ended
January 27, 1996 ('fiscal 1995') which was a 52-week period. Therefore,
comparisons of sales and related costs and expenses between the two periods are
impacted by the different lengths of the periods.
Net sales. Net sales for fiscal 1996 were $157.6 million, a 20.3% decrease
from $197.7 million in fiscal 1995. Comparing corresponding 52-week periods
(including January 1996 in both periods), net sales for fiscal 1996 were $174.9
million, a decline of $22.8 million, or 11.5%, from fiscal 1995.
This decline in sales was primarily attributable to residential
wallcovering sales which accounted for over 88% of net sales in both fiscal 1996
and fiscal 1995 (with the remaining 12% representing commercial wallcovering
sales). Comparing 52-week periods, residential sales for fiscal 1996 decreased
$21.6 million from fiscal 1995. The decrease in sales was primarily due to poor
consumer acceptance of product lines and a decline in converter sales of $4.1
million. Sales to converters were negatively impacted by production problems
resulting in delayed shipments and a decline in demand in the converter market.
Partially offsetting these declines was an increase in sales to Chain Stores of
$1.7 million and an increase in international sales due to growth in Europe.
Gross profit. Gross profit for fiscal 1996 was $52.0 million as compared
to $56.6 million in fiscal 1995, an 8.1% decrease. As a percentage of sales,
gross profit increased to 33.0% in 1996 compared to 28.6% in 1995. Excluding a
$10.8 million inventory write-down taken in 1995, however, the gross margin in
1995 would have been 34.1%. This decrease as a percentage of sales, excluding
the inventory adjustment, was primarily attributable to manufacturing absorption
losses due to a decrease in sales volume, partially offset by a reduction of
inefficiencies associated with the implementation of new manufacturing systems.
The inventory write-down was taken in connection with Imperial's restructuring.
At that time, Imperial implemented an inventory tracking method which management
believes tracks obsolete inventory by identifying slow moving inventory by SKU
each quarter.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $71.5 million in 1996 as compared to $67.9 million
in 1995, increasing as a percentage of sales to 45.4% in 1996 from 34.3% in
1995. Distribution expenses were $11.8 million for fiscal 1996 as compared to
$10.4 million for fiscal 1995. This increase was primarily due to operating
multiple distribution centers while consolidating inventories to the new
distribution center in Knoxville, Tennessee. Consolidation to the Knoxville
distribution center began in the second quarter of 1996 and shipping began from
that facility in October 1996. Selling expenses were $36.4 million in fiscal
1996 as compared to $38.4 million in fiscal 1995. This increase from 19.4% to
23.1% as a percentage of sales is due to investments in collections made to
increase and improve product lines. General and administrative expenses were
$23.3 million in fiscal 1996 as compared to $19.1 million in fiscal 1995. This
increase was attributable to increased employee expenses.
In fiscal 1995, Imperial's results included a $12.9 million restructuring
charge for the consolidation of distribution activities and the closure of one
manufacturing facility. This charge included an $8.7 million write-down of
certain assets, $2.8 million of costs to close these facilities and $1.4 million
of costs for severance benefits.
Other income (expense). Other income (expense) fluctuated as a result of
foreign exchange losses of $0.4 million recorded in fiscal 1996 compared to
gains of $0.2 million recorded in fiscal 1995.
Interest income (expense). Interest expense was $7.9 million and $5.7
million in fiscal 1995 and fiscal 1996, respectively, primarily as a result of
C&A's allocated debt to fund Imperial's operating and working capital needs.
Interest expense decreased due to reductions in the average outstanding debt
balance and a shorter fiscal year in 1996.
Loss on sale of receivables. Beginning in 1994, Imperial sold all of its
U.S. receivables to Carcorp, Inc. under the terms of a receivables sales
agreement. In connection with the sale of the receivables, Imperial recorded
losses of $4.3 million and $2.6 million in fiscal 1995 and fiscal 1996,
respectively. This decrease resulted from a
46
<PAGE>
shorter fiscal year in 1996 and an overall decrease in the accounts receivables
sold under the facility due to a decrease in sales.
Net income (loss). Net loss was $34.7 million for the period ending
December 28, 1996 compared to $27.9 million for fiscal 1995 due primarily to the
factors mentioned above.
CAPITAL EXPENDITURES AND PRODUCT DEVELOPMENT EXPENDITURES
IHDG. Capital expenditures for the year ended December 31, 1997 were $20.8
million. Significant capital expenditures in 1997 included $2.1 million for a
vinyl base coating line which increases capacity and reduces production costs in
the U.K., $2.3 million to increase capacity at the flexible vinyl film plant in
Haverhill, Massachusetts and to expand Vernon Plastics's product base and $1.3
million to complete two new gravure lines in the U.K. Capital expenditures in
1996 were $21.2 million compared to $6.4 million in 1995. Significant capital
expenditures in 1996 included $11.7 million to install two new gravure lines at
the facility in Morecambe, U.K., which has provided additional capacity of
approximately ten million bolts per year. Expenditures for sample books and
design, engraving and cylinder costs totaled $16.7 million and $20.5 million for
the year ended December 31, 1997 and the years 1996 and 1995, respectively.
Capital expenditures for the six months ended June 27, 1998 were $9.3
million. Significant capital expenditures included $2.8 million in store
fixtures, $1.3 million in facility upgrades in the U.K. to comply with new
Environmental Laws, and $1.1 million for integrated lines and hot emboss
improvements in the U.K. Expenditures for sample book and design and engraving
costs totaled $18.0 million.
Imperial. Imperial's capital expenditures for the year ended December 27,
1997 were $8.4 million. Approximately $1.3 million in the 1997 period was
attributable to the Knoxville distribution facility. In the 1997 period, $22.7
million was expensed as cost of goods sold and selling expenses for sample books
and design and engraving costs. Imperial's capital expenditures for property,
plant and equipment were $16.4 million in fiscal 1996 as compared to $15.5
million in fiscal 1995. Approximately $14.0 million and $7.9 million in fiscal
1996 and fiscal 1995, respectively, were associated with Imperial's Knoxville
distribution facility. Additional spending included $1.5 million in fiscal 1995
for improvements to finishing machinery. Expenditures for sample books and
design and engraving costs were $11.3 million and $13.8 million in fiscal 1996
and 1995, respectively.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity requirements are for debt service under the
Senior Credit Facilities and the Notes, and for working capital, product
development (sample books and design and engraving) and other capital
expenditures. IHDG historically funded these requirements through internally
generated cash flow. Imperial historically funded these requirements through
borrowings under its credit facilities and advances from C&A. At June 27, 1998,
the Company's consolidated indebtedness was $346.9 million, consisting of $198.0
million in Term Loans, $23.9 million under the Revolving Credit Facility and
$125.0 million of the Old Notes. To provide additional financing to fund the
Recapitalization and the Imperial Acquisition, Blackstone contributed $84.6
million to the Company through the Equity Contribution.
The Company anticipates total capital expenditures for 1998 and 1999 of
approximately $35.0 million and $44.0 million, respectively. In 1998, the
anticipated capital expenditures consist of (i) approximately $20.0 million in
North America, substantially all of which is related to implementation of the
Integration Plan, (ii) approximately $12.7 million in the U.K., approximately
$5.7 million of which will be used to upgrade the Company's U.K. facilities in
order to comply with new Environmental Laws, and (iii) approximately $2.3
million relating to Vernon Plastics and the commercial wallcovering operations.
In 1999, the Company anticipates capital expenditures of (i) approximately $20.8
million in North America, substantially all of which is related to
implementation of the Integration Plan, (ii) approximately $20.7 million in the
U.K., and (iii) approximately $2.5 million relating to Vernon Plastics and the
commercial wallcovering operations. Management estimates that upon completion of
the Company's integration of IHDG and Imperial in North America, the annual
capital expenditures required to maintain the Company's facilities will be
between $7.0 million and $10.0 million per year. The Company's ability to make
capital expenditures is subject to certain restrictions under the Senior Credit
Facilities. See 'Description of the Senior Credit Facilities.'
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<PAGE>
In conjunction with the Imperial Acquisition, a plan to integrate the
Company and Imperial in North America has been adopted that includes the
consolidation and rationalization of operations. As it relates to the Imperial
Acquisition, the Company plans to close facilities in Plattsburg, New York and
Ashaway, Rhode Island, dispose of certain assets, and reduce the salary and
hourly workforce by approximately 530 employees. The plan is expected to be
substantially complete by the end of 1999. The liabilities accrued under
purchase accounting relating to the integration plan for the Imperial
Acquisition were $12.4 million.
Additionally, as part of the consolidation and rationalization of
operations, the Company recorded restructuring charges and other integration
costs of $7.3 million in anticipation of the Company's planned exit of two
distribution centers and the finishing and bookmaking operations at one
manufacturing facility. The charge also provided for the restructuring of the
Company's headquarters and sales force, the write-down of certain assets to be
disposed of to net realizable value, lease and other contractual agreement
buyouts, and a reduction in the salary and hourly workforce by approximately 320
employees. The plan is expected to be substantially complete by end of 2000. In
addition, the Company recorded $4.6 million for inventory write-downs which has
been reported with cost of goods sold for the first six months ended June 27,
1998. The Company expects to incur non-recurring cash costs of approximately
$23.2 million in 1998 and 1999 and has incurred non-recurring non-cash costs of
$5.4 million in the six months ended June 27, 1998 to integrate the operations
of IHDG and Imperial.
Certain benefits that may result from head count reductions and fixed cost
savings anticipated to be fully realized in 2000 as a result of the
implementation of the Company's Integration Plan as described in 'Business--
Integration Plan. During 1997, the Company incurred $39.0 million of fixed costs
and compensation expense relating to facilities to be closed and positions to be
eliminated. Management estimates that these costs will be eliminated by the year
2000, but will be partially offset by $10.4 million of incremental overhead
costs, primarily at the Company's Knoxville, Tennessee facility. Total net fixed
costs savings from the Integration Plan are estimated at $28.6 million for 2000,
$18.0 million for 1999 and $5.0 million for 1998.
The Company's principal source of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Revolving Credit
Facility and the Deferred Draw Term Loan. As of June 27, 1998, after giving
effect to the Transactions, the Revolving Credit Facility and the Deferred Draw
Term Loan would have provided $78.1 million of additional borrowings available
to be drawn, subject to the satisfaction of customary conditions. Amounts
available under the Revolving Credit Facility and the Deferred Draw Term Loan
may be used for working capital and general corporate purposes, subject to
certain limitations under the Senior Credit Facilities. Assuming the successful
implementation of its Integration Plan, the Company believes that these funds
will be sufficient to meet its current and future financial obligations,
including the payment of principal and interest on the Notes, working capital,
capital expenditures and other obligations. No assurance can be given, however,
that this will be the case. The Company's future operating performance and
ability to service or refinance the Notes and to repay, extend or refinance the
Senior Credit Facilities will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control. See 'Risk Factors.'
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued two new
accounting standards, Statement No. 131, 'Disclosures About Segments of an
Enterprise and Related Information,' Statement No. 132, 'Employees' Disclosures
about Pensions and Other Postretirement Benefits,' Statement No. 133 'Accounting
for Derivative Instruments and Hedging Activities,' and SOP98-1 'Accounting for
the Costs of Computer Software Developed for or Obtained for Internal-Use.'
These statements will affect the disclosure requirements for the 1998 reporting
period. The Company is currently evaluating the effect of these new statements.
48
<PAGE>
INFLATION
The Company does not believe that inflation has had a material affect on
past results of operations of either IHDG or Imperial.
YEAR 2000 COMPLIANCE
Many existing computer programs utilized globally use only two digits in a
data field to identify the year and to perform time calculations. These
programs, if not corrected, could fail or create errors by or at the Year 2000.
This 'Year 2000' issue is believed to affect virtually all companies and
organizations, including this Company.
The Company relies on a significant number of computer programs and
computer technology for its key operations, including product design, sales
order processing, manufacturing, inventory management, distribution, finance,
and various administrative functions. The Company's sales order processing and
production planning systems generally use proprietary applications, while
third-party applications are used more extensively for manufacturing, finance
and other administrative functions.
Following the Recapitalization, the Company is currently performing a
comprehensive study of all of its computer systems, including both internally
developed programs and software purchased from outside vendors, to identify Year
2000 compliance and other operating issues. As part of its Integration Plan, the
Company has selected and is in the process of converting all computer systems to
computer systems utilized by Sunworthy for its critical business functions.
Preliminary testing indicates that the selected systems are substantially Year
2000 compliant. The conversion program is on schedule for phased implementation
to be completed by the end of the first quarter of 1999. The $320,000 paid to
software vendors during the first six months of 1998 for the conversion to the
Sunworthy system has been capitalized and the Company does not expect
significant additional third-party costs related to that conversion.
The Company is also conducting a comprehensive Year 2000 study of its other
computer systems and technologies which it expects to complete by the fall of
1998. This study will include identification of Year 2000 issues and strategies
for addressing such issues that affect third-party software applications.
Third-party providers will also be contacted and appropriate representations
will be sought to the effect that Year 2000 issues associated with the software
provided by them to the Company have been or will be timely addressed. The
Company is in the process of initiating formal communications with all of its
significant suppliers and customers to determine the extent to which the Company
is vulnerable to the failure of such suppliers and customers to remedy their own
Year 2000 problems. The Company plans to develop formal contingency plans by the
end of 1998 where appropriate and expects to be in a position to estimate the
future costs of resolving Year 2000 issues at such time.
Notwithstanding that the Company is proceeding with the implementation of
its own compliance program, including ascertaining Year 2000 compliance of third
parties, the costs of achieving compliance or the inability of the Company or
its material suppliers and customers to effectuate solutions to their respective
Year 2000 issues on a timely and cost effective basis could have a material
adverse effect on the Company.
49
<PAGE>
BUSINESS
Unless reference is made specifically to IHDG or Imperial, the discussions
in this section refer to the Company on a pro forma combined basis, after giving
effect to the Transactions.
COMPANY OVERVIEW
The Company believes it is the world's largest producer and marketer of
residential wallcoverings based on pro forma net sales for fiscal 1997. The
Company is the result of the combination of the residential wallcoverings and
PVC sheeting businesses of IHDG, which were previously substantially wholly
owned by Borden, with the Imperial wallcoverings business previously owned by
C&A. On a pro forma basis for 1997, the Company estimates it would have had a
35.4% and 24.3% share of manufacturer sales of residential wallcoverings in
North America and the U.K., respectively. The Company's estimated 32.2% share of
the combined 1997 North American and U.K. residential wallcoverings sales is
believed to be over three times the level of sales of the next largest
residential wallcoverings manufacturer in North America and the U.K. The Company
designs, manufactures and markets its residential wallcoverings products under
various recognized brand names, including Crown, Sunworthy, Imperial and Albert
Van Luit, as well as under licensing and distribution agreements with leading
designers and consumer brands such as Ralph Lauren, Lenox, Nautica, Laura
Ashley, Alexander Julian, Eddie Bauer and the NCAA schools. Due to the
differences in market conditions and competitive factors in North America and
Europe, the Company operates its residential wallcoverings business as two
separate geographic divisions, North America and Europe, each of which will
coordinate its manufacturing, sales, marketing and distribution activities.
Vernon Plastics is a leading manufacturer of calendered, flexible PVC
sheeting, printed sheeting and laminated products that operates as a separate
line of business distinct from the Company's residential wallcoverings business.
Vernon Plastics operates on an essentially stand-alone basis, with overhead and
administrative support services provided by the Company. Vernon Plastics' net
sales in 1997 were $49.3 million and its operating profit was $4.3 million. The
Company is engaged in a review of strategic alternatives with respect to Vernon
Plastics which it expects to complete by the end of this year.
On a pro forma basis, for the year ended December 31, 1997, the Company had
net sales of $536.5 million, a net loss of $18.0 million and EBITDA, As Defined,
of $32.6 million. On a pro forma basis for the year ended December 31, 1997, the
Company's total sales in North America and Europe represented approximately
67.3% and 29.3% of the Company's total sales, respectively. The Company's
operations outside North America have recently contributed substantially all the
Company's total consolidated pro forma net income and EBITDA, As Defined.
Residential wallcoverings are decorative products produced from paper,
fabric, vinyl and other substrates that are printed, embossed and laminated and
are applied to walls using specially designed adhesives applied to the back of
the wallcovering during the manufacturing process. Residential wallcoverings are
of two types, sidewalls and borders. Sidewalls are produced in broad sheets and
are designed to cover the entire wall. Borders are produced in narrower sheets
and are intended to be applied to the top of the wall or above the wall molding
as a complement to the painted or sidewall covered surface. Residential
wallcoverings compete with paint products for a 'share of the wall' in the
residential decorating market.
COMPETITIVE STRENGTHS
Leading Market Position. In 1997, on a pro forma basis, the Company
generated over three times the revenue of the next largest residential
wallcoverings manufacturer in North America and the U.K. and held a 35.4% share
of manufacturer sales in North America and 24.3% in the U.K. The Company serves
all segments of the residential wallcoverings industry and has one of the most
comprehensive product offerings in the industry. The Company's wallcovering
products include both sidewalls and borders, and are manufactured using a
variety of substrates including paper, fabric and vinyl. The Company currently
maintains approximately 45,000 active SKUs. Management believes that the
Company's ability to supply this full product line is a particular advantage
because many retailers are consolidating their suppliers. The Company's in-house
brands, including Crown, Sunworthy, Imperial and Albert Van Luit, are among the
leading names in the residential wallcoverings industry. Management believes
that consumers associate the Company's brands with superior design, quality and
service.
50
<PAGE>
Licensing and Distribution Agreements with Leading Brands. As the
worldwide revenue share leader in the residential wallcoverings industry, the
Company believes it is uniquely suited to leverage the substantial marketing
power of leading fashion designers and 'name' brands and has secured long-term
licensing and distribution agreements for wallcovering products in North America
with several of these, including Ralph Lauren, Lenox, Nautica, Laura Ashley,
Alexander Julian, Eddie Bauer and the NCAA schools. The majority of these
licensing agreements have been entered into or renewed during 1997 and typically
have a term of not less than two years. The Company also has relationships with
several leading home textiles producers, such as Fieldcrest Cannon, Croscill,
J.P. Stevens, Crown Crafts and West Point, which enable it to provide pattern
and color schemes that are coordinated with the bedding and window treatments
offered by these producers.
Strong Relationships with Leading Chain Stores. The Company has
particularly strong relationships with Chain Stores in North America and the
U.K. Management believes that these Chain Stores have captured, and are expected
to continue to capture, sales from both smaller Chain Stores and the
lower-priced and middle-priced segments of the independent dealer channel. The
Company has enjoyed long-standing relationships of more than ten years with each
of its top ten Chain Store customers, which together generated approximately
25.8% of its residential wallcoverings sales in North America and Europe in
1997. In the home center channel, the Company is the leading supplier to the
three largest U.S. home center chains, The Home Depot, Lowes and Menards, and is
the first or second leading supplier to each of the five largest chains in the
U.K. The Company is the sole residential wallcoverings supplier to Kmart and the
leading supplier to Wal-Mart and Target. The Company is also the leading
supplier of residential wallcoverings to Sherwin-Williams, the largest specialty
paint and wallpaper chain in the U.S. The Company believes that it is uniquely
suited to attract and retain these large and fast growing retail customers due
to its (i) highly efficient, modern production and distribution facilities, (ii)
strong portfolio of in-house and licensed brands, (iii) willingness to invest in
co-op advertising, in-store fixtures and category management initiatives, and
(iv) ability to achieve consistently high service levels for in-stock
merchandise.
Low Cost, Technologically Advanced Manufacturer. The Company believes that
it is the highest-volume manufacturer of residential wallcoverings in the world,
which, combined with its fully integrated operation across design, manufacturing
and distribution functions, enables it to capitalize upon economies of scale in
purchasing, manufacturing and distribution. The Company also believes that its
key technological and manufacturing process advances in rapid manufacturing line
changeover, batchless production, 'in-register' embossing and CAD/CAM technology
have contributed to its low-cost position and enhanced its ability to produce a
broad range of SKUs cost efficiently. Management expects that the implementation
of the Integration Plan, which entails the closure of two of the Company's four
North American printing plants and consolidation of 11 U.S. distribution and
finishing operations into the Company's state-of-the-art Knoxville, Tennessee
facility, will further enhance the Company's low-cost position by maximizing
utilization of the Company's most modern, efficient assets and facilitating
substantial head count reductions. See '--North American Integration Plan.'
Significant Investment in Manufacturing and Distribution
Assets. Management believes that the Company's recent significant investments
in modernizing its manufacturing equipment and distribution facilities provide
it with a competitive advantage. From 1995 through 1997, the Company has
invested approximately $90.0 million primarily to improve the efficiency of its
existing operations, including: (i) a $14.0 million investment by IHDG in two
new high-speed gravure print lines and associated finishing equipment at its
facility in Morecambe, U.K., which are achieving productivity levels
significantly greater than that of the prior generation of printing technology;
(ii) a $6.4 million investment by IHDG in batchless production, 'in-register'
embossing and CAD/CAM technology in the U.K., which has contributed to its
low-cost position and enhanced its ability to produce a broad range of SKUs cost
efficiently; (iii) a $23.3 million investment by Imperial in a state-of-the-art
finishing and distribution facility in Knoxville, Tennessee, which is expected
to reduce annual distribution expense; and (iv) a $9.0 million investment by
Imperial in printing equipment, in-line finishing, CAD/CAM technology and
information systems at the Sherbrooke, Canada manufacturing facility, which is
expected to improve manufacturing gross profit. Management anticipates achieving
higher operating margins in future years as it achieves full utilization of
these modern, highly efficient assets by absorbing the capacity of redundant and
less efficient facilities.
Experienced Management Team. The Company has a senior management team with
a wide range of experience in the residential wallcoverings and related
industries. The Company's President and Chief Executive
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<PAGE>
Officer, James P. Toohey, had 32 years of experience in a primarily marketing
oriented business--Hallmark Cards, where he was most recently President of
Hallmark International--prior to joining Imperial in October 1996 and becoming
an employee of the Company as of March 13, 1998. The Company also benefits from
the industry expertise of its President--North American Marketing, Michael
Landau, who has 28 years of experience in the wallcovering industry, most
recently as President of F. Schumacher & Co. Wallcoverings, a position he held
from 1990 to 1997. During his tenure as President at F. Schumacher & Co.,
revenues grew from approximately $10.0 million to over $100.0 million. The
remainder of the senior management team has been drawn from the management of
both Imperial and IHDG and from outside the Company. The Company's senior
managers will be awarded options or other equity rights, subject to certain
performance-based and other vesting provisions. See 'The Transactions,'
'Management,' 'Executive Compensation' and 'Security Ownership.'
Product Innovation. The Company has developed a new self-adhesive border
product, 'Stick 'n Play' in cooperation with 3M, which is currently being
test-marketed in anticipation of its planned introduction in the Fall of 1998.
Other product innovations introduced by the Company include 'Sculptured Edge'
and 'Outlines' borders that have one edge die-cut to follow the printed design,
thus producing an effect with enhanced visual appeal. Self-adhesive and
special-cut wallcoverings command higher sales prices and better margins and
appeal to a segment of consumers that might not otherwise consider purchasing
wallcoverings.
NORTH AMERICAN INTEGRATION PLAN
Cost-Savings Measures. The Company has adopted a plan to integrate IHDG
and Imperial in North America (the 'Integration Plan'), the principal components
of which are: (i) closing Imperial's inefficient, limited capacity paper making
and coating facilities in Plattsburgh, New York in favor of leveraging the
combined Company's ability to purchase substrate at a lower cost than either
Imperial's present manufacturing cost level or IHDG's outside purchase cost
level; (ii) rationalizing the Company's printing facilities by consolidating
four presently five-day per week, non-continuous printing plants into two
seven-day continuous operations; (iii) rationalizing the Company's finishing
function by consolidating all finishing activities from the four printing
facilities at which they are presently located to the Company's state-of-the-art
finishing and distribution facility in Knoxville, Tennessee; (iv) rationalizing
the Company's distribution network by consolidating seven existing distribution
warehouses into the Knoxville facility; and (v) substantial employee head count
reductions in North America through the elimination of redundancies in selling,
customer service and other support operations.
Management estimates head count reduction and fixed cost savings from the
Integration Plan to be $28.6 million, net of $10.4 million of incremental
overhead costs (as compared to estimated total pro forma costs for 1997),
comprised of the following components:
<TABLE>
<CAPTION>
INTEGRATION PLAN COMPONENT COST SAVINGS
- ------------------------------------------------------------------------------------ ---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Rationalization of printing facilities.............................................. $ 3.3
Rationalization of finishing facilities(1).......................................... 4.6
Paper making facility closing....................................................... 3.2
Rationalization of distribution facilities(2)....................................... 5.1
Elimination of selling, customer service and support redundancies................... 12.4
------
Total.......................................................................... $28.6
------
------
</TABLE>
- ------------------
(1) The amount shown is net of $2.5 million of estimated incremental costs
relating to the rationalization of finishing facilities.
(2) The amount shown is net of $7.9 million of estimated incremental costs
relating to the rationalization of distribution facilities.
52
<PAGE>
The Company's head count reduction plan is as follows:
<TABLE>
<CAPTION>
HEAD COUNT
AT THE EXPECTED
ACQUISITION DATE HEAD COUNT
---------------- ----------
<S> <C> <C>
Printing facilities...................................................... 629 475
Finishing facilities..................................................... 276 201
Substrate/paper making facility.......................................... 115 33
Distribution facilities.................................................. 280 220
Selling, customer service and support operations......................... 541 355
------ ----------
Total............................................................... 1,841 1,284
------ ----------
------ ----------
</TABLE>
The foregoing actions will each be commenced in the current year and are
expected to be substantially completed by the end of 1999. Accordingly, 2000 is
the first year in which their effects are expected to be fully realized. The
total head count and fixed cost savings estimates of the Integration Plan in
1998 and 1999 are presently estimated at $5.0 million and $18.0 million,
respectively. The head count reduction and fixed cost savings estimates do not
give effect to margin improvements expected to result from implementation of the
Integration Plan and new capital budgeted for investment at the rationalized
facilities, as well as the planned revenue improvements expected to result from
the Company's planned product development and remerchandising plan described in
'--Business Strategy.' While there necessarily can be no assurance that any
particular level of cost savings will be achieved (see 'Forward-Looking
Statements' and 'Risk Factors-- Integration of Imperial, Implementation of
Business Strategy and Limited Relevance of Historical Financial Information'),
management believes that the parallel structure of Imperial and IHDG's Sunworthy
operations in North America and their substantial recent capital investments in
modern production and distribution assets, which management believes were
underutilized prior to the Transactions, will facilitate the achievement of
these cost savings.
Budgeted Capital Expenditures and Rationalization Expenses. Management has
adopted a North American capital budget of approximately $40.0 million in the
aggregate for 1998 and 1999, substantially all of which relates to the
implementation of the Integration Plan. The Integration Plan will not require
any material capital expenditures in the U.K. In addition, management estimates
that it will incur one-time severance and other cash expenditures of
approximately $23.2 million during 1998 and 1999 relating to the head count
reduction, facility consolidation and other components of the Integration Plan.
Additional Gross Margin Effects. In addition to the head count reduction
and fixed cost savings expected to be achieved through the rationalization of
facilities and operations as described above, the rationalization of the
manufacturing asset base coupled with significant recent and planned capital
expenditures at the facilities are intended to drive North American gross
margins from 47% in 1997 to approximately 59% by 2001. If successfully
implemented, this would create an additional $17.0 million of gross profit
(based on the Company's pro forma fiscal 1997 net sales) in addition to the
$28.6 million of head count reduction and fixed cost savings.
o Printing: The Company's objective for its printing operations is to
improve cost effectiveness by consolidating its printing facilities and
closing redundant operations, investing in state-of-the-art, high-speed
printing presses, relocating its finishing operations to Knoxville,
focusing the plants on printing only, and enhancing its position as a
technology leader in the manufacture of wallcoverings. As discussed in
'--Cost-Savings Measures' above, the Company plans to reduce its four
printing facilities which are non-continuous, five day per week
operations into two printing facilities which are run on a continuous,
around the clock basis. This is expected to produce annual fixed cost
savings of $3.3 million and to decrease head count from 629 to 475 upon
implementation. In addition, the Company plans to add state-of-the-art
gravure color printing equipment, designed specifically to facilitate
quick changeover times, high run speeds and lower scrap rates to replace
obsolete equipment at its Brampton and Sherbrooke printing facilities.
The Company presently has 24 gravure printing presses which are largely
antiquated with an average run speed of 239 feet per minute, an average
changeover time of 85 minutes and an average scrap rate of 16.1%. This
asset base will be replaced by the end of the Integration Plan by 14
gravure printing presses (two new and 12 modernized) with an average run
speed of 472 feet per minute, an average change over time of 49 minutes
and an average scrap rate of 9.5%, at a budgeted capital cost
53
<PAGE>
of $19.0 million in 1998 and 1999. The goal of this element of the
Integration Plan is to reduce the variable unit cost of printing, which
is the largest cost component in the Company's production chain, from
21.5 cents per yard produced to 16.5 cents by 2001, resulting by that
year in $8.7 million of annual profit improvement (based on the Company's
pro forma 1997 net sales) in addition to the $3.3 million of cost savings
discussed above.
o Finishing: The Integration Plan for the Company's finishing function
entails the removal of finishing and converting activities from its four
existing printing facilities and consolidating the entire function in a
stand-alone facility in Knoxville, Tennessee, the relocation of modern
and efficient equipment to that site and the purchase of new equipment to
complement the single finishing facility structure. Historically,
finishing and converting have been associated with individual printing
locations and equipment has been specified to meet demands placed on the
individual plants, leading to a higher number of low speed lines with
limited capability for cost reduction running on five day operating
cycles. As discussed in '--Cost-Savings Measures' above, the fixed cost
savings from the facility closures are expected to be $4.6 million and
the head count is expected to decline from 276 to 201 by 2000.
In addition to these cost-saving measures, the Company plans to purchase
three new high-speed finishing lines and relocate five existing finishing
lines from the Company's four existing facilities to its Knoxville
facility. This will effectively decouple printing from finishing in North
America and is designed to permit the Company to better optimize the
trade-off between printing run length and inventory carrying cost by (i)
utilizing the shorter time and lower costs associated with changeovers on
the automated, stand-alone finishing lines relative to printing lines to
insulate the printing lines from short run fluctuations in the market
demand, thereby permitting efficient, leveled printing production
scheduling and (ii) shifting the reserve stock function upstream to the
unfinished printed reels instead of finished goods to lower inventory
carrying costs. The Company plans $7.0 million of capital expenditures
during 1998 and 1999 on the finishing operations to effectuate the
consolidation plan and purchase of new equipment, with the objective of
reducing the cost per yard produced for finishing from 11.5 cents to 6.5
cents by 2000, producing by that year $7.4 million of annual profit
improvement (based on 1997 pro forma net sales) in addition to the $4.6
million of cost savings discussed above.
o Substrate/Paper Making: As discussed in '--Cost-Savings Measures' above,
the Company's Integration Plan contemplates that Imperial's papermaking
facility in Plattsburgh will be closed in the second quarter of 1998 and
that the Company will use its critical mass to source all its substrate
requirements from outside vendors. Third-party substrate sourcing is
expected to be more cost-effective than Imperial's historically
integrated costs (due to its high-cost and antiquated facilities) as well
as IHDG's historical outside sourcing (due to the larger purchasing scale
of the Company), and the fixed costs alone attributable to Imperial's
Plattsburgh papermaking facility were $3.2 million in 1997 and the head
count is expected to be reduced from 115 to 33. The Company intends to
implement a new vinyl coating capacity which will utilize 33 employees at
one of the Company's remaining printing facilities. The substrate
sourcing aspect of the Integration Plan includes approximately $3.5
million of capital investment in new vinyl coating capacity during 1998
and 1999, which if combined with the above-discussed rationalization
benefits, is designed to reduce the unit cost per yard produced from 15.5
cents in 1997 to 14.0 cents by 2000, resulting in $0.8 million of annual
profit improvement by 2000 in addition to the $3.2 million of cost
savings discussed above.
o Distribution: The Company's Integration Plan entails the consolidation
of its seven distribution facilities into its Knoxville facility. From
1995 to 1997, Imperial spent approximately $23.3 million of capital on
this state-of-the-art facility, which is expected to replace all existing
warehouses by 1999. The Knoxville distribution facility was built to
accommodate large incremental volume at low additional cost due to its
modular setup and therefore is expected to be able to process the
Company's distribution function at significantly lower cost than separate
regional warehousing systems. As discussed in '--Cost-Savings Measures'
above, the fixed cost savings are estimated at $5.1 million by 2000 and
the head count is expected to be reduced from 280 to 220. It is expected
that the Company will spend $7.0 million of additional capital in 1998
and 1999 to consolidate and expand its distribution facilities at
Knoxville, which the Company believes will further enhance its
productivity and contribute to additional margin improvement in the
future.
54
<PAGE>
o Rationalization of Sales Force, Customer Service and Other Support
Functions. The Company's Integration Plan contemplates the
rationalization of the sales forces from IHDG and Imperial, which have
significant overlaps in North America. At the end of 1997, the Company
had a head count in this area of 158 and a total sales force expense of
$14.9 million. It is expected that the sales force head count will be
reduced to 99 by 1999, which will result in annual cost savings of $4.4
million.
The Integration Plan also contemplates the consolidation of IHDG's and
Imperial's customer service and credit functions, which directly overlap
in North America. In 1997, the Company had a head count of 200 in this
area and total expense of $8.4 million for these functions. It is
expected that the head count will be reduced to 131 by 1999, which would
result in annual cost savings of $2.9 million.
The remaining overhead functions of the Company include information
systems, finance/treasury, research and development, human resources,
audit and other corporate functions. The total head count and expense of
these functions in 1997 were 183 and $24.1 million, respectively. As with
the other support functions, there is significant overlap between the two
companies in each of these areas. It is expected that the head count will
be reduced from 183 to 125 by 1999, which would result in annual cost
savings of $5.1 million.
BUSINESS STRATEGY
In addition to improvements in the Company's financial performance expected
to result from head count reductions and fixed cost savings associated with the
Integration Plan, the Company intends to capitalize upon its position as the
world's largest supplier of residential wallcoverings to enhance its sales and
profitability by implementing a growth strategy comprised of the following five
components:
Grow with Leading Chain Stores. The Company intends to maintain and expand
its position as the leading supplier to large, fast-growing Chain Stores in the
U.S. and U.K., especially home centers, and grow along with them as they
continue to roll out new stores and capture sales from both smaller Chain Stores
and the lower-priced and middle-priced segments of the independent dealer
channel. The Company's licensing and distribution agreements with
well-recognized name brands, ability to consistently achieve high service levels
for in-stock merchandise and willingness to invest in co-op advertising,
in-store fixtures and category management initiatives, such as the in-store
gallery concept, are central components of this strategic initiative. The
Company's gallery concept is designed to showcase a selection of both collection
books and in-stock residential wallcoverings products organized by color and
pattern style using a dedicated space within the store to facilitate display,
stocking and consumer selection. The Company is testing the concept at
Sherwin-Williams and plans to initiate a rollout at selected Chain Stores later
this year. In Western Europe, where the Company's sales to the large Chain
Stores have historically been restricted to those with central warehousing, the
Company plans to develop local sales and distribution networks to serve Chain
Stores that require store-by-store service.
Leverage Licensing and Distribution Agreements and Build In-House Brand
Recognition. The Company intends to: (i) continue to leverage its existing
licensing and distribution agreements with Ralph Lauren, Lenox, Nautica, Laura
Ashley, Alexander Julian, Eddie Bauer and the NCAA schools to provide clear
design direction, increase the Company's share of retail shelf space and exploit
joint merchandising and promotional opportunities, thereby maximizing sales per
collection; (ii) rationalize its in-house product offering to reduce the amount
of duplicate SKUs between the Imperial and Sunworthy brands; and (iii) increase
advertising dollars from $3.2 million in 1997 to $5.6 million in 1998 and focus
expenditures on the Imperial brand to develop consumer recognition and
differentiate the product. Management expects that the rollout of existing
licenses and continued addition of new licensed brands will provide a platform
for sustainable, long-term growth and increase licensed products' share of the
Company's residential wallcoverings sales.
Rebuild Sales in the High-End, Independent Dealer Segment in North
America. Management believes that the substantial size, premium prices and
highly fragmented nature of the manufacturer base serving the high-end
residential wallcoverings market in the independent dealer channel make it a
structurally attractive segment. The Company's gross margin on its Albert Van
Luit product line in this segment was approximately 76% in 1997 versus the less
than 50% average for its overall North American residential sales. Management
also believes that the Company's highly efficient distribution facility and
network, ability to manufacture short runs of custom SKUs cost effectively and
brand recognition provide it with a competitive advantage in recapturing a
leading
55
<PAGE>
position in this segment after having reduced its presence in the early 1990's
as part of a cost cutting program. The Company's high-end strategy will consist
of the following initiatives: (i) build on its well recognized Albert Van Luit,
Sterling and Katzenbach & Warren brands by increasing the number of active
high-end collections from 23 to 72 over the next four years and improving the
quality of product introduced under these names; (ii) develop a design studio
presence in New York; (iii) build a regional network of sales agents to service
the designer/dealer community; and (iv) selectively pursue add-on acquisitions
of, and/or strategic joint ventures with, competing high end brands.
Pursue Add-on Acquisitions and Strategic Joint Ventures. The Company
intends to pursue selected add-on acquisitions of, and/or strategic joint
ventures with, small, niche manufacturers' important product lines and retail
accounts that will increase utilization of its existing manufacturing and
distribution assets. The ongoing consolidation of fragmented North American and
European wallcoverings markets should provide multiple acquisition
opportunities, especially in the high-end product segment.
Increase Share in Growing International Markets. The Company plans to
expand its 32 member export sales team and leverage established contracts with
key distributors in order to continue to increase its sales in the high growth
markets of Eastern Europe, to which the Company's sales have increased from
approximately $2.6 million in 1993 to $51.0 million in 1997. The Company expects
to establish a strong consumer brand position as these markets mature and
develop more sophisticated retail environments. Management believes that as the
major U.S. home improvement chains expand internationally, there will be a
growing need for high-quality, dependable suppliers such as the Company to
establish a direct presence overseas in areas not already fully served by the
European division of the Company.
INDUSTRY OVERVIEW
Overview. Management estimates that approximately $3.9 billion of
wallcoverings were sold worldwide in 1996, approximately $2.7 billion of which
were sold in North America and Europe. Of the total value of wallcoverings sold
in these two regions, residential products accounted for approximately $2.0
billion, 74% of the total, and product designed for usage in commercial
applications such as office buildings and hotels accounted for the remaining
$0.7 billion. Substantially all of the Company's wallcoverings sales are
concentrated in the residential markets of North America and Europe.
The residential wallcoverings industry worldwide is highly fragmented and
consists mainly of local manufacturers. It is common practice for wallcoverings
industry participants to sub-contract various steps in the supply chain to other
industry participants. Multiple retail distribution channels exist for
residential wallcoverings, including mass merchants, home centers, specialty
chains and independent dealers. Independent dealers generally carry limited
in-stock merchandise, but do maintain a large number of 'collection' books
published by wallcoverings manufacturers that each contain approximately 100
different wallcoverings color and pattern combinations. Because of their limited
selection of product available for immediate purchase at the point of sale,
these dealers depend on manufacturers to quickly fulfill orders made from their
collection books, delivering directly to the dealer or customer. Consumers
purchasing high-end residential wallcoverings generally rely upon interior
decorators and designers to help customers select wallcoverings and fabric from
the dealers' collection books. Mass merchandisers, such as Kmart and Target
generally carry only in-stock merchandise and focus on a limited number of
high-volume SKUs. Home centers, such as The Home Depot and Menards, and
specialty chains, such as Sherwin-Williams and Wallpapers to Go, generally carry
both in-stock merchandise and collection books. The relative importance of these
retail distribution channels varies by country.
The manufacturing and marketing of residential wallcoverings is a mature
industry in North America and Western Europe. Usage of residential wallcoverings
is predominantly influenced by expenditures on home renovations, the economy in
general, existing home sales and the redecoration requirements of existing
homeowners, and, to a lesser extent, with new home sales. Consumer decisions on
which wallcoverings product to use are largely a function of color and design,
followed by price. Manufacturers attempt to stimulate demand by offering new
styles and colors and marketing these to the trade through exhibitions and
directly to consumers through advertisements primarily in women's and home
decorating magazines.
Wallcoverings compete primarily with paint for a 'share of the wall' in the
residential decorating market. Although growth in paint sales has exceeded that
of wallcoverings in recent years, due in part to consumer
56
<PAGE>
perception that paint is more durable and easier to apply, wallcoverings offer
consumers a greater range of fashion and personalization than paint at a
comparable installed price, and continues to achieve modest sales growth. In
addition, improved self-adhesive wallcoverings are being introduced to better
compete with paint's perceived advantage in ease of application and to spur
growth in wallcoverings sales.
Management believes that wallcoverings have generally been a poorly
marketed and merchandised product, due in part to the high level of
fragmentation among wallpaper manufacturers and dealers, which has resulted in a
proliferation of weak brands, limited marketing support and lack of product
innovation. The Company believes that the industry trends toward manufacturer
and distribution channel consolidation, combined with increasing affiliation
with well-recognized designer brand names should have a favorable impact on
these historical marketing and merchandising weaknesses and stimulate industry
growth in the future.
North America. In the United States, manufacturer sales of residential
wallcoverings experienced 3.0% compound annual growth over the ten year period
from 1986 to 1996, from $510.0 million to $687.0 million, and 2.9% compound
annual growth over the five year period from 1991 to 1996, from $595.0 million
to $687.0 million, according to data compiled by Sullivan Marketing Group.
Compound annual growth in unit volume over these periods has been relatively
flat at 1.2% and 0.5%, respectively, with the majority of the growth in revenues
coming from increases in the average manufacturer selling price due to changing
product mix in favor of higher margin borders (see 'Industry Trends--Growth of
Borders'). Including the estimated $83.0 million Canadian consumption of
residential wallcoverings, the total value (at manufacturer selling prices) of
North American residential wallcoverings consumption is estimated by Sullivan
Marketing Group and management to be approximately $770.0 million in 1996. Net
imports of wallpaper, primarily from U.K. and, to a lesser extent, other Western
European countries, are estimated by management to provide approximately 20% of
North American consumption volume, a percentage that has remained relatively
constant over the five-year period from 1991 to 1996.
Europe. Management estimates that manufacturer sales of residential
wallcoverings in Europe were approximately $1.3 billion in 1996, essentially
unchanged from 1991. During this period, management believes that industry sales
declined slightly in the U.K. and Western Europe, due in part to the sluggish
economy in these regions, but that this decline was largely offset by the rapid
growth of the residential wallcoverings sales in Eastern Europe. The incremental
Eastern European demand has provided opportunities for the larger wallcoverings
manufacturers of North America and Western Europe to increase export sales to
these countries. In total, the dollar value of sales of residential
wallcoverings in Europe is approximately 1.6 times the value of North American
sales. Unit consumption of residential wallcoverings per capita in the U.K. and
Western Europe is generally higher than in North America, as building materials
and fashion tastes in these two regions have resulted in a greater acceptance of
wallpaper as a standard home decorative product. However, management estimates
that unit prices of residential wallcoverings are generally lower in the U.K.
and Western Europe than in North America, due to the lower percentage that
borders and higher-value vinyl backed product represent of the total product
sales mix.
INDUSTRY TRENDS
Growth of Borders. There are two primary types of wallcoverings for the
residential market, sidewalls and borders. Sidewalls are intended to cover the
entire wall while borders are generally placed on top of the wall where it meets
the ceiling or above a moulding on the wall. Borders may be placed over a
sidewall as a complement or directly on a painted surface. Consumers are
attracted to borders because of this flexibility and because they are perceived
as being easier to install and remove than sidewalls. Borders are significantly
more profitable to produce than sidewalls, as manufacturers capture
approximately twice the price per square foot for borders than for a sidewall of
comparable quality and realize a substantially higher gross margin. Sales of
borders in the United States have grown at a compound annual rate of
approximately 14% from 1991 to 1996, increasing the percentage of total
residential wallcoverings sales in the U.S. attributable to borders from 24.5%
to 35.5% over the same period. The popularity of borders is a trend that
management expects to continue in the United States and gain momentum in Europe,
where borders have yet to penetrate a meaningful share of residential
wallcoverings sales, as these products are utilized both as part of coordinating
decor schemes in conjunction with sidewalls and increasingly as freestanding
items of decoration by consumers who would not otherwise choose to apply
wallcoverings.
57
<PAGE>
Manufacturer Consolidation. The residential wallcoverings industry is
consolidating, especially in North America, where management estimates that the
top five manufacturers held a 62.9% share of the $770.0 million sales of the
product in 1996, pro forma for the Transactions. The consolidation among
manufacturers is the result of increasing economies of scale that have been and
continue to be driven by the following three trends, which are described in
greater detail below: (i) increasing application of popular designer brand names
to home fashion and textiles through licensing agreements with wallcoverings
manufacturers; (ii) consolidation of retail distribution channels; and (iii)
advancements in manufacturing technology and design software. These trends have
reinforced each other as they have developed. Continued consolidation should
create opportunities for larger competitors to selectively acquire the important
product lines and retail accounts of small, niche manufacturers.
Licensing. The Company believes that association with home textile
manufacturers, fashion designers and 'name' brands through licensing and
distribution agreements is a growing trend in both North America and Europe that
is fundamentally changing the way wallpaper is marketed. Licensing is being
driven by consumer desire for coordinated color schemes for wallpaper, paint,
bedding and window treatments. The endorsement of wallcoverings by these well
recognized consumer brands is expected to enhance consumers' perception of
wallcoverings as a fashionable decorating tool. These well-recognized name
brands are seeking out wallpaper suppliers with the market share and
distribution service capability to maximize the value of their substantial
marketing power.
Consolidation of Retail Distribution Channels. Similar to the trend
experienced by several categories of both durable and non-durable consumer
products, the leading Chain Stores, especially home centers, have been capturing
an increasing share of total wallpaper sales at the expense of smaller Chain
Stores and independent dealers. Management sees this trend most advanced in the
U.S. and U.K., where many dealers have been forced to relinquish a substantial
portion of the lower-end and middle market business and retreat to a defensible
niche in higher-end products. The Company believes that the relatively higher
importance Chain Stores place on maintaining high service levels for in-stock
merchandise has created a need for larger manufacturers with the production
capacity and distribution efficiency capable of servicing their needs. In
addition, Chain Stores are increasingly asking their suppliers to take on
responsibility for 'category management'--choosing which patterns and styles to
stock, investing in fixtures and merchandising displays and servicing these
displays to ensure product availability.
PRODUCT OFFERINGS AND DESIGN
Management believes that the Company has one of the most comprehensive
product offerings in the industry. The Company designs, manufactures and markets
its residential wallcoverings products under various recognized in-house brand
names, as well as under license and distribution agreements with leading
designers and consumer brands. Management believes that consumers associate the
Company's brands with superior design, quality and service. The Company
maintains approximately 45,000 active SKUs. Management believes that the Company
maintains the broadest active design inventory in the industry and that its
ability to supply this full product line is a particular advantage because of
the trend among major retailers to consolidate their suppliers.
The Company has been an innovator and has developed several new products,
including: (i) self-adhesive products, such as its 'Impact' and 'Stick 'n Play'
borders, which are easy to apply; (ii) 'Sculptured Edge' and 'Outlines' borders
which have one edge die-cut to follow a printed design, thus producing an
enhanced aesthetic appeal; (iii) products that are coordinated with the colors
and patterns of the products of major home textile manufacturers; (iv) the first
washable wallcoverings; (v) the first strippable substrate; and (vi) Teflon
coated products. The Company's current research and development projects
include: (i) self-adhesive sidewalls; (ii) direct digital printing, which
eliminates the need for cylinder engraving; and (iii) batchless printing
technology.
Product design, color and style are important factors for consumer
acceptance of wallpaper as a decorating alternative. The Company's extensive
in-house design group utilizes many resources to design product including (i)
designs provided by or developed in cooperation with licensors; (ii) research of
other interior fashion businesses to identify emerging color and design trends
among competitors, furniture, fabrics and carpeting; (iii) input from customers,
management and designers during product reviews; and (iv) membership in fashion
58
<PAGE>
organizations and alliances with bedding and home fashion companies such as
Fieldcrest Cannon, Croscill, Crown Craft, J.P. Stevens and West Point.
North America
The North American division markets its residential wallcovering products
under various recognized in-house brand names such as Sunworthy, Imperial,
United, Albert Van Luit and Katzenbach & Warren, as well as under license and
distribution agreements with leading designers and consumer brands such as Ralph
Lauren, Lenox, Nautica, Laura Ashley, Alexander Julian, Eddie Bauer and the NCAA
schools. The North American division maintains 31,000 active SKUs and introduces
approximately 9,300 new SKUs annually.
The market positioning of the North American division's most important
brands is depicted in the following table.
NORTH AMERICAN RESIDENTIAL PRODUCT MARKET POSITIONING*
<TABLE>
<CAPTION>
1997 PERCENTAGE
BRAND COMPANY SALES OF SALES MARKET POSITIONING RETAIL CHANNEL FOCUS
- --------------------------------------- ------------- ---------- --------------------- --------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C>
Imperial Fashion Point................. $ 17.6 6.6% Lower-Middle Mass/Home Center
Borden Home............................ 50.4 18.9 Lower-Middle Mass/Home Center
United................................. 11.2 4.2 Lower-Middle Home Center/Dealer
Sunworthy(1)........................... 65.3 24.5 Middle-High Dealer/Home Center
Imperial............................... 49.5 18.5 Middle-High Dealer/Home Center
Katzenbach & Warren.................... 4.2 1.6 High End Dealer
Van Luit............................... 3.2 1.2 High End Dealer
Other In-House Brands.................. 5.0 1.9
------------- ----------
Subtotal In-House Brands(2)............ $ 206.4 77.3%
National Brand Distributors............ 17.3 6.5 Middle
Other Private Label.................... 26.9 10.1 Middle
------------- ----------
Subtotal Private Label................. $ 44.2 16.6% Middle
Licensed Brands........................ 10.2 3.8 Middle Mass/Dealer/Home
Center
Distributed Product(3)................. 6.2 2.3 Middle Mass/Dealer/Home
Center
------------- ----------
Subtotal Other Brands.................. $ 16.4 6.1%
------------- ----------
Total Residential Wallcoverings........ $ 267.0 100.0%
------------- ----------
------------- ----------
</TABLE>
- ------------------
* Source: Management estimates.
(1) Includes $27.0 million of product imported from IHDG's European operations.
(2) Private label product designed and manufactured by the Company for selected
distributors.
(3) Other manufacturers' brands distributed by the Company.
The Company also manufactures a decorative paper and vinyl surfacing
materials for use in commercial applications. Sales of these products were $20.2
million in 1997, or 3.8% of the Company's pro forma 1997 sales.
Europe
The European division markets its residential wallcovering products under
various recognized in-house brand names such as Crown, Shand Kydd and Storeys.
The European division maintains 14,000 active SKUs and introduces 3,500 new SKUs
annually. Due to the differences in the Company's market share and competitive
59
<PAGE>
factors, management segments the European market into three geographic regions:
(i) the U.K.; (ii) Western Europe; and (iii) Eastern Europe.
The market positioning of the European division's most important brands in
the U.K. is depicted in the following table.
U.K. RESIDENTIAL PRODUCT MARKET POSITIONING*
<TABLE>
<CAPTION>
1997 PERCENTAGE
BRAND COMPANY SALES OF SALES MARKET POSITIONING RETAIL CHANNEL FOCUS
- --------------------------------------- ------------- ---------- --------------------- --------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C>
Crown.................................. $ 44.4 60.6% Middle All channels
Shand Kydd............................. 10.7 14.6 Middle-High Dealers
Other In-House Brands.................. 3.7 5.1 Lower-Middle All channels
------------- ----------
Subtotal In-House Brands............... $ 58.8 80.3%
Private Label(1)....................... 14.4 19.7 Middle
------------- ----------
Total Residential Wallcoverings........ $ 73.2 100.0%
------------- ----------
------------- ----------
</TABLE>
- ------------------
* Source: Management estimates.
(1) Includes $1.1 million of sales of product imported from the United States by
Imperial.
In the U.K., Crown and Shand Kydd are well known wallcoverings brands.
Crown is a strong mass market brand that is well-recognized by consumers and is
sold through all distribution channels. Shand Kydd is targeted at the upper
middle market sector and is distributed via dealers. In other parts of Western
Europe and in Eastern Europe, both brands are well known by distributors and
retailers but consumer recognition of the Company's brands, and wallcoverings
brands in general, is limited.
The European division also produces transfer paper, printed by the gravure
or flexographic processes, which is sold to textile converters throughout the
world for heat transfer onto polyester fabrics. The range of products to which
this process is applied consists mainly of ladies' dresswear, furnishing
fabrics, sportswear and uniform workwear. Sales of heat transfer paper were
$25.6 million in 1997, 4.8% of the Company's pro forma sales.
RETAIL DISTRIBUTION CHANNELS
The Company believes that one of its greatest strengths is its
long-standing customer relationships and market share with key accounts in all
channels of distribution in North America and the U.K. The Company distributes
its wallcovering products to over 16,000 customers worldwide consisting
primarily of home centers, mass merchants, specialty/national chains and
independent dealers. Approximately 43.7% of the pro forma Company's sales of
residential wallcoverings in North America for 1997 were through Chain Stores,
45.0% through independent dealers and the remaining 11.3% to non-retail
customers such as wholesale distributors or to other manufacturers.
60
<PAGE>
NORTH AMERICAN RETAIL DISTRIBUTION CHANNELS*
<TABLE>
<CAPTION>
NUMBER OF
OUTLETS
1997 INDUSTRY PERCENTAGE OF 1997 COMPANY PERCENTAGE OF CARRYING
CHANNEL TYPE SALES (MSP) SALES SALES SALES WALLCOVERINGS WALLCOVERINGS DISPLAY
- ------------------- ------------- ------------- ------------ ------------- ------------- ---------------------
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Mass Merchants..... $ 71.3 9.4% $ 40.7 17.2% 7,152 Fixtures displaying
sidewalls and borders
Home Centers....... 89.7 11.9 47.5 20.0 2,080 Fixtures displaying
sidewalls, borders
and collection books
Specialty/National
Chains........... 249.3 33.0 28.6 12.1 2,484 Fixtures displaying
sidewalls, borders
and collection books
Independent
Dealers.......... 344.5 45.6 120.1 50.7 18,000 Fixtures displaying
sidewalls, borders
and collection books
------------- ------ ------------ ------ -------------
Total.............. $ 754.8 100.0% $236.9(1) 100.0% 29,716
<CAPTION>
AVERAGE
SKUS IN
CHANNEL TYPE STOCK
- ------------------- --------
<S> <C>
Mass Merchants..... 200
Home Centers....... 400
Specialty/National
Chains........... 465
Independent
Dealers.......... 500
Total..............
</TABLE>
- ------------------
* Source: Management estimates.
(1) Does not include approximately $30.1 million of contract manufacturing,
national brand distributor sales and product exported to distributors in the
U.S. by the Company's European division.
There are four main channels of distribution in North America. Mass
merchants and home centers cater to younger consumers interested in saving money
by installing wallcoverings themselves. Specialty/national chains and
independent dealers cater to consumers who desire greater selection, variety,
quality and service and who are generally less price sensitive. The Company
operates multiple sales organizations to address the needs of each specific
channel it serves in the most effective way.
Mass Merchants. The mass merchant channel consists of approximately 7,152
outlets stocking wallcoverings with major participants including Kmart, Target,
Wal-Mart, Sears, J.C. Penney and Zellers in Canada. The importance of this
channel has decreased since 1991 due to the closure of a number of marginal
discount chains and shift in merchandising strategy to focus on in-stock, border
products. The Company is the sole supplier in the U.S. to all Kmart stores and
the largest supplier to Target and Wal-Mart stores.
Home Centers. The home center channel consists of approximately 2,080
outlets stocking wallcoverings. The Company is the leading supplier to the three
leading retailers in this segment: The Home Depot, Lowes and Menards. This
channel is presently experiencing the highest growth rate, and has taken share
from the independent dealer and mass merchant channels.
Specialty/National Chains. The predominant retailers in this channel of
distribution include Sherwin-Williams, Wallpapers to Go, Wallpapers for Less, as
well as Color Your World in Canada. These chains are committed to wallcoverings
as an essential part of their product mix. The Company has a significant
presence in this channel and is presently testing a new retail
concept--'galleries'-- in Sherwin-Williams stores. See 'Business--Sales,
Marketing and Distribution.' Other retailers in this category include hardware
stores, floor covering stores, telemarketing and catalog affiliates of
retailers, factory and outlet stores.
Independent Dealers. Independent dealers include approximately 18,000
retail outlets consisting of single outlet local stores to multi-store regional
retailers. The channel has historically been the leading distribution channel in
the industry offering substantial customer service and a large product
selection. However, while the value of product sold through this channel has
increased since 1991, its share of total product sold has decreased due
primarily to the growth of the home center channel. The Company has developed a
unique category management approach for independent dealer stores emphasizing
visual merchandising. Designers and decorators influence consumer decision
making for high-end product sold in this channel, helping their clients select
wallcoverings from the collection books in the dealer and trade only showrooms.
Historically, the Company generated over $50.0 million in sales of high-end
product to this channel, but substantially diminished its high-end presence in
the early 1990s as part of a cost-cutting program. The Company plans to increase
its number of
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active collections in the high-end segment of the independent dealer channel
from 23 to 72 over the next four years.
EUROPE
U.K. RETAIL DISTRIBUTION CHANNELS*
<TABLE>
<CAPTION>
NUMBER OF
OUTLETS
1997 INDUSTRY PERCENTAGE OF 1997 COMPANY PERCENTAGE OF CARRYING
CHANNEL TYPE SALES (MSP) SALES SALES SALES WALLCOVERINGS WALLCOVERINGS DISPLAY
- ------------------- ------------- ------------- ------------ ------------- ------------- ---------------------
(DOLLARS IN (DOLLARS IN
MILLIONS) MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Mass Merchants..... -- -- -- -- -- --
Home Centers....... $ 137.2 45.5% $ 34.8 47.6% 1,043 Mainly in stock racks
Specialty/National
Chains........... 69.8 23.2 12.7 17.4 334 Mainly in stock racks
Independent
Dealers.......... 94.3 31.3 25.7 35.0 4,000 Mainly in stock racks
------------- ------ ------------ ------ -------------
Total.............. $ 301.3 100.0% $ 73.2(1) 100.0% 5,377
------------- ------ ------------ ------ -------------
------------- ------ ------------ ------ -------------
<CAPTION>
AVERAGE
SKUS IN
CHANNEL TYPE STOCK
- ------------------- --------
<S> <C>
Mass Merchants..... --
Home Centers....... 700
Specialty/National
Chains........... 750
Independent
Dealers.......... 475
Total..............
</TABLE>
- ------------------
* Source: Management estimates.
(1) Includes $1.1 million of sales of product imported from the United States by
Imperial.
Unlike North America, the portion of total residential wallcoverings sales
generated by collection books, as opposed to sales of in-stock product, is
consistent across U.K. retail distribution channels and relatively small in
aggregate. The retail sale of residential wallcoverings in the U.K. is dominated
by four home center chains, B&Q, Homebase, Do It All and Wickes, and one
specialty/national chain, FADS, which together command over 60% of the category.
The Company is the first or second largest supplier of residential wallcoverings
to each of these five important retailers. The independent dealers seek to offer
different SKUs and in some cases different brands than the large Chain Stores.
Import penetration due to the pound sterling's strength and aggressive marketing
by U.K. manufacturers who have lost share in the national chains are increasing
competition in this sector. Management believes that the Company's Shand Kydd
brand and innovative merchandising techniques provide a substantial measure of
assurance that its market position will be at least maintained in the
independent dealer sector.
Western Europe is increasingly dominated by large home centers and
specialty/national chains. In France, an important market for the Company, Chain
Stores have significantly increased their share of retail sales with the top six
Chain Stores commanding approximately 55% of sales in the category. The Company
has strong, long-standing relationships with several of the home centers in
Western Europe.
The Company has maintained its relationships with specialty/national chains
in Western Europe by relying upon brand differentiation.
In Eastern Europe, including Poland, Russia and the Ukraine, the retail
environment is comprised of small independent retailers supplied by a limited
number of distributors. Locally supplied products are generally low quality. The
Company intends to continue to supply upper end products via local distributors
in Eastern Europe and increasingly design the product specifically to meet the
market needs. As the market becomes more sophisticated, the Company expects that
branding will be strengthened and in store merchandising introduced. The Company
is working to extend its distribution relationships in Eastern Europe, Asia and
Latin America. In 1997, approximately 31.8% of the European Division's sales
were generated by product exported to Eastern Europe and other developing
countries.
SALES, MARKETING AND DISTRIBUTION
In North America, the Company's sales to Chain Stores are made through its
own direct sales force and the dealer channel is serviced through a mix of
direct sales and through distributors. The Company's products held in-stock at
Chain Stores are replenished automatically via direct electronic linkages from
the retailer's inventory management system and the Company's central
distribution facility in Knoxville, Tennessee. Products selected by customers
from collection books ('room lot') are either phoned or faxed in by the dealer
to the central distribution facility in Knoxville, where the automated order
fulfillment system picks, packages and ships the
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order to the dealer or directly to the customer, usually within 24 hours. The
Company also manufactures private label product for a select group of
distributors and other manufacturers.
The Company supports its retail products with media advertising, primarily
in consumer magazines, and also participates in trade exhibitions to expose its
new collections to prospective retailers. The Company spent $1.6 million and
$3.2 million on advertising in 1996 and 1997, respectively, and expects to spend
$5.6 million for advertising in 1998. The Company plans to establish a New York
studio and marketing center to coordinate design and marketing for high end
collections and to facilitate New York based licensing arrangements. Traditional
collection books (used by consumers to select wallcoverings not stocked
in-store) and in-stock merchandising fixtures are a critical part of the
Company's sales and marketing effort. In order to make its collection books more
consumer friendly, the Company has recently introduced a larger (16' X 16')
collection book format and CD-ROM versions. The Company has also developed a
'gallery' merchandising concept designed to showcase a selection of both
collection books and in-stock residential wallcoverings products organized by
color and pattern style using a dedicated space within the store to facilitate
display, stocking and consumer selection. Management believes that Chain Stores,
which sell largely or exclusively in-stock products, will find the gallery
concept attractive. The Company is testing the concept at Sherwin-Williams and
plans to initiate a roll out at selected specialty/national chains and
independent dealers later this year.
In the U.K. the Company has a field sales force of 32. Each of the major
accounts has a dedicated sales and marketing and design staff. Product is
delivered to retailers from the Company's warehouse, in carton quantities only,
to individual stores or indirectly to a customer's central warehouse. The
collection book sector of the market is supplied indirectly via a small number
of distributors.
The Company was the U.K.'s leading exporter of wallcoverings in 1996 with
sales to over 60 countries. These exports have been generated by a specialist
sales and marketing group based in the U.K. which has strong multi-lingual and
administrative skills and long-established connections with some of the world's
leading importers and distributors of residential wallcoverings. The export
field sales force, backed by sales administration, marketing and design
functions, is divided into teams of regional specialists. The skills of this
team were recognized in 1996 when it was named the U.K. Financial Times Exporter
of the Year.
In Western Europe (excluding the U.K.) product is mainly delivered to
either the central warehouses of national chains or to distributors. During
1998, distribution on a store-by-store basis for national chains will commence,
thereby increasing the Company's sales potential. In Eastern Europe and the rest
of the world, sales are generally to the central warehouses of
importer/distributors. A substantial part of this business is large orders which
are specially made and shipped in full containers.
MANUFACTURING
The Company believes that it is the highest-volume manufacturer of
residential wallcoverings in the world, which, combined with its fully
integrated operation across design, manufacturing and distribution functions,
enables it to capitalize upon economies of scale in manufacturing, purchasing
and distribution. The Company also believes that its key technological and
manufacturing process advances in rapid manufacturing line changeover, batchless
production, 'in-register' embossing and CAD/CAM technology have contributed to
its low-cost position and enhanced its ability to produce a broad range of SKUs
cost efficiently. As a result of its high production efficiencies and
technological leadership, management believes that the Company is one of the
lowest-cost major producers of residential wallcoverings in North America and
Europe. Management expects that the implementation of the Integration Plan,
which entails the closure of the two least efficient North American printing
plants and consolidation of all U.S. distribution into the Knoxville facility,
will further enhance the Company's low-cost position by maximizing utilization
of the Company's most modern, efficient assets and facilitating substantial
headcount reductions. See '--North American Integration Plan.'
The production processes for all the Company's wallcoverings are similar,
allowing the Company to enjoy significant manufacturing efficiencies. Most of
the Company's residential wallcoverings are produced by feeding rolls of
substrate (generally paper or vinyl-coated paper) into printing presses, which
applies the design, color and texture onto the substrate. The product is then
'finished' by trimming the edges to achieve the correct width and pattern match,
rolled and cut into the required retail lengths and shrinkwrapped. The Company
manufactures its products using four main printing processes, the most
significant of which is gravure printing, whereby ink is applied to the
substrate using engraved copper cylinders. The following diagram depicts the
primary stages of the manufacturing process employed by the Company.
63
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
----------------
|Color Matching|
|and Ink Mixing| -------------
---------------- | Standard |
| ---- | Embossing |---- -------------------------------
| | ------------- | | |
| | | | -----------------
- ----------------- ---------------- | | | ---------------- | Inspecting, |
|Paper, Vinyl or|------- | Printing |----------------------------------- | Applying |----- | Finishing and |
|other substrate| | | | | | Paste(1) | | Packaging |
- ----------------- ---------------- | | ---------------- ------------------
| | |
| | ---------------- |
| |-- | In-register |--
---------------- | Embossing |
| Engraving | ----------------
| Cylinders |
----------------
</TABLE>
- ------------------
(1) Applies to North American division products only. The application of paste
to wallpaper manufactured in the U.K. takes place at the vinyl-base coating
stage.
In recent years, several advancements have been made in both printing
technology and in the software used in the design process. The Company has been
a leader in the adaptation of these advancements to the manufacture of
wallcoverings and has capitalized upon the scale provided by its production
volume to justify the up-front fixed investment required to reduce unit costs
within the existing product line and to provide a greater range of custom colors
and patterns required by consumers in a cost-efficient manner. The Company has
been a leader in the four primary innovations:
(i) Batchless production ensures that two rolls of the same SKU from
different manufacturing runs will have exactly matching color and pattern,
which allows retailers to continually replenish bins without fear of
obtaining 'mixed' and therefore unsaleable batches in their bins. The
Company believes that it is a leader in the use of statistical process
controls, computer-aided design and tightly specified raw materials, in
combination with advanced printing and color mixing technology, in order to
achieve true batchless production.
(ii) Computer-aided manufacturing involves the use of statistical
process controls that continually monitor color consistency, alignment and
other variations, thereby reducing waste and improving the quality of the
finished product.
(iii) Computer-aided design involves the standardization of the color
palette and database storage of designs, which links the design studio with
print cylinder engravers and the manufacturing facility and allows
designers to copy elements of existing designs to create others, scan
patterns from fabrics or paintings onto wallcoverings, ensure accurate
color replication and minimize manufacturing set-up time, thereby lowering
the cost of creating designs and prototypes.
(iv) Digital printing technology avoids the expense of printing
cylinders and set up waste. The technology is not yet fully developed, but
the Company believes it leads the industry in this field and is currently
installing a digital printer for limited production purposes and for
technical development work.
Management believes that the Company's recent significant investments in
modernizing its manufacturing equipment and distribution facilities provide it
with a competitive advantage. From 1995 through 1997, the
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<PAGE>
Company has invested approximately $90.0 million primarily to improve the
efficiency of its existing operations, including (i) a $14.0 million investment
by IHDG in two new high-speed gravure print lines and associated finishing
equipment at its facility in Morecambe, U.K., which are achieving productivity
levels significantly greater than that of the prior generation of printing
technology; (ii) a $6.4 million investment by IHDG in batchless production,
'in-register' embossing and CAD/CAM technology in the U.K., which has
contributed to its low-cost position and enhanced its ability to produce a broad
range of SKUs cost efficiently; (iii) a $23.3 million investment by Imperial in
a state-of-the-art finishing and distribution facility in Knoxville, Tennessee,
which is expected to reduce annual distribution expense; and (iv) a $9.0 million
investment by Imperial in printing equipment, in-line finishing, CAD/CAM
technology and information systems at the Sherbrooke, Canada manufacturing
facility, which is expected to improve manufacturing gross profit. Management
anticipates achieving higher operating margins in future years as it achieves
full utilization of these modern, highly efficient assets by absorbing the
capacity of redundant and less efficient facilities. The 1998 outlook for
capital expenditures for the Company is approximately $35.0 million,
approximately $20.0 million of which relates to North America, substantially all
of which is related to the implementation of the Integration Plan, and the
remainder of which relates to the U.K., Vernon Plastics and the commercial
wallcovering operations. Management estimates that upon completion of the
integration the annual capital expenditures required to maintain the Company's
facilities will be between $7.0 million and $10.0 million per year. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pro Forma Liquidity and Capital Resources.'
COMPETITION
The residential wallcoverings market worldwide is highly competitive and
fragmented, consisting primarily of local manufacturers. It is common practice
for firms to sub-contract various steps in the supply chain to other industry
participants. The Company faces substantial competition across its product lines
from a number of business having varying degrees of geographic scope and
participating in various segments of the supply chain. Suppliers of residential
wallcoverings compete on the basis of style, quality, breadth of product
selection, service (timely replenishment of in-stock merchandise and fulfillment
of orders placed from collection books) and price. The Company believes these
competitive factors favor suppliers who have significant revenue share relative
to their competitors. In 1997, on a pro forma basis, the Company held a 35.4%
share of North American wallcoverings sales and 24.3% of U.K. wallcoverings
sales. Management believes that the Company's leading position and modern asset
base enable it to capitalize upon economies of scale in purchasing,
manufacturing, distribution and product licensing and provide it a competitive
advantage.
FACILITIES
The Company currently operates manufacturing, distribution and office
facilities in the United States, United Kingdom and Canada. The table below
summarizes certain information about these facilities as of March 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SIZE IN
LOCATION FACILITIES SQ. FT. MAJOR PRODUCTS/SERVICES OWNERSHIP EMPLOYEES
- ---------------------------------- --------- ------- ---------------------------------- --------- ---------
<S> <C> <C> <C> <C> <C>
MANUFACTURING FACILITIES:
Darwen, U.K....................... 1 250,000 Residential wallcovering Owned 942
Morecambe, U.K.................... 2 261,000 Residential wallcovering; Owned 529
Heat transfer paper Engraved
cyclinders
Toronto, Canada................... 1 350,000 Residential wallcovering Leased 560
Bridlington, U.K.................. 2 100,000 Engraved cylinders; Wallcovering Leased 123
sample books
Adams, MA......................... 1 27,000 Hand screen printed residential Owned 34
wallcoverings
Ashaway, RI....................... 1 175,000 Residential wallcoverings Owned 152
Plattsburgh, NY................... 1 553,000 Residential wallcoverings; Owned 293
Paper mill
Galt, Canada...................... 1 72,500 Residential wallcoverings Owned 199
Woodward, Canada.................. 1 185,000 Residential wallcoverings Owned 221
Streater, IL...................... 2 60,000 Wallcovering sample books Leased 118
New Castle, IN.................... 1 90,400 Commercial wallcoverings Owned 81
Haverhill, MA..................... 1 182,000 Flexible PVC films and sheeting Owned 268
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SIZE IN
LOCATION FACILITIES SQ. FT. MAJOR PRODUCTS/SERVICES OWNERSHIP EMPLOYEES
- ---------------------------------- --------- ------- ---------------------------------- --------- ---------
<S> <C> <C> <C> <C> <C>
WAREHOUSE AND DISTRIBUTION
FACILITIES/OTHER:
Cleveland, OH..................... 1 73,000 Headquarters, studio and customer Leased 321
service center
Knoxville, TN..................... 1 252,000 Distribution center Owned 71
Nottingham, England............... 1 10,000 Outside warehouse Leased 3
Laval, Canada..................... 1 10,000 Distribution center Leased 10
Duluth, GA........................ 1 93,000 Distribution center; Customer Leased 115
service; U.S. administration
Columbus, OH...................... 1 100,000 Distribution center Leased 109
Middleton, England................ 1 155,000 Distribution center Leased 77
Scarborough, Canada............... 1 19,500 Distribution center Leased 16
New York, NY...................... 1 3,500 Showroom Leased 3
</TABLE>
VERNON PLASTICS
Management estimates that the flexible vinyl film and sheeting industry had
1997 sales in North America of approximately $410.0 million. Vernon Plastics is
a leading manufacturer of calendered flexible PVC sheeting, industrial fabric,
supported vinyls and laminated products used to fabricate: (i) pool liners; (ii)
outdoor advertising materials; (iii) domestic and marine upholstery and tractor
headlinings; and (iv) book bindings. The Company believes that these four
product categories are among the more attractive categories in the industry. The
Company believes that Vernon Plastics currently holds the number one or two
revenue share position in each of its four product categories. Total sales and
EBITDA for Vernon Plastics were $49.3 million and $5.3 million, respectively, in
1997.
Vernon Plastics has identified substantial growth opportunities through new
products and technologies as well as through geographical expansion. The launch
of Vernon Plastics' new products, including the new Vernoguard-X'treme pool
liner and PVC Alloy Sheeting, has allowed it to participate in several of the
industry's growing and/or higher margin segments. The Company believes that
Vernon Plastics is well positioned to exploit significant opportunities in the
Far East and Latin America, particularly in industrial fabrics.
The Company believes that, as a result of Vernon Plastics's technology
leadership, high production efficiency and capacity utilization, Vernon Plastics
has become one of the lowest cost producers of flexible vinyl films and
sheeting. Vernon Plastics is vertically integrated and can provide custom
formulations, calender, print and laminate all at one plant. Vernon Plastics's
formulation expertise and calendering experience combine to make it a low cost
producer with an enhanced ability to supply technically superior and high value
added products. The Company believes that Vernon Plastics is also able to take
new product concepts from design to the marketplace more rapidly than most of
its competitors.
EMPLOYEES AND LABOR RELATIONS
As of March 31, 1998, the Company employed 4,195 full-time employees, 2,814
of whom are subject to collective bargaining agreements. The Company has 1,314
employees covered by such agreements in North America. Each such agreement
covering North American employees expires on or before November, 2001.
On March 1, 1998, a new three year contract with the United Auto Workers
('UAW') covering employees at its Adams, Massachusetts facility was ratified by
such employees. The new contract expires on February 28, 2001. WARN notices were
issued on May 1, 1998 to the first round of employees to be laid off in July of
1998 at the Company's Ashaway, Rhode Island facility and the Company has advised
the United Paperworkers International Union ('UPIU') (representing Ashaway
employees) that the plant will be closed later in 1998. The Company and the UPIU
have been negotiating the amount of severance the Company is willing to pay to
Ashaway employees but have not yet been able to reach agreement. The Company
negotiated a new contract with the Communications, Energy and Paperworkers Union
representing employees at its Brampton, Ontario, Canada facility, which contract
was ratified by such employees on May 8, 1998. A new agreement between the
Company and the UPIU, representing workers at the Plattsburgh, New York facility
was ratified by employees on May 26, 1998. This agreement provides for certain
benefits and severance pay in anticipation of the facility's shutdown. On March
18, 1998, a new contract with the United Needletrades, Industrial & Textile
Employees Union representing employees at Vernon Plastics in Haverhill,
Massachusetts was ratified by such employees. The new contract expires on
October 31, 2001.
66
<PAGE>
The next material labor agreement expires in 2000. Each agreement covering
employees in North America prohibits strikes by employees during the applicable
contract period. The Company has 1,500 U.K. employees subject to collective
bargaining agreements involving four different U.K. unions. Historically, the
Company has experienced no material difficulties in renewing such collective
bargaining agreements. The Company has not experienced any work stoppages in the
last ten years in either the U.K. or North America. The Company believes that
its relations with its employees are satisfactory.
PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSING ARRANGEMENTS
The Company owns numerous patents and copyrights and has numerous rights to
use registered and unregistered trademarks in the United States and various
other countries, including the United Kingdom and Canada, relating to its
manufacturing processes and products. The Company considers its know-how and
technology to be more important to its current business than patents and
copyrights and, accordingly, believes that expiration of existing patents and
copyrights or nonissuance of patents or copyrights under pending applications
would not have a material adverse effect on its operations. However, the Company
maintains an active patent and trade secret program in order to protect its
proprietary technology, know-how and trade secrets. The Company also has the
right to use designs and brand names under numerous licensing agreements and is
currently negotiating additional licenses.
ENVIRONMENTAL MATTERS
The Company is subject to numerous laws and regulations in the various
jurisdictions in which it operates that (i) govern operations that may have
adverse environmental effects, such as discharges into air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii) impose
liability for response costs and certain damages resulting from past and current
spills, disposals or other releases of hazardous materials. The Company believes
that it currently conducts its operations in compliance in all material respects
with applicable Environmental Laws. The Company's operations, however, may
result in noncompliance with or liability for remediation pursuant to
Environmental Laws. Environmental Laws have changed rapidly in recent years, and
the Company may be subject to more stringent Environmental Laws in the future.
Although environmental matters have not to date had a material adverse effect on
the results of operations or financial condition of either IHDG or Imperial,
there can be no assurance that such matters will not have a material adverse
effect on the Company's results of operations or financial condition or that
more stringent Environmental Laws will not be enacted which could have a
material adverse effect on the Company's results of operations or financial
condition. The Company currently estimates that it will spend approximately
$10.9 million during 1998 and 1999, of which approximately $6.8 million will be
spent in 1998, to meet regulatory requirements applicable to its U.K. and North
American (including Vernon Plastics) facilities, respectively.
The Company has been identified as a potentially responsible party ('PRP')
at the Solvents Recovery Service of New England ('SRSNE') Superfund Site by the
United States Environmental Protection Agency ('US EPA'). SRSNE operated a
solvent reclaiming facility in Southington, Connecticut. The facility allegedly
released various materials to soil and groundwater. US EPA added the facility to
the National Priorities List which is the inventory of sites designated for
cleanup under the federal Superfund law. In 1992, the Company received a notice
of potential liability from US EPA because the Company allegedly sent material
to SRSNE for recycling. Following the notice, the Company joined with other PRPs
in executing various administrative orders issued by US EPA. These orders
directed various site investigation and cleanup efforts. The currently projected
estimate of total site remediation costs is approximately $50 million. The
potential liability of individual PRPs is based on its proportionate share of
materials allegedly sent to the SRSNE site. Although this proportionate share
could vary in response to the insolvency of certain group members or the
addition of new members, the Company's current proportionate share of the total
projected remediation costs is estimated to be approximately $900,000.
On May 17, 1998, the Massachusetts Department of Environmental Protection
issued a Notice of Responsibility which identifies Vernon Plastics as a PRP for
the release of oil and/or hazardous materials at the Ridge Hill Road site in
Freetown, Massachusetts and the Ledge site in Darmouth, Massachusetts.
Allegedly, materials that Vernon Plastics and 75 other PRPs sent to the Re-Solve
site, a former recycling facility operated by Re-Solve, Inc., were subsequently
sent to the Ridge Hill Road site and the Ledge site for disposal. The Notice of
Responsibility for the Ridge Hill Road site and the Ledge site requests that the
PRPs characterize environmental conditions at both sites. Vernon Plastics has
paid $1,000 toward the development and implementation of these
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<PAGE>
plans. In 1980, the US EPA designated the Re-Solve site as a Superfund site and
sent Vernon Plastics a notice letter in 1983. Vernon Plastics voluntarily
entered into a settlement agreement as a de minimis party with the US EPA and
the State of Massachusetts in 1989, and paid $106,000 to the US EPA to resolve
its liability share of response costs for this site. The Company cannot estimate
with any certainty the future costs it may incur to resolve its involvement at
the Ridge Hill Road site or the Ledge site, because investigation and
remediation activity at the sites are in the preliminary stages. Based on the
number of PRPs identified for these two sites and Vernon Plastics' status as a
de minimis party at the Re-Solve site, the Company does not expect that its
liability for these two sites will have a material adverse effect, individually
or in the aggregate, on its operations, liquidity or financial condition.
LEGAL PROCEEDINGS
The combined Company is a party to various litigation matters incidental to
the conduct of its business. Management believes that the outcome of any of the
matters in which it is currently involved is not reasonably likely to have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN OTHER OFFICERS
The following table sets forth certain information regarding each of the
Company's directors, executive officers and certain other officers after giving
effect to the Recapitalization and Imperial Acquisition.
<TABLE>
<CAPTION>
DIRECTORS AGE
- ----------------------------------------------------- ---
<S> <C>
David A. Stockman, Chairman of the Board............. 50
James P. Toohey...................................... 56
Michael Landau....................................... 52
Anthony Grillo....................................... 42
David Blitzer........................................ 28
David I. Foley....................................... 30
<CAPTION>
EXECUTIVE OFFICERS AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James P. Toohey...................................... 56 President, Chief Executive Officer and Director
Scott R. Levin....................................... 46 Executive Vice President--Administration and Chief
Financial Officer
<CAPTION>
CERTAIN OTHER OFFICERS AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael Landau....................................... 52 President--North American Marketing and Director
Gerald E. Klein...................................... 52 Executive Vice President--Sales/Retail Development
Ronald R. Soeder..................................... 43 Executive Vice President--Manufacturing--
North America
Neil Sharrock........................................ 55 Chief Executive Officer--European Division
Keith T. McAslan..................................... 42 Vice President--Customer Service and Logistics
William J. Fenstermaker.............................. 42 Vice President--Corporate Development
Tracey E. Kooser..................................... 38 Vice President--Human Resources
</TABLE>
David A. Stockman was elected Chairman of the Board and Director of the
Company in March, 1998. He is a member of the limited liability company which
acts as the general partner of Blackstone. He is a Senior Managing Director of
the Blackstone Group L.P. and has been with Blackstone since 1988. Mr. Stockman
is a Co-Chairman of the board of directors of C&A and a director of Haynes
International, Inc., Haynes Holdings, Inc., Clark USA, Inc., Clark Refining &
Marketing, Inc., American Axle Manufacturing of Michigan, Inc., American Axle
Manufacturing, Inc. and Bar Technologies, Inc.
James P. Toohey, President, Chief Executive Officer and Director, joined
Imperial in October, 1996 and became an employee of the Company as of March 13,
1998. Prior to joining Imperial, Mr. Toohey was with Hallmark Cards, Inc. for 32
years in various marketing positions, most recently as President of Hallmark
International, a $700 million sales division with 5,500 employees worldwide.
Michael Landau, President--North American Marketing and Director, joined
Imperial in February, 1998 and became an employee of the Company as of March 13,
1998. Prior to joining Imperial, he served as President of F. Schumacher & Co.
Wallcoverings since 1990, having become Corporate Vice President of Schumacher
in 1983. Mr. Landau has worked in the wallcoverings industry for 28 years.
Anthony Grillo was elected Director of the Company in March, 1998. He is a
member of the limited liability company which acts as the general partner of
Blackstone. He is a Senior Managing Director of The Blackstone Group L.P. and
has been with Blackstone since 1991. Mr. Grillo is a member of the boards of
directors of Littlefuse, Inc., The Academy of Political Science and Bar
Technologies, Inc.
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David Blitzer was elected Vice President and Director of the Company in
March, 1998. Mr. Blitzer became a Vice President of The Blackstone Group L.P. in
January, 1997, and has been involved in the firm's principal activities since
1991. Mr. Blitzer is a member of the boards of directors of Haynes
International, Inc., Haynes Holdings, Inc. and Volume Services, Inc.
David I. Foley was elected Vice President and Director of the Company in
March, 1998. Mr. Foley became an Associate of The Blackstone Group L.P. and has
been involved in the firm's principal activities since 1995. Mr. Foley is a
member of the boards of directors of Prime Succession, Inc., Rose Hills Holdings
Corp., Clark USA, Inc. and Clark Refining and Marketing, Inc.
Scott R. Levin, Executive Vice President--Administration and Chief
Financial Officer, joined the Company in July, 1998. Prior to joining the
Company, Mr. Levin was employed by United Technologies Corporation ('UTC')
beginning in 1984, most recently as Vice President and General Manager of the
replacement components division of Carrier Corporation, a subsidiary of UTC, and
as Director of Investor Relations of UTC from 1992 to 1993.
Gerald E. Klein, Executive Vice President--Sales/Retail Development, joined
Imperial in February, 1997 and became an employee of the Company as of March 13,
1998. Mr. Klein served as President--International Collections for The Enesco
Corporation from 1994 until joining Imperial. Previously, he was with Hallmark
Cards, Inc. for 20 years, where he held various sales managerial positions, and
from 1992 was President, Evenson and Vice President, Hallmark Retail.
Ronald R. Soeder, Executive Vice President--Manufacturing--North America,
joined Imperial in February, 1977 and became an employee of the Company as of
March 13, 1998, and over a 20-year period held key management positions in a
number of key segments of the business, including District Manager--Chicago,
General Manager--Independent Division, Vice President--Dealer Sales, Vice
President--General Manager-- Residential and Vice President--Marketing, Product
Development and Strategic Planning. Mr. Soeder has worked in the wallpaper
industry for 21 years.
Neil Sharrock, Chief Executive Officer--European Division, has served as
Chief Executive of IHDG's European operations since 1995. Prior to assuming this
position, Mr. Sharrock served as Managing Director of Crown Wallcoverings since
1990. Mr. Sharrock started his career in 1964 in management services at Storeys
and Crown Paints and held various positions there until he was named a Managing
Director of Storeys Decorative Products in 1983. Mr. Sharrock has worked in the
wallpaper industry for 29 years.
Keith T. McAslan, Vice President--Customer Service and Logistics, joined
Imperial in July, 1994 and became an employee of the Company as of March 13,
1998. Prior to joining Imperial, Mr. McAslan was employed by Square D Company
from 1990 to 1994 where he was Director of Finance and Operations Support for
its distribution services division. Previously, he was with Rockwell
International as Senior Financial Officer for Rockwell's Service Parts division.
William J. Fenstermaker, Vice President--Corporate Development, became an
employee of the Company as of March 13, 1998. Prior to joining the Company, Mr.
Fenstermaker was employed by C&A beginning in 1982. His responsibilities have
included strategic planning and budgeting for Imperial's parent company, as well
as the acquisition and divestiture program of the parent, which has included
nine transactions over the past two years. Mr. Fenstermaker has worked in the
wallpaper industry for 12 years.
Tracey E. Kooser, Vice President-Human Resources, joined Imperial in July,
1993 and became an employee of the Company as of March 13, 1998. Prior to
joining Imperial, Mrs. Kooser was Eastern Division Human Resources Manager for
Harris Wholesale Company, based in Solon, Ohio. At Harris, she provided guidance
and counseling to Division Managers and managed Harris's labor relations,
training, staffing, workers compensation and unemployment compensation programs.
Under the Stockholders Agreement, Borden has the right to designate one
member of the Company's Board of Directors, subject to certain conditions.
Borden has informed the Company that it does not presently intend so to
designate a director. Accordingly, all of the directors identified above have
been designated by Holdings.
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EXECUTIVE COMPENSATION
The following tables set forth certain information regarding the
compensation paid to each of the executive officers of the Company for the year
ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM COMPENSATION AWARDS
COMPENSATION ------------------------------
---------------- RESTRICTED
NAME AND SALARY BONUS STOCK AWARDS
PRINCIPAL POSITION YEAR ($) ($) ($)
- -------------------------------- ---- ------- ------ -------------------
<S> <C> <C> <C> <C>
Ian G. Collins ................. 1997 260,576 91,530 (1)
former Chief Executive Officer 1996 224,539 --
and President 1995 187,569 56,344
Denis Leong .................... 1997 148,528 38,785 (1)
former Chief Financial Officer 1996 126,615 --
1995 94,991 19,571
</TABLE>
1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Ian G. Collins.................................................. 80,000/100,000 (1)
Denis Leong..................................................... 32,000/48,000 (1)
</TABLE>
- ------------------
(1) Shares of IHDG were offered to and purchased by certain executives of the
Company during 1996. Mr. Collins purchased 40,000 shares and Mr. Leong
purchased 16,000 shares. These shares were purchased at $5.00 per share,
which price represented full value at that time. Concurrently, options were
also granted at $5.00 per share at the rate of five options per share
purchased. All options were cancelled in connection with the
Recapitalization.
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<PAGE>
BORDEN UK PENSION PLAN
PENSION PLAN TABLE (1) (2) (3)
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION--$US 15 20 25 30 35
- --------------------------------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000............................... $22,474 $ 29,965 $ 37,456 $ 44,948 $ 52,439
$150,000............................... $27,161 $ 36,215 $ 45,269 $ 54,323 $ 63,377
$175,000............................... $31,849 $ 42,465 $ 53,081 $ 63,698 $ 74,314
$200,000............................... $36,536 $ 48,715 $ 60,894 $ 73,073 $ 85,252
$225,000............................... $41,223 $ 54,965 $ 68,706 $ 82,448 $ 96,189
$250,000............................... $45,911 $ 61,215 $ 76,519 $ 91,823 $107,127
$300,000............................... $55,286 $ 73,715 $ 92,144 $110,573 $129,002
$400,000............................... $74,036 $ 98,715 $123,394 $148,073 $175,752
$450,000............................... $83,411 $111,215 $139,019 $166,823 $194,627
$500,000............................... $92,786 $123,715 $154,644 $185,573 $216,502
</TABLE>
- ------------------
(1) Table applies to pensions of Messrs. Collins and Sharrock. As of December
31, 1997, Mr. Collins was credited with 34 years and eight months of
service; Mr. Sharrock was credited with 35 years and six months of service;
and Mr. Swarbrick was credited with 39 years and one month of service.
(2) Under the Borden UK Pension Plan (the 'UK Plan'), UK Plan compensation is
calculated as follows: 1/80 x final average pensionable pay x Pensionable
Service plus a defined contribution top-up, under which the Company matches
voluntary contributions paid by the member, within prescribed limits.
(3) Under the UK Plan, Messrs. Collins and Sharrock are subject to an earnings
cap set at pounds 84,000/year for the 1997-8 tax year. Retirement benefits
provided from the UK Plan may not exceed 2/3rds of the earnings cap.
EMPLOYMENT AGREEMENT SUMMARY
The Imperial Home Decor Group (US) LLC (the 'US Sub') and Michael Landau,
President--North American Marketing of the Company, are parties to an employment
agreement, dated February 1, 1998. Mr. Landau is entitled under the agreement to
be elected as a director of US Sub. His compensation under the agreement
includes a $400,000 initial base salary, a $750,000 signing bonus, and
guaranteed bonuses for the first three years of his employment of $200,000,
$130,000 and $125,000, respectively. He will also be granted options to purchase
up to 2% of the Company's common stock at the same price per Company share as
the per share contribution to the Company's equity by Blackstone in connection
with the Transactions. The options to Mr. Landau have not yet been granted
because the plans under which the options are to be issued have not yet been
established. Mr. Landau may be terminated voluntarily with one month's prior
written notice and involuntarily without advance notice with or without Cause
(as defined in the agreement). Upon termination for death or physical or mental
disability, all options then exercisable shall remain exercisable for nine
months from the date of termination, otherwise such options shall remain
exercisable for six months from the date of termination (unless terminated for
Cause).
EXECUTIVE COMPENSATION POLICY
REPORT OF THE COMPENSATION COMMITTEE OF IHDG FOR THE FISCAL YEAR ENDED DECEMBER
31, 1997
The Company reviews its compensation and benefits policy on an annual basis
and summarizes that policy in an internal paper (the 'Compensation and Benefits
Strategy'). The purpose of the Company's compensation and benefits policy is to
support the achievement of the Company's mission to be the world's most
successful supplier in its markets and to achieve the Company's 'Critical
Success Factors,' including: industry superiority in design and color, market
share growth and total quality, as set out in the Compensation and Benefits
Strategy. These goals should be reached by way of the effective recruitment and
retention of skilled, motivated and committed associates. The Company's
compensation and benefit programs recognize the international nature of
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<PAGE>
the Company's operations and are targeted to the characteristics of the local
markets of particular operations rather than uniformly across national
boundaries.
Cross-national comparisons within the Company are strictly limited in
assessing compensation and benefits but include: (i) a sample comparison of
'benchmark' management positions drawn from all Company operations, (ii)
creation of job grade structures for each main operation, and (iii) comparison
of job grade structures with local market competitors which structures are
maintained and reviewed on a regular basis.
Base pay is targeted at competitive levels for each local market while
incentive and bonus compensation is used to provide an opportunity for earnings
significantly above each market place median. The Company uses this compensation
and benefits structure because it recognizes that premium compensation is
necessary to attract and retain key staff from limited markets and,
consequently, to achieve product superiority. The Company seeks to insure that
employees who perform their jobs with excellence have the opportunity to earn
compensation at the highest levels available with competitors in each of the
Company's local markets. The Company's measure of employee performance is
rigorous.
The Company's benefit programs are intended to match the median benefit
provision offered by competitors in each of the Company's local markets.
Enhanced benefits are provided only in recognition of superior financial
performance by the Company.
It is the Company's long term objective to make performance related
benefits rewards available to all associates. Such rewards are considered only
where: (i) the Company enjoys superior financial performance, (ii) local market
conditions support such rewards, and (iii) Company Board approval is obtained.
Such rewards programs are to remain flexible in order to enable management to
take actions necessary in achieving key business goals. The Company makes
exceptions in benefits allocations only with rigorous consideration, reporting
and control.
UK PROFIT RELATED PAY (PRP)
Profit related pay is a scheme established by the State in the late 1980's
and aimed to encourage the linking of an element of pay to the profitability of
the company for which an employee works.
It is for individual companies to determine whether the PRP element: (i)
replaces an existing bonus scheme, (ii) is a part of a wage settlement, or (iii)
is offered as an additional incentive.
The 'profit' is taken always as profit after tax of the activities of the
whole employment unit.
PRP requires that 80% of the total employees within the profit unit must
agree to join the scheme, although some exclusions are allowed. The greater the
number of exclusions, of course, the more difficult it becomes to achieve the
80% figure (which remains based on total employees in the unit).
PRP allows the Company to pay an element of pay to participating employees
free of income tax. At present, the maximum pay which can be treated in this way
is the lower of 20% or pounds 4,000.
There are a number of different structural PRP options which could be
utilized and the method selected by the Company is as follows:
1. Each participant agrees to a wage reduction and continues to pay
tax on that lower wage/salary;
2. The Company pays an advance of PRP to participants each week/month
such that each participant's take home pay is slightly in excess of the
current level. This is achieved because the PRP element is free of tax at
the normal 20%/40% band rates.
3. At the end of the profit period, actual profits are compared with
forecast profits and, if they are ahead of forecast, an additional bonus is
paid.
4. Not all the benefits of the scheme are passed on to the
participants unless the Company decides to do so. In fiscal 1997, the
Company passed about 60% of the benefit to participants and retained the
balance. The benefit to participants produced an increase in annual
earnings of about 4%.
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<PAGE>
SECURITY OWNERSHIP
Holdings owns 89% of the Company's Common Stock and Borden owns 11% of the
Company's Common Stock. Blackstone owns all the equity securities of Holdings.
In addition, in connection with the Imperial Acquisition, C&A holds the C&A
Option to purchase newly issued shares of the Company's Common Stock equal to
6.7% of shares of Common Stock of the Company outstanding as of the Closing.
The following table and the accompanying notes set forth certain
information concerning the beneficial ownership of the Common Stock of the
Company after giving pro forma effect to the Recapitalization and Imperial
Acquisition by: (i) each person who is known by the Company to own beneficially
more than 5% of the Common Stock of the Company, (ii) each director and each
executive officer who is the beneficial owner of shares of Common Stock of the
Company and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
Blackstone Management Associates III L.L.C.(a) ............................... 5,284,375 89.0%
345 Park Avenue
New York, New York 10154
Borden, Inc.(b) .............................................................. 653,125 11.0%
180 East Broad Street
Columbus, Ohio 43215
Collins & Aikman Products Co.(c) ............................................. 397,812 6.7%
701 McCullough Drive
Charlotte, NC 28262
All directors and executive officers as a group(d)............................ 0 0.0%
</TABLE>
- ------------------
(a) The 5,284,375 shares beneficially owned by Blackstone are directly held by
Holdings. All the issued and outstanding shares of Holdings are held by
Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners III L.P. and Blackstone Family Investment
Partnership III L.P., of each of which Blackstone Management Associates III
L.L.C. is the general partner having voting and dispositive power.
(b) The 653,125 shares beneficially owned by Borden are directly held by BDH
One, Inc., a wholly-owned subsidiary of Borden.
(c) The 397,812 shares beneficially owned by C&A are subject to the C&A Option
which were granted to C&A in connection with the Imperial Acquisition. See
'Certain Transactions--Option Agreement.'
(d) See 'Executive Compensation' for a discussion of options to purchase Common
Stock or other equity rights which may be granted to certain officers of the
Company.
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<PAGE>
CERTAIN TRANSACTIONS
PAYMENT OF CERTAIN FEES AND EXPENSES
In connection with the Recapitalization and Imperial Acquisition,
Blackstone Management Partners III L.L.C. ('BMP') received a $4.0 million fee
and the Company reimbursed Blackstone for all out-of-pocket expenses incurred in
connection with the Recapitalization and Imperial Acquisition. In addition,
pursuant to a monitoring agreement (the 'Monitoring Agreement') entered into
between BMP and the Company, BMP receives an annual $1.5 million monitoring fee
and is reimbursed for certain out-of-pocket expenses. The Monitoring Agreement
terminates on the earlier of (i) the date on which affiliates of Blackstone hold
directly, beneficial ownership of less than 10% of the equity interest in the
Company acquired in the Transactions or (ii) the date agreed to by BMP and the
Company. In the future, affiliates of Blackstone may receive customary fees for
advisory and other services rendered to the Company and its subsidiaries. If
such services are rendered in the future, the fees will be negotiated from time
to time and will be based on the services performed and the prevailing fees then
charged by third parties for comparable services.
STOCKHOLDERS AGREEMENT
The Company, Borden, BDH One, Inc., an indirect wholly owned subsidiary of
Borden (the 'Borden Investor'), and Holdings entered into a Stockholders
Agreement on the date of the Closing (the 'Stockholders Agreement'). Pursuant to
the Stockholders Agreement, Holdings has 'drag-along' rights and a right of
first offer, and the Borden Investor has registration rights and 'tag-along'
rights, with respect to sales of the Company's Common Stock owned by the Borden
Investor. In addition, subject to certain conditions and exceptions, the Borden
Investor is entitled to designate one member of the Board of Directors of the
Company and transfers of the Company's Common Stock by the Borden Investor are
restricted.
Drag-along, Tag-along Rights. The Stockholders Agreement provides that if
Holdings or any of its affiliates receives an offer from a third party other
than from an affiliate of Blackstone to purchase at least a majority of the
outstanding shares of Common Stock of the Company and such offer is accepted by
Holdings, then the Borden Investor will transfer a proportionate number of
shares of the Company's Common Stock owned by it to such third party on the
terms and conditions of the offer as accepted by Holdings. The Stockholders
Agreement also provides that, if Holdings or its affiliates propose to transfer
any of the Company's Common Stock owned by it to a third party other than in a
public offering or to an affiliate of Blackstone, the Borden Investor will have
the right to require Holdings to require the proposed transferee to purchase a
proportionate number of its shares of the Company's Common Stock on the same
terms and conditions as Holdings's sale.
Right of First Offer. Prior to the earlier of (i) consummation of an
initial public offering of Common Stock by the Company (an 'IPO') and (ii) a
date that is on or about the fifth anniversary of the Closing, before
transferring any shares of the Company's Common Stock to any third party, the
Borden Investor will be required to offer to sell such shares to Holdings.
Holdings will have 30 days to exercise its right to purchase such shares.
Board Representation. The Borden Investor is entitled pursuant to the
Stockholders Agreement, subject to certain conditions and exceptions, to
designate one member of the Board of Directors of the Company so long as the
Borden Investor owns at least 75% of the shares of Common Stock of the Company
retained by it in the Recapitalization. Such right will terminate at any time
following an IPO after which the Borden Investor owns less than 5% of the then
outstanding Common Stock of the Company.
Restrictions on Transfer. The Borden Investor is not permitted to transfer
the Company's Common Stock other than to affiliates who become bound by the
Stockholders Agreement or pursuant to the 'drag-along,' 'tag-along' or
right-of-first-offer provisions of the Stockholders Agreement and may not
transfer the Company's Common Stock to competitors of the Company.
Registration Rights. The Stockholders Agreement provides that the Borden
Investor will be entitled to have shares of the Company's Common Stock owned by
it included in other registrations of the Company's Common Stock and will be
entitled on one occasion to require the Company to file a registration statement
in connection with a proposed sale of all shares of Common Stock of the Company
owned by it at any time following 180 days after an IPO, subject to customary
limitations.
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<PAGE>
OPTION AGREEMENT
The Company, Holdings and C&A entered into an agreement on the date of the
Closing (the 'Option Agreement') whereby C&A has been granted the C&A Option to
purchase 397,812 shares of the Company's Common Stock from the Company
(representing 6.7% of the issued and outstanding Common Stock after giving
effect to the Recapitalization) for $20.80 per share (130% of the amount per
share indirectly paid by Holdings for the Company's Common Stock through the
Merger). The C&A Option is exercisable in whole or in part, will not be
transferrable and will expire on the fifth anniversary of the Closing. The C&A
Option Agreement contains restrictions on transfer of shares issuable upon
exercise of the C&A Option ('Option Shares') and 'drag-along,' 'tag-along,'
right-of-first-offer and registration rights provisions with respect to the C&A
Option Shares that are substantially the same as those contained in the
Stockholders Agreement.
TRANSITION SERVICES AGREEMENTS
Pursuant to the Recapitalization Agreement, Borden entered into a
transition services agreement with the Company (the 'Borden Transition Services
Agreement') as of the date of the Closing pursuant to which Borden is providing
certain management support services to the Company for a period of one year
following the Closing. Pursuant to the Imperial Acquisition Agreement, C&A
entered into a transition services agreement with the Company (the 'C&A
Transition Services Agreement' and, together with the Borden Transition Services
Agreement, the 'Transition Services Agreements') as of the date of the Closing
pursuant to which C&A is providing certain management support services to the
Company for periods ranging from one to two years following the Closing. The
fees for services provided under the Borden Transition Services Agreement are
billed to the Company at the same rate Borden billed IHDG from January 1, 1997
through June 30, 1997 for such services. The fees for services provided under
the Imperial Transition Services Agreement are as set forth in the agreement and
are based on historical rates charged to Imperial by C&A.
PVC SUPPLY AGREEMENT
Pursuant to the Recapitalization Agreement, Borden Chemical and Plastics
L.P. ('BC'), an affiliate of Borden, and Vernon Plastics entered into an
agreement regarding the purchasing and processing of PVC resins on terms at
least as favorable to the Company as the terms of the purchase agreements under
which Borden formerly purchased PVC from BC. This agreement, which expires in
November 2002, requires BC to supply to Vernon Plastics up to 100%, and requires
Vernon Plastics to purchase at least 85%, of the quantities of PVC resins
required by Vernon Plastics to use in its Haverhill, Massachusetts plant. To the
extent Vernon Plastics does not require PVC for use at its Haverhill plant it is
not obligated to purchase PVC resins under the agreement. The price for PVC
resins is generally the average price that BC charges its lowest-priced major
customer. The agreement also provides that BC is required to meet competitive
third-party offers or allow Vernon Plastics to purchase the lower-priced product
from third parties in lieu of purchases under the agreement.
TRADEMARK LICENSE AGREEMENT
Pursuant to the Recapitalization Agreement, Borden, BDH Two, Inc. and the
Company entered into a Trademark License Agreement as of the date of the Closing
pursuant to which the Company has a 33 month exclusive license to use the
registered trademark 'Borden Home Wallcoverings' in connection with wallpaper,
vinyl wallcoverings, borders and coordinating fabrics and accessories sold in
the home consumer market through retail channels. Following such 33-month
period, the Company will no longer be able to use the 'Borden Home
Wallcoverings' registered trademark. The Company does not expect the expiration
of the Trademark License Agreement to have a material adverse effect on its
results of operations or financial condition because it is no longer producing
products using the Borden Home Wallcoverings trademark and does not expect to
have any material inventory of Borden Home Wallcoverings products at the end of
the Trademark License Agreement term.
NON-COMPETITION, NONSOLICITATION AGREEMENTS
The Recapitalization Agreement provides that Borden will not, subject to
certain exceptions, solicit any employees of the Company or manufacture or sell
any products currently manufactured or sold by the Company or own an equity
interest in an entity engaged in such business for a period of two years after
the date of the
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<PAGE>
Closing. Pursuant to the Imperial Acquisition Agreement, C&A and the Company
entered into a Non-Competition Agreement on the date of the Closing pursuant to
which, subject to certain exceptions, C&A may not solicit certain employees of
the Company for a period of five years after the date of the Closing or compete
with the Company in the paper and vinyl decorative surface products and related
products businesses for two years following the date of the Closing.
INDEMNIFICATION AGREEMENT
The Company and Holdings have entered into an agreement providing for the
indemnification and payment of all related costs and expenses of Holdings and
its affiliates, including Blackstone and any Blackstone employee, in the event
of any action, suit, proceeding or investigation arising out of any action or
inaction by the Company or any of its subsidiaries or affiliates, except and
only to the extent that it is finally judicially determined that the loss for
which indemnity or the payment of costs and expenses is sought resulted from
actual fraud as a result of which the indemnified party received a financial
benefit to which the indemnified party was not legally entitled. In addition,
pursuant to the agreement, Holdings (and its transferees) will be entitled to up
to five demand and unlimited piggyback registration rights.
RELATIONSHIPS BETWEEN IHDG AND BORDEN AND BETWEEN IMPERIAL AND C&A
See Note 2 to the Combined Financial Statements of IHDG for a discussion of
certain historical information regarding relationships between IHDG and Borden
and see Notes 2 and 14 to Consolidated and Combined Financial Statements of
Imperial for a discussion of certain historical information regarding
relationships between Imperial and C&A.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on March 13, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to (i) qualified institutional buyers in
reliance on Rule 144A under the Securities Act and (ii) a limited number of
institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act). As a condition of the Purchase Agreement, the
Company and the Subsidiary Guarantors entered into the Exchange and Registration
Rights Agreement with the Initial Purchasers pursuant to which the Company and
the Subsidiary Guarantors have agreed, for the benefit of the holders of the Old
Notes, at the Company's cost, to (i) file with the Commission the Exchange Offer
Registration Statement with respect to the Exchange Offer for the Exchange Notes
not later than 120 days after the date of the original issue of the Old Notes;
(ii) use their reasonable best efforts to cause the Exchange Offer Registration
Statement to be become effective under the Securities Act no later than 180 days
after the date of the original issuance of the Old Notes and to cause the
Exchange Offer to be consummated no later than 210 days after the original issue
of the Old Notes and (iii) use their reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective for not less than 30 days
(or longer if required by applicable law) after the date on which notice of the
Exchange Offer is mailed to the Holders. Upon the Exchange Offer Registration
Statement being declared effective, the Company will offer the Exchange Notes in
exchange for surrender of the Old Notes. For each Old Note surrendered to the
Company in conformity with the Exchange Offer, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. Interest on each Old Note will accrue from the last
interest payment date on which interest was paid on the Old Note surrendered in
exchange therefor or, if no interest has been paid on such Old Note, from the
date of its original issue. Interest on each Exchange Note will accrue from the
date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Company believes that the
Exchange Notes will in general be freely tradeable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser of
Old Notes who is an 'affiliate' of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation of the staff of the Commission, (ii)
will not be able to tender its Old Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus
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<PAGE>
delivery requirements of the Securities Act in connection with any sale or
transfer of the Old Notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the Exchange and
Registration Rights Agreement, each holder participating in the Exchange Offer
shall be required to represent to the Company that at the time of the
consummation of the Exchange Offer (i) any Exchange Notes to be received by such
holder will be acquired in the ordinary course of business, (ii) such holder
will have no arrangements or understanding with any person to participate in the
distribution of the Old Notes or the Exchange Notes within the meaning of the
Securities Act, (iii) such holder is not an affiliate of the Company or, if it
is such an affiliate, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
(iv) if such holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of Exchange Notes and (v) if such
holder is a broker-dealer that will receive Exchange Notes for its own account
(a 'Participating Broker-Dealer') in exchange for Old Notes that were acquired
as a result of market-making or other trading activities, that it will deliver a
prospectus in connection with any resale of such Exchange Notes. As indicated
above, each Participating Broker-Dealer that receives Exchange Notes for its own
account in exchange for Old Notes must acknowledge that it (i) acquired the Old
Notes for its own account as a result of market-making activities or other
trading activities, (ii) has not entered into any arrangement or understanding
with the Company or any 'affiliate' of the Company (within the meaning of Rule
405 under the Securities Act) to distribute the Exchange Notes to be received in
the Exchange Offer and (iii) will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes. For
a description of the procedures for resales by Participating Broker-Dealers, see
'Plan of Distribution.'
If (i) because of any change in law or applicable interpretations thereof
by the Commission's staff the Company is not permitted to effect the Exchange
Offer, or (ii) any Old Notes validly tendered pursuant to the Exchange Offer are
not exchanged for Exchange Notes within 210 days after the Issue Date, or (iii)
any Initial Purchaser so requests with respect to Old Notes or notes not
eligible to be exchanged for Exchange Notes in the Exchange Offer and held by it
following the consummation of the Exchange Offer, or (iv) any applicable law or
interpretations do not permit any holder to participate in the Exchange Offer,
or (v) any holder that participates in the Exchange Offer does not receive
freely transferable Exchange Notes in exchange for tendered Old Notes, or (vi)
the Company so elects, then the Company and the Subsidiary Guarantors shall use
their reasonable best efforts to file as promptly as practicable (but in no
event more than 120 days after the Issue Date) with the Commission and
thereafter shall use their reasonable best efforts to cause to be declared
effective (but in no event more than 180 days after the Issue Date), a shelf
registration statement on an appropriate form under the Securities Act relating
to the offer and sale of the Old Notes by the holders thereof from time to time
in accordance with the methods of distribution set forth in such registration
statement (the 'Shelf Registration Statement' and, together with any Exchange
Offer Registration Statement, a 'Registration Statement') and the Company and
the Subsidiary Guarantors shall use their reasonable best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be used by holders of Transfer Restricted
Securities (as defined) for a period ending on the earlier of (i) two years from
the Issue Date or such shorter period that will terminate when all the Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
pursuant thereto and (ii) the date on which the Old Notes become eligible for
resale without volume restrictions pursuant to Rule 144 under the Securities
Act.
The Exchange and Registration Rights Agreement provides that if (i) the
applicable Registration Statement is not filed with the Commission on or prior
to 120 days after the Issue Date; (ii) the Exchange Offer Registration Statement
or the Shelf Registration Statement, as the case may be, is not declared
effective within 180 days after the Issue Date; (iii) the Exchange Offer is not
consummated on or prior to 210 days after the Issue Date or (iv) the Shelf
Registration Statement is filed and declared effective within 180 days after the
Issue Date but shall thereafter cease to be effective (at any time that the
Company is obligated to maintain the effectiveness thereof) without being
succeeded within 60 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
'Registration Default'), the Company will be obligated to pay liquidated damages
to each holder of Transfer Restricted Securities, during the period of one or
more such Registration Defaults, in an amount equal to $0.192 per week per
$1,000 principal amount of the Old Notes constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed, the Exchange Offer Registration Statement is declared effective and the
Exchange Offer is consummated or the
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Shelf Registration Statement is declared effective or again becomes effective,
as the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Old Notes on semi-annual payment
dates which correspond to interest payment dates for the Old Notes. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease.
For the purposes of the Exchange and Registration Rights Agreement,
'Transfer Restricted Securities' means each Old Note until the earliest of the
date of which (i) such Old Note is exchanged in the Exchange Offer and entitled
to be resold to the public by the holder thereof without complying with the
prospectus delivery requirements of the Securities Act, (ii) such Old Note has
been disposed of in accordance with the Shelf Registration Statement, (iii) such
Old Note is disposed of by a broker-dealer pursuant to the 'Plan of
Distribution' contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (iv) such Old Note
is distributed to the public pursuant to Rule 144 under the Securities Act or is
salable pursuant to Rule 144(k) under the Securities Act.
The summary herein of certain provisions of the Exchange and Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by, all the provisions of the Exchange and
Registration Rights Agreement, a copy of which is filed as an exhibit to the
Exchange Offer Registration Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes in all material respects except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange Notes have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (iii) the holders of the Exchange Notes will not be entitled to
certain rights under the Exchange and Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Old Notes
in certain circumstances relating to the timing of the Exchange Offer, all of
which rights will terminate when the Exchange Offer is terminated. The Exchange
Notes will evidence the same debt as the Old Notes and will be entitled to the
benefits of the Indenture.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or in the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
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If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See '--Fees and Expenses.'
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term 'Expiration Date' shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under '--Conditions'
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon from the last Interest Payment Date on which interest was paid,
or if no interest has been paid, the date of issuance of the Old Notes to, but
not including, the date of issuance of the Exchange Notes. Such interest will be
paid with the next interest payment on the Exchange Notes on March 15, 1999 to
persons who are registered holders of the Exchange Notes on March 1, 1999.
Interest on the Old Notes accepted for exchange will cease to accrue upon
issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each March 15
and September 15 commencing on March 15, 1999.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal or transmit an Agent's
Message in connection with a book-entry transfer, and mail or otherwise deliver
such Letter of Transmittal or such facsimile or Agent's Message, together with
the Old Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Old Notes, Letter of Transmittal or Agent's Message and other
required documents must be completed and received by the Exchange Agent at the
address set forth below under 'Exchange Agent' prior to 5:00 p.m., New York City
time, on the Expiration Date. Delivery of the Old Notes may be made by
book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
The term 'Agent's Message' means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
('ATOP'); (ii) to be bound by the terms of the Letter of Transmittal; and (iii)
that the Company may enforce such agreement against such participant.
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By executing the Letter of Transmittal or Agent's Message, each holder will
make to the Company the representations set forth above in the third paragraph
under the heading '--Purpose and Effect of the Exchange Offer.'
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY CONFIRMED BY THE EXCHANGE AGENT. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See 'Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner' included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled 'Special Registration
Instructions' or 'Special Delivery Instructions' on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be an Eligible Institution. An
'Eligible Institution' is a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
learning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
(the 'Book-Entry Transfer Facility'), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereto, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, unless an Agent's Message is received by the Exchange Agent
in compliance with ATOP, an appropriate Letter of Transmittal properly completed
and duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which
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determination will be final and binding. The Company reserves the absolute right
to reject any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any person shall incur any liability for failure
to give such notification. Tender of Old Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution.
(b) prior to the Expiration Date, the Exchange Agent received from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate
number(s) of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof) (or, in the case of a book-entry transfer, an Agent's Message)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), and any other
documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) the certificate(s) representing all tendered Old Notes in proper form
for transfer (or a confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at the Book Entry Transfer
Facility), together with a Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
'Depositor'), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be
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accompanied by documents of transfer sufficient to have the Trustee with respect
to the Old Notes register the transfer of such Old Notes into the name of the
person withdrawing the tender and (iv) specify the name in which any such Old
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
'--Procedures for Tendering' at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer, or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see
'--Withdrawal of Tenders') or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<CAPTION>
By Registered or Certified Mail: Fascimile Transmission Number: By Hand/Overnight Delivery:
<S> <C> <C>
The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E (212) 815-6339 Corporate Trust Services Window
New York, New York 10286 (For Eligible Institutions Only) Ground Level
Attn.: Reorganization Section 101 Barclay Street
New York, New York 10286
Attn: Reorganization
Section-Floor 7E
Confirm by Telephone:
(212) 815-5788
For Information Call:
(212) 815-5788
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted. Accordingly, such Old Notes may be resold
only (i) to the Company (upon redemption thereof or otherwise), (ii) so long as
the Old Notes are eligible for resale pursuant to Rule 144A, to a person inside
the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company), (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who received Exchange Notes,
whether or not such person is the holder (other than a person that is an
'affiliate' of the Company within the meaning of Rule 405 under the Securities
Act), in exchange for Old Notes in the ordinary course of business and who is
not participating with any person to participate, in the distribution of the
Exchange Notes, will be allowed to resell the Exchange Notes to the public
without further registration under the Securities Act and without delivering to
the purchasers of the Exchange Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that received
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
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DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an Indenture, dated as of March 13,
1998, among the Company, the Subsidiary Guarantors and The Bank of New York, as
trustee (the 'Trustee'). The terms of the Exchange Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the 'Trust Indenture Act') as in effect on
the date of the Indenture. The Exchange Notes are subject to all such terms, and
holders of the Exchange Notes are referred to the Indenture and the Trust
Indenture Act for a statement of them. The form and terms of the Exchange Notes
are the same as the form and terms of the Old Notes in all material respects
(which they replace) except that (i) the Exchange Notes bear a Series B
designation, (ii) the Exchange Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, and
(iii) the holders of Exchange Notes will not be entitled to certain rights under
the Exchange and Registration Rights Agreement, including the provisions
providing for the payment of Liquidated Damages in certain circumstances
relating to the timing of the Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. As used herein, 'Notes' refers both to the
Exchange Notes and the Old Notes. The following is a summary of the material
provisions of the Indenture and the Notes. A copy of the form of Indenture may
be obtained from the Company by any holder or prospective investor upon request.
Definitions relating to certain capitalized terms are set forth under '--Certain
Definitions' and throughout this description. Capitalized terms that are used
but not otherwise defined herein have the meanings set forth in the section
'--Certain Definitions.' As used in this 'Description of the Exchange Notes'
section, the 'Company' means The Imperial Home Decor Group Inc.
GENERAL
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
(which initially shall be the principal corporate trust office of the Trustee,
at 101 Barclay Street, New York, New York 10286), except that, at the option of
the Company, payment of interest may be made by check mailed to the Holders at
their registered addresses.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE EXCHANGE NOTES
The Exchange Notes will be unsecured senior subordinated obligations of the
Company in an aggregate principal amount of up to $125.0 million, and will
mature on March 15, 2008. Each Exchange Note will bear interest from their date
of issuance. Holders of Old Notes that are accepted for exchange will receive,
in cash, accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes. Such interest will be paid with the first interest payment
on the Exchange Notes on March 15, 1999 to persons who are registered holders of
the Exchange Notes on March 1, 1999. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
The Indenture provides for the issuance of up to $150.0 million aggregate
principal amount of additional Notes having identical terms and conditions to
the Exchange Notes offered hereby (the 'Additional Notes'), subject to
compliance with the covenants contained in the Indenture. Any Additional Notes
will be part of the same issue as the Exchange Notes offered hereby and will
vote on all matters with the Exchange Notes offered hereby. For purposes of this
'Description of the Exchange Notes' section, reference to the Exchange Notes
does not include Additional Notes.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole or
in part, at any time on or after March 15, 2003, and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
as a percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of
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record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
March 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------------------------------------------------------------- ----------
<S> <C>
2003........................................................ 105.500%
2004........................................................ 103.667%
2005........................................................ 101.833%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 15, 2001, the
Company may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of the Exchange Notes with the net cash proceeds of one or more
Equity Offerings by the Company, at a redemption price (expressed as a
percentage of principal amount thereof) of 111% plus accrued interest, if any,
to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that at least 66 2/3% of the original aggregate
principal amount of the Exchange Notes must remain outstanding after each such
redemption and provided further that such redemption shall occur within 360 days
after the date on which any such Equity Offering is consummated.
At any time on or prior to March 15, 2003, the Exchange Notes may be
redeemed as a whole but not in part at the option of the Company upon the
occurrence of a Change of Control, upon not less than 30 or more than 60 days'
prior notice (but in no event may any such redemption occur more than 90 days
after the occurrence of such Change of Control) mailed by first-class mail to
each Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued but
unpaid interest, if any, to, the redemption date, subject to the right of
Holders on the relevant record date to receive interest due on the relevant
interest payment date.
'Applicable Premium' means with respect to an Exchange Note at any
redemption date, the greater of (i) 1.0% of the principal amount of such
Exchange Note or (ii) the excess of (A) the present value of (1) the redemption
price of such Exchange Note at March 15, 2003 (such redemption price being set
forth in the table above) plus (2) all required interest payments due on such
Exchange Note through March 15, 2003, computed using a discount rate equal to
the Treasury Rate plus 50 basis points, over (B) the then-outstanding principal
amount of such Exchange Note.
'Treasury Rate' means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data) most nearly equal to the
period from the redemption date to March 15, 2003 provided, however, that if the
period from the redemption date to March 15, 2003 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the redemption date to March 15, 2003 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which such Notes are
listed, or if such Notes are not so listed, on a pro rata basis, by lot or by
such other method as the Trustee shall deem fair and appropriate (and in such
manner as complies with applicable legal requirements); provided that no Notes
of $1,000 or less shall be redeemed in part. If any Note is to be redeemed in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note.
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RANKING
The indebtedness evidenced by the Exchange Notes (and any liquidated
damages payable pursuant to the Exchange and Registration Rights Agreement (the
'Additional Amounts')) will be unsecured senior subordinated indebtedness of the
Company, will be subordinated in right of payment, as set forth in the
Indenture, to all existing and future Senior Indebtedness of the Company, will
rank pari passu in right of payment with all existing and future Pari Passu
Indebtedness of the Company (including the Old Notes) and will be senior in
right of payment to all existing and future Subordinated Indebtedness of the
Company. The Exchange Notes will also be effectively subordinated to any Secured
Indebtedness of the Company to the extent of the value of the assets securing
such Indebtedness and to any Indebtedness of any of the Company's Subsidiaries
that are not Subsidiary Guarantors. However, payment from the money or the
proceeds of U.S. Government Obligations held in any defeasance trust described
under '--Defeasance' below is not subordinated to any Senior Indebtedness or
subject to the restrictions described herein.
The indebtedness evidenced by the Subsidiary Guarantees will be unsecured
senior subordinated indebtedness of the applicable Subsidiary Guarantor, will be
subordinated in right of payment, as set forth in the Indenture, to all existing
and future Senior Indebtedness of such Subsidiary Guarantor, will rank pari
passu in right of payment with all existing and future Pari Passu Indebtedness
of such Subsidiary Guarantor and will be senior in right of payment to all
existing and future Subordinated Indebtedness of such Subsidiary Guarantor. The
Subsidiary Guarantees will also be effectively subordinated to any Secured
Indebtedness of the applicable Subsidiary Guarantor to the extent of the value
of the assets securing such Indebtedness.
As of June 27, 1998, after giving effect to the Transactions, (i) the
Company had $221.9 million aggregate principal amount of Senior Indebtedness
outstanding (exclusive of unused commitments), all of which was Secured
Indebtedness (as defined), (ii) the Company had no Pari Passu Indebtedness
outstanding other than the Old Notes and no Subordinate Indebtedness, (iii) the
Subsidiary Guarantors had no Senior Indebtedness outstanding (exclusive of
guarantees of the Senior Credit Facilities), (iv) the Subsidiary Guarantors had
no Pari Passu Indebtedness outstanding (exclusive of the Subsidiary Guarantees),
no Subordinate Indebtedness and total liabilities (excluding indebtedness and
liabilities owed to the Company or any Subsidiary Guarantor) of $55.9 million,
and (v) the Non-Guarantor Subsidiaries had total liabilities (excluding
liabilities owed to the Company or any Subsidiary Guarantor) of $85.9 million.
The preceding sentence describes all of the Indebtedness of the Company and the
Subsidiary Guarantors outstanding as of June 27, 1998. As of June 27, 1998, the
Indebtedness of the Company included $221.9 million aggregate principal amount
outstanding under the Senior Credit Facilities and the Company had an additional
$78.1 million aggregate principal amount available for borrowing under the
Senior Credit Facilities subject to certain conditions, which will be secured by
the assets of the Company and the Subsidiary Guarantors and will mature prior to
the maturity of the Exchange Notes. Although the Indenture contains limitations
on the amount of additional Indebtedness which the Company and its subsidiaries
may Incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
'--Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock'
below.
'Senior Indebtedness' means with respect to the Company or any Subsidiary
Guarantor all Indebtedness of the Company or such Subsidiary Guarantor,
including interest thereon (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company or
any Subsidiary whether or not a claim for post-filing interest is allowed in
such proceeding) and other amounts (including fees, expenses, reimbursement
obligations under letters of credit and indemnities) owing in respect thereof,
whether outstanding on the Issue Date or thereafter Incurred, unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are not superior in right of
payment to the Notes or such Subsidiary Guarantor's Subsidiary Guarantee, as
applicable; provided, however, that Senior Indebtedness shall not include, as
applicable, (i) any obligation of the Company to any Subsidiary of the Company,
or of such Subsidiary Guarantor to the Company or any other Subsidiary of the
Company, (ii) any liability for Federal, state, local or other taxes owed or
owing by the Company or such Subsidiary Guarantor, (iii) any accounts payable or
other liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (iv)
any Indebtedness or obligation of the Company or such Subsidiary Guarantor which
is subordinate or junior in any respect to any other Indebtedness or obligation
of the Company or such Subsidiary Guarantor, as applicable, including any Pari
Passu Indebtedness
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and any Subordinated Indebtedness, (v) any obligations with respect to any
Capital Stock, or (vi) any Indebtedness Incurred in violation of the Indenture.
If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to
the provisions of Section 548 of Title 11 of the United States Code or any
applicable state fraudulent conveyance law, such Senior Indebtedness
nevertheless will constitute Senior Indebtedness.
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes or the relevant Subsidiary Guarantee
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guarantee will in all respects rank pari passu with all other Pari
Passu Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively.
The Company may not pay principal of, premium (if any) or interest on (or
Additional Amounts in respect of), the Notes or make any deposit pursuant to the
provisions described under '--Defeasance' below and may not otherwise purchase,
redeem or otherwise retire any Notes (except that Holders may receive and retain
(a) Permitted Junior Securities and (b) payments made from the trust described
under '--Defeasance' below) (collectively, 'pay the Notes') if (i) a default in
the payment of the principal of, premium, if any, or interest on any Designated
Senior Indebtedness occurs and is continuing or any other amount owing in
respect of any Designated Senior Indebtedness is not paid when due, or (ii) any
other default on Designated Senior Indebtedness occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full in Cash Equivalents. However, the Company may pay the Notes without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a 'Payment Blockage Period')
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a 'Blockage Notice') of such default from the Representative of
the Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full in Cash Equivalents of such Designated Senior Indebtedness or
(iii) because the default giving rise to such Blockage Notice is no longer
continuing). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this paragraph and in the succeeding paragraph), unless the holders
of such Designated Senior Indebtedness or the Representative of such holders
have accelerated the maturity of such Designated Senior Indebtedness, the
Company may resume payments on the Notes after the end of such Payment Blockage
Period. Not more than one Blockage Notice may be given in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give one additional Blockage Notice
within such period. In no event, however, may the total number of days during
which any Payment Blockage Period or Periods is in effect exceed 179 days in the
aggregate during any 360 consecutive day period. For purposes of this Section,
no default or event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full in cash or Cash Equivalents of the Senior
Indebtedness before the Noteholders are entitled to receive any payment and
until the Senior Indebtedness is paid in full in Cash Equivalents, any payment
or distribution to which Noteholders would be entitled but for the subordination
provisions of the Indenture will be made to holders of the Senior Indebtedness
as their interest may
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appear (except that Holders of Notes may receive and retain (i) Permitted Junior
Securities, and (ii) payments made from the trust described under '--Defeasance'
so long as, on the date or dates the respective amounts were paid into the
trust, such payments were made with respect to the Notes without violating the
subordination provisions described herein). If a distribution is made to
Noteholders that due to the subordination provisions of the Indenture should not
have been made to them, such Noteholders are required to hold it in trust for
the holders of Senior Indebtedness and pay it over to them as their interests
may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Company may not pay the Notes
until five Business Days after such holders or the Representative of the
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Notes only if the subordination provisions of the
Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness or of Pari Passu
Indebtedness (including the Notes) may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Pari
Passu Indebtedness.
The Indenture contains substantially similar subordination provisions
relating to each Subsidiary Guarantor's obligations under its Subsidiary
Guarantee.
SUBSIDIARY GUARANTEES
IHDG UK, all of the Company's direct and indirect Subsidiaries organized
under the laws of any state of the United States of America on the Issue Date
and certain future Subsidiaries of the Company (as described below), as primary
obligors and not merely as sureties, have fully, irrevocably and unconditionally
guaranteed jointly and severally on an unsecured senior subordinated basis the
performance and punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all obligations of the Company under the Indenture
and the Notes, whether for payment of principal of, premium, if any, or interest
on the Notes, expenses, indemnification or otherwise (all such obligations
guaranteed by such Subsidiary Guarantors being herein called the 'Guaranteed
Obligations'). Such Subsidiary Guarantors have agreed to pay, in addition to the
amount stated above, any and all expenses (including reasonable counsel fees and
expenses) Incurred by the Trustee or the Holders in enforcing any rights under
the Subsidiary Guarantees. Each Subsidiary Guarantee is limited in amount to an
amount not to exceed the maximum amount that can be guaranteed by the applicable
Subsidiary Guarantor without rendering the Subsidiary Guarantee, as it relates
to such Subsidiary Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. The Company has agreed in the Indenture to cause
each domestic Restricted Subsidiary that Incurs Indebtedness, to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Restricted Subsidiary will guarantee payment of the Notes. See '--Future
Subsidiary Guarantors' below.
Each Subsidiary Guarantee is a continuing guarantee and shall (i) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(ii) be binding upon each such Subsidiary Guarantor, and (iii) inure to the
benefit of and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns.
A Subsidiary Guarantee will be automatically released upon the sale
(including through merger or consolidation) of the Capital Stock, or all or
substantially all the assets, of the applicable Subsidiary Guarantor if (i) such
sale is made in compliance with the covenant described under 'Certain
Covenants--Assets Sales,' and (ii) such Subsidiary Guarantor is released from
its guarantees of, and all pledges and security granted in connection with, the
Credit Agreement and any other Indebtedness of the Company or any Subsidiary
Guarantor. A Subsidiary Guarantee also will be automatically released upon the
applicable Subsidiary Guarantor ceasing to be a Subsidiary of the Company as a
result of any foreclosure of any pledge or security interest securing Bank
Indebtedness or other exercise of remedies in respect thereof if such Subsidiary
Guarantor is released from its guarantees of, and all pledges and security
interests granted in connection with, the Credit Agreement.
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CHANGE OF CONTROL
Upon the occurrence of any of the following events (each, a 'Change of
Control'), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all the assets of the Company and its
Subsidiaries, taken as a whole, to a Person other than the Permitted
Holders; or
(ii)(A) the Company becomes aware (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) of the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders, in a
single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision), of 35% or more of the total voting power
of the Voting Stock of the Company and (B) the Permitted Holders
beneficially own (as defined above), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock
of the Company than such other Person or group and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors.
As a result, if a Person or group other than Permitted Holders acquires
beneficial ownership of 35% or more to the total voting power of Voting Stock of
the Company in one or more unrelated transactions, no Change of Control will
have occurred. The Company believes, for example, that a purchase from the
Company and a subsequent market purchase (unless such purchase was contemplated
in the agreement providing for such purchase from the Company) would be
considered unrelated transactions.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 60 days following any
Change of Control, the Company shall (i) repay in full all Bank Indebtedness or
(ii) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Notes as provided for in the
immediately following paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice (a 'Change of Control Offer') to each Holder with a copy to the Trustee
stating: (1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record on a record date to receive interest on the relevant interest payment
date); (2) the circumstances and relevant facts and financial information
regarding such Change of Control; (3) the repurchase date (which shall be no
earlier than 60 days nor later than 90 days from the date such notice is
mailed); and (4) the instructions determined by the Company, consistent with
this covenant, that a Holder must follow in order to have its Notes purchased.
The provisions in the Indenture which require the Company to make a Change of
Control Offer may be amended by the Holders of a majority in principal amount of
the Notes. A Default arising from the failure by the Company to redeem or
purchase any Notes when required pursuant to the terms of the Indenture may not
be waived.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this
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covenant, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
paragraph by virtue thereof. Offers to purchase the Notes made pursuant to the
Change of Control Offer will comply with Rule 13e-4 of the Exchange Act, to the
extent such rule is applicable.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the Notes could cause a default
under such Senior Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited by
the Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock. The Indenture provides that (i) the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) or issue any shares of
Disqualified Stock and (ii) the Company will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company and any Subsidiary Guarantor may Incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock and the Subsidiary
Guarantors may issue shares of preferred stock if the Fixed Charge Coverage
Ratio of the Company for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such additional Indebtedness is Incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2.00 to 1.00 if such
Indebtedness is Incurred on or prior to March 15, 2001, and 2.25 to 1.00 if such
Indebtedness is Incurred thereafter, in each case determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been Incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, and the application of
proceeds therefrom had occurred at the beginning of such four-quarter period.
The foregoing limitations do not apply to: (a) the Incurrence by the
Company or its Restricted Subsidiaries of Indebtedness under the Credit
Agreement and the issuance and creation of letters of credit and bankers'
acceptances thereunder (with letters of credit and bankers' acceptances being
deemed to have a principal amount equal to the face amount thereof) up to an
aggregate principal amount of $330.0 million outstanding at any one time; (b)
the Incurrence by the Company and the Subsidiary Guarantors of Indebtedness
represented by the Notes and the Subsidiary Guarantees, as applicable; (c)
Indebtedness existing on the Issue Date (other than Indebtedness described in
clauses (a) and (b)); (d) Purchase Money Indebtedness and Capitalized Lease
Obligations Incurred by the Company or any of its Restricted Subsidiaries, and
any Refinancing Indebtedness (as defined below) relating thereto, in an
aggregate principal amount which, when aggregated with the principal amount of
all other Purchase Money Indebtedness, Capitalized Lease Obligations and related
Refinancing Indebtedness then outstanding and Incurred pursuant to this clause
(d), does not exceed the greater of 3.5% of Total Tangible Assets at the time of
Incurrence or $15.0 million; (e) Indebtedness Incurred by the Company or any of
its Restricted Subsidiaries constituting reimbursement obligations with respect
to letters of credit issued in the ordinary course of business, including
without limitation letters of credit in respect of workers' compensation claims
or self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that upon
the drawing of such letters of credit or the
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Incurrence of such Indebtedness, such obligations are reimbursed within 30 days
following such drawing or Incurrence; (f) Indebtedness arising from agreements
of the Company or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case, Incurred in
connection with the disposition of any business, assets or a Subsidiary of the
Company in accordance with the terms of the Indenture, other than guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
(g) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the
Company; provided that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Wholly Owned Restricted Subsidiary
ceasing to be a Wholly Owned Restricted Subsidiary of the Company or any other
subsequent transfer of any such Indebtedness (except to the Company or another
Wholly Owned Restricted Subsidiary) shall be deemed, in each case to be an
Incurrence of such Indebtedness; (h) shares of preferred stock of a Subsidiary
Guarantor issued to the Company or a Wholly Owned Restricted Subsidiary of the
Company; provided that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Subsidiary Guarantor ceasing to be
a Subsidiary Guarantor or any other subsequent transfer of any such shares of
preferred stock (except to the Company or another Wholly Owned Restricted
Subsidiary of the Company) shall be deemed, in each case, to be an issuance of
shares of preferred stock; (i) Indebtedness of a Restricted Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary of the Company; provided that
any subsequent transfer of any such Indebtedness (except to the Company or
another Wholly Owned Restricted Subsidiary of the Company) shall be deemed, in
each case, to be an Incurrence of such Indebtedness; (j) Hedging Obligations
that are Incurred in the ordinary course of business (1) for the purpose of
fixing or hedging interest rate risk with respect to any Indebtedness that is
permitted by the terms of the Indenture to be outstanding, (2) for the purpose
of fixing or hedging currency exchange rate risk with respect to any currency
exchanges, or (3) for the purpose of fixing or hedging commodity price risk with
respect to any commodity purchases; (k) obligations in respect of performance
and surety bonds and completion guarantees provided by the Company or any
Restricted Subsidiary in the ordinary course of business; (l) Indebtedness of
the Company and any Restricted Subsidiary not otherwise permitted hereunder in
an aggregate principal amount, which when aggregated with the principal amount
of all other Indebtedness then outstanding and Incurred pursuant to this clause
(l), does not exceed $10.0 million at any one time outstanding; provided,
however, that Indebtedness of Foreign Subsidiaries, which when aggregated with
the principal amount of all other Indebtedness of Foreign Subsidiaries then
outstanding and Incurred pursuant to this clause (l), does not exceed $5.0
million (or the equivalent thereof in any other currency) at any one time
outstanding; (m) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the Incurrence of
such Indebtedness Incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture; (n) the Incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness which serves to refund or refinance any
Indebtedness Incurred as permitted under the first paragraph of this covenant
and clauses (b) and (c) above or clause (o) below, or any Indebtedness issued to
so refund or refinance such Indebtedness (subject to the following proviso,
'Refinancing Indebtedness') prior to its respective maturity; provided, however,
that such Refinancing Indebtedness (i) has a Weighted Average Life to Maturity
at the time such Refinancing Indebtedness is Incurred which is not less than the
remaining Weighted Average Life to Maturity of the Indebtedness being refunded
or refinanced, (ii) to the extent such Refinancing Indebtedness refinances
Indebtedness pari passu with the Notes, is pari passu with the Notes, (iii) is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced plus
premium and fees Incurred in connection with such refinancing, and (iv) shall
not include (x) Indebtedness of a Subsidiary that refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary; provided further,
however, that subclauses (i) and (ii) of this clause (n) will not apply to any
refunding or refinancing of any Senior Indebtedness; (o) Indebtedness or
Disqualified Stock of Persons that are acquired by the Company or any of its
Restricted Subsidiaries or merged into a Restricted Subsidiary in accordance
with the terms of the Indenture; provided, however, that such Indebtedness or
Disqualified Stock is not Incurred in contemplation of such acquisition or
merger or to provide all or a portion of the funds or credit support required to
consummate such acquisition or merger; provided further, however, that after
giving effect to such acquisition and the Incurrence of such Indebtedness either
(i) the Company would be permitted to Incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first
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sentence of this covenant or (ii) the Fixed Charge Coverage Ratio is greater
than immediately prior to such acquisition; and (p) Contribution Indebtedness.
Notwithstanding the foregoing, the Company may not Incur any Indebtedness
pursuant to the immediately preceding paragraph if the proceeds thereof are
used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund
or refinance any Subordinated Indebtedness unless such Indebtedness will be
subordinated to the Notes to at least the same extent as such Subordinated
Indebtedness. For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of permitted Indebtedness described in clauses (a) through (o) above
or is entitled to be Incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been Incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an Incurrence of Indebtedness for purposes
of this covenant.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any payment made in connection with any merger or consolidation
involving the Company (other than (A) dividends or distributions by the Company
payable in Equity Interests (other than Disqualified Stock) of the Company or
(B) dividends or distributions by a Restricted Subsidiary so long as, in the
case of any dividend or distribution payable on or in respect of any class or
series of securities issued by a Restricted Subsidiary other than a Wholly Owned
Restricted Subsidiary, the Company or a Restricted Subsidiary receives at least
its pro rata share of such dividend or distribution in accordance with its
Equity Interests in such class or series of securities); (ii) purchase or
otherwise acquire or retire for value any Equity Interests of the Company or any
Restricted Subsidiary (other than the purchase or other acquisition for value of
such Equity Interests held by the Company or another Restricted Subsidiary (and,
if such Restricted Subsidiary has stockholders other than the Company or other
Restricted Subsidiaries, Equity Interests held by such other stockholders on a
pro rata basis)); (iii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value, in each case prior to any
scheduled repayment or scheduled maturity, any Subordinated Indebtedness (other
than the payment, redemption, repurchase, defeasance, acquisition or retirement
of Subordinated Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of such payment, redemption, repurchase, defeasance,
acquisition or retirement); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as 'Restricted Payments'), unless, at the time of such
Restricted Payment: (a) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof; (b) immediately after
giving effect to such transaction on a pro forma basis, the Company could Incur
$1.00 of additional Indebtedness under the provisions of the first paragraph of
'--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock'; and (c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (including Restricted Payments permitted by
clauses (i), (iv), (v), (vi), (vii), (viii) and (xiv) of the next succeeding
paragraph, but excluding all other Restricted Payments permitted by the next
succeeding paragraph), is less than the sum of, without duplication, (i) 50% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the fiscal quarter that first begins after the Issue
Date to the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, in the case such Consolidated Net Income for such period is a
deficit, minus 100% of such deficit), plus (ii) 100% of the aggregate net
proceeds, including cash and the fair market value (as determined in accordance
with the next succeeding sentence) of property other than cash, received by the
Company since the Issue Date from the issue or sale of Equity Interests of the
Company (excluding Refunding Capital Stock (as defined below), Designated
Preferred Stock, Excluded Contributions and Disqualified Stock), including
Equity Interests issued upon conversion of Indebtedness or upon exercise of
warrants or options (other than an issuance or sale to a Subsidiary of the
Company or an employee stock ownership plan or trust established by the Company
or any of its Subsidiaries to the extent such issuance or sale was financed by
loans from or guarantees by the Company or one of its Subsidiaries), plus (iii)
100% of the aggregate amount of contributions to the capital of the Company
received in cash and the fair market value (as determined in accordance with the
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next succeeding sentence) of property other than cash since the Issue Date
(other than Excluded Contributions), plus (iv) 100% of the aggregate amount
received in cash and the fair market value (as determined in accordance with the
next succeeding sentence) of property other than cash received from (A) the sale
or other disposition (other than to the Company or a Restricted Subsidiary) of
Restricted Investments made by the Company and its Restricted Subsidiaries or
(B) the sale (other than to the Company or a Restricted Subsidiary) of the
Capital Stock of an Unrestricted Subsidiary, plus (v) in the event any
Unrestricted Subsidiary has been redesignated a Restricted Subsidiary or has
been merged, consolidated or amalgamated with or into, or transfers or conveys
its assets to, or is liquidated into, the Company or a Restricted Subsidiary,
the fair market value (as determined in good faith by the Board of Directors) of
such Investment in such Unrestricted Subsidiary at the time of such
redesignation, combination or transfer (or of the assets transferred or
conveyed, as applicable), after deducting any Indebtedness associated with the
Unrestricted Subsidiary so designated or combined or any Indebtedness associated
with the assets so transferred or conveyed, not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which
amount was included in the calculation of the amount of Restricted Payments,
less (vi) the aggregate principal amount of any outstanding Contribution
Indebtedness or, if less, the Cash Contribution Amount. The fair market value of
property other than cash covered by clauses (ii), (iii) and (iv) above shall be
determined in good faith by the Company and (A) in the event of property with a
fair market value in excess of $1.0 million, shall be set forth in an Officers'
Certificate or (B) in the event of property with a fair market value in excess
of $10.0 million, shall be set forth in a resolution approved by at least a
majority of the Board of Directors.
The foregoing provisions do not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) (a) the repurchase, retirement or other acquisition of any
Equity Interests ('Retired Capital Stock') or Subordinated Indebtedness of the
Company in exchange for, or out of the proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, Equity Interests of the
Company (other than any Disqualified Stock or any Equity Interests sold to an
employee stock ownership plan or any trust established by the Company or any of
its Subsidiaries to the extent such sale was financed by loans from or
guarantees by the Company or one of its Subsidiaries) ('Refunding Capital
Stock') and (b) the declaration and payment of accrued dividends on the Retired
Capital Stock out of the proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary) of Refunding Capital Stock; (iii) the
redemption, repurchase or other acquisition or retirement of Subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, new Indebtedness of the Company which is
Incurred in accordance with the covenant described under '--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock' so long as (A)
the principal amount of such new Indebtedness does not exceed the principal
amount of the Subordinated Indebtedness being so redeemed, repurchased, acquired
or retired for value (plus the amount of any premium required to be paid under
the terms of the instrument governing the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired), (B) such Indebtedness is
subordinated to Senior Indebtedness and the Notes at least to the same extent as
such Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased,
acquired or retired for value, (C) such Indebtedness has a final scheduled
maturity date equal to or later than the final scheduled maturity date of the
Subordinated Indebtedness being so redeemed, repurchased, acquired or retired,
and (D) such Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the remaining Weighted Average Life to Maturity of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired; (iv) the
repurchase, retirement or other acquisition for value of Equity Interests of the
Company held by any future, present or former employee, director or consultant
of the Company or any Subsidiary of the Company pursuant to any management
equity plan or stock option plan or any other management or employee benefit
plan or agreement; provided, however, that the aggregate amounts paid under this
clause (iv) does not exceed (A) $5.0 million in any calendar year and (B) $10.0
million in the aggregate; provided further, however, that such aggregate amount
(but not annual amount) may be increased by an amount not to exceed (I) the cash
proceeds from the sale of Equity Interests of the Company to members of
management or directors of the Company and its Subsidiaries that occurs after
the Issue Date plus (II) the cash proceeds of key man life insurance policies
received by the Company and its Restricted Subsidiaries after the Issue Date;
(v) the declaration and payment of dividends to holders of any class or series
of Designated Preferred Stock issued after the Issue Date; provided, however,
that (A) for the most recently ended four full fiscal quarters
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for which internal financial statements are available immediately preceding the
date of issuance of such Designated Preferred Stock, after giving effect to such
issuance on a pro forma basis, the Company would have had a Fixed Charge
Coverage Ratio of at least 2.50 to 1.00 and (B) the aggregate amount of
dividends declared and paid pursuant to this clause (v) does not exceed the net
cash proceeds received by the Company from the sale of Designated Preferred
Stock issued after the Issue Date; (vi) Investments in Unrestricted Subsidiaries
having an aggregate Fair Market Value, taken together with all other Investments
made pursuant to this clause (vi) that are at that time outstanding, not to
exceed $5.0 million at the time of such Investment (with the Fair Market Value
of each Investment being measured at the time made and without giving effect to
subsequent changes in value); (vii) the payment of dividends on the Company's
Common Stock, following the first public offering of the Company's Common Stock
after the Issue Date, of up to 6% per annum of the net proceeds received by the
Company in such public offering; (viii) the repurchase, retirement or other
acquisition for value of Equity Interests of the Company in existence on the
Issue Date and which are not held by Blackstone or the Management Group on the
Issue Date (including any Equity Interests issued in respect of such Equity
Interests as a result of a stock split, recapitalization, merger, combination,
consolidation or otherwise, but excluding any management equity plan or stock
option plan or similar agreement), provided that (A) the aggregate amounts paid
under this clause (viii) shall not exceed $10.0 million and (B) after giving
effect thereto the Company would be permitted to Incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first sentence of the covenant described under '--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock'; (ix) Investments
that are made with Excluded Contributions; (x) the payment of dividends in an
amount not to exceed 50% of the Net Proceeds in excess of $30.0 million received
by the Company or any of its Restricted Subsidiaries from the sale of Vernon
Plastics; provided, however, that for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such sale and the date of payment of any such dividends
the Company has a Fixed Charge Coverage Ratio (after giving effect to such sale)
of at least 2.50 to 1.00; (xi) the declaration and payment of dividends to
holders of any class or series of Disqualified Stock of the Company issued in
accordance with the covenant entitled '--Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock'; (xii) repurchases of Equity
Interests deemed to occur upon exercise of stock options if such Equity
Interests represent a portion of the exercise price of such options; (xiii)
Restricted Payments made on the Issue Date contemplated by the Recapitalization
Agreement; and (xiv) other Restricted Payments in an aggregate amount not to
exceed $2.0 million; provided, however, that at the time of, and after giving
effect to, any Restricted Payment permitted under clauses (v), (vi), (vii),
(viii), (ix), (x) and (xiv), no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; provided further,
however, that for purposes of determining the aggregate amount expended for
Restricted Payments in accordance with clause (c) of the immediately preceding
paragraph, only the amounts expended under clauses (i), (iv), (v), (vi), (vii),
(viii) and (xiv) shall be included.
As of the Issue Date, all of the Company's Subsidiaries will be Restricted
Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except pursuant to the definition of 'Unrestricted
Subsidiary.' For purposes of designating any Restricted Subsidiary as an
Unrestricted Subsidiary, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so
designated will be deemed to be Restricted Payments in an amount determined as
set forth in the last sentence of the definition of 'Investments.' Such
designation will only be permitted if a Restricted Payment in such amount would
be permitted at such time (whether pursuant to the first paragraph of this
covenant or under clause (vi) or (ix)) and if such Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to: (a)(i) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (ii) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries; (b) make loans or
advances to the Company or any of its Restricted Subsidiaries; or (c) sell,
lease or transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries except in each case for such encumbrances or
restrictions existing under or by reason of: (1) contractual encumbrances or
restrictions in effect on the Issue Date, including pursuant to the Credit
Agreement and the other Senior Credit Documents;
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(2) the Indenture and the Exchange Notes; (3) applicable law or any applicable
rule, regulation or order; (4) any agreement or other instrument relating to
Indebtedness of a Person acquired by the Company or any Restricted Subsidiary
which was in existence at the time of such acquisition (but not created in
contemplation thereof or to provide all or any portion of the funds or credit
support utilized to consummate such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired; (5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; (6) Secured Indebtedness
otherwise permitted to be Incurred pursuant to the covenants described under
'--Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock'
and '--Liens' that limit the right of the debtor to dispose of the assets
securing such Indebtedness; (7) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary course
of business; (8) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business; (9)
customary provisions contained in leases and other similar agreements entered
into in the ordinary course of business that impose restrictions of the type
described in clause (c) above; (10) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature discussed in clause (c) above on the property so acquired; or (11) any
encumbrances or restrictions of the type referred to in clauses (a), (b) and (c)
above imposed by any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses (1) through (10)
above; provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are, in the
good faith judgment of the Board of Directors, no more restrictive with respect
to such dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
Asset Sales. The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, cause or make an Asset Sale,
unless (x) the Company, or its Restricted Subsidiaries, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the assets sold or otherwise disposed of and (y) at least 75% of
the consideration therefor received by the Company, or such Restricted
Subsidiary, as the case may be, is in the form of Cash Equivalents; provided
that the amount of (a) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet or in the notes thereto) of
the Company or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Exchange Notes) that are assumed by the
transferee of any such assets, (b) any notes or other obligations received by
the Company or such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within 60 days
of the receipt thereof (to the extent of the cash received), and (c) any
Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate Fair Market
Value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (c) that is at that time outstanding, not to exceed the
greater of 3.5% of Total Tangible Assets or $15.0 million at the time of the
receipt of such Designated Noncash Consideration (with the Fair Market Value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value) shall be
deemed to be Cash Equivalents for the purposes of this provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the Credit Agreement (and, in the case of
revolving Obligations, to correspondingly reduce commitments with respect
thereto) or other Senior Indebtedness or Pari Passu Indebtedness (provided that
if the Company shall so reduce Obligations under Pari Passu Indebtedness, it
will equally and ratably reduce Obligations under the Notes by making an offer
(in accordance with the procedures set forth below for an Asset Sale Offer) to
all Holders to purchase at a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, the pro rata principal
amount of Notes) or Indebtedness of a Restricted Subsidiary, in each case other
than Indebtedness owed to the Company or an Affiliate of the Company, (ii) to an
investment in any one or more businesses, capital expenditures or acquisitions
of other assets in each case used or useful in a Similar Business, and/or (iii)
to make an investment in properties or assets that replace the properties and
assets that are the subject of such Asset Sale. Pending the final
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application of any such Net Proceeds, the Company or such Restricted Subsidiary
may temporarily reduce Indebtedness under a revolving credit facility, if any,
or otherwise invest such Net Proceeds in Cash Equivalents or Investment Grade
Securities. The Indenture provides that any Net Proceeds from any Asset Sale
that are not invested as provided and within the time period set forth in the
first sentence of this paragraph will be deemed to constitute 'Excess Proceeds'.
When the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company
shall make an offer to all Holders of Notes (an 'Asset Sale Offer') to purchase
the maximum principal amount of Notes, that is an integral multiple of $1,000,
that may be purchased out of the Excess Proceeds at an offer price in cash in an
amount equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date fixed for the closing of such offer, in accordance
with the procedures set forth in the Indenture. The Company will commence an
Asset Sale Offer with respect to Excess Proceeds within ten Business Days after
the date that Excess Proceeds exceeds $15.0 million by mailing the notice
required pursuant to the terms of the Indenture, with a copy to the Trustee. To
the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in the manner described below.
Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero. The Company may apply as a credit in satisfaction of all
or any part of the Company's obligation to make an Asset Sale Offer the
aggregate principal amount of Notes purchased by the Company in open-market
transactions (excluding Notes optionally redeemed, or required to be purchased
by the Company, pursuant to the terms of the Indenture) within the previous 24
consecutive months.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions
of any securities laws or regulations conflict with the provisions of the
Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
If more Notes are tendered pursuant to an Asset Sale Offer than the Company
is required to purchase, selection of such Notes for purchase will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Notes are listed, or if such Notes
are not so listed, on a pro rata basis, by lot or by such other method as the
Trustee shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Notes of $1,000 or less shall
be purchased in part.
Notices of an Asset Sale Offer shall be mailed by first class mail, postage
prepaid, at least 30 but not more than 60 days before the purchase date to each
Holder of Notes at such Holder's registered address.
A new Note in principal amount equal to the unpurchased portion of any Note
purchased in part will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the purchase date unless the
Company defaults in payment of the purchase price, interest shall cease to
accrue on Exchange Notes or portions thereof purchased.
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any payment to, or sell, lease, transfer or otherwise dispose
of any of its properties or assets to, or purchase any property or assets from,
or enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an 'Affiliate Transaction') involving
aggregate consideration in excess of $5.0 million, unless (a) such Affiliate
Transaction is on terms that are not materially less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, the Company delivers to the Trustee a resolution adopted by the
majority of the Board of Directors of the Company, approving such Affiliate
Transaction and set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (a) above.
The foregoing provisions do not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Permitted Investments and Restricted Payments permitted by the
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provisions of the Indenture described above under the covenant '--Limitation on
Restricted Payments'; (iii) the payment of annual monitoring fees to Blackstone
in an amount not to exceed $1.5 million in any calendar year and any related
out-of-pocket expenses; (iv) the payment of reasonable and customary fees paid
to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary; (v) payments by the
Company or any of its Restricted Subsidiaries to Blackstone made for any
financial advisory, financing, underwriting or placement services or in respect
of other investment banking activities, including, without limitation, in
connection with acquisitions or divestitures, which payments are approved by a
majority of the Board of Directors of the Company in good faith; (vi)
transactions in which the Company or any of its Restricted Subsidiaries, as the
case may be, delivers to the Trustee a letter from a nationally recognized
investment banking firm stating that such transaction is fair to the Company or
such Restricted Subsidiary from a financial point of view or meets the
requirements of clause (a) of the preceding paragraph; (vii) payments or loans
to employees in the ordinary course of business in accordance with past
practices which are approved by a majority of the Board of Directors of the
Company in good faith; (viii) any agreement as in effect as of the Issue Date or
any amendment thereto (so long as any such amendment is not disadvantageous to
the holders of the Notes in any material respect) or any transaction
contemplated thereby; and (ix) the payment of all fees and expenses related to
the Transactions which are described in the Prospectus.
Liens. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
Incur or suffer to exist any Lien on any asset or property of the Company or
such Restricted Subsidiary, or any income or profits therefrom, or assign or
convey any right to receive income therefrom, that secures any obligations of
the Company or any of its Subsidiaries (other than Senior Indebtedness) unless
the Notes are equally and ratably secured with (or on a senior basis to, in the
case of obligations subordinated in right of payment to the Notes) the
obligations so secured until such time as such obligations are no longer secured
by a Lien. The preceding sentence will not require the Company or any Restricted
Subsidiary to secure the Notes if the Lien consists of a Permitted Lien.
The Indenture provides that no Subsidiary Guarantor will directly or
indirectly create, Incur or suffer to exist any Lien on any asset or property of
such Subsidiary Guarantor or any income or profits therefrom, or assign or
convey any right to receive income therefrom, that secures any obligation of
such Subsidiary Guarantor (other than Senior Indebtedness of such Subsidiary
Guarantor) unless the Subsidiary Guarantee of such Subsidiary Guarantor is
equally and ratably secured with (or on a senior basis to, in the case of
obligations subordinated on right of payment to such Subsidiary Guarantor's
Subsidiary Guarantee) the obligations so secured. The preceding sentence will
not require any Subsidiary Guarantor to secure its Subsidiary Guarantee if the
Lien consists of a Permitted Lien.
Limitation on Other Pari Passu Indebtedness. The Indenture provides that
the Company will not, and will not permit any Subsidiary Guarantor to, directly
or indirectly, Incur any Indebtedness (including Acquired Indebtedness) that is
subordinate in right of payment to any Indebtedness of the Company or any
Indebtedness of any Subsidiary Guarantor, as the case may be, unless such
Indebtedness is either (i) pari passu in right of payment with the Notes or such
Subsidiary Guarantor's Subsidiary Guarantee, as the case may be, or (ii)
subordinate in right of payment to the Notes or such Subsidiary Guarantor's
Subsidiary Guarantee, as the case may be.
Reports and Other Information. The Indenture provides that notwithstanding
that the Company may not be subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting pursuant to
rules and regulations promulgated by the SEC, the Indenture requires the Company
to file with the SEC (and provide the Trustee and Holders with copies thereof,
without cost to each Holder, within 15 days after it files them with the SEC),
(i) within 90 days after the end of each fiscal year, annual reports on Form
10-K (or any successor or comparable form) containing the information required
to be contained therein (or required in such successor or comparable form), (ii)
within 45 days after the end of each of the first three fiscal quarters of each
fiscal year, reports on Form 10-Q (or any successor or comparable form), (iii)
promptly from time to time after the occurrence of an event required to be
therein reported, such other reports on Form 8-K (or any successor or comparable
form), and (iv) any other information, documents and other reports which the
Company would be required to file with the SEC if it were subject to Section 13
or 15(d) of the Exchange Act; provided, however, the Company shall not be so
obligated to file such reports with the SEC if the SEC does not permit such
filing, in which event the Company
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will make available such information to prospective purchasers of Exchange
Notes, in addition to providing such information to the Trustee and the Holders,
in each case within 15 days after the time the Company would be required to file
such information with the SEC if it were subject to Section 13 or 15(d) of the
Exchange Act.
Future Subsidiary Guarantors. The Indenture provides that the Company will
cause each Restricted Subsidiary organized under the laws of any state of the
United States of America that Incurs Indebtedness or that is a guarantor of
Indebtedness Incurred pursuant to clauses (a) and (l) of the second paragraph of
the covenant described under '--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock' to execute and deliver to the Trustee a
supplemental indenture pursuant to which such Subsidiary will guarantee payment
of the Notes. Each Subsidiary Guarantee will be limited to an amount not to
exceed the maximum amount that can be guaranteed by that Subsidiary without
rendering the Subsidiary Guarantee, as it relates to such Subsidiary, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into or wind up into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to any Person unless (i) the Company is the surviving corporation
or the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition will have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof (the Company or such Person, as the case may
be, being herein called the 'Successor Company'); (ii) the Successor Company (if
other than the Company) expressly assumes all the obligations of the Company
under the Indenture and the Notes pursuant to a supplemental indenture or other
documents or instruments in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction (and treating any Indebtedness which becomes
an obligation of the Successor Company or any of its Restricted Subsidiaries as
a result of such transaction as having been Incurred by the Successor Company or
such Restricted Subsidiary at the time of such transaction) no Default or Event
of Default shall have occurred and be continuing; (iv) immediately after giving
pro forma effect to such transaction, as if such transaction had occurred at the
beginning of the applicable four-quarter period, the Successor Company would be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of the covenant
described under '--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock' or the Fixed Charge Coverage Ratio for the Successor Company
and its Restricted Subsidiaries would be greater than such ratio for the Company
and its Restricted Subsidiaries immediately prior to such transaction; (v) each
Subsidiary Guarantor, unless it is the other party to the transactions described
above, shall have by supplemental indenture confirmed that its Subsidiary
Guarantee shall apply to such Person's obligations under the Indenture and the
Notes; and (vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture. The Successor Company will succeed to, and be substituted for, the
Company under the Indenture and the Notes. Notwithstanding the foregoing clauses
(iii) and (iv), (a) any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to the Company or to
another Restricted Subsidiary and (b) the Company may merge with an Affiliate
incorporated solely for the purposes of reincorporating the Company in another
state of the United States so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby.
Each Subsidiary Guarantor shall not, and the Company will not permit a
Subsidiary Guarantor to, consolidate or merge with or into or wind up into
(whether or not such Subsidiary Guarantor is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, any Person unless (i) such Subsidiary Guarantor is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (such Subsidiary Guarantor or such Person, as the case may be, being
herein called the 'Successor Guarantor'); (ii) the Successor Guarantor (if other
than such Subsidiary Guarantor)
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expressly assumes all the obligations of such Subsidiary Guarantor under the
Indenture and such Subsidiary Guarantors's Subsidiary Guarantee pursuant to a
supplemental indenture or other documents or instruments in form reasonably
satisfactory to the Trustee; (iii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Guarantor or any of its Subsidiaries as a result of such transaction
as having been Incurred by the Successor Guarantor or such Subsidiary at the
time of such transaction) no Default or Event of Default shall have occurred and
be continuing; and (iv) the Subsidiary Guarantor shall have delivered or caused
to be delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. The Successor
Guarantor will succeed to, and be substituted for, such Subsidiary Guarantor
under the Indenture and such Subsidiary Guarantor's Subsidiary Guarantee.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Exchange Note when due, whether or not prohibited by
the provisions described under '--Ranking' above, continued for 30 days, (ii) a
default in the payment of principal or premium, if any, of any Note when due at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under '--Ranking' above, (iii) the failure by the Company
to comply with its obligations under the covenant described under '--Merger,
Consolidation or Sale of All or Substantially All Assets' above, continued for
30 days, (iv) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under '--Change of Control'
or '--Certain Covenants' above (in each case, other than a failure to purchase
Notes), (v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Securities or the Indenture, (vi) the
failure by the Company or any Significant Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if the total
amount of such Indebtedness unpaid or accelerated exceeds $15.0 million or its
foreign currency equivalent (the 'cross acceleration provision'), (vii) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the 'bankruptcy provisions'), (viii) the rendering of
any judgment or decree for the payment of money in excess of $15.0 million or
its foreign currency equivalent against the Company or a Significant Subsidiary
if (A) an enforcement proceeding thereon is commenced or (B) such judgment or
decree remains outstanding for a period of 60 days following such judgment and
is not discharged, waived or stayed (the 'judgment default provision'), or (ix)
any Subsidiary Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Subsidiary Guarantor denies or
disaffirms its obligations under the Indenture or any Subsidiary Guarantee and
such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clause (iv) or (v) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clauses (iv) and (v) hereof after
receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Company may declare the principal of,
premium, if any, and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal
of, premium, if any, and interest on all the Notes will become immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holders. Under certain circumstances, the Holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
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Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity, and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
actually known to the Trustee, the Trustee must mail to each Holder notice of
the Default within the earlier of 90 days after it occurs or 30 days after it is
actually known to a Trust Officer or written notice of it is received by the
Trustee. Except in the case of a Default in the payment of principal of, premium
(if any) or interest on any Note, the Trustee may withhold notice if and so long
as a committee of its Trust Officers in good faith determines that withholding
notice is in the interests of the Noteholders. In addition, the Company is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each Holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose Holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the principal
of or extend the Stated Maturity of any Note, (iv) reduce the premium payable
upon the redemption of any Note or change the time at which any Note may be
redeemed as described under 'Optional Redemption' above, (v) make any Note
payable in money other than that stated in the Note, (vi) make any change to the
subordination provisions of the Indenture that adversely affects the rights of
any Holder, (vii) impair the right of any Holder to receive payment of principal
of, premium, if any, and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Notes, (viii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions, or
(ix) modify the Subsidiary Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add Subsidiary Guarantees with respect to the Notes, to secure the
Notes, to add to the covenants of the Company for the benefit of the Holders or
to surrender any right or power conferred upon the Company, to make any change
that does not adversely affect the rights of any Holder, to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the TIA or to make certain changes to the Indenture to provide for the
issuance of Additional Notes. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior
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Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered Holder of a Note
will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ('legal defeasance'), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under 'Certain Covenants,' the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Subsidiaries and the
judgment default provision described under '--Defaults' above and the
limitations contained in clause (iv) of the first paragraph under 'Merger,
Consolidation or Sale of All or Substantially All Assets' above ('covenant
defeasance'). If the Company exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor will be released from all
of its obligations with respect to its Subsidiary Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) with respect only to
Subsidiaries, (viii) or (ix) under '--Defaults' above or because of the failure
of the Company to comply with clause (iv) of the first paragraph under
'--Merger, Consolidation or Sale of All or Substantially All Assets' above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the 'defeasance trust') with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Exchange Notes.
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GOVERNING LAW
The Indenture provides that it and the Exchange Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflict of laws to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
'Acquired Indebtedness' means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
'Affiliate' of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlling,' 'controlled by'
and 'under common control with'), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
'Asset Sale' means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company or
any Restricted Subsidiary (each referred to in this definition as a
'disposition') or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case other than: (a) a disposition of Cash Equivalents or
obsolete or worn out equipment in the ordinary course of business; (b) the
disposition of all or substantially all of the assets of the Company in a manner
permitted pursuant to the provisions described above under '--Merger,
Consolidation or Sale of All or Substantially All Assets' or any disposition
that constitutes a Change of Control; (c) any Restricted Payment that is
permitted to be made, and is made, under the covenant described above under
'--Limitation on Restricted Payments'; (d) any disposition of assets with an
aggregate Fair Market Value of less than $1.0 million; (e) any disposition of
property or assets by a Restricted Subsidiary to the Company or by the Company
or a Restricted Subsidiary to a Restricted Subsidiary; (f) any exchange of like
property pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended, for use in a Similar Business; (g) any financing transaction with
respect to property built or acquired by the Company or any Restricted
Subsidiary after the Issue Date, including sale-leasebacks and asset
securitizations; (h) sales of assets received by the Company upon the
foreclosure on a Lien; and (i) any sale of Equity Interests in, or Indebtedness
or other securities of, an Unrestricted Subsidiary.
'Bank Indebtedness' means any and all amounts payable under or in respect
of the Credit Agreement, the other Senior Credit Documents and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium (if any), interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
'Blackstone' means Blackstone Capital Partners III Merchant Banking Fund
L.P. and its Affiliates.
'Board of Directors' means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
'Business Day' means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
'Capitalized Lease Obligation' means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
'Capital Stock' means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests
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(whether general or limited), and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
'Cash Contribution Amount' means the aggregate amount of cash contributions
made to the capital of the Company described in the definition of 'Contribution
Indebtedness.'
'Cash Equivalents' means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof, (iii) certificates of deposit, time deposits
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500.0 million and whose long-term debt is rated 'A' or
the equivalent thereof by Moody's or S&P, (iv) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial paper
issued by a corporation (other than an Affiliate of the Company) rated A-1 or
the equivalent thereof of Moody's or S&P and in each case maturing within 90
days after the date of acquisition, (vi) investment funds investing at least 95%
of their assets in securities of the types described in clauses (i) through (v)
above, (vii) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's or S&P, and (viii)
Indebtedness or preferred stock that is registered under the Exchange Act and is
issued by Persons with a rating of 'A' or higher from S&P or 'A2' or higher from
Moody's.
'Code' means the Internal Revenue Code of 1986, as amended.
'Consolidated Depreciation and Amortization Expense' means with respect to
any Person for any period, the total amount of depreciation and amortization
expense (excluding amortization of sample book and design and engraving costs,
and including amortization of cylinder bases) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis and otherwise determined in
accordance with GAAP.
'Consolidated Interest Expense' means, with respect to any period, the sum,
without duplication, of: (i) consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, to the extent such expense was
deducted in computing Consolidated Net Income (including amortization of
original issue discount, the interest component of Capitalized Lease Obligations
(or any financing lease which has substantially the same economic effect as a
Capitalized Lease Obligation), net payments and receipts (if any) pursuant to
Hedging Obligations and amortization of deferred financing fees Incurred after
the Issue Date and excluding amortization of deferred financing fees Incurred on
or prior to the Issue Date), (ii) consolidated capitalized interest of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued,
and (iii) the earned discount or yield with respect to the sale of receivables.
'Consolidated Net Income' means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis; provided, however, that (i) any net
after-tax extraordinary gains or losses shall be excluded, (ii) the Net Income
for such period shall not include the cumulative effect of a change in
accounting principles during such period, (iii) any net after-tax income or loss
from discontinued operations and any net after-tax gains or losses on disposal
of discontinued operations shall be excluded, (iv) any net after-tax gains or
losses attributable to asset dispositions other than in the ordinary course of
business (as determined in good faith by the Board of Directors) shall be
excluded, (v) the Net Income for such period of any Person that is not a
Subsidiary of such Person, or is an Unrestricted Subsidiary, or that is
accounted for by the equity method of accounting, shall be included only to the
extent of the amount of dividends or distributions or other payments paid in
cash (or to the extent converted into cash) to the referent Person or a
Restricted Subsidiary thereof in respect of such period but the referent
Person's equity in a net loss of such Person shall be included to the extent of
the aggregate Investment of the referent Person in such Person, (vi) the Net
Income of any Person acquired in a pooling of interests transaction shall not be
included for any period prior to the date of such acquisition, and (vii) the Net
Income for such period of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary of its Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
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regulation applicable to that Restricted Subsidiary or its stockholders, unless
such restrictions with respect to the payment of dividends or in similar
distributions has been legally waived; provided that the net loss of any such
Restricted Subsidiary shall be included. Notwithstanding the foregoing, for the
purpose of the covenant described under '--Limitation on Restricted Payments'
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under such covenant pursuant to clauses (c)(iv) and (v) thereof.
'Contingent Obligations' means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ('primary obligations') of any other Person (the
'primary obligor') in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
'Contribution Indebtedness' means Subordinated Indebtedness of the Company
in an aggregate principal amount not greater than twice the aggregate amount of
cash contributions made to the capital of the Company, provided that such
Contribution Indebtedness (i) has a Stated Maturity later than the Stated
Maturity of the Notes, (ii) is Incurred substantially concurrently with such
cash contributions, and (iii) is so designated as Contribution Indebtedness,
pursuant to an Officers' Certificate, on the Incurrence date thereof.
'Credit Agreement' means the credit agreement to be dated as of March 13,
1998, as amended, restated, supplemented, waived, replaced, refunded, refinanced
or otherwise modified from time to time, including any agreement extending the
maturity thereof or otherwise restructuring all or any portion of the
Indebtedness under such agreement (except to the extent that any such amendment,
restatement, supplement, waiver, replacement, refunding, refinancing or other
modification thereto would be prohibited by the terms of the Indenture, unless
otherwise agreed to by the Holders of at least a majority in aggregate principal
amount of Notes at the time outstanding), among the Company, certain of its
subsidiaries and The Chase Manhattan Bank, as Administrative Agent.
'Default' means any event which is, or after notice or passage of time or
both would be, an Event of Default.
'Designated Noncash Consideration' means the Fair Market Value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of Cash Equivalents received in connection with
a subsequent sale of such Designated Noncash Consideration.
'Designated Preferred Stock' means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any of its Subsidiaries to the extent such issuance was financed by
loans from or guarantees by the Company or any of its Subsidiaries) and is so
designated as Designated Preferred Stock, pursuant to an Officers' Certificate,
on the issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth in clause (c) of the covenant described under
'--Limitation on Restricted Payments.'
'Designated Senior Indebtedness' means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof, are committed to lend up to,
at least $25 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as 'Designated
Senior Indebtedness' for purposes of the Indenture.
'Disqualified Stock' means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is redeemable or exchangeable), or upon the
happening of any event, (i) matures or is mandatorily redeemable, pursuant to a
sinking fund
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obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock, or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case prior to the first anniversary of the maturity
date of the Notes; provided, however, that only the portion of Capital Stock
which so matures or is mandatorily redeemable, is so convertible or exchangeable
or is so redeemable at the option of the holder thereof prior to such first
anniversary shall be deemed to be Disqualified Stock; provided further, however,
that if such Capital Stock is issued to any employee or to any plan for the
benefit of employees of the Company or its Subsidiaries or by any such plan to
such employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations.
'EBITDA' means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus, without duplication, (i)
provision for taxes based on income or profits of such Person for such period
deducted in computing Consolidated Net Income, plus (ii) Consolidated Interest
Expense of such Person for such period to the extent the same was deducted in
computing Consolidated Net Income, plus (iii) Consolidated Depreciation and
Amortization Expense of such Person for such period to the extent such
Consolidated Depreciation and Amortization Expense was deducted in computing
Consolidated Net Income, plus (iv) any non-recurring fees, expenses or charges
related to any Equity Offering or acquisition (whether or not successful) and
fees, expenses or charges related to the transactions consummated pursuant to
the Recapitalization Agreement (including fees to Blackstone), plus (v) any
other noncash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of, or cash reserve for,
anticipated cash charges for any future period), plus (vi) the amount of
monitoring fees paid during such period not to exceed $2.0 million during any
four-quarter period, plus (vii) for any period ending on or prior to December
31, 1999, severance, relocation and other non-recurring fees, expenses or
charges related to the Company's Integration Plan (the 'Integration Plan
Charges') in an aggregate amount not to exceed during 1998 and 1999 the excess
of (a) $25.0 million over (b) the amount of such Integration Plan Charges that
do not reduce Consolidated Net Income in 1998 or 1999, less, without
duplication, (viii) noncash items increasing Consolidated Net Income of such
Person for such period (excluding any items which represent the reversal of any
accrual of, or cash reserve for, anticipated cash charges in any prior period).
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of the
Company shall be added to Consolidated Net Income to compute EBITDA only to the
extent (and in the same proportion) that the Net Income of such Subsidiary was
included in calculating Consolidated Net Income.
'Equity Interests' means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
'Equity Offering' means any public or private sale of common stock or
preferred stock of the Company (other than Disqualified Stock), other than (i)
public offerings with respect to the Company's Common Stock registered on Form
S-8, (ii) any such public or private sale that constitutes an Excluded
Contribution, and (iii) any sale to a Permitted Holder.
'Exchange Act' means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
'Excluded Contributions' means the net cash proceeds received by the
Company after the Issue Date from (i) contributions to its common equity capital
and (ii) the sale (other than to a Subsidiary or to any Company or Subsidiary
management equity plan or stock option plan or any other management or employee
benefit plan or agreement) of Capital Stock (other than Disqualified Stock and
Designated Preferred Stock) of the Company, in each case designated as Excluded
Contributions pursuant to an Officers' Certificate executed by an Officer of the
Company, the cash proceeds of which are excluded from the calculation set forth
in paragraph (c) of the '--Limitation on Restricted Payments' covenant.
'Fair Market Value' means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction.
'Fixed Charge Coverage Ratio' means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company
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or any of its Restricted Subsidiaries Incurs or redeems any Indebtedness (other
than in the case of revolving credit borrowings, in which case interest expense
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period) or issues or redeems preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the 'Calculation Date'), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such Incurrence or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
period. For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP), in each case with respect to an
operating unit of a business, that have been made by the Company or any of its
Restricted Subsidiaries during the four-quarter reference period or subsequent
to such reference period and on or prior to or simultaneously with the
Calculation Date shall be calculated on a pro forma basis assuming that all such
Investments, acquisitions, dispositions, discontinued operations, mergers and
consolidations (and the reduction of any associated fixed charge obligations and
the change in EBITDA resulting therefrom) had occurred on the first day of the
four-quarter reference period. If since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, discontinued operation,
merger or consolidation, in each case with respect to an operating unit of a
business, that would have required adjustment pursuant to this definition, then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger or consolidation had occurred at the beginning of
the applicable four-quarter period. For purposes of this definition, whenever
pro forma effect is to be given to a transaction, including without limitation
the Transactions, the pro forma calculations shall be made in good faith by a
responsible financial or accounting officer of the Company. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest on such Indebtedness shall be calculated as if the rate in effect on
the Calculation Date had been the applicable rate for the entire period (taking
into account any Hedging Obligations applicable to such Indebtedness if such
Hedging Obligation has a remaining term in excess of 12 months). Interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by a responsible financial or accounting officer of the
Company to be the rate of interest implicit in such Capitalized Lease Obligation
in accordance with GAAP. For purposes of making the computation referred to
above, interest on any Indebtedness under a revolving credit facility computed
on a pro forma basis shall be computed based upon the average daily balance of
such Indebtedness during the applicable period. Interest on Indebtedness that
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as the Company may designate. Any such pro forma
calculation may include adjustments appropriate, in the reasonable determination
of the Company as set forth in an Officers' Certificate, to reflect operating
expense reductions reasonably expected to result from any acquisition,
disposition, merger, consolidation or discontinued operation, including without
limitation the Recapitalization and the Imperial Acquisition.
'Fixed Charges' means, with respect to any Person for any period, the sum
of (i) Consolidated Interest Expense of such Person for such period and (ii) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person and its Subsidiaries.
'Foreign Subsidiary' means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia or any territory thereof.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date. For the purposes of the
Indenture, the term 'consolidated' with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary, but the interest of such Person in an Unrestricted
Subsidiary will be accounted for as an Investment.
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'Government Securities' means securities that are (i) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in each case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
'Guarantee' means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
'Hedging Obligations' means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange,
interest rates or commodity prices.
'Holder' means the Person in whose name a Note is registered on the
Registrar's books.
'Incur' means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
person at the time it becomes a Subsidiary.
'Indebtedness' means, with respect to any Person, (i) the principal and
premium (if any) of any indebtedness of such person, whether or not contingent,
(a) in respect of borrowed money, (b) evidenced by bonds, notes, debentures or
similar instruments or letters of credit or bankers' acceptances (or, without
duplication, reimbursement agreements in respect thereof), (c) representing the
deferred and unpaid purchase price of any property, except any such balance that
constitutes a trade payable or similar obligation to a trade creditor due within
six months from the date on which it is Incurred, in each case Incurred in the
ordinary course of business, which purchase price is due more than six months
after the date of placing the property in service or taking delivery and title
thereto, (d) in respect of Capitalized Lease Obligations, or (e) representing
any Hedging Obligations, if and to the extent of any of the foregoing
Indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet (excluding the footnotes thereto) of such
Person prepared in accordance with GAAP, (ii) to the extent not otherwise
included, any obligation of such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), and (iii) to the extent not otherwise included, Indebtedness of
another Person secured by a Lien on any asset owned by such Person (whether or
not such Indebtedness is assumed by such Person); provided, however, that
Contingent Obligations Incurred in the ordinary course of business shall be
deemed not to constitute Indebtedness.
'Initial Purchasers' means Chase Securities Inc. and Bear, Stearns & Co.
Inc.
'Investment Grade Securities' means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
'Investments' means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding
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accounts receivable, trade credit and advances to customers and commission,
travel and similar advances to officers, employees and consultants made in the
ordinary course of business), purchases or other acquisition for consideration
(including agreements providing for the adjustment of purchase price) of
Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other investments included in this
definition to the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of 'Unrestricted Subsidiary' and the
covenant described under '--Limitation on Restricted Payments,' (i)
'Investments' shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent 'Investment' in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's 'Investment' in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its Fair Market Value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
'Issue Date' means the date on which the Old Notes were originally issued.
'Lien' means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
'Management Group' means the group consisting of the directors and
executive officers of the Company.
'Moody's' means Moody's Investors Service, Inc.
'Net Income' means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
'Net Proceeds' means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received in respect of or upon the sale or other
disposition of any Designated Noncash Consideration received in any Asset Sale
and any cash payments received by way of deferred payment of principal pursuant
to a note or installment receivable or otherwise, but only as and when received,
but excluding the assumption by the acquiring person of Indebtedness relating to
the disposed assets or other considerations received in any other noncash form),
net of the direct costs relating to such Asset Sale and the sale or disposition
of such Designated Noncash Consideration (including, without limitation, legal,
accounting and investment banking fees, and brokerage and sales commissions),
and any relocation expenses Incurred as a result thereof, taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements related thereto), and any deduction
of appropriate amounts to be provided by the Company as a reserve in accordance
with GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by the Company after such sale or other disposition
thereof, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with such transaction.
Notwithstanding the foregoing, for purposes of the covenant under '--Certain
Covenants--Asset Sales,' the Net Proceeds received by the Company or any of its
Restricted Subsidiaries from the sale of Vernon Plastics shall be reduced by an
amount equal to 50% of the amount by which such Net Proceeds exceed $30.0
million, provided that for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
of such sale and the payment of any dividend permitted under clause (x) of the
covenant described under '--Limitation on Restricted Payments' the Company has a
Fixed Charge Coverage Ratio (after giving effect to such sale) of at least 2.50
to 1.00.
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'Obligations' means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and bankers' acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
'Officer' means the Chairman of the Board, the President, any Executive
Vice President, Senior Vice President or Vice President, the Treasurer or the
Secretary of the Company.
'Officers' Certificate' means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in the
Indenture.
'Opinion of Counsel' means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee
'Pari Passu Indebtedness' means (i) with respect to the Company, the Notes
and any Indebtedness which ranks pari passu in right of payment to the Notes and
(ii) with respect to any Subsidiary Guarantor, its Subsidiary Guarantee and any
Indebtedness which ranks pari passu in right of payment to such Subsidiary
Guarantor's Subsidiary Guarantee.
'Permitted Holders' means Blackstone and the Management Group.
'Permitted Investments' means (i) any Investment in the Company or any
Restricted Subsidiary; (ii) any Investment in Cash Equivalents or Investment
Grade Securities; (iii) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is primarily engaged in a Similar
Business if as a result of such Investment (a) such Person becomes a Restricted
Subsidiary or (b) such Person, in one transaction or a series of related
transactions, is merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated into, the
Company or a Restricted Subsidiary; (iv) any Investment in securities or other
assets not constituting Cash Equivalents and received in connection with an
Asset Sale made pursuant to the provisions of '--Asset Sales' or any other
disposition of assets not constituting an Asset Sale; (v) any Investment
existing on the Issue Date; (vi) advances to employees (other than those
described in clause (ix) below) not in excess of $5.0 million outstanding at any
one time in the aggregate; (vii) any Investment acquired by the Company or any
of its Restricted Subsidiaries (a) in exchange for any other Investment or
accounts receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (b) as a result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of title
with respect to any secured Investment in default; (viii) Hedging Obligations
permitted under clause (j) of the '--Limitations of Incurrence of Indebtedness
and Issuance of Disqualified Stock' covenant; (ix) loans and advances to
officers, directors and employees for business-related travel expenses, moving
expenses and other similar expenses, in each case Incurred in the ordinary
course of business; (x) any Investment in a Similar Business (other than an
Investment in an Unrestricted Subsidiary) having an aggregate Fair Market Value,
taken together with all other Investments made pursuant to this clause (x) that
are at that time outstanding, not to exceed the greater of 2.5% of Total
Tangible Assets or $10 million at the time of such Investment (with the Fair
Market Value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (xi) Investments the payment for
which consists of Equity Interests of the Company (other than Disqualified
Stock); provided, however, that such Equity Interests will not increase the
amount available for Restricted Payments under clause (c) of the '--Limitation
on Restricted Payments' covenant; (xii) additional Investments having an
aggregate Fair Market Value, taken together with all other Investments made
pursuant to this clause (xii) that are at that time outstanding, not to exceed
the greater of 2.5% of Total Tangible Assets or $10.0 million at the time of
such Investment (with the Fair Market Value of each Investment being measured at
the time made and without giving effect to subsequent changes in value); (xiii)
any transaction to the extent it constitutes an Investment that is permitted by
and made in accordance with the provisions of the second paragraph of the
covenant described under '--Transactions with Affiliates' (except transactions
described in clause (ii) of such paragraph); (xiv) any Investment by Restricted
Subsidiaries in other Restricted Subsidiaries and Investments by Subsidiaries
that are not Restricted Subsidiaries in other Subsidiaries that are not
Restricted Subsidiaries; and (xv) Investments consisting of purchases and
acquisitions of inventory, supplies, materials and equipment or licenses or
leases of intellectual property, in each case in the ordinary course of
business.
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'Permitted Junior Securities' shall mean debt or equity securities of the
Company or any successor corporation issued pursuant to a plan of reorganization
or readjustment of the Company that are subordinated to the payment of all
then-outstanding Senior Indebtedness of the Company at least to the same extent
that the Notes are subordinated to the payment of all Senior Indebtedness of the
Company on the Closing Date, so long as to the extent that any Senior
Indebtedness of the Company outstanding on the date of consummation of any such
plan of reorganization or readjustment is not paid in full in Cash Equivalents
on such date, the holders of any such Senior Indebtedness not so paid in full
have consented to the terms of such plan of reorganization or readjustment.
'Permitted Liens' means, with respect to any Person, (i) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws, social security or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or United
States government bonds to secure surety or appeal bonds to which such Person is
a party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business or
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements in respect of such obligations; (ii) Liens imposed
by law, such as carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings or
other Liens arising out of judgments or awards not in excess of $1.0 million
(except to the extent not covered by insurance) against such Person; (iii) Liens
for taxes, assessments or other governmental charges or levies not yet
delinquent, or which are for less than $1,000,000 in the aggregate, or are being
contested in good faith by appropriate proceedings or for property taxes on
property that the Company or one of its subsidiaries has determined to abandon
if the sole recourse for such tax assessment, charge, levy or claim is to such
property; (iv) Liens in favor of issuers of surety bonds and appeal bonds,
performance bonds and other obligations of a like nature Incurred in the
ordinary course of business or letters of credit issued pursuant to the request
of and for the account of such Person in the ordinary course of its business;
(v) survey exceptions, encumbrances, easements or reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (vi) Liens securing Purchase Money
Indebtedness; (vii) Liens to secure Indebtedness permitted pursuant to clause
(a) of the second paragraph of the covenant described under '--Limitations on
Incurrence of Indebtedness or Disqualified Stock'; (viii) Liens existing on the
Issue Date; (ix) Liens on property or shares of stock of a Person at the time
such Person becomes a Subsidiary; provided, however, such Liens are not created
or Incurred in connection with, or in contemplation of, such other Person
becoming such a Subsidiary; provided further, however, that such Liens may not
extend to any other property owned by the Company or any Restricted Subsidiary;
(x) Liens on property at the time the Company or a Restricted Subsidiary
acquired the property, including any acquisition by means of a merger or
consolidation with or into the Company or any Restricted Subsidiary; provided
further, however, that such Liens are not created or Incurred in connection
with, or in contemplation of, such acquisition; provided further, however, that
the Liens may not extend to any other property owned by the Company or any
Restricted Subsidiary; (xi) Liens securing Indebtedness or other obligations of
a Restricted Subsidiary owing to the Company or a Wholly Owned Restricted
Subsidiary; (xii) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a Lien
on the same property securing such Hedging Obligations; (xiii) any Lien arising
by operation of law pursuant to Section 107(1) of the Comprehensive
Environmental Response, Compensation and Liability Act, 41 U.S.C. Section
9607(1), or pursuant to analogous state law, for costs or damages which are not
yet due (by virtue of a written demand for payment by a governmental agency) or
which are being contested in good faith by appropriate proceedings, or on
property that the Company or a Subsidiary has determined to abandon if the sole
recourse for such costs or damages is to such property, provided that the
liability of the Company and the Subsidiaries with respect to the matter giving
rise to all such Liens shall not, in the reasonable estimate of the Company (in
light of all attendant circumstances, including the likelihood of contribution
by third parties), exceed $1.0 million; (xiv) construction liens arising in the
ordinary course of business, including liens for work performed for which
payment has not been made, securing obligations that are not due and payable or
are being contested in good faith by appropriate
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proceedings and in respect of which, if applicable, the Company or the relevant
Subsidiary shall have set aside on its books reserves in accordance with GAAP;
and (xv) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals or
replacements) as a whole, or in part, of any Indebtedness secured by any Lien
referred to in the foregoing clauses (vi), (viii), (ix) and (x); provided,
however, that (A) such new Lien shall be limited to all or part of the same
property that secured the original Lien (plus improvements on such property) and
(B) the Indebtedness secured by such Lien at such time is not increased to any
amount greater than the sum of (x) the outstanding principal amount or, if
greater, committed amount of the Indebtedness described under clauses (vi),
(viii), (ix) or (y) at the time the original Lien became a Permitted Lien under
the Indenture and (y) an amount necessary to pay any fees and expenses,
including premiums, related to such refinancing, refunding, extension, renewal
or replacement.
'Person' means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
'Preferred stock' means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
'Purchase Money Indebtedness' means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement and other purchase money obligations, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) Incurred to
finance the acquisition by the Company or one of its Restricted Subsidiaries of
such asset, including additions and improvements; provided, however, that any
Lien arising in connection with any such Indebtedness shall be limited to the
specific asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property on which such asset is
attached; provided further, however, that such Indebtedness is Incurred within
270 days after such acquisition by the Company or one of its Restricted
Subsidiaries of such asset.
'Representative' means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
'Restricted Investment' means an Investment other than a Permitted
Investment.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'S&P' means Standard and Poor's Ratings Group.
'SEC' means the Securities and Exchange Commission.
'Securities Act' means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
'Senior Credit Documents' means the collective reference to the Credit
Agreement, the notes issued pursuant thereto and the guarantees thereof, and the
collateral documents relating thereto.
'Secured Indebtedness' means any Indebtedness of the Company secured by a
Lien.
'Significant Subsidiary' means any Restricted Subsidiary that would be a
'Significant Subsidiary' of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
'Similar Business' means a business, the majority of whose revenues are
derived from the decorative products business or any business or activity that
is reasonably similar thereto or a reasonable extension, development or
expansion thereof or ancillary thereto.
'Stated Maturity' means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
'Subordinated Indebtedness' means (a) with respect to the Company, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Subsidiary
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Guarantor, any Indebtedness of such Subsidiary Guarantor which is by its terms
subordinated in right of payment to its Subsidiary Guarantee.
'Subsidiary' means, with respect to any Person, (i) any corporation,
association or other business entity (other than a partnership, joint venture or
limited liability company) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time of determination owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person or a
combination thereof and (ii) any partnership, joint venture or limited liability
company of which (x) more than 50% of the capital accounts, distribution rights,
total equity and voting interests or general and limited partnership interests,
as applicable, are owned or controlled, directly or indirectly, by such Person
or one or more of the other Subsidiaries of that Person or a combination
thereof, whether in the form of membership, general, special or limited
partnership interests or otherwise and (y) such Person or any Wholly Owned
Restricted Subsidiary of such Person is a controlling general partner or
otherwise controls such entity.
'Subsidiary Guarantee' means any guarantee of the obligations of the
Company under the Indenture and the Notes by any Person in accordance with the
provisions of the Indenture.
'Subsidiary Guarantor' means any Person that Incurs a Subsidiary Guarantee;
provided that upon the release or discharge of such Person from its Subsidiary
Guarantee in accordance with the Indenture, such Person ceases to be a
Subsidiary Guarantor.
'TIA' means the Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
'Total Tangible Assets' means the total consolidated assets of the Company
and its Restricted Subsidiaries, as shown on the most recent balance sheet of
the Company, except (a) goodwill (whether representing the excess of cost over
book value of assets acquired or otherwise), patents, trade names, trademarks,
trade secrets, copyrights, licenses, franchises, customer lists, capitalized
sample book costs, research and development expense, organization expense,
unamortized debt discount and expense, deferred charges or assets other than
prepaid insurance, prepaid taxes and deferred taxes, the excess of cost of
shares acquired over book value of related assets and such other assets as are
properly classified as 'intangible assets' in accordance with generally accepted
accounting principles, (b) treasury stock of such person, (c) cash set apart and
held in any sinking fund or similar or analogous fund for the purpose of
redeeming or otherwise retiring stock of such person, and (d) any write-up of
the book value of any assets of such person resulting from revaluation thereof
subsequent to the Closing Date.
'Trustee' means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
'Trust Officer' means (i) any officer within the corporate trust department
of the Trustee, including any vice president, assistant vice president,
assistant secretary, assistant treasurer, trust officer or any other officer of
the Trustee who customarily performs functions similar to those performed by the
Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of such person's knowledge of and
familiarity with the particular subject and (ii) who shall have direct
responsibility for the administration of the Indenture.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that the Subsidiary to be so designated and its Subsidiaries do not at the time
of designation have and do not thereafter Incur any Indebtedness pursuant to
which the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries; provided further, however, that either (a) the
Subsidiary to be so designated has total consolidated assets of $1,000 or less
or (b) if such Subsidiary has consolidated assets greater than $1,000, then such
designation would be permitted under the covenant entitled '--Limitation on
Restricted Payments.' The Board of Directors may designate any
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Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) (1) the Company could
Incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test described under '--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock' or (2) the Fixed Charge Coverage Ratio for the
Company and its Restricted Subsidiaries would be greater than such ratio for the
Company and its Restricted Subsidiaries immediately prior to such designation,
in each case on a pro forma basis taking into account such designation and (y)
no Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
'U.S. Government Obligations' means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
'Voting Stock' of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
'Weighted Average Life to Maturity' means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
'Wholly Owned Restricted Subsidiary' is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
'Wholly Owned Subsidiary' of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF THE SENIOR CREDIT FACILITIES
The Chase Manhattan Bank ('Chase'), subject to certain conditions described
below under the caption '--Conditions to Closing,' provides the Senior Credit
Facilities to the Company (the 'Borrower') and, in the case of the Revolving
Credit Facility and subject to specified sub-limits and to the consent of Chase,
to one or more of its non-U.S. subsidiaries (such subsidiaries, if any, the
'Subsidiary Borrowers,' and together with the Borrower, collectively, the
'Borrowers') in the aggregate amount of $300.0 million comprised of (i) term
loans in the aggregate principal amount of $225.0 million (the 'Term Loans')
consisting of (a) a $65.0 million six-year Tranche A Senior Secured Term Loan
Facility, $45.0 million of which will be available on a deferred draw basis for
a period of 18 months after the Closing ('Term Loan A'), (b) a $115.0 million
seven-year Tranche B Senior Secured Term Loan Facility ('Term Loan B'), and (c)
a $45.0 million eight-year Tranche C Senior Secured Term Loan Facility ('Term
Loan C') and (ii) a $75.0 million six-year Revolving Credit Facility.
REPAYMENT
The Term Loans will amortize on a semi-annual basis. Term Loan A will
amortize in amounts equal to $0.5 million in 1999, $1.5 million in 2000, $7.0
million in 2001, $17.25 million in 2002, $25.0 million in 2003 and $13.75
million in 2004. Term Loan B will amortize in amounts equal to $0.5 million in
1999, $1.0 million from 2000 through 2004 and $109.5 million in 2005. Term Loan
C will amortize in amounts equal to $0.25 million in 1999, $0.5 million from
2000 through 2005 and $41.75 million in 2006.
GUARANTEES
The obligations of the Borrowers under the Senior Credit Facilities are
guaranteed on a senior basis, to the extent permitted by applicable law, (i) in
the case of the Borrower's obligations thereunder, by each of the Borrower's
existing and future U.S. subsidiaries and by IHDG UK (collectively, the
'Borrower Facility Guarantees') and (ii) in the case of each Subsidiary
Borrower's obligations thereunder, by the Borrower, each of the Borrower's
existing and future U.S. subsidiaries, each of such Subsidiary Borrower's
subsidiaries and each other existing and future subsidiary of the Borrower
organized under the laws of the country of organization of such Subsidiary
Borrower and, in the case of any Borrower Subsidiary organized in the United
Kingdom, by IHDG UK (collectively, the 'Subsidiary Borrower Facility
Guarantees').
SECURITY
The obligations of the Borrower and its U.S. subsidiaries and IHDG UK under
the Senior Credit Facilities and under their respective Borrower Facility
Guarantees and Subsidiary Borrower Facility Guarantees, as applicable, are
secured by a first priority security interest in substantially all or a
specified portion of the pledgeable tangible and intangible assets of the
Borrower and its U.S. subsidiaries and, to the extent permitted by applicable
law, IHDG UK.
INTEREST
At the Borrower's option, the interest rates per annum applicable to the
Term Loans and the Borrower's Revolving Credit Facility borrowings are
fluctuating rates of interest determined by reference to (i) LIBOR plus the
applicable margin or (ii) the higher of (a) Chase's prime rate and (b) the
federal funds rate plus 0.50% per annum (the 'Alternate Base Rate'), plus the
applicable margin. For the Borrower's Revolving Credit Facility borrowings and
Term Loan A, the applicable margin is 2.50% for LIBOR borrowings and 1.50% for
Alternate Base Rate borrowings; for Term Loan B, the applicable margin is 2.75%
for LIBOR borrowings and 1.75% for Alternate Base Rate borrowings; and for Term
Loan C, the applicable margin is 3.00% for LIBOR borrowings and 2.00% for
Alternate Base Rate borrowings. For the Subsidiary Borrowers' Revolving Credit
Facility borrowings, if any, interest rates per annum are an underlying rate to
be determined plus a margin equal to the LIBOR margin applicable to Term Loan A.
The applicable margin in respect of each of the facilities is subject to
adjustment based on financial performance standards to be set forth in the
definitive loan documentation.
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FEES
The Borrower has agreed to pay to Chase customary fees with respect to the
Senior Credit Facilities, including an up-front structuring and arrangement fee,
an annual administration fee, commitment fees on the unused portion of the
commitments relating to the Senior Credit Facilities and a letter of credit
participation fee, which commitment fee and letter of credit participation fee
are subject to adjustment based on financial performance standards to be set
forth in the definitive loan documentation.
PREPAYMENTS
The Borrower is required to make mandatory prepayments of the Term Loans or
reductions of the commitments under Term Loan A in amounts and at times to be
set forth in the definitive loan documentation, (i) in respect of a portion to
be agreed upon of consolidated excess cash flow of the Borrower and its
subsidiaries for each fiscal year and (ii) in respect of 100% of the net
proceeds (above certain thresholds to be agreed upon) of (a) certain
dispositions by the Borrower or any of its subsidiaries of assets or the stock
of subsidiaries (unless reinvested in assets useful in the business of the
Borrower or its subsidiaries within a specified period) and (b) the incurrence
by the Borrower or any of its subsidiaries of certain indebtedness.
The Borrower is also required to apply (i) 100% of all cash proceeds (net
of certain fees and expenses) not in excess of $30.0 million received by the
Borrower or any Subsidiary in respect of any sale or disposition of Vernon
Plastics and (ii) 50% of all cash proceeds (net of certain fees and expenses) in
excess of $30.0 million received by the Borrower or any Subsidiary in respect of
any such sale or disposition, in each case to prepay Term Borrowings, and may
retain the balance of such proceeds.
Subject to the provisions described below under the caption '--Special
Application Provisions,' mandatory prepayments of the Term Loans (i) will be
allocated among the Term Loans on a pro rata basis (based on the
then-outstanding principal amount and unused commitments of Term Loan A, Term
Loan B and Term Loan C, respectively), and (ii) within each of Term Loan A, Term
Loan B and Term Loan C, will be applied to scheduled outstanding principal
payments (a) to the extent based on consolidated excess cash flow, in the order
of maturity and (b) to the extent based on net proceeds, on a pro rata basis.
The Borrower has the right to make optional prepayments of the loans and
optional reductions of the revolving credit and Term Loan A commitments in whole
or in part at any time without penalty, but subject to payment of customary
breakage costs, if applicable. Subject to the provisions described below under
the caption '--Special Application Provisions,' optional prepayments of the Term
Loans (i) will be allocated among the Term Loans on a pro rata basis (based on
the then-outstanding principal amount of Term Loan A, Term Loan B and Term Loan
C, respectively), and (ii) within each of Term Loan A, Term Loan B and Term Loan
C, will be applied to scheduled principal payments in the order of maturity.
SPECIAL APPLICATION PROVISIONS
At the election of the Borrower, the first portion in an aggregate amount
to be agreed upon of mandatory (to the extent based on consolidated excess cash
flow) or optional prepayments of the Term Loans will be applied to prepay or, in
the case of mandatory prepayments, reduce commitments under Term Loan A. Any
holders of Term Loan B or Term Loan C may, so long as Term Loan A loans or
commitments are outstanding, decline to accept any mandatory prepayment
described above under the caption '--Prepayments' (to the extent based on
consolidated excess cash flow) and, under such circumstances, all amounts that
would otherwise be applied to prepay Term Loan B or Term Loan C will be applied
first to prepay Term Loan A loans and second to reduce Term Loan A commitments.
In addition, the Borrower is entitled, at its election, so long as Term Loan A
loans are outstanding, to afford the holders of Term Loan B and Term Loan C the
right to decline to accept any optional prepayment and, under such
circumstances, all amounts that would otherwise be applied to prepay Term Loan B
or Term Loan C will be applied to prepay Term Loan A.
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COVENANTS; EVENTS OF DEFAULT
The Senior Credit Facilities contain covenants restricting the ability of
the Borrower and its subsidiaries to, among other things: (i) pay dividends and
make distributions on, or repurchase or redeem, capital stock; (ii) prepay or
repay certain debt; (iii) incur certain liens and engage in sale/leaseback
transactions; (iv) make capital expenditures; (v) make loans and investments;
(vi) incur indebtedness and guarantees and other certain contingent obligations;
(vii) engage in certain mergers, consolidations, acquisitions and asset sales;
(viii) enter into certain transactions with affiliates; (ix) make changes in
their lines of business; (x) amend debt and other material agreements; and (xi)
pay certain fees to Blackstone and its affiliates. The aforementioned covenants
will be subject to certain materiality concepts and baskets and other exceptions
to be set forth in the definitive loan documentation. The Borrower will also be
required to (i) comply with certain financial covenants, including: (a) a
minimum interest coverage ratio and (b) a maximum net leverage ratio, and (ii)
to enter into and maintain certain interest rate protection agreements
satisfactory to Chase. The Senior Credit Facilities also contain customary
representations and warranties, affirmative covenants and events of default,
including cross default, material judgments and change in control.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the 'Service') will not take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. The Company recommends that each holder consult such holder's own tax
advisor as to the particular tax consequences of exchanging such holder's Old
Notes for Exchange Notes, including the applicability and effect of any state,
local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an 'exchange' for federal
income tax purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Old Notes. Rather, the Exchange Notes
received by a holder will be treated as a continuation of the Old Notes in the
hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging Old Notes for Exchange Notes pursuant to the
Exchange Offer.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes are being offered in exchange for the Old Notes offered
in the initial offering thereof solely to QIBs pursuant to Rule 144A and in
offshore transactions to Non-U.S. Persons in reliance on Regulation S.
THE GLOBAL EXCHANGE NOTE
The Exchange Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the 'Global
Exchange Note'). The Global Exchange Note will be deposited upon issuance with
the Trustee, as custodian for The Depository Trust Company ('DTC'), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant as described below.
Exchange Notes sold to Institutional Accredited Investors may be represented by
the Global Exchange Note or, if such an investor may not hold an interest in the
Global Exchange Note, a certificated Exchange Note.
Except as set forth below, the Global Exchange Note may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Exchange Note may not be
exchanged for Exchange Notes in certificated form except in the limited
circumstances described below. See 'Certificated Exchange Notes.'
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The Exchange Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the 'Direct Participants') and to facilitate the clearance and settlement of
transactions in those securities between the Direct Participants through
electronic book-entry changes in accounts of the Direct Participants. The Direct
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities that
clear through or maintain a direct or indirect custodial relationship with a
Direct Participant (collectively, the 'Indirect Participants'). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or the Indirect Participants, and such person's ownership interest
and transfer of ownership interest will be recorded on the records of the Direct
Participants and the Indirect Participants, and not on the records maintained by
DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i)
upon deposit of the Global Exchange Note, DTC will credit the accounts of Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Exchange Note allocated by the Initial Purchasers to such
Direct Participants and (ii) DTC will maintain records of the ownership
interests of such Participants in the Global Exchange Note and the transfer of
ownership interests by and between Direct Participants. DTC will not maintain
records of the ownership interests of, or the transfer of ownership interests by
and between, Indirect Participants or other owners of beneficial interests in
the Global Exchange Notes. Direct Participants and Indirect Participants must
maintain their own records of the ownership interests of, and the transfer of
ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the Global Exchange Notes.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in the Global Exchange Note
to such persons. Because DTC can act only on behalf of the Direct Participants,
which in turn act on behalf of the Indirect Participants and others, the ability
of a person having beneficial interests in the Global Exchange Note to pledge
such interests to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of such Exchange Notes, see 'Certificated
Exchange Notes.'
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL EXCHANGE NOTE
WILL NOT HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE
PHYSICAL DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the Indenture, the Company and the Trustee will treat
persons in whose names the Exchange Notes are registered (including Exchange
Notes represented by Global Exchange Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, Liquidated Damages, if any, and
interest on Global Exchange Notes registered in the name of DTC or its nominee
will be payable by the Trustee to DTC or its nominee as the registered holder
under the Indenture. Consequently, neither the Company, the Trustee nor any
agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Direct Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Exchange Notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's or
Indirect Participant's records relating to the beneficial ownership interests in
any Global Exchange Note or (ii) any other matter relating to the actions and
practices of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Exchange Notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Exchange Notes as
shown on DTC's records. Payments by Direct Participants and Indirect
Participants to the beneficial owners of the Exchange Notes will be governed by
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standing instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the Exchange
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Exchange Notes for all purposes.
The Global Exchange Notes will trade in DTC's Same-Day Funds Settlement
System and, therefore, transfers between Direct Participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in immediately
available funds. Transfers between Indirect Participants who hold an interest
through a Direct Participant will be effected in accordance with the procedures
of such Direct Participant but generally will settle in immediately available
funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more Direct
Participants to whose account with DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of the Exchange Notes as to which such Direct Participant or Direct Participants
has or have given such direction. However, if any of the events described under
'Certificated Exchange Notes' occurs, DTC reserves the right to exchange the
Global Exchange Note for Exchange Notes in certificated form and to distribute
such Exchange Notes to its Direct Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Exchange Note among accountholders in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee nor any agent of the Company or the Trustee will have any responsibility
for the performance by DTC or its respective participants, indirect participants
or accountholders of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED EXCHANGE NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Exchange Notes in definitive form under the Indenture or (iii) upon the
occurrence of certain other events as provided in the Indenture, then, upon
surrender by DTC of the Global Exchange Notes, Certificated Exchange Notes will
be issued to each person that DTC identifies as the beneficial owner of the
Exchange Notes represented by the Global Exchange Notes. Upon any such issuance,
the Trustee is required to register such Certificated Exchange Notes in the name
of such person or persons (or the nominee of any thereof) and cause the same to
be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Exchange Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Exchange Notes to be issued).
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available
119
<PAGE>
to any broker-dealer for use in connection with any such resale. In addition,
until , 1998, all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
'underwriter' within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an 'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
Chase Securities Inc. is an affiliate of The Chase Manhattan Bank, which
will be the Administrative Agent and a lender to the Company under the Senior
Credit Facilities. An affiliate of Chase Securities Inc. is a limited partner of
Blackstone Capital Partners III Merchant Banking Fund, L.P. In addition, Chase
Securities Inc. and its affiliates perform various investment banking and
commercial banking services from time to time for Blackstone, Borden, C&A and
their affiliates and Bear, Stearns & Co. Inc. and its affiliates perform various
investment banking and commercial banking services from time to time for
Blackstone and its affiliates.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby will be
passed upon for the Company and the Subsidiary Guarantors by Jones, Day, Reavis
& Pogue, New York, New York.
EXPERTS
IHDG's combined balance sheets as of December 31, 1996 and December 31,
1997, and the related combined statements of operations, shareholder's equity
and owner's investment and cash flows for each of the three years in the period
ended December 31, 1997, included in this Prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
Imperial's consolidated and combined balance sheets as of January 27, 1996,
December 28, 1996 and December 27, 1997, and its statements of operations,
investments and advances and cash flows for the year ended January 27, 1996,
December 28, 1996 and December 27, 1997, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent certified public accountants, as
stated in their report herein and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
120
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE IMPERIAL HOME DECOR GROUP INC. (FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.)
Independent Auditors' Report............................................................................... F-2
Combined Statements of Operations, for the years ended December 31, 1995, 1996 and 1997.................... F-3
Combined Balance Sheets, as of December 31, 1996 and 1997.................................................. F-4
Combined Statements of Cash Flows, for the years ended December 31, 1995, 1996 and 1997.................... F-6
Combined Statements of Shareholder's Equity/Owner's Investment, for the years ended December 31, 1995, 1996
and 1997................................................................................................. F-7
Notes to Combined Financial Statements..................................................................... F-8
THE IMPERIAL HOME DECOR GROUP INC. (FORMERLY KNOWN AS BORDEN DECORATIVE PRODUCTS
HOLDINGS, INC.)
Condensed Consolidated Balance Sheet as of June 27, 1998................................................... F-33
Condensed Consolidated Statements of Operations for the six months ended June 28, 1997 and June 27, 1998... F-34
Condensed Consolidated Statements of Cash Flows for the six months ended June 28, 1997 and June 27, 1998... F-35
Notes to Condensed Consolidated Financial Statements....................................................... F-36
IMPERIAL WALLCOVERINGS, INC.
Report of Independent Public Accountants................................................................... F-48
Consolidated and Combined Balance Sheets, as of January 27, 1996, December 28, 1996 and December 27,
1997..................................................................................................... F-49
Consolidated and Combined Statements of Operations, for the periods ended January 27, 1996, December 28,
1996 and December 27, 1997............................................................................... F-50
Consolidated and Combined Statements of Investments and Advances (to) from Collins & Aikman Products Co.,
for the periods ended January 27, 1996, December 28, 1996 and December 27, 1997.......................... F-51
Consolidated and Combined Statements of Cash Flows, for the periods ended January 27, 1996, December 28,
1996 and December 27, 1997............................................................................... F-52
Notes to Consolidated and Combined Financial Statements.................................................... F-53
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholder of
Borden, Inc.
We have audited the accompanying combined balance sheets of The Imperial Home
Decor Group Inc. formerly known as Borden Decorative Products Holdings, Inc.
('BDPH') as of December 31, 1997 and 1996, and the related combined statements
of operations, shareholder's equity/owner's investment and cash flows for each
of three years in the period ended December 31, 1997. These financial statements
are the responsibility of Borden's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of BDPH at December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Columbus, Ohio
March 25, 1998
F-2
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales.......................................................... $362,292 $364,971 $372,738
Cost of goods sold................................................. 229,765 237,468 242,718
-------- -------- --------
Gross margin....................................................... 132,527 127,503 130,020
Distribution expense............................................... 18,251 19,569 18,784
Marketing expense.................................................. 68,313 60,229 58,388
General & administrative expense................................... 16,572 16,566 19,379
-------- -------- --------
Operating income................................................... 29,391 31,139 33,469
Interest (income) expense.......................................... 923 (218) (303)
-------- -------- --------
Income before income taxes......................................... 28,468 31,357 33,772
Income tax expense................................................. 11,215 10,601 11,384
-------- -------- --------
Net income......................................................... $ 17,253 $ 20,756 $ 22,388
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Combined Financial Statements
F-3
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................................................... $ 6,768 $ 3,795
Accounts receivable (less allowance for doubtful accounts of $2,442 and
$1,758, respectively)................................................................ 60,662 55,160
Inventories:
Finished and in-process goods........................................................ 54,192 52,012
Raw materials and supplies........................................................... 8,151 7,467
-------- --------
Total inventories....................................................................... 62,343 59,479
Other current assets.................................................................... 19,208 20,382
-------- --------
Total Current Assets...................................................................... 148,981 138,816
-------- --------
Property and Equipment
Land.................................................................................... 1,272 1,245
Buildings............................................................................... 10,999 11,939
Machinery and equipment................................................................. 96,343 112,285
-------- --------
108,614 125,469
Less accumulated depreciation........................................................... 51,395 58,729
-------- --------
Net Property and Equipment................................................................ 57,219 66,740
Goodwill.................................................................................. 11,597 10,868
Other non-current assets.................................................................. 23,013 23,210
-------- --------
$240,810 $239,634
-------- --------
-------- --------
</TABLE>
(continued on the next page)
See Notes to Combined Financial Statements
F-4
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY/OWNER'S INVESTMENT
Current liabilities:
Bank loan............................................................................... $ $ 1,529
Accounts and drafts payable............................................................. 43,711 31,310
Income tax payable--Foreign............................................................. 7,957 6,249
Other current liabilities............................................................... 25,045 22,470
-------- --------
Total current liabilities................................................................. 76,713 61,558
Long-term liabilities
Deferred income taxes--foreign.......................................................... 8,770 9,546
Non-pension postemployment benefit obligations.......................................... 895 865
Other long-term liabilities............................................................. 377 935
-------- --------
Total long-term liabilities............................................................... 10,042 11,346
Commitments and Contingencies (Note 11)
Shareholder's Equity/Owner's Investment
Preferred stock: $25 par value, 15,000,000 shares authorized
Senior: 6,552,000 shares issued and outstanding........................................... 163,800 163,800
Junior: 1,148,386 and 1,215,543 shares issued and outstanding, respectively............... 28,710 30,389
Common stock--$0.01 par value 40,000,000 shares authorized 20,000,000
issued and outstanding.................................................................. 200 200
Paid-in capital........................................................................... (69,242) (69,242)
Accumulated translation adjustment........................................................ 3,655 (672)
Retained earnings (from January 1, 1996).................................................. 6,605 15,676
Owner's investment........................................................................ 20,327 27,878
Minimum Pension Liability Adjustment...................................................... (1,299)
-------- --------
Total Shareholder's Equity/Owner's Investment............................................. 154,055 166,730
-------- --------
$240,810 $239,634
-------- --------
-------- --------
</TABLE>
(continued on the next page)
See Notes to Combined Financial Statements
F-5
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 17,253 $ 20,756 $ 22,388
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization............................................. 5,993 6,589 10,077
Accounts receivable....................................................... (7,949) (1,223) 5,502
Inventories............................................................... 4,937 7,701 2,864
Accounts and drafts payable............................................... (3,371) 8,238 (12,401)
Current and deferred foreign income taxes................................. 436 2,904 (932)
Other assets.............................................................. (3,660) 3,489 593
Other liabilities......................................................... 13,671 (4,977) (2,047)
-------- -------- --------
Cash from operating activities............................................... 27,310 43,477 26,044
Cash flows used in investing activities:
Capital expenditures......................................................... (6,363) (21,178) (20,833)
Cash flows used in financing activities:
Sales of common shares....................................................... 1,440
Purchase of senior preferred stock........................................... (1,440)
Dividends paid............................................................... (2,866) (20,238)
Net short term debt borrowings............................................... 1,529
Other changes in owner's investment.......................................... (15,051) (25,508) 10,525
-------- -------- --------
Cash used in financing activities............................................ (15,051) (28,374) (8,184)
-------- -------- --------
Increase (decrease) in cash and equivalents.................................... 5,896 (6,075) (2,973)
Cash and equivalents at beginning of year...................................... 6,947 12,843 6,768
-------- -------- --------
Cash and equivalents at end of year............................................ $ 12,843 $ 6,768 $ 3,795
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information
Cash paid:
Interest.................................................................. $ 1,317 $ 223 $ 23
Taxes--foreign............................................................ 10,326 6,104 6,802
</TABLE>
See Notes to Combined Financial Statements.
F-6
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY/OWNER'S INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
PREFERRED STOCK PENSION
-------------------- COMMON OWNER'S PAID-IN LIABILITY
SENIOR JUNIOR STOCK INVESTMENT CAPITAL ADJUSTMENT
-------- -------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance January 1, 1995...................... $ -- $ -- $ -- $163,592 $ --
Change to owner's investment........................... (16,103)
Foreign currency translation...........................
Net income............................................. 17,253
-------- -------- ------ ---------- -------- ----------
Ending balance December 31, 1995....................... -- -- -- 164,742 -- --
Recapitalization:
Issuance of common stock to owner.................... 197 (98,560) 98,363
Issuance of preferred stock to owner................. 165,240 26,025 (191,265)
Purchase of shares from owner........................ (1,440)
Sale of common stock to management................... 3 1,303
Sale of common stock to owner........................ 134
Closure of owner's investment to paid in capital..... 169,042 (169,042)
Cash invested with affiliate........................... (18,300)
Other cash withdrawals by owner........................ (15,020)
Other owners' investment transactions--net............. 1,088
Paid in kind dividends--junior preferred............... 2,685
Dividends--senior preferred............................ 8,600
Foreign currency translation...........................
Net income.............................................
-------- -------- ------ ---------- -------- ----------
Ending balance December 31, 1996....................... 163,800 28,710 200 20,327 (69,242) --
Other owner's investment transactions--net............. 7,551
Paid in kind dividends--junior preferred............... 1,679
Cash dividends--junior preferred.......................
Dividends--senior preferred............................
Foreign currency translation...........................
Minimum pension liability adjustment................... (1,299)
Net income.............................................
-------- -------- ------ ---------- -------- ----------
Ending balance December 31, 1997....................... $163,800 $ 30,389 $200 $ 27,878 $(69,242) $ (1,299)
-------- -------- ------ ---------- -------- ----------
-------- -------- ------ ---------- -------- ----------
<CAPTION>
ACCUMULATED
TRANSLATION RETAINED
ADJUSTMENT EARNINGS TOTAL
----------- -------- --------
<S> <C> <C> <C>
Beginning balance January 1, 1995...................... $(4,121) $ -- $159,471
Change to owner's investment........................... (16,103)
Foreign currency translation........................... 1,052 1,052
Net income............................................. 17,253
----------- -------- --------
Ending balance December 31, 1995....................... (3,069) -- 161,673
Recapitalization:
Issuance of common stock to owner.................... --
Issuance of preferred stock to owner................. --
Purchase of shares from owner........................ (1,440)
Sale of common stock to management................... 1,306
Sale of common stock to owner........................ 134
Closure of owner's investment to paid in capital..... --
Cash invested with affiliate........................... (18,300)
Other cash withdrawals by owner........................ (15,020)
Other owners' investment transactions--net............. 1,088
Paid in kind dividends--junior preferred............... (2,685 ) --
Dividends--senior preferred............................ (11,466 ) (2,866)
Foreign currency translation........................... 6,724 6,724
Net income............................................. 20,756 20,756
----------- -------- --------
Ending balance December 31, 1996....................... 3,655 6,605 154,055
Other owner's investment transactions--net............. 7,551
Paid in kind dividends--junior preferred............... (1,679 ) --
Cash dividends--junior preferred....................... (581 ) (581)
Dividends--senior preferred............................ (11,057 ) (11,057)
Foreign currency translation........................... (4,327) (4,327)
Minimum pension liability adjustment................... (1,299)
Net income............................................. 22,388 22,388
----------- -------- --------
Ending balance December 31, 1997....................... $ (672) $15,676 $166,730
----------- -------- --------
----------- -------- --------
</TABLE>
See Notes to Combined Financial Statements.
F-7
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations and Basis of Presentation
The accompanying combined financial statements present the financial
position, results of operations, cash flows and shareholder's equity/owner's
investment of The Imperial Home Decor Group Inc. formerly known as Borden
Decorative Products Holdings, Inc. ('BDPH') operations of Borden, Inc.
('Borden'), consisting of the operations of Borden Decorative Products, Ltd.,
Sunworthy, and Vernon Plastics operations, collectively known as BDPH. Effective
January 1, 1996, Borden Decorative Products Holdings, Inc. was formed to operate
certain of Borden's decorative businesses ('Borden Decorative Products'). Under
this structure BDPH was granted beneficial ownership of the Canadian decorative
products operations (Sunworthy -Canada) which was legally incorporated as an
operating subsidiary of BDPH before the transfer of interest. BDPH's operations
are conducted in the United Kingdom (UK), Canada and the United States. They
include the manufacture and distribution of residential and commercial
wallcoverings, heat transfer paper and flexible vinyl films and sheeting.
The 1997 and 1995 reporting periods for the BDPH operation are 52 week
periods. In 1996 BDPH's UK subsidiary's reporting period fiscal year consisted
of 53 weeks.
Prior to January 1, 1996, the decorative businesses were managed as
divisions of Borden. Under this structure, Borden incurred various costs related
to the decorative businesses which included corporate and administrative
expenses (see Note 2). The allocation of these costs, as well as intercompany
purchases and sales, cash infusions and withdrawals, and other transactions, are
reflected in the owner's investment account through December 31, 1995. In
connection with the formation of Borden Decorative Products Holdings, Inc., the
shareholder's equity and owner's investment amounts have been recapitalized to
reflect the resulting capital structure.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates in BDPH's financial statements
are the allowance for doubtful accounts, reserve for inventory obsolescence,
accrual for general and group insurance and the pension and non-pension
postemployment and post retirement benefit allocations. Actual results could
differ from those estimates.
Summary of Significant Accounting Policies
Significant accounting policies followed by BDPH, as summarized below, are
in conformity with generally accepted accounting principles.
Principles of Combination
The combined financial statements include the accounts of BDPH after
elimination of material inter and intracompany accounts and transactions.
F-8
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Revenue Recognition
Revenues are recognized when products are shipped. Liabilities are
established for estimated returns, allowances and trade discounts when revenues
are recognized.
Research and Development
Research and development costs are charged to general and administrative
expense when incurred. Research and development costs amounted to $974, $868 and
$980 in 1995, 1996 and 1997, respectively.
Environmental Remediation
Environmental costs representing ongoing maintenance, monitoring and
similar costs are expensed as incurred. Environmental remediation costs are
accrued when environmental assessments and/or remedial efforts are probable and
the cost or a reasonable range can be estimated. Environmental expenditures
which improve the condition of a property are capitalized and amortized over
their estimated useful life.
Cash and Equivalents
BDPH considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market with cost principally
being determined using the average cost and first-in, first-out methods.
Development, Design, Engraving and Sample Book Costs
Costs of design and engraving related to the preparation of cylinder
rollers for new designs are deferred in other assets and amortized over the
shorter of estimated useful life of the design and engraving or the period
during which the company is expected to benefit. Amortization of the design and
engraving costs was $13,155, $12,969 and $12,372 in 1995, 1996 and 1997
respectively. Amortization of the cylinder roller costs was $479, $557 and $800
in 1995, 1996, 1997, respectively. Sample book costs in excess of the proceeds
from sales of such books are deferred and amortized over the estimated useful
life of the sample books, generally a two to three year period. Amortization of
sample books costs was $8,742, $7,218 and $5,017 in 1995, 1996 and 1997,
respectively.
Property and Equipment
Property and equipment are stated at cost, less a reserve for accumulated
depreciation. Depreciation is recorded on the straight-line basis over useful
lives ranging from thirty to forty years for buildings and three to eighteen
years for equipment.
Major renewals and betterments are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, the applicable cost and accumulated depreciation are
removed from the accounts and any related gain or loss is recorded in the
statement of operations.
F-9
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Goodwill
Goodwill represents the excess of the purchase price over fair value of
identifiable assets of businesses acquired and is amortized on a straight-line
basis over forty years or its useful life, whichever is shorter. The accumulated
amortization of goodwill was $4,317, $4,756 and $5,135 at December 31, 1995,
1996 and 1997, respectively.
Impairment
The carrying value of property, equipment and intangibles is evaluated
periodically for recoverability when considered in relation to the expected
future undiscounted cash flows of the underlying businesses over the estimated
remaining useful life of the asset.
Foreign Currency Translations
Assets and liabilities of foreign affiliates are generally translated at
current exchange rates, and related translation adjustments are reported as a
component of owner's investment/shareholder's equity. Amounts reflected in the
statements of operations and cash flows are translated at the average rates
during the year. Realized and unrealized net foreign exchange gains aggregating
$1,119, $158, and $ 450 were included in income in 1995, 1996 and 1997,
respectively.
Income Taxes
The results of domestic and Canadian operations of BDPH are included in
Borden's consolidated tax returns. Borden uses the liability method of
accounting for deferred income taxes. Deferred foreign income taxes are recorded
to recognize the future effects of temporary differences which arise between
financial statement assets and liabilities and their basis for income tax
reporting purposes. For purposes of these stand-alone financial statements,
income taxes are determined as though BDPH filed separate U.S. federal, Canadian
and state corporate income tax returns. Current taxes payable for U.S. federal,
state and Canadian taxes are reflected in the owner's investment account. Taxes
on income and losses from foreign locations are provided in accordance with
Statement of Financial Accounting Standard No. 109, 'Accounting for Income
Taxes'.
Derivative Financial Instruments
Borden uses forward exchange contracts to reduce the effect of the
fluctuations in foreign currency rates. Borden hedges certain firm commitments
and transactions denominated in foreign currencies. Borden does not engage in
speculation. Gains and losses on forward contracts are offset against foreign
exchange gains or losses on the underlying hedged item. The fair values of
financial instruments are estimated based on quotes from brokers or current
rates offered for instruments with similar characteristics. Borden enters into
foreign exchange contracts on behalf of BDPH. The notional amounts outstanding
for contracts relating to BDPH as of December 31, 1995, 1996 and 1997 were
$49,729, $26,852 and $12,293, respectively. Contracts mature generally within
five to six months and are principally with banks. Fair value of the contracts
approximated the carrying value.
Concentrations of Credit Risk
Financial instruments which potentially subject BDPH to concentrations of
credit risk consist principally of temporary cash investments and accounts
receivable. BDPH places its temporary cash investments ($6,768 at December 31,
1996 and $3,795 at December 31, 1997) with high quality institutions and, by
policy, limits the
F-10
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
amount of credit exposure to any one institution. Concentrations of credit risk
with respect to accounts receivable are limited, due to the large number of
customers comprising BDPH's customer base and their dispersion across many
different industries and geographies. BDPH generally does not require collateral
or other security to support customer receivables. A portion of BDPH's sales are
exports. For these sales, BDPH may insure its export receivables based upon
assessment of the risk and the country to which products are sold. BDPH closely
monitors extensions of credit and has generally not experienced significant
credit losses.
Pension and Retirement Savings Plans
Most of BDPH's employees are covered under one of Borden's pension plans or
one of the union-sponsored plans to which Borden contributes. BDPH's cumulative
liability associated with these plans is recorded on BDPH's balance sheets.
BDPH's share of the allocated cost to fund and administer these plans is
recorded in the statements of operations in the year the cost is incurred.
Substantially all domestic employees of BDPH participate in Borden's
retirement savings plans. BDPH's cost of providing the retirement savings plans
is the amount by which it matches eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.
Non-pension Postemployment and Postretirement Benefits
Borden provides certain health and life insurance benefits for eligible
retirees and their dependents. The cost of postretirement benefits is accrued
during the employees' working careers. BDPH's cumulative liability associated
with these plans is recorded on BDPH's balance sheets. BDPH's share of the
allocated cost to fund and administer these plans is recorded in the statements
of operations in the year the cost is incurred.
Borden provides certain other postemployment benefits to qualified former
or inactive employees. BDPH's cumulative liability associated with these plans
is recorded on BDPH's balance sheets. BDPH's share of the cost to fund and
administer these plans is recorded in the statements of operations in the year
the cost is incurred.
Fair Value of Financial Instruments
The carrying values of cash, accounts receivable and payable, other
receivables, and accrued and other current liabilities as stated on the balance
sheets approximate their fair market value.
Advertising and Promotion Expense
Production costs of future media advertising are deferred until the
advertising occurs. All other advertising costs are expensed when incurred.
Promotional expenses are generally expensed ratably over the year in relation to
revenues or other performance measures. Advertising and promotional expenses
amounted to $43,851, $34,476 and $31,177 during 1995, 1996 and 1997,
respectively.
Group and General Insurance Reserve
Borden is generally self-insured for losses and liabilities relating to
workers' compensation, health and welfare claims, physical damage to property,
business interruption and comprehensive general, product and vehicle liability.
Borden maintains insurance policies for certain items exceeding deductible
limits. Losses are accrued for the estimated aggregate liability for claims
using certain actuarial assumptions followed in the insurance industry and
Borden's experience.
F-11
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Supplemental Cash Flow Information
For the periods presented, the information provided reflects actual income
tax payments made by the foreign operations of BDPH. The 1995, 1996 and 1997 tax
payments for U.S. operations were made by Borden.
Recently Issued Accounting Statements
The Financial Accounting Standards Board has recently issued three new
accounting standards, Statement No. 130, 'Reporting Comprehensive Income',
adopted in 1997, Statement No. 131, 'Disclosures About Segments of an Enterprise
and Related Information' and Statement No. 132, 'Employers' Disclosures about
Pensions and Other Postretirement Benefits.' These statements will affect the
disclosure requirements for the 1998 reporting period. BDPH is currently
evaluating the effect of statements No. 131 'Disclosures About Segments of an
Enterprise and Related Information' and Statement No. 132, 'Employers'
Disclosures about Pensions and Other Postretirement Benefits.'
2. RELATED PARTIES
BDPH is engaged in various transactions with Borden and its affiliates in
the ordinary course of business as described in the following paragraphs. As
described in Note 1, certain administrative expenses incurred by Borden have
been allocated to BDPH generally based on a pro rata share of Borden's total
sales and are included as charges to earnings in the accompanying combined
statements of operations. Management believes the allocation methods utilized
are reasonable. Amounts due to Borden resulting from these allocations, as well
as sales and purchases of products and materials to or from other operations,
are reflected in owner's investment account in the statements of stockholder's
equity.
In addition, a subsidiary of Borden provides certain administrative
services to BDPH at negotiated fees. These services include: processing of
payroll and active and retiree group insurance claims, administration of workers
compensation claims, and securing insurance coverage for catastrophic claims.
BDPH reimburses the Borden subsidiary for payments for general disbursements,
general and group insurance and postemployment benefit claims. These amounts due
to a subsidiary of Borden are also included in the owner's investment account.
BDPH is generally self-insured for general insurance claims and postemployment
benefits other than pensions. The liabilities for these obligations are included
in BDPH's financial statements.
Employee pension benefits are provided under the Borden domestic pension
plans to which BDPH contributes. The U.S. employees participate in the Borden
retirement savings plan. Borden also provides certain health and life insurance
benefits for eligible employees. BDPH has recognized expenses associated with
these benefits, certain of which are determined and allocated by Borden's
actuary. BDPH has assumed an actuarially determined portion of Borden's U.S. net
pension liability. A minimum pension liability of $906 has been recognized for
BDPH's portion of the Canadian operation's pension plan. BDPH sponsors
retirement plans in certain international locations. These plans cover only BDPH
employees and are not affiliated liabilities (See Note 6).
F-12
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. RELATED PARTIES--(CONTINUED)
The following table summarizes the charges for these costs.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Pension and other employee benefits........................................ $ 625 $ 963 $ 861
Group and general insurance................................................ 1,922 2,184 1,665
Corporate information services............................................. 1,667 808 791
Executive compensation, corporate staff
Department services and division overhead................................ 2,092 1,362 1,592
</TABLE>
The benefit related amounts allocated by Borden to BDPH include the
following (see Note 5 for income tax amounts):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Net domestic pension liability............................................. $ 191 $ 510
Postretirement benefit obligation.......................................... 527 547
Postemployment benefit obligation.......................................... 368 318
Non-qualified plan obligation.............................................. 186 116
Group and general insurance obligation..................................... 1,274 1,252
</TABLE>
Cash generated and required by BDPH's domestic operations are recorded in
the owner's investment account for such years. There was no interest income or
expense allocated to BDPH with respect to its net domestic intercompany
balances.
Cash balances in international businesses which are not repatriated to the
U.S., can be loaned to other Borden affiliates at a variable rate for generally
a 30-day period. There were no affiliated borrowings at December 31, 1996 and
1997.
In July 1996, BDPH entered into a loan agreement allowing them to borrow
funds from Borden under a revolving loan facility. The revolving loan facility,
which terminated on December 31, 1997, provided for borrowings up to $5 million
at a variable interest rate of prime plus .50% on overnight borrowings and LIBOR
plus 1.50% on 30-day borrowings. At December 31, 1996 and 1997, BDPH had no
balance outstanding on the revolving loan facility. Commitment fees are paid
quarterly at .375% of the available balance.
In 1996 and 1997 BDPH had a financing agreement with Borden to invest
excess cash at an interest rate equal to the Federal Funds rate plus .25%. At
December 31, 1996 and 1997, BDPH had $18.3 million and $5.1 million invested,
respectively, with Borden netted in the owner's investment account.
BDPH purchases polyvinyl chloride ('PVC') resins from Borden Chemical and
Plastics L.P. ('BCP') under purchase and processing agreements between Borden
and BCP which expires in November 2002. The purchase agreements require BCP to
supply to Borden up to 100% and requires Borden to purchase at least 85% of the
quantities of PVC resins required by Borden to use in its plants in the
continental United States. The price for PVC resins will generally be the
average price that BCP charges its lowest-priced major customer (other than
Borden). The purchase agreements also provide that BCP is required to meet
competitive third-party offers or allow Borden to purchase the lower-priced
product from third parties in lieu of purchases under purchase agreements.
During 1995, 1996 and 1997 BDPH purchased $8,045, $6,534 and $6,330 of PVC from
BCP, respectively.
F-13
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. RELATED PARTIES--(CONTINUED)
BDPH operating activity with other Borden affiliates was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Sales..................................................................... $ 4,299 $2,296 $ 377
Purchases................................................................. 12,966 6,565 3,812
</TABLE>
A Borden affiliate from which BDPH purchases goods for resale guarantees a
minimum price on the sale of these goods. Rebates under this agreement amounted
to $891, $844 and $404 during 1995, 1996 and 1997, respectively.
3. SHORT-TERM BORROWINGS AND CREDIT FACILITIES
In addition to the affiliate credit facility described in Note 2, BDPH has
unsecured overdraft and revolving loan facilities with the National Westminster
Bank ('the Bank'). The interest rate on the $4.9 million overdraft facility is
based on the Bank's base rate plus 1%. Interest on the revolving $6.5 million
loan facility is based on LIBOR plus .56% fixed at the time of the loan. There
were no borrowings outstanding at December 31, 1996. At December 31, 1997,
borrowings on the overdraft facility amounted to $1,529.
4. LEASE OBLIGATIONS
BDPH currently leases warehouse space, production facilities and vehicles
under long-term or month-to-month arrangements in its domestic and foreign
locations. Rental expense amounted to $3,988, $4,585 and $4,297 during 1995,
1996 and 1997, respectively. Rental expense includes $445, $454 and $378 during
1995, 1996 and 1997, respectively, relating to leases entered into by Borden on
behalf of BDPH. Minimum annual rentals under operating leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
MINIMUM RENTALS ON
OPERATING LEASES
------------------
<S> <C>
1998................................................. 3,718
1999................................................. 2,949
2000................................................. 2,520
2001................................................. 2,049
2002................................................. 1,945
2003 and thereafter.................................. 11,170
</TABLE>
5. INCOME TAXES
Income tax expense for domestic and foreign operations that file a combined
tax return with other Borden affiliates was calculated utilizing statutory rates
multiplied by pretax income as adjusted for known book tax differences.
F-14
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal.............................................................. $ (222) $ 2,967 $ 2,922
State and local...................................................... (72) 702 548
Foreign.............................................................. 10,811 7,258 9,088
------- ------- -------
10,517 10,927 12,558
Deferred:
Federal.............................................................. 610 (2,420) (40)
State and local...................................................... 137 (453) (7)
Foreign.............................................................. (49) 2,547 (1,127)
------- ------- -------
698 (326) (1,174)
------- ------- -------
$11,215 $10,601 $11,384
------- ------- -------
------- ------- -------
</TABLE>
The following table reconciles the maximum statutory U.S. Federal income
tax rate multiplied by BDPH's income before taxes to the recorded income tax
expense (benefit):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
U.S. Federal income tax at 35%......................................... $ 9,964 $10,975 $11,820
State income tax expense, net of Federal benefit....................... 42 162 319
Foreign rate differentials............................................. 1,174 (704) (888)
Goodwill amortization and other
Nondeductible expenses............................................... 35 168 133
------- ------- -------
Provision for income taxes............................................. $11,215 $10,601 $11,384
------- ------- -------
------- ------- -------
</TABLE>
Domestic and foreign components of income before taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Domestic............................................................... $ 1,071 $ 1,332 $ 7,673
Foreign................................................................ 27,397 30,025 26,099
------- ------- -------
$28,468 $31,357 $33,772
------- ------- -------
------- ------- -------
</TABLE>
F-15
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
The tax effects of the Company's significant temporary differences which
comprise the deferred tax assets and liabilities at December 31, 1996 and 1997,
and are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Assets:
Accrued and other expenses............................................ $ 2,198 $ 1,257
Pension, non-pension and postemployment benefit obligations........... 447 581
Reserves and allowances 4,335 4,281
Other................................................................. 1,057 756
------- -------
8,037 6,875
------- -------
Liabilities:
Property, plant, equipment and intangibles............................ 8,094 7,580
Pension and health contributions...................................... 4,699 4,912
Accrued and other expenses............................................ 3,069 2,593
------- -------
Net Liabilities......................................................... $ 7,825 $ 8,210
------- -------
------- -------
</TABLE>
Deferred income tax assets and liabilities for domestic and Canadian
operations only have been included in the owner's investment account. The
domestic net deferred income tax asset was $1,229 and $1,107 at December 31,
1996 and 1997 and was comprised of $3,929 and $3,817 of deferred tax assets
principally for accrued expenses and pension obligations and $2,700 and $2,710
of deferred tax liabilities for property and equipment. The Canadian net
deferred income tax balance, included in owner's investment, was $284 liability
at December 31, 1996 and $229 asset at December 31, 1997. The foreign net
deferred income tax liability was $8,770 and $9,546 at December 31, 1996 and
1997.
BDPH has not recorded income taxes applicable to undistributed earnings of
foreign subsidiaries that are indefinitely reinvested in foreign operations. The
determination of the tax effect to such earnings is not practicable.
6. PENSION AND RETIREMENT SAVINGS PLANS
Most employees of BDPH participate in foreign and domestic pension plans
sponsored by Borden. For most salaried employees, benefits under these plans
generally are based on compensation and credited service. For most hourly
domestic employees, benefits under these plans are based on specified amounts
per year of credited service. A portion of Borden's expense for domestic
retirement plans was allocated to BDPH (see Note 2).
A net pension asset or liability, which approximates the portion of the
total pension assets or liabilities of Borden which relates to the employees of
BDPH, has been reflected in BDPH's stand-alone balance sheets (see Note 2). For
domestic plans in which the employees of BDPH as well as employees of other
Borden affiliated businesses participate, the gross pension obligation was
allocated to BDPH based upon the actuarially determined obligation relating to
BDPH's employees. The pension expense allocated to BDPH for its participation in
Canadian salaried plans in which it shares with affiliates amounted to $44, $132
and $168 in 1995, 1996 and 1997, respectively.
F-16
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. PENSION AND RETIREMENT SAVINGS PLANS--(CONTINUED)
The weighted average rates used to determine pension expense for plans
shared with other Borden affiliates was as follows:
<TABLE>
<CAPTION>
DOMESTIC FOREIGN
-------------------- ---------------------
1995 1996 1997 1995 1996 1997
---- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate........................................ 8.8% 6.8% 7.5% 10.0% 8.3% 7.8%
Rate of increase in future compensation levels....... 5.3% 4.3% 4.5% 7.0% 5.3% 4.8%
Expected long-term rate of return on plan assets..... 9.8% 7.8% 8.5% 11.0% 9.3% 8.8%
</TABLE>
The status of the portion of BDPH's foreign pension plans in which
employees of BDPH participate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1997
---------------------------------------
PLAN ASSETS EXCEED ACCUMULATED BENEFITS
---------------------------------------
<S> <C>
Plan assets at fair value..................................... $69,862 $82,608
Actuarial present value of:
Vested benefit obligation................................... (58,678) (70,044)
Accumulated benefit obligation.............................. (58,678) (70,423)
Projected benefit obligation................................ (67,247) (79,779)
Plan assets greater than projected benefit obligation......... 2,615 2,829
Unrecognized prior service cost............................... 331 622
Unrecognized loss............................................. 12,277 13,189
Unrecognized net transition obligation........................ (87) (3)
Minimum Liability Adjustment.................................. (1,246)
---------- ----------
Net pension asset............................................. $15,136 $15,391
---------- ----------
---------- ----------
</TABLE>
Plan assets consist primarily of equity securities and corporate
obligations.
The following are the components of BDPH's foreign annual net pension
expense in which employees of BDPH participate:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Service cost-benefits earned during the year............................. $1,353 $ 1,413 $ 2,338
Interest cost on the projected benefit obligation........................ 4,265 4,771 5,487
Actual return on plan assets............................................. (4,970) (5,580) (13,601)
Net amortization and deferral............................................ 836 883 8,079
------ ------- -------
$1,484 $ 1,487 $ 2,303
------ ------- -------
------ ------- -------
</TABLE>
The weighted average rates used to determine foreign net periodic pension
expense were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate................................................................... 8.7% 8.4% 8.5%
Rate of increase in future compensation levels.................................. 5.0% 5.0% 4.8%
Expected long-term rate of return on plan assets................................ 9.7% 9.5% 9.5%
</TABLE>
Eligible salaried and hourly non-bargaining employees may contribute up to
5% of their pay to Borden sponsored retirement savings plans (7% for certain
longer service salaried employees), which was matched 50% by Borden during 1995,
1996 and 1997.
F-17
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
7. NON-PENSION POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
BDPH participates in Borden-sponsored non-pension postemployment and
postretirement benefit plans. The postretirement plans provide certain health
and life insurance benefits for eligible domestic retirees and their dependents.
Participants who are not eligible for Medicare are provided with the same
medical benefits as active employees, while those who are eligible for Medicare
are provided with supplemental benefits. The postretirement medical benefits are
contributory for retirements after 1983; the post retirement life insurance
benefit is noncontributory.
Borden also provides certain postemployment benefits, primarily medical and
life insurance benefits for long-term disabled employees, to qualified former or
inactive employees.
A liability which approximates the portion of Borden's total postemployment
and postretirement obligation which relates to the domestic employees of BDPH
has been reflected in BDPH's balance sheet (see Note 2). Such allocation was
based upon the actuarially-determined obligation for these benefits relating to
BDPH's domestic employees.
A portion of Borden's expense for postemployment and postretirement
benefits was allocated annually to BDPH (see Note 2). The discount rate used in
determining the accumulated postretirement benefit obligation at December 31,
1995, 1996 and 1997, was 6.8%, 7.5% and 7.3%, respectively.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1997, was 8.8% for 1998,
gradually declining to 5.3% by the year 2004. The comparable assumptions for the
prior year were 9.5% and 5.5%.
Management does not believe that these allocations are materially different
from amounts that would be calculated historically for BDPH on a stand-alone
basis.
8. OWNER'S INVESTMENT/SHAREHOLDER'S EQUITY
Preferred stock
Effective January 1, 1996, Borden capitalized BDPH with 6,609,600 shares of
7% senior preferred stock with a face value of $165,240 and 1,041,000 shares of
10% junior preferred stock with a face value of $26,025 as part of the transfer
of the assets from Borden to BDPH. Also in 1996, 57,600 shares of senior
preferred stock purchased from Borden Inc. for $1,440 were canceled and retired.
Each share of senior preferred stock has a liquidation preference of $25
and is entitled to cumulative dividends at an annual rate of 6.75%, payable
quarterly in arrears. There are 6,552,000 shares issued and outstanding at
December 31, 1996 and 1997. The dividend rate of the senior preferred stock was
changed from 7% to 6.75% effective January 1, 1997. BDPH declared dividends on
the senior preferred stock of $11,466 and $11,057 and paid dividends of $2,866
and $19,657 during 1996 and 1997, respectively.
Each share of junior preferred stock has a liquidation preference of $25
and is entitled to cumulative dividends in kind at an annual rate of 7.65%,
compounded quarterly and payable quarterly in arrears. There are 1,148,386 and
1,215,543 shares issued and outstanding at December 31, 1996 and 1997,
respectively. The dividends in kind of $2,685 (107,386 shares) in 1996 and
$1,679 (67,157 shares) in 1997 were recorded as additions to the junior
preferred stock and a reduction to retained earnings. BDPH declared and paid
cash dividends of $581 on the junior preferred stock in 1997. The dividend rate
of the junior preferred stock was changed from 10% to 7.65% effective January 1,
1997.
F-18
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. OWNER'S INVESTMENT/SHAREHOLDER'S EQUITY--(CONTINUED)
Common stock
Effective January 1, 1996, BDPH issued 20,000,000 shares of common stock
with a par value of $0.01 per share. Shares totaling to 19,712,000 were issued
to BDH One, Inc. (a subsidiary of Borden, Inc.) and 261,250 shares were
purchased by key members of management for $1,306 along with the grant of
options to purchase an additional 1,306,250 shares at $5.00 per share. In 1996,
Borden purchased 26,750 additional shares for $134.
Owner's investment
Owner's investment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Permanent net owner's investment................................................. $ 28,939 $ 28,939
Accrued dividend payable to affiliate............................................ 8,600
Cash invested with affiliate..................................................... (18,300) (5,100)
Deferred taxes--domestic and Canadian............................................ (945) (1,336)
Other receivable--net............................................................ 2,033 5,375
-------- --------
$ 20,327 $ 27,878
-------- --------
-------- --------
</TABLE>
As of December 31, 1996 and 1997, the balances that comprise owner's
investment relate primarily to cash amounts invested with an affiliate,
affiliate payable and receivable balances and domestic and Canadian deferred tax
assets. The change in affiliate receivables--net from December 31, 1996, to
December 31, 1997, was primarily due to a decrease in excess cash invested with
Borden and decreases in affiliate payable and receivable balances.
Paid-in capital
The debit balance in paid-in capital represents the excess of the valuation
of the common and preferred stock at the recapitalization of the business over
the December 31, 1995, permanent owner's investment balance (excluding the
Canadian operations).
9. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
Effective January 1, 1996, BDPH issued stock options under its Management
Stockholder's Agreement (the 'Plan'). Under the Plan equity in BDPH was sold to
key management personnel. Those participating were granted fixed stock options
to purchase additional shares at an exercise price of $5.00 per share. The
weighted price of options granted during 1996 was $5.00. The fair value of each
option at the grant date was $1.16. For each share of stock purchased management
was given the option to purchase five additional shares. The options were issued
at fair value, vest over five years and expire ten years from the date of grant.
There were 1,306,250 options outstanding and 133,750 options available for
future grants at December 31, 1996 and 1997. The fair value of the options
exceeded $5.00 at December 31, 1997, and an expense of $531 was recorded to
reflect the shares vested under the plan.
BDPH adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), 'Accounting for Stock-Based
Compensation.' Had compensation cost for such plan been determined based on the
fair value at the grant date for awards consistent with the provisions of SFAS
No. 123, the Company's net income would have been reduced by $185 for 1996 and
increased by $346 for 1997. The plan
F-19
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION--(CONTINUED)
provides for options to fully vest if BDPH is sold. The options were settled
upon the Merger in March 1998 for approximately $1,254.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with a risk free interest rate of 5.37%
and expected lives of five years. No options were granted in 1997.
10. SUPPLEMENTAL INFORMATION
Other current assets, non-current assets and current liabilities consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Other current assets:
Sample books.................................................................... $ 6,205 $ 6,029
Design & engraving costs........................................................ 7,286 7,272
Other........................................................................... 5,717 7,081
------- -------
$19,208 $20,382
------- -------
------- -------
Other non-current assets:
Prepaid pension assets.......................................................... $16,427 $15,479
Other........................................................................... 6,586 7,731
------- -------
$23,013 $23,210
------- -------
------- -------
Other current liabilities:
Customer allowances & credits................................................... $10,887 $ 9,484
Wages and payroll taxes......................................................... 7,343 8,524
Other........................................................................... 6,815 4,462
------- -------
$25,045 $22,470
------- -------
------- -------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Environmental Matters--BDPH, like others in similar businesses, is subject
to extensive national, state and local environmental laws and regulations.
Although BDPH environmental policies and practices are designed to ensure
compliance with these laws and regulations, future developments and increasingly
stringent regulation could require BDPH to make additional unforeseen
environmental expenditures.
12. COMPREHENSIVE INCOME
As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standards, No. 130, 'Reporting Comprehensive Income'. This statement
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
includes all changes in shareholders' equity (except those arising from
transactions with shareholders) and includes net income and net unrealized gains
(losses) on currency translation adjustments and unrecognized minimum pension
liabilities.
F-20
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
12. COMPREHENSIVE INCOME--(CONTINUED)
The new standard requires only additional disclosures in the combined
financial statements; it does not affect the Company's financial position or
results of operations. Comprehensive income was computed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Net income......................................................... $ 17,253 $ 20,756 $ 22,388
Unrealized foreign currency translation adjustment................. 1,052 6,724 (4,327)
Unrecognized minimum pension liability............................. (1,299)
-------- -------- ---------
Comprehensive income............................................... $ 18,305 $ 27,480 $ 16,762
-------- -------- ---------
-------- -------- ---------
</TABLE>
13. SEGMENT INFORMATION
BDPH operations manufacture residential, wallcoverings, heat transfer paper
and flexible vinyl films and sheeting.
The decorative product line includes heat transfer paper. The decorative
products business operates worldwide but primarily in the United Kingdom, the
United States, Canada, and other parts of Western and Eastern Europe. The
flexible vinyl films and sheeting product line includes calendered, flexible PVC
sheeting, printed sheeting and laminated products. The vinyl films and sheeting
business operates in the United States and Canada.
The following represents segment data about BDPH's operations.
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Net Sales
Residential wallcoverings.......................................... $312,935 $315,590 $ 323,423
Vinyl films and sheetings.......................................... 49,357 49,381 49,315
-------- -------- ---------
$362,292 $364,971 $ 372,738
-------- -------- ---------
-------- -------- ---------
Operating Income
Residential wallcoverings........................................ $ 24,050 $ 25,936 $ 29,138
Vinyl films and sheetings........................................ 5,341 5,203 4,331
-------- -------- ---------
$ 29,391 $ 31,139 $ 33,469
-------- -------- ---------
-------- -------- ---------
Capital Expenditures
Residential wallcoverings........................................ $ 5,573 $ 19,509 $ 17,163
Vinyl films and sheetings........................................ 790 1,669 3,670
-------- -------- ---------
$ 6,363 $ 21,178 $ 20,833
-------- -------- ---------
-------- -------- ---------
Depreciation and Amortization
Residential wallcoverings........................................ $ 5,097 $ 5,649 $ 9,072
Vinyl films and sheetings........................................ 896 940 1,005
-------- -------- ---------
$ 5,993 $ 6,589 $ 10,077
-------- -------- ---------
-------- -------- ---------
Identifiable Assets at Year End
Residential wallcoverings........................................ $219,780 $218,608 $ 213,801
Vinyl films and sheetings........................................ 22,483 22,202 25,833
-------- -------- ---------
$242,263 $240,810 $ 239,634
-------- -------- ---------
-------- -------- ---------
</TABLE>
F-21
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
13. SEGMENT INFORMATION--(CONTINUED)
GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Net Sales
United States.................................................... $173,586 $157,488 $ 186,632
Europe........................................................... 181,311 201,734 211,900
Canada........................................................... 69,513 71,550 40,523
-------- -------- ---------
424,410 430,772 439,055
Inter-area (1)..................................................... (62,118) (65,801) (66,317)
-------- -------- ---------
$362,292 $364,971 $ 372,738
-------- -------- ---------
-------- -------- ---------
Operating Income (loss)
United States.................................................... $ 1,640 $ (634) $ 6,110
Europe........................................................... 18,818 24,985 21,176
Canada........................................................... 8,933 6,788 6,183
-------- -------- ---------
$ 29,391 $ 31,139 $ 33,469
-------- -------- ---------
-------- -------- ---------
Capital Expenditures
United States.................................................... $ 889 $ 2,016 $ 3,987
Europe........................................................... 3,511 17,630 12,930
Canada........................................................... 1,963 1,532 3,916
-------- -------- ---------
$ 6,363 $ 21,178 $ 20,833
-------- -------- ---------
-------- -------- ---------
Depreciation and Amortization
United States.................................................... $ 1,165 $ 1,420 $ 1,602
Europe........................................................... 3,572 3,778 6,007
Canada........................................................... 1,256 1,391 2,468
-------- -------- ---------
$ 5,993 $ 6,589 $ 10,077
-------- -------- ---------
-------- -------- ---------
Identifiable Assets at Year End
United States.................................................... $ 79,901 $ 58,933 $ 54,998
Europe........................................................... 116,393 140,771 141,505
Canada........................................................... 45,969 41,106 43,131
-------- -------- ---------
$242,263 $240,810 $ 239,634
-------- -------- ---------
-------- -------- ---------
</TABLE>
- ------------------
(1) Sales between geographic regions includes $17,478 and $41,607 of sales from
Europe and Canada to the United States and $1,484 and $1,549 of sales from
the United States and Europe to Canada in 1995; $17,238 and $41,436 of sales
from Europe and Canada to the United States and $3,736 and $3,391 of sales
from the United States and Europe to Canada in 1996; $16,799 and $41,484 of
sales from Europe and Canada to the United States and $5,904 and $2,130 of
sales from the United States and Europe to Canada in 1997. The sales are
recorded at prices which, depending on channel or distribution, are either
based on market prices or are at cost plus a standard markup.
F-22
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
14. SUBSEQUENT EVENT
In October 1997, Borden entered into a definitive agreement among BDPH,
BDPI Holdings Corporation ('MergerCo') and Borden (the 'Recapitalization
Agreement'). MergerCo was an indirect wholly owned subsidiary of Blackstone
Capital Partners III Merchant Banking Fund L.P. Pursuant to the Recapitalization
Agreement, MergerCo will be merged with and into BDPH (the 'Merger'), with BDPH
surviving. On March 13, 1998, the merger was completed.
In connection with the Merger, MergerCo's common stock was exchanged for
89% of BDPH's total outstanding common stock after the Merger. BDPH's existing
shareholders (Borden) retained 11% of BDPH's total outstanding common stock
after the Merger. In addition, pursuant to the recapitalization agreement,
Borden received in exchange for all the preferred stock and certain common stock
of BDPH cash merger consideration of approximately $309.5 million (subject to
adjustment based on changes in net working capital). The cash merger
consideration was financed in part by term loan borrowings under senior credit
facilities (the 'Senior Credit Facilities') and the issuance of the 11% Senior
Subordinated Notes due 2008 (the 'Notes'). BDPH changed its name to 'The
Imperial Home Decor Group Inc.' (the 'Issuer').
Also in a subsequent acquisition, BDPH acquired all the outstanding common
stock of Imperial Wallcoverings, Inc. and a wholly owned subsidiary of BDPH
acquired substantially all of the assets and assumed substantially all of the
liabilities of Imperial Wallcoverings (Canada) Inc. The purchase price was
approximately $58.0 million (subject to adjustment based on changes in net
working capital). In connection with the Imperial acquisition the former owners
of Imperial will be granted an option to purchase 397,812 shares or 6.7% of
BDPH's common stock outstanding as of the closing. The Imperial acquisition will
be accounted for using the purchase method of accounting. On March 13, 1998, the
purchase was completed.
15. SUPPLEMENTAL COMBINING CONDENSED FINANCIAL INFORMATION
In connection with the Merger and the Imperial acquisition, the Issuer has
issued the Notes to finance the transaction and the related fees and expenses.
The Issuer's payment obligations under the Notes will be fully and
unconditionally guaranteed on a joint and several basis (collectively, the
'Guarantees') by the Issuer's domestic subsidiaries (Borden Decorative Products,
Inc., WDP Investments, Inc., and Decorative Products UK IHC, collectively the
'Guarantor Subsidiaries'). Each of the Guarantor Subsidiaries is a direct
wholly-owned subsidiary of the Issuer. The obligations of each Guarantor
Subsidiary under its Guarantee are subordinated to such subsidiary's obligations
under Senior Credit Facilities.
Presented below is condensed combining financial information for Imperial
Home Decor Group Inc. formerly known as Borden Decorative Products Holdings,
Inc. ('Parent Company'), the Guarantor Subsidiaries, and the BDPH's other
subsidiaries (the 'Non-Guarantor Subsidiaries'). In the opinion of management of
BDPH, separate financial statements and other disclosures concerning each of the
Guarantor Subsidiaries would not provide additional information that is material
to investors in the Notes. Therefore, the Guarantor Subsidiaries are combined in
the presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in subsidiaries account and equity income.
The elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions. The intracompany payable and receivable balances are
netted in the owner's investment account.
F-23
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Sales............................. $ $ 173,586 $ 249,275 $ (60,569) $362,292
Costs and expenses:
Cost of sales....................... 116,354 173,980 (60,569) 229,765
Distribution expense................ 7,978 10,273 18,251
Marketing expense................... 41,570 26,743 68,313
General, administrative
and other expense................ 6,044 11,451 17,495
------- ------------- ----------------- ----------- --------
Total costs and expenses....... 171,946 222,447 (60,569) 333,824
Equity Income......................... 17,253 (17,253) --
------- ------------- ----------------- ----------- --------
Income before income taxes............ 17,253 1,640 26,828 (17,253) 28,468
Provision for income taxes............ 453 10,762 11,215
------- ------------- ----------------- ----------- --------
Net income............................ $17,253 $ 1,187 $ 16,066 $ (17,253) $ 17,253
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
</TABLE>
F-24
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Sales............................. $ $ 157,488 $ 269,893 $ (62,410) $364,971
Costs and expenses:
Cost of sales....................... 114,346 185,532 (62,410) 237,468
Distribution expense................ 7,562 12,007 19,569
Marketing expense................... 31,089 29,140 60,229
General, administrative
and other expense................ 2,834 13,514 16,348
------- ------------- ----------------- ----------- --------
Total costs and expenses....... 155,831 240,193 (62,410) 333,614
Equity Income......................... 20,756 (20,756)
------- ------------- ----------------- ----------- --------
Income before income taxes............ 20,756 1,657 29,700 (20,756) 31,357
Provision for income taxes............ 796 9,805 10,601
------- ------------- ----------------- ----------- --------
Net income............................ $20,756 $ 861 $ 19,895 $ (20,756) $ 20,756
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
</TABLE>
F-25
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Sales.............................. $ $ 151,052 $ 285,873 $ (64,187) $372,738
Costs and expenses:
Cost of sales........................ 108,033 198,872 (64,187) 242,718
Distribution expense................. 5,633 13,151 18,784
Marketing expense.................... 26,383 32,005 58,388
General, administrative
and other expense................. 2,170 16,906 19,076
------- ------------- ----------------- ----------- --------
Total costs and expenses........ 142,219 260,934 (64,187) 338,966
Equity Income.......................... 22,388 (22,388)
------- ------------- ----------------- ----------- --------
Income before income taxes............. 22,388 8,833 24,939 (22,388) 33,772
Provision for income taxes............. 3,069 8,315 11,384
------- ------------- ----------------- ----------- --------
Net income............................. $22,388 $ 5,764 $ 16,624 $ (22,388) $ 22,388
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
</TABLE>
F-26
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- -------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents........................ $ $ 1,345 $ 5,423 $ $ 6,768
Accounts receivable......................... 19,551 41,111 60,662
Inventories................................. 23,844 38,499 62,343
Other current assets........................ 3,564 15,644 19,208
------- -------------- ----------------- ----------- --------
Total current assets..................... 48,304 100,677 148,981
Fixed assets, net............................. 8,271 48,948 57,219
Goodwill...................................... 1,493 10,104 11,597
Other non-current assets...................... 865 22,148 23,013
Investment in subsidiary...................... 20,756 (20,756)
------- -------------- ----------------- ----------- --------
$20,756 $ 58,933 $ 181,877 $ (20,756) $240,810
------- -------------- ----------------- ----------- --------
------- -------------- ----------------- ----------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY/OWNER'S
INVESTMENT
Current liabilities:
Accounts payable............................ $ $ 15,471 $ 28,240 $ $ 43,711
Accrued liabilities......................... 3,229 21,816 25,045
Income tax payable.......................... 146 7,811 7,957
------- -------------- ----------------- ----------- --------
Total current liabilities................ 18,846 57,867 76,713
Non-current liabilities....................... 1,272 1,272
Deferred income tax........................... 8,770 8,770
Shareholder's equity/owner's investment....... 20,756 38,815 115,240 (20,756) 154,055
------- -------------- ----------------- ----------- --------
$20,756 $ 58,933 $ 181,877 $ (20,756) $240,810
------- -------------- ----------------- ----------- --------
------- -------------- ----------------- ----------- --------
</TABLE>
F-27
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................... $ $ 229 $ 3,566 $ $ 3,795
Accounts receivable..................... 18,086 37,074 55,160
Inventories............................. 19,656 39,823 59,479
Other current assets.................... 3,793 16,589 20,382
------- ------------- ----------------- ----------- --------
Total current assets...................... 41,764 97,052 138,816
Fixed assets, net......................... 10,668 56,072 66,740
Goodwill.................................. 1,352 9,516 10,868
Other non-current assets.................. 1,214 21,996 23,210
Investment in subsidiary.................. 43,144 (43,144)
------- ------------- ----------------- ----------- --------
$43,144 $54,998 $ 184,636 $ (43,144) $239,634
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
LIABILITIES AND SHAREHOLDER'S
EQUITY/OWNER'S INVESTMENT
Current liabilities:
Bank loan............................... $ $ $ 1,529 $ $ 1,529
Accounts payable........................ 15,595 15,715 31,310
Accrued liabilities..................... (1,417) 23,887 22,470
Income tax payable...................... 6,249 6,249
------- ------------- ----------------- ----------- --------
Total current liabilities................. 14,178 47,380 61,558
Non-current liabilities................... 1,491 309 1,800
Deferred income tax....................... 9,546 9,546
Shareholder's equity/owner's investment... 43,144 39,329 127,401 (43,144) 166,730
------- ------------- ----------------- ----------- --------
$43,144 $54,998 $ 184,636 $ (43,144) $239,634
------- ------------- ----------------- ----------- --------
------- ------------- ----------------- ----------- --------
</TABLE>
F-28
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
-------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income...................... $ 17,253 $ 1,187 $16,066 $ (17,253) $ 17,253
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity income................ (17,253) 17,253 --
Depreciation and
amortization............... 1,165 4,828 5,993
Increase in deferred foreign
income taxes............... 436 436
Change in assets and
liabilities:
Accounts receivable.......... (2,794) (5,155) (7,949)
Inventories.................. 4,114 823 4,937
Other assets................. (2,502) (1,158) (3,660)
Accounts payable............. (1,731) (1,640) (3,371)
Other liabilities............ 10,626 3,045 13,671
-------- ------------- ----------------- ----------- --------
Net cash provided by
operating activities............ -- 10,065 17,245 -- 27,310
Cash flow used in investing
activities:
Net investment in fixed
assets....................... (889) (5,474) (6,363)
Cash flow used in financing
activities:
Other changes in owner's
investment................... (9,176) (5,875) (15,051)
-------- ------------- ----------------- ----------- --------
Increase in cash and
equivalents..................... -- -- 5,896 -- 5,896
Cash and equivalents at beginning
of year......................... 3 6,944 6,947
-------- ------------- ----------------- ----------- --------
Cash and equivalents at
end of year..................... $ -- $ 3 $12,840 $ -- $ 12,843
-------- ------------- ----------------- ----------- --------
-------- ------------- ----------------- ----------- --------
</TABLE>
F-29
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
-------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 20,756 $ 861 $ 19,895 $ (20,756) $ 20,756
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity income............................. (20,756) 20,756 --
Depreciation and amortization............. 1,420 5,169 6,589
Increase in deferred foreign income
taxes................................... 146 2,758 2,904
Change in assets and liabilities:
Accounts receivable....................... 5,623 (6,846) (1,223)
Inventories............................... 8,717 (1,016) 7,701
Other assets.............................. 8,566 (5,077) 3,489
Accounts payable.......................... (167) 8,405 8,238
Other liabilities......................... (3,588) (1,389) (4,977)
-------- ------------- ----------------- ----------- --------
Net cash provided by operating activities...... -- 21,578 21,899 -- 43,477
Cash flow used in investing activities:
Net investment in fixed assets............... (2,016) (19,162) (21,178)
Cash flow from (used in) financing activities:
Purchase of senior preferred stock........... (1,440) (1,440)
Sales of common shares....................... 1,440 1,440
Dividends paid............................... (2,866) (2,866)
Other changes in owner's investment.......... (15,354) (10,154) (25,508)
-------- ------------- ----------------- ----------- --------
Net cash used in financing activities.......... -- (18,220) (10,154) -- (28,374)
-------- ------------- ----------------- ----------- --------
Increase (decrease) in cash and equivalents.... -- 1,342 (7,417) -- (6,075)
Cash and equivalents at beginning of year...... 3 12,840 12,843
-------- ------------- ----------------- ----------- --------
Cash and equivalents at end of year............ $ -- $ 1,345 $ 5,423 $ -- $ 6,768
-------- ------------- ----------------- ----------- --------
-------- ------------- ----------------- ----------- --------
</TABLE>
F-30
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BDPH BDPH
PARENT U.S. NON-U.S. ELIMINATION BDPH
COMPANY ('GUARANTOR') ('NON-GUARANTOR') ADJUSTMENTS COMBINED
-------- ------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 22,388 $ 5,764 $ 16,624 $ (22,388) $ 22,388
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity income..................... (22,388) 22,388
Depreciation and amortization..... 1,602 8,475 10,077
Decrease in deferred foreign
income taxes.................... (146) (786) (932)
Change in assets and liabilities:
Accounts receivable............... 1,465 4,037 5,502
Inventories....................... 4,188 (1,324) 2,864
Other assets...................... (449) 1,042 593
Accounts payable.................. 124 (12,525) (12,401)
Other liabilities................. (4,427) 2,380 (2,047)
-------- ------------- ----------------- ----------- --------
Net cash provided by operating
activities........................... -- 8,121 17,923 -- 26,044
Cash flow used in investing activities:
Net investment in fixed assets....... (3,987) (16,846) 20,833)
Cash flow from (used in) financing
activities:
Dividends paid....................... (20,238) (20,238)
Net short term debt borrowings....... 1,529 1,529
Other changes in owner's
investment........................ 14,988 (4,463) 10,525
-------- ------------- ----------------- ----------- --------
Net cash used in financing activities.. -- (5,250) (2,934) -- (8,184)
-------- ------------- ----------------- ----------- --------
Decrease in cash and equivalents....... -- (1,116) (1,857) -- (2,973)
Cash and equivalents at beginning of
year................................. 1,345 5,423 6,768
-------- ------------- ----------------- ----------- --------
Cash and equivalents at end of year.... $ -- $ 229 $ 3,566 $ -- $ 3,795
-------- ------------- ----------------- ----------- --------
-------- ------------- ----------------- ----------- --------
</TABLE>
F-31
<PAGE>
THE IMPERIAL HOME
DECOR GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF
JUNE 27, 1998
AND
JUNE 28, 1997
See Notes to Condensed Consolidated Financial Statements.
F-32
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 27,
1998
--------
<S> <C>
ASSETS
Current Assets:
Cash and equivalents................................................................................ $ 6,018
Accounts receivable, less allowance for doubtful accounts of $3,935................................. 103,725
Inventories:
Finished and in-process goods.................................................................... 107,101
Raw materials and supplies....................................................................... 11,567
--------
Total inventories................................................................................ 118,668
Other current assets................................................................................ 19,364
--------
Total Current Assets.................................................................................. 247,775
--------
Property, plant and equipment, net of accumulated depreciation of $110,096............................ 103,223
Assets held for resale................................................................................ 7,000
Goodwill.............................................................................................. 10,562
Other non-current assets.............................................................................. 46,649
--------
$415,209
--------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Notes payable under revolving credit facility....................................................... $ 23,857
Accounts payable.................................................................................... 51,817
Income tax payable.................................................................................. 12,149
Other current liabilities........................................................................... 57,994
--------
Total Current Liabilities............................................................................. 145,817
--------
Long-term debt........................................................................................ 323,000
Other long-term liabilities........................................................................... 23,719
Commitments and Contingencies (Note 8)
Shareholders' Equity (Deficiency):
Common stock........................................................................................ 59
Paid-in capital..................................................................................... (62,694)
Accumulated translation adjustment.................................................................. (1,329)
Retained earnings (deficit)......................................................................... (12,064)
Minimum pension liability adjustment................................................................ (1,299)
--------
Total Shareholders' Equity (Deficiency)............................................................... (77,327)
--------
$415,209
--------
--------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-33
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 28, JUNE 27,
1997 1998
--------- ---------
<S> <C> <C>
Net sales................................................................................. $ 197,507 $ 215,030
Cost of goods sold (including amortization of inventory step-up of $7,990 in 1998)........ 124,510 146,315
--------- ---------
Gross margin.............................................................................. 72,997 68,715
Distribution expense...................................................................... 11,773 11,429
Marketing expense......................................................................... 32,622 39,246
General and administrative expense........................................................ 10,472 19,104
Restructuring charges and other integration costs......................................... 7,340
--------- ---------
Operating income (loss)................................................................... 18,130 (8,404)
Merger costs.............................................................................. 4,000
Interest (income) expense, net (including amortization of deferred financing costs
of $737 in 1998)........................................................................ (156) 9,902
--------- ---------
Income (loss) before income taxes......................................................... 18,286 (22,306)
Income tax expense........................................................................ 6,590 124
--------- ---------
Net income (loss)......................................................................... $ 11,696 $ (22,430)
--------- ---------
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-34
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 28, JUNE 27,
1997 1998
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................................... $ 11,696 $ (22,430)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities, net of acquisition:
Depreciation and amortization....................................................... 4,571 7,578
Amortization of deferred financing costs............................................ 737
Accounts receivable................................................................. (9,480) (6,479)
Inventories......................................................................... (2,433) 874
Accounts payable.................................................................... 728 3,443
Current and deferred foreign income taxes........................................... 7,183 (78)
Other assets........................................................................ (1,882) (2,951)
Other liabilities................................................................... 159 2,361
-------- ----------
Cash provided by (used in) operating activities..................................... 10,542 (16,945)
-------- ----------
Cash flows from investing activities:
Capital expenditures................................................................... (6,964) (9,259)
Acquisition of Imperial Wallcoverings, Inc............................................. (72,200)
-------- ----------
Cash used in investing activities................................................... (6,964) (81,459)
-------- ----------
Cash flows from financing activities:
Repayment of borrowings on bank loan................................................... (1,529)
Borrowings under revolving credit facility............................................. 23,847
Borrowings under long-term debt arrangements........................................... 323,000
Debt issuance fees..................................................................... (19,136)
Equity contribution.................................................................... 84,500
Borden recapitalization cash distribution.............................................. (311,200)
Dividends paid......................................................................... (11,365) (2,635)
Changes in owners' investment.......................................................... 7,148 5,288
-------- ----------
Cash (used in) provided by financing activities..................................... (4,217) 102,135
-------- ----------
Effect of exchange rate changes on cash.................................................. (1,508)
-------- ----------
Increase (decrease) in cash and equivalents.............................................. (639) 2,223
Cash and equivalents at beginning of period.............................................. 6,768 3,795
-------- ----------
Cash and equivalents at end of period.................................................... $ 6,129 $ 6,018
-------- ----------
-------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-35
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Imperial Home Decor Group Inc. formerly known as Borden Decorative Products
Holdings, Inc. ('BDPH') operations of Borden, Inc. ('Borden') have been prepared
in accordance with generally accepted accounting principles for interim
financial statement information and Article 10 of Regulation S-X and therefore
do not include all of the information and footnotes required by generally
accepted accounting principles for complete annual financial statements. In the
opinion of management, all adjustments (consisting only of usual recurring
adjustments) considered necessary for a fair presentation are reflected in the
condensed consolidated financial statements. The condensed consolidated
financial statements and notes thereto should be read in conjunction with the
combined financial statements and notes thereto for the year ended December 31,
1997. The results of operations for the six months ended June 27, 1998, are not
necessarily indicative of the results to be expected for the full year ending
December 31, 1998.
2. THE TRANSACTIONS
The Initial Offering
The Imperial Home Decor Group Inc. issued 11% Senior Subordinated Notes due
2008, for an aggregate principal amount of $125,000,000 (the 'Initial
Offering'). The Initial Offering was made in connection with (i) the
recapitalization (the 'Recapitalization') of BDPH pursuant to a Recapitalization
Agreement, dated as of October 14, 1997, as amended (the 'Recapitalization
Agreement'), among BDPH, BDPI Holdings Corporation ('MergerCo') and Borden and
(ii) the acquisition of Imperial Wallcoverings, Inc. and its affiliate
('Imperial') (the 'Imperial Acquisition') pursuant to an Acquisition Agreement,
dated as of November 4, 1997, as amended (the 'Imperial Acquisition Agreement'),
among Collins & Aikman Corporation ('C&A'), Imperial Wallcoverings, Inc.
('Imperial U.S.') and MergerCo.
The closing of the transactions contemplated by the Recapitalization
Agreement, the initial borrowings under the Senior Credit Facilities and the
consummation of the Initial Offering took place immediately prior to, but
substantially simultaneously with, the closing of the Imperial Acquisition,
which occurred on March 13, 1998 (collectively, the 'Closing').
The Recapitalization
The principal components of the Recapitalization were:
o The transfer of substantially all the assets and liabilities of Sunworthy
(the Canadian wallcoverings business of Borden) to a wholly owned
subsidiary of BDPH;
o The equity contribution of $84.6 million in cash to MergerCo by
Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners III L.P. and Blackstone Family Investment
Partnership III L.P. (collectively, 'Blackstone');
o The merger of MergerCo with and into BDPH;
o The conversion of all the preferred stock and certain common stock of
BDPH into the right to receive a total of $309.5 million in cash, subject
to adjustment as described in the Recapitalization Agreement; and
o The cancellation and settlement of existing stock options for $1,254,000
which resulted in a charge to operations of $731,000 for the excess of
the amount paid over that previously accrued.
Following the Recapitalization, Blackstone and its affiliates owned 89% and
Borden retained 11% of the outstanding BDPH common stock. This merger is
accounted for as a recapitalization of BDPH which has no impact on the
historical carrying value of BDPH's assets and liabilities.
F-36
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE TRANSACTIONS--(CONTINUED)
The Imperial Acquisition
The principal components of the Imperial Acquisition were:
o The acquisition of all the outstanding capital stock of Imperial U.S. by
BDPH;
o The acquisition of substantially all the assets and liabilities of
Imperial Wallcoverings (Canada), Inc. by a wholly owned subsidiary of
BDPH;
o The payment by BDPH to C&A of the cash purchase price for the Imperial
Acquisition of $71.2 million subject to adjustment as described in the
Imperial Acquisition Agreement; and
o The grant to C&A by BDPH of an option to purchase newly issued shares of
BDPH's common stock equal to 6.7% of BDPH's common stock outstanding as
of the Closing, which was valued at $6.0 million based on arm's length
negotiations between MergerCo and C&A.
Following the Recapitalization and the Imperial Acquisition, BDPH changed
its name to The Imperial Home Decor Group Inc. (the 'Company').
The Imperial Acquisition is accounted for using purchase accounting in
which the total purchase cost was allocated to the Imperial assets acquired and
liabilities assumed, based on their respective fair values. The total purchase
price of $79.8 million consisted of $72.8 million of cash (including
post-closing adjustments), an option valued at $6.0 million and $1.0 million of
direct acquisition costs. The historical book value of the net assets acquired
exceeded the purchase price by $22.8 million. This excess was allocated first to
adjust the assets and liabilities acquired to their estimated fair values and
then as a proportionate reduction of property, plant and equipment and other
non-current assets. The principal components of this allocation were (1) an
increase of $5.9 million in inventories, (2) the recording of $7.0 million in
assets held for resale, $12.4 million in accruals, and $5.0 million in deferred
tax liabilities, and (3) a reduction of $20.2 million in property, plant and
equipment.
The resulting preliminary purchase price allocation was as follows (in
thousands):
<TABLE>
<S> <C>
Cash............................................................................... $ 206
Accounts receivable................................................................ 38,241
Inventories........................................................................ 60,654
Other current assets............................................................... 2,241
Property, plant and equipment...................................................... 30,694
Assets held for resale............................................................. 7,000
Other non-current assets........................................................... 2,521
Accounts payable and accrued expenses.............................................. (47,226)
Deferred income taxes.............................................................. (5,474)
Other long-term liabilities........................................................ (9,057)
---------
Total.............................................................................. $ 79,800
---------
---------
</TABLE>
The allocation of the aggregate purchase price is preliminary. The final
purchase adjustment to reflect the fair values of the assets acquired and
liabilities assumed will be based upon appraisals and actuarial studies that are
currently in process and management's evaluation of such assets and liabilities.
The following unaudited pro forma consolidated results of operations have been
prepared as if the Imperial Acquisition had occurred as of the beginning of 1997
and 1998 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------
JUNE 28, 1997 JUNE 27, 1998
---------------- ----------------
<S> <C> <C>
Net sales............................................................ $283,690 $248,030
Net loss before cumulative effect in change in accounting policy..... 7,312 28,330
</TABLE>
F-37
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE TRANSACTIONS--(CONTINUED)
The Financings
The Recapitalization, the Imperial Acquisition and the payment of related
fees and expenses have been financed by: (i) the equity contribution of $84.6
million; (ii) the initial borrowings of $198.0 million under the Senior Credit
Facilities; and (iii) the net proceeds of $125.0 million from the Initial
Offering.
The 11% Senior Subordinated Notes from the Initial Offering mature on March
15, 2008. Except as provided for in the Initial Offering, the Company may not
redeem these notes prior to March 15, 2003. On or after that date, the Company
may redeem these notes, in whole or in part, at the redemption prices set forth
in the Initial Offering. Interest on these notes is payable on March 15 and
September 15 of each year, beginning on March 15, 1999. These notes are
unsecured and subordinated to the Senior Credit Facilities.
The Senior Credit Facilities consist of (i) a six-year revolving credit
facility in an aggregate principal amount not to exceed $75.0 million ($23.9
million borrowed since the closing date and outstanding at June 27, 1998) and
(ii) term loan facilities consisting of (a) a $38.0 million six-year tranche A
term loan facility ('Term Loan A'), of which an additional $27.0 million is
available for up to 18 months following the Closing on a deferred draw basis,
(b) a $115.0 million seven-year tranche B term loan facility ('Term Loan B'),
and (c) a $45.0 million eight-year tranche C term loan facility ('Term Loan C'
and, collectively with Term Loan A and Term Loan B, the 'Term Loans').
The Term Loans require principal payments on a semi-annual basis. Term Loan
A requires aggregate principal payments of $0.5 million in 1999, $1.5 million in
2000, $7.0 million in 2001, $17.25 million in 2002, $25.0 million in 2003 and
$13.75 million in 2004. Term Loan B requires aggregate principal payments of
$0.5 million in 1999, $1.0 million from 2000 through 2004 and $109.5 million in
2005. Term Loan C requires aggregate principal payments of $0.25 million in
1999, $0.5 million from 2000 through 2005 and $41.75 million in 2006.
Interest rates for the revolving credit facility and the Term Loans are
variable with each calculated using one of several interest rate options, as
defined in the Senior Credit Facilities Credit Agreement. At June 27, 1998,
interest rates are as follows: Revolving Credit Facility--8.25%; Term Loan
A--8.25%; Term Loan B--8.50%; and Term Loan C--8.75%. A commitment fee of 0.5%
is paid on the unused portion of the revolving credit facility and the unused
portion of Term Loan A.
3. RESTRUCTURING CHARGES AND OTHER INTEGRATION COSTS
In conjunction with the Imperial Acquisition, a plan to integrate the
Company and Imperial in North America has been adopted that includes the
consolidation and rationalization of operations. As it relates to the Imperial
Acquisition, the Company plans to close facilities in Plattsburg, New York and
Ashaway, Rhode Island, dispose of certain assets, and reduce the salary and
hourly workforce by approximately 530 employees. The plan is expected to be
substantially complete by the end of 1999. The liabilities accrued under
purchase accounting relating to the integration plan for the Imperial
Acquisition were $12.4 million.
Additionally, as part of the consolidation and rationalization of
operations, the Company recorded restructuring charges and other integration
costs of $7.3 million in anticipation of the Company's planned exit of two
distribution centers and the finishing and bookmaking operations at one
manufacturing facility. The charge also provided for the restructuring of the
Company's headquarters and sales force, the write-down of certain assets to be
disposed of to net realizable value, lease and other contractual agreement
buyouts, and a reduction in the salary and hourly workforce by approximately 320
employees. The plan is expected to be substantially
F-38
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RESTRUCTURING CHARGES AND OTHER INTEGRATION COSTS--(CONTINUED)
complete by the end of 2000. The liabilities accrued under purchase accounting
and for the IHDG restructuring and other integration costs are as follows (in
thousands):
<TABLE>
<CAPTION>
ANTICIPATED ANTICIPATED
SEVERANCE LEASE AND
AND OTHER ANTICIPATED OTHER
RELATED FACILITY CONTRACTUAL
ASSET EMPLOYEE CLOSURE AGREEMENT
WRITE-DOWNS BENEFITS COSTS BUYOUTS OTHER TOTAL
----------- ------------- ----------- ----------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
IMPERIAL PURCHASE ACCOUNTING:
Liabilities accrued under purchase
accounting at March 13, 1998.......... -- $ 6,089 $ 3,930 $ 2,085 $277 $12,381
Cash expenditures....................... -- (149) (251) (531) (31) (962)
----------- ------------- ----------- ----------- ----- -------
Balance at June 27, 1998................ -- $ 5,940 $ 3,679 $ 1,554 $246 $11,419
----------- ------------- ----------- ----------- ----- -------
----------- ------------- ----------- ----------- ----- -------
IHDG RESTRUCTURING AND OTHER INTEGRATION
COSTS:
Expensed through June 27, 1998.......... $ 825 $ 5,814 -- $ 647 $ 54 $ 7,340
Write down of property to net realizable
value................................. (825) -- -- -- -- (825)
Cash expenditures....................... -- (651) -- -- -- (651)
----------- ------------- ----------- ----------- ----- -------
Balance at June 27, 1998................ $ -- $ 5,163 -- $ 647 $ 54 $ 5,864
----------- ------------- ----------- ----------- ----- -------
----------- ------------- ----------- ----------- ----- -------
</TABLE>
In addition, the Company recorded inventory write-downs of $4,557 which is
reported with cost of goods sold in the accompanying condensed consolidated
statement of operations for the six months ended June 27, 1998.
4. SUPPLEMENTAL INFORMATION
Other current assets, non-current assets, current liabilities and long-term
liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 27,
1998
--------
<S> <C>
Other current assets:
Sample books..................................................................... $ 6,337
Design and engraving costs....................................................... 8,706
Other............................................................................ 4,321
--------
$ 19,364
--------
--------
Other non-current assets:
Prepaid pension assets........................................................... $ 16,467
Deferred debt issuance cost, net................................................. 18,399
Other............................................................................ 11,783
--------
$ 46,649
--------
--------
Other current liabilities:
Accrued restructuring and other integration costs................................ $ 10,941
Current deferred tax liability................................................... 1,125
Customer allowances and credits.................................................. 7,699
Wages and payroll taxes.......................................................... 12,683
Interest payable................................................................. 5,667
Other............................................................................ 19,879
--------
$ 57,994
--------
--------
</TABLE>
F-39
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SUPPLEMENTAL INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
JUNE 27,
1998
--------
Other long-term liabilities:
<S> <C>
Deferred income taxes............................................................ $ 6,746
Non-pension post-employment benefit obligation................................... 9,836
Accrued restructuring and other integration costs................................ 6,342
Other............................................................................ 795
--------
$ 23,719
--------
--------
</TABLE>
5. INCOME TAXES
Prior to the Merger, income tax expense for domestic and foreign operations
that filed a combined return with other Borden affiliates was calculated
utilizing statutory rates multiplied by pretax income as adjusted for known book
tax differences. Deferred income tax assets and liabilities for domestic and
Canadian operations were included in the owner's investment account. Upon
consummation of the Merger, a valuation allowance of approximately $500,000 was
recognized as management determined that it is more likely than not that the
deferred tax assets for the combined U.S. operations will not be realized. The
Canadian and U.K. net deferred income tax liability was $378,000 and $7,493,000,
respectively at June 27, 1998.
6. COMPREHENSIVE INCOME
As of December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Comprehensive income for the six months ended June 28, 1997 and June 27, 1998,
in thousands, was as follows.
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Net income (loss)................................................... $11,696 $(22,430)
Foreign currency translation adjustments............................ (1,775) (657)
------- --------
Comprehensive income (loss)......................................... $ 9,921 $(23,087)
------- --------
------- --------
</TABLE>
7. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
('Statement 131'). Statement 131 establishes standards for the way that public
business enterprises report selected information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement 131 is effect for financial
statements for fiscal years beginning after December 15, 1997, and therefore,
the Company will adopt the new requirements in 1998, which will require
retroactive disclosure. Management has not completed its review of Statement 131
and has not determined the impact adoption will have on the Company's financial
statement disclosures.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosure about Pensions and Other
Post-Retirement Benefits ('Statement 132'). This standard revises employers'
disclosures about pensions and other post-retirement plans, but does not change
the measurement or recognition of those plans. This standard will be effective
for the Company's financial statements for the year ended December 31, 1998.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities
('Statement 133'). Statement 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. Statement 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management has not completed its review of Statement 133 and has not determined
the impact adoption will have on the Company's financial statement disclosures.
F-40
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED--(CONTINUED)
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed for or Obtained for Internal Use. The SOP will
become effective for the Company on January 1, 1999. The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
currently capitalizes certain external costs and expenses all other costs as
incurred. The Company has not yet assessed what the impact of the SOP will be on
the Company's future earnings or financial position.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local laws and regulations
concerning the environment, and it has received notices that it is a potentially
responsible party ('PRP') in administrative proceedings at four sites. It is
difficult to estimate the total cost of remediation due to the complexity of the
environmental laws and regulations, the uncertainty regarding the extent of the
environment risks and the Company's responsibility, and the selection of
alternative compliance approaches. When it is possible to reasonably estimate
the Company's liability with respect to environmental matters, a liability is
recorded in accordance with generally accepted accounting principles. The
Company has recorded an accrual of $1,200,000 for potential exposures as of June
27, 1998, including $900,000 for the Solvents Recovery Service of New England
superfund site in Southington, Connecticut. In the opinion of the Company's
management, based on the facts presently known to it, the ultimate outcome of
environmental matters will not have, individually or in the aggregate, a
material effect on the Company's consolidated financial position, results of
operations or cash flows.
Additionally, the Company is party to various litigation matters arising in
the ordinary course of business. The ultimate legal and financial liability of
the Company with respect to litigation cannot be estimated with certainty, but
Management believes, based on its examination of such matters, experience to
date and discussions with counsel, that such liability will not be material to
the business, financial condition, results of operations or cash flows of the
Company.
9. RELATED PARTIES
In connection with the Recapitalization and Imperial Acquisition,
Blackstone received a $4.0 million fee and the Company reimbursed Blackstone for
all out-of-pocket expenses incurred in connection with the Recapitalization and
Imperial Acquisition. In addition, pursuant to a monitoring agreement (the
'Monitoring Agreement') entered into between Blackstone and the Company,
Blackstone will receive an annual $1.5 million monitoring fee and will be
reimbursed for certain out-of-pocket expenses.
The Company and Borden entered into a Stockholders Agreement on the date of
the Closing. This agreement provides certain rights to the shareholders relating
to common stock purchase and sales offers, restrictions on stock transfers, and
registration rights.
Pursuant to the Recapitalization Agreement, Borden entered into a
transition services agreement with the Company as of the date of the Closing.
Under this agreement, Borden will provide certain management support services to
the Company for one year at rates Borden previously billed BDPH for such
services.
10. SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
'Guarantees') by the Company's domestic subsidiaries (The Imperial Home Decor
Group (US) LLC, Vernon Plastics Inc. and WDP Investments, Inc.) and Imperial
Home Decor Group Holdings I Limited, a U.K. Company, (collectively the
'Guarantor Subsidiaries'). Each of the Guarantor
F-41
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION--(CONTINUED)
Subsidiaries is a direct wholly-owned subsidiary of the Company. The obligations
of each Guarantor Subsidiary under its Guarantee are subordinated to such
subsidiary's obligations under the Senior Credit Facilities.
Presented below is condensed consolidating financial information for
Imperial Home Decor Group Inc. ('Parent Company'), the Guarantor Subsidiaries,
and the Company's other subsidiaries (the 'Non-Guarantor Subsidiaries'). In the
opinion of management of the Company, separate financial statements and other
disclosures concerning each of the Guarantor Subsidiaries would not provide
additional information that is material to investors in the Notes. Therefore,
the Guarantor Subsidiaries are consolidated in the presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in subsidiaries account and equity income.
The elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions. The intercompany payable and receivable balances are
netted in the owner's investment account.
* * * * * *
F-42
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
JUNE 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents..................... $ $ (6,254) $ 12,272 $ $ 6,018
Accounts receivable...................... 52,882 50,843 103,725
Inventories.............................. 64,543 53,113 1,012 118,668
Other current assets..................... 7,941 11,423 19,364
--------- ------------- ------------- ----------- ------------
Total Current Assets.................. 119,112 127,651 1,012 247,775
Fixed assets, net.......................... 35,580 69,019 (1,376) 103,223
Assets held for resale..................... 7,000 7,000
Goodwill................................... 1,187 9,375 10,562
Other non-current assets................... 18,399 4,985 23,265 46,649
Investment in subsidiary................... 107,754 (107,754) --
--------- ------------- ------------- ----------- ------------
$ 126,153 $ 167,864 $ 229,310 $(108,118) $415,209
--------- ------------- ------------- ----------- ------------
--------- ------------- ------------- ----------- ------------
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current Liabilities:
Notes payable under revolving credit
facility.............................. $ 18,650 $ $ 5,207 $ $ 23,857
Accounts payable......................... 3,622 17,412 30,776 7 51,817
Income tax payable....................... (201) 12,350 12,149
Other current liabilities................ 5,527 22,089 30,385 (7) 57,994
Intercompany payable/(receivable)........ 224,419 (30,428) (193,991) --
--------- ------------- ------------- ----------- ------------
Total Current Liabilities............. 252,218 8,872 (115,273) 145,817
Long-term debt............................. 83,000 50,000 190,000 323,000
Other long-term liabilities................ 16,536 405 32 16,973
Deferred income tax........................ 6,746 6,746
Shareholder's equity/owner's
investment............................... (209,065) 92,456 147,432 (108,150) (77,327)
--------- ------------- ------------- ----------- ------------
$ 126,153 $ 167,864 $ 229,310 $(108,118) $415,209
--------- ------------- ------------- ----------- ------------
--------- ------------- ------------- ----------- ------------
</TABLE>
F-43
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ $ 80,851 $ 156,434 $ (39,778) $197,507
Cost of goods sold........................... 57,531 106,757 (39,778) 124,510
------- ------------ ------------- ----------- ------------
Gross margin................................. 23,320 49,677 72,997
Distribution expense......................... 3,031 8,742 11,773
Marketing expense............................ 14,792 17,830 32,622
General and administrative expense........... 2,622 7,850 10,472
------- ------------ ------------- ----------- ------------
Operating income............................. 2,875 15,255 18,130
Interest (income) expense, net............... (1,381) 1,225 (156)
------- ------------ ------------- ----------- ------------
Income before income taxes................... 4,256 14,030 18,286
Equity income................................ 11,696 (11,696)
Income tax expense........................... 1,743 4,847 6,590
------- ------------ ------------- ----------- ------------
Net income (loss)............................ $11,696 $ 2,513 $ 9,183 $ (11,696) $ 11,696
------- ------------ ------------- ----------- ------------
------- ------------ ------------- ----------- ------------
</TABLE>
F-44
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................... $ $ 107,227 $ 159,573 $ (51,770) $215,030
Cost of goods sold.......................... 82,652 115,167 (51,504) 146,315
-------- ------------- ------------- ----------- ------------
Gross margin................................ 24,575 44,406 (266) 68,715
Distribution expense........................ 3,349 8,080 11,429
Marketing expense........................... 19,842 19,404 39,246
General and administrative expense.......... 7,441 11,663 19,104
Restructuring charges and other integration
costs..................................... 5,328 2,012 7,340
-------- ------------- ------------- ----------- ------------
Operating income (loss)..................... (11,385) 3,247 (266) (8,404)
Merger costs................................ 4,000 4,000
Interest (income) expense, net.............. 2,974 1,457 5,471 9,902
-------- ------------- ------------- ----------- ------------
Income (loss) before income taxes........... (6,974) (12,842) (2,224) (266) (22,306)
Equity income............................... (15,190) 15,190
Income tax expense.......................... 303 (179) 124
-------- ------------- ------------- ----------- ------------
Net income (loss)........................... $(22,164) $ (13,145) $ (2,045) $ 14,924 $(22,430)
-------- ------------- ------------- ----------- ------------
-------- ------------- ------------- ----------- ------------
</TABLE>
F-45
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
SIX MONTHS ENDED JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating
activities................................ $ $ (9,901) $ 20,443 $ $ 10,542
Cash flow used in investing activities:
Capital expenditures...................... (1,939) (5,025) (6,964)
Cash flow provided by (used in) financing
activities:
Dividends paid............................ (11,365) (11,365)
Changes in owner's
investment............................. 11,187 (4,039) 7,148
-------- ------------ ------------- ----------- ------------
Net cash provided by (used in) financing
activities................................ 11,187 (15,404) (4,217)
-------- ------------ ------------- ----------- ------------
Increase (decrease) in cash and
equivalents............................... (653) 14 (639)
Cash and equivalents at beginning of
period.................................... 1,345 5,423 6,768
-------- ------------ ------------- ----------- ------------
Cash and equivalents at end of period....... $ $ 692 $ 5,437 $ $ 6,129
-------- ------------ ------------- ----------- ------------
-------- ------------ ------------- ----------- ------------
</TABLE>
F-46
<PAGE>
THE IMPERIAL HOME DECOR GROUP INC.
FORMERLY KNOWN AS
BORDEN DECORATIVE PRODUCTS HOLDINGS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
SIX MONTHS ENDED JUNE 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATION
COMPANY SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating
activities............................... $ (16,099) $(17,261) $16,415 $ $ (16,945)
Cash flow used in investing activities:
Capital expenditures..................... (4,216) (5,043) (9,259)
Acquisition of Imperial.................. (72,200) (72,200)
--------- ------------ ------------- ----------- ------------
Cash used in investing activities.......... (72,200) (4,216) (5,043) (81,459)
--------- ------------ ------------- ----------- ------------
Cash flow (used in) provided by financing
activities:
Repayment of borrowing on
bank loan............................. (1,529) (1,529)
Borrowings under revolving credit
facility.............................. 18,650 5,197 23,847
Borrowings under long-term debt
arrangements.......................... 323,000 323,000
Debt issuance fees....................... (19,136) (19,136)
Equity contribution...................... 84,500 84,500
Borden recapitalization cash
distribution.......................... (309,550) (1,650) (311,200)
Dividends paid........................... (2,635) (2,635)
Changes in owner's
investment/intercompany............... (9,165) 17,629 (3,176) 5,288
--------- ------------ ------------- ----------- ------------
Cash provided by (used in) financing
activities............................... 88,299 14,994 (1,158) 102,135
--------- ------------ ------------- ----------- ------------
Effect of exchange rate changes on cash.... (1,508) (1,508)
--------- ------------ ------------- ----------- ------------
Increase in cash and cash equivalents...... (6,483) 8,706 2,223
Cash and equivalents at beginning of
period................................... 229 3,566 3,795
--------- ------------ ------------- ----------- ------------
Cash and equivalents at end of period...... $ $ (6,254) $12,272 $ $ 6,018
--------- ------------ ------------- ----------- ------------
--------- ------------ ------------- ----------- ------------
</TABLE>
F-47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Collins & Aikman Corporation:
We have audited the accompanying consolidated and combined balance sheets of
Imperial Wallcoverings, Inc. (a Delaware corporation and indirect wholly-owned
subsidiary of Collins & Aikman Corporation) and subsidiaries with affiliate, as
of January 27, 1996, December 28, 1996 and December 27, 1997 and the related
consolidated and combined statements of operations, investments and advances
from (to) Collins & Aikman Products Co. and cash flows for the 52-week period
ended January 27, 1996, the 48-week period ended December 28, 1996 and the
52-week period ended December 27, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred to
above present fairly, in all material respects, the financial position of
Imperial Wallcoverings, Inc. and subsidiaries with affiliate as of January 27,
1996, December 28, 1996 and December 27, 1997, and the results of their
operations and their cash flows for the 52-week period ended January 27, 1996,
the 48-week period ended December 28, 1996 and the 52-week period ended December
27, 1997, in conformity with generally accepted accounting principles.
As explained in Note 3 to the consolidated and combined financial statements,
effective December 29, 1996, the Company changed its method of accounting for
designs and engravings.
ARTHUR ANDERSEN LLP
CLEVELAND, OHIO,
JANUARY 23, 1998 (EXCEPT FOR NOTE 19
TO WHICH THE DATE IS MARCH 13, 1998).
F-48
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
CONSOLIDATED AND COMBINED BALANCE SHEETS
JANUARY 27, 1996, DECEMBER 28, 1996 AND DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 441 $ 782 $ 81
Accounts receivable, net of allowances of $1,117, $1,694 and $2,006
at January 27, 1996, December 28, 1996, and December 27, 1997,
respectively...................................................... 9,822 27,523 32,977
Inventories.......................................................... 50,152 50,903 53,428
Other current assets................................................. 5,173 2,755 3,103
----------- ------------ ------------
Total current assets.............................................. 65,588 81,963 89,589
Property, plant and equipment, net..................................... 39,872 50,905 52,022
Designs and engravings, net (Note 3)................................... 10,629 9,942 --
Other assets........................................................... 3,149 2,513 2,392
----------- ------------ ------------
$ 119,238 $145,323 $144,003
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND INVESTMENTS AND ADVANCES (TO) FROM
COLLINS & AIKMAN PRODUCTS CO.
Current Liabilities:
Canadian overdraft facility.......................................... $ 27,996 $ 30,121 $ 25,395
Current maturities of long-term debt................................. 412 428 446
Accounts payable..................................................... 11,251 10,640 14,601
Accrued expenses..................................................... 15,505 18,352 15,028
----------- ------------ ------------
Total current liabilities......................................... 55,164 59,541 55,470
Long-Term Debt, including allocated debt of
Collins & Aikman Products Co......................................... 66,415 55,635 31,834
Deferred income taxes.................................................. 1,182 506 --
Other, including postretirement benefit obligations.................... 13,762 12,653 14,841
Commitments and contingencies (Notes 9 and 16)......................... -- -- --
Investments and advances (to) from Collins & Aikman Products Co........ (17,285) 16,988 41,858
----------- ------------ ------------
$ 119,238 $145,323 $144,003
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of these balance sheets.
F-49
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JANUARY 27, 1996, DECEMBER 28, 1996 AND DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Net sales.............................................................. $ 197,708 $157,571 $163,849
----------- ------------ ------------
Cost of goods sold..................................................... 141,132 105,572 109,072
Selling, general and administrative expenses........................... 65,192 69,000 76,444
General and administrative expenses allocated from Collins & Aikman
Products Co.......................................................... 2,709 2,515 2,060
Restructuring charge................................................... 12,897 -- --
----------- ------------ ------------
80,798 71,515 78,504
----------- ------------ ------------
Operating loss......................................................... (24,222) (19,516) (23,727)
Interest expense, net.................................................. 2,115 1,930 1,627
Interest expense allocated from Collins & Aikman Products Co........... 5,797 3,844 3,007
Loss on sale of receivables............................................ 4,291 2,572 --
Other (income) expenses................................................ (232) 382 (736)
----------- ------------ ------------
Loss before income taxes............................................... (36,193) (28,244) (27,625)
Income tax benefit..................................................... (1,527) (312) (63)
----------- ------------ ------------
Loss before cumulative effect of change in accounting.................. (34,666) (27,932) (27,562)
Cumulative effect of change in accounting for designs and engravings... -- -- 9,942
----------- ------------ ------------
Net loss.......................................................... $ (34,666) $(27,932) $(37,504)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of these statements.
F-50
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF INVESTMENTS AND
ADVANCES (TO) FROM COLLINS & AIKMAN PRODUCTS CO.
FOR THE PERIODS ENDED JANUARY 27, 1996, DECEMBER 28, 1996 AND DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1997 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD........................................... $ (41,208) $(17,285) $ 16,988
Net loss............................................................. (34,666) (27,932) (37,504)
Investments and advances from Collins & Aikman Products Co........... 58,440 62,014 62,207
Translation gains.................................................... 149 191 167
----------- ------------ ------------
BALANCE, END OF PERIOD................................................. $ (17,285) $ 16,988 $ 41,858
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of these statements.
F-51
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JANUARY 27, 1996, DECEMBER 28, 1996 AND DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1997 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (34,666) $(27,932) $(37,504)
Adjustments to derive cash flows used by operating activities:
Restructuring charge.............................................. 12,897 -- --
Depreciation and leasehold amortization........................... 5,926 5,337 7,235
Amortization of other assets and liabilities...................... 7,969 7,206 --
Cumulative effect of change in accounting for designs and
engravings...................................................... -- -- 9,942
Changes in operating assets:
Accounts receivable, net.......................................... (9,299) (17,701) (5,454)
Inventories....................................................... 10,372 (751) (2,525)
Accounts payable.................................................. (3,215) (611) 3,961
Other, net........................................................ (3,453) 4,243 (1,292)
----------- ------------ ------------
Net cash used by operating activities........................ (13,469) (30,209) (25,637)
----------- ------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net...................... (15,542) (16,370) (8,352)
Design, engraving and other.......................................... (8,229) (6,455) (410)
----------- ------------ ------------
Net cash used by investing activities........................ (23,771) (22,825) (8,762)
----------- ------------ ------------
Cash Flows From Financing Activities:
Repayment of long-term debt.......................................... (295) (97) (194)
Net borrowings (repayments) on overdraft facility.................... 14,366 2,125 (4,726)
Allocated debt of Collins & Aikman Products Co....................... (34,830) (10,667) (23,589)
Investments and advances from Collins & Aikman Products Co........... 58,440 62,014 62,207
----------- ------------ ------------
Net cash provided by financing activities.................... 37,681 53,375 33,698
----------- ------------ ------------
Net increase (decrease) in cash........................................ $ 441 $ 341 $ (701)
Cash and cash equivalents, beginning of period......................... -- 441 782
----------- ------------ ------------
Cash and cash equivalents, end of period............................... $ 441 $ 782 $ 81
----------- ------------ ------------
----------- ------------ ------------
Supplemental disclosures, cash paid (received) for:
Interest, excluding interest allocated from Collins & Aikman Products
Co................................................................ $ 2,166 $ 2,256 $ 1,663
----------- ------------ ------------
----------- ------------ ------------
Income taxes--foreign and state...................................... 273 (382) 2,653
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of these statements.
F-52
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
1. ORGANIZATION
Imperial Wallcoverings, Inc., together with its subsidiaries, Imperial
Wallcoverings Limited, ('Imperial UK') and Marketing Service Inc. and with its
affiliate, Imperial Wallcoverings (Canada) Inc. ('Imperial Canada')
(collectively referred to as 'Imperial' or 'the Company') is a leading
manufacturer and distributor of a full range of wallpaper for the residential
and commercial sectors of the wallpaper industry. Imperial is the only producer
of wallpaper in the U.S. that is fully integrated from paper production through
design and distribution. Imperial Wallcoverings, Inc. is currently an indirect
wholly-owned subsidiary of Collins & Aikman Corporation (C&A), through Collins &
Aikman Products Co. ('Products'). On March 13, 1998, C&A sold Imperial to a
company owned by an affiliate of a significant shareholder of C&A (See Note 19).
2. BUSINESS AND BASIS OF PRESENTATION
As indicated in the accompanying consolidated and combined financial
statements, Imperial has incurred substantial losses in recent periods including
operating losses that totaled $24.2 million in fiscal 1995, $19.5 million in
fiscal 1996 and $23.7 million for fiscal 1997. Cash deficits relating to these
losses have been funded by Products. The Company continues to incur significant
losses from operations and is investing in capital equipment as part of its
restructuring plan. Products continues to fund the liquidity needs of Imperial
in order to satisfy the working capital, capital expenditure and other cash
requirements. Products funded the cash requirements of Imperial through March
13, 1998, the date of disposition (See Note 19). Accordingly, the accompanying
consolidated and combined financial statements have been prepared assuming
Imperial will continue as a going concern and, as such, adjustments, if any,
that may be required for presentation on another basis have not been considered.
The accompanying consolidated and combined financial statements do not reflect
any adjustments which may result due to the proposed sale.
The business of Imperial is conducted as subsidiaries of Products.
Transfers of operating funds between Products and Imperial are made on a
noninterest-bearing basis, with the net amounts of these transfers reflected in
investments and advances from (to) Products in the accompanying consolidated and
combined financial statements. The net balance in investments and advances from
(to) Products is classified as equity in the accompanying consolidated and
combined balance sheets since upon the disposition of Imperial by Products the
amounts outstanding will not be repaid.
The accompanying consolidated and combined financials statements present
the financial position, results of operations and cash flows of Imperial as if
it were a separate entity for all periods presented. In accordance with the
provisions of Securities and Exchange Commission Staff Accounting Bulletin No.
73, a portion of the debt and the related interest expense of Products has been
allocated to Imperial primarily as a result of its guarantee of certain
Products' debt. The allocations have been made primarily based upon the ratio of
Imperial's net assets to the consolidated invested capital of Products, which
approximates Imperial's guaranteed share of the related Products' debt. The
average interest rates in effect for fiscal 1995, fiscal 1996 and fiscal 1997,
were 8.1%, 7.9% and 8.8%, respectively. In connection with the disposition of
Imperial, Products' released Imperial from its guarantee of Products' debt and,
accordingly, Imperial will not be required to repay any of the allocated debt
reflected in the accompanying consolidated and combined balance sheets. Interest
has not been computed on the remaining intercompany balances.
Products performs certain services and incurs certain costs for Imperial.
Services provided include tax, treasury, risk management, employee benefits,
legal and other general corporate services. The cost of the services provided by
Products has been allocated to Imperial based on a combination of estimated use
and the relative sales of the Imperial business to the total consolidated
operations of Products. Corporate costs of Products totaling $2.7 million, $2.5
million and $2.1 million have been allocated to Imperial in fiscal 1995, fiscal
1996 and fiscal 1997, respectively. In the opinion of management, the method of
allocating these costs is reasonable.
F-53
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
2. BUSINESS AND BASIS OF PRESENTATION--(CONTINUED)
However, the costs of these services charged to Imperial are not necessarily
indicative of the costs that would have been incurred if Imperial had performed
these functions.
Products administers its self-insurance programs on a corporate-wide basis
and charges its individual participating subsidiaries and divisions based on
estimated claims and loss experience. Costs charged by Products to Imperial for
product, automotive, general liability and workers' compensation claims and
insurance amounted to $2.0 million, $1.8 million and $1.8 million in fiscal
1995, fiscal 1996 and fiscal 1997, respectively. The accompanying consolidated
and combined balance sheets include the related accruals for product,
automotive, general liability and workers' compensation claims.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Combination
The consolidated and combined financial statements include the accounts of
Imperial Wallcoverings, Inc., Imperial Wallcoverings (Canada) Inc., Marketing
Service Inc. and Imperial Wallcoverings Limited. All significant intercompany
items have been eliminated in consolidation and combination.
As of January 27, 1996, Imperial Wallcoverings, Inc. and Imperial
Wallcoverings Limited were separate indirect subsidiaries of Products. On
December 5, 1996, Imperial purchased Imperial UK from Collins & Aikman United
Kingdom Limited at its net book value. For financial reporting purposes, this
transfer between related entities has been treated in a manner similar to a
pooling of interests.
As of December 27, 1997, Imperial Wallcoverings, Inc. owns approximately
24% of Imperial Canada while another C&A subsidiary owns the remainder. As part
of the disposition of Imperial, the operations of Imperial Canada will be
transferred with Imperial. For purposes of the accompanying consolidated and
combined financial statements, Imperial Canada has been presented as if it was
wholly owned.
Use of Estimates
The preparation of consolidated and combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated and combined financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fiscal Year
During fiscal 1996, the Company changed its fiscal year to end on the last
Saturday in December. Fiscal 1997 represents a 52-week period which ended an
December 27, 1997. Fiscal 1996 represents a 48-week period which ended on
December 28, 1996. Fiscal 1995 was a 52-week period which ended on January 27,
1996.
Foreign Currency
Foreign currency activity is reported in accordance with Statement of
Financial Accounting Standards No. 52, 'Foreign Currency Translation' ('SFAS No.
52'). SFAS No. 52 generally provides that the assets and liabilities of foreign
operations be translated at the current exchange rates as of the end of the
accounting period and that revenues and expenses be translated using average
exchange rates. The resulting translation adjustments arising from foreign
currency translations are accumulated as a component of Investments and Advances
from (to) Products. Translation adjustments during fiscal 1995, fiscal 1996 and
fiscal 1997, were $149,000, $191,000 and $167,000, respectively.
F-54
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Gains and losses resulting from foreign currency transactions are
recognized in income. Recorded balances that are denominated in a currency other
than Imperial's functional currency are adjusted to reflect the exchange rate at
the balance sheet date. Imperial periodically enters into forward exchange
contracts to hedge its exposure to price fluctuations on purchases and sales.
Gains and losses, if any, on contracts are deferred and recognized as a
component of the related transaction. See Note 13.
Revenue Recognition
Revenue is recognized when goods are shipped.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with an original maturity of three months or less.
Inventories
Inventories are valued at the lower of cost or market, but not in excess of
net realizable value. Cost is determined on the first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Provisions for
depreciation and amortization are primarily computed on a straight-line basis
over the estimated useful lives of the assets, presently ranging from 3 to 40
years. Leasehold improvements are amortized over the lesser of the lease term or
the estimated useful lives of the improvements.
Long-Lived Assets
In the fourth quarter of fiscal 1995, Imperial adopted Statement of
Financial Accounting Standards No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of' ('SFAS No. 121').
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, and that certain long-lived
assets and identifiable intangibles to be disposed of be reported at the lower
of carrying amount or fair value less cost to sell. The adoption of SFAS No. 121
did not have a material impact on Imperial's consolidated and combined results
of operations.
Income Taxes
Currently, Imperial's U.S. operations are included in the consolidated
federal income tax return of C&A; however, federal, state and foreign income
taxes have been provided on a separate return basis.
Environmental
Imperial records its best estimate when it believes it is probable that an
environmental liability has been incurred and the amount of loss can be
reasonably estimated. Accruals for environmental liabilities are included in the
consolidated and combined balance sheets primarily as other noncurrent
liabilities at undiscounted amounts and exclude claims for recoveries from
insurance or other third parties. Accruals for insurance or other third party
recoveries for environmental liabilities are recorded when it is probable that
the claim will be realized.
F-55
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Sample Book Costs
Prior to fiscal 1996, the Company deferred certain costs relating to the
assembly of sample books. These costs were deferred until the sample books were
released, at which time the costs were fully expensed. During fiscal 1996, the
Company prospectively changed its method of accounting for sample books and is
currently expensing these costs as incurred. The Company had $2.7 million of
sample book costs capitalized at January 27, 1996. The Company had no amounts
capitalized at December 28, 1996 and December 27, 1997 relating to sample books.
Designs and Engravings
Prior to December 29, 1996, the Company deferred costs associated with the
design and development of patterns and engraving used in the printing process.
These costs were being amortized over a three-year period representing the
approximate life of the related wallpaper line. The Company recorded
amortization expense of $8.0 million and $7.2 million related to these costs in
fiscal 1995 and fiscal 1996, respectively. Effective December 29, 1996, the
Company changed its method of accounting for such costs and currently expenses
such amounts as incurred. The cumulative effect of the change in accounting for
designs and engravings resulted in $9.9 million of expense for fiscal 1997.
There was no income tax benefit or expense recorded in conjunction with this
change.
Reclassifications
Certain reclassifications have been made to fiscal 1995 and fiscal 1996
amounts to conform with the fiscal 1997 presentation.
4. INVENTORIES
Inventory balances are summarized below (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Raw materials................................................ $ 6,168 $ 5,115 $ 5,155
Work in process.............................................. 2,217 3,720 4,566
Finished goods............................................... 41,767 42,068 43,707
----------- ------------ ------------
$50,152 $ 50,903 $ 53,428
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
During fiscal 1995, as part of developing a plan to reengineer the business
(see Note 11), Imperial reevaluated its various product offerings ('SKUs') and
developed plans to reduce the number of SKUs in certain distribution channels,
which plans have now been implemented. In view of these plans and the
then-recent overall decline in the wallpaper business, Imperial provided an
additional charge of approximately $10.8 million for inventory write-downs. This
is included in cost of goods sold in fiscal 1995.
F-56
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, are summarized below (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Land and improvements........................................ $ 1,009 $ 1,896 $ 1,532
Buildings.................................................... 16,228 20,494 20,383
Machinery and equipment...................................... 53,810 71,229 77,021
Leasehold improvements....................................... 536 571 637
Construction in progress..................................... 10,748 3,981 5,280
----------- ------------ ------------
82,331 98,171 104,853
Less--accumulated depreciation and amortization.............. (42,459) (47,266) (52,831)
----------- ------------ ------------
$39,872 $ 50,905 $ 52,022
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Depreciation and leasehold amortization of property, plant and equipment
was $5.9 million, $5.3 million and $7.2 million for fiscal 1995, fiscal 1996 and
fiscal 1997, respectively.
6. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Payroll and employee benefits................................ $ 4,246 $ 3,514 $ 4,940
Restructuring................................................ 4,177 3,141 1,047
Medical and other insurance.................................. 2,285 3,259 1,272
Advertising and promotions................................... 322 1,685 1,793
Other........................................................ 4,475 6,753 5,976
----------- ------------ ------------
$15,505 $ 18,352 $ 15,028
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
7. LONG-TERM DEBT
Long-term debt consisted of the following at January 27, 1996, December 28,
1996 and December 27, 1997 (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Allocated debt of Products................................... $62,234 $ 51,766 $ 28,411
Products' mortgage note payable.............................. 3,914 3,715 3,481
Industrial revenue bonds..................................... 679 582 388
----------- ------------ ------------
Total debt................................................. 66,827 56,063 32,280
Less--Current maturities..................................... (412) (428) (446)
----------- ------------ ------------
Total long-term debt....................................... $66,415 $ 55,635 $ 31,834
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Allocated Debt of Products
Imperial, together with other subsidiaries of Products, is a guarantor of
certain indebtedness of Products. At December 27, 1997, the indebtedness of
Products guaranteed by Imperial totaled $218.8 million. In accordance with the
provisions of Staff Accounting Bulletin No. 73, a portion of the debt and the
related interest expense of Products has been allocated to Imperial as a result
of its guarantee. These allocations have been made based upon the ratio of
Imperial's net assets to the consolidated invested capital of Products, which
approximates Imperial's guaranteed share of the related Products debt. The
average interest rates in effect for fiscal 1995, fiscal 1996 and fiscal 1997
were 8.1%, 7.9% and 8.8%, respectively.
F-57
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
7. LONG-TERM DEBT--(CONTINUED)
Products' Mortgage Note Payable
As of December 27, 1997, Imperial has pledged land and a warehouse facility
in Knoxville, Tennessee with a total cost of $4.7 million as security for the
above mentioned Products mortgage note payable. In accordance with Staff
Accounting Bulletin No. 73, this debt and related interest expense have been
included in the accompanying consolidated and combined financial statements. The
mortgage note payable bears interest at 7.7% per annum with annual principal and
interest payments of $512,000 due through June 2001 and a final payment of $2.5
million due in July 2001.
Industrial Revenue Bonds
At January 27, 1996, December 28, 1996 and December 27, 1997, Imperial had
long-term debt of $679,000, $582,000 and $388,000 respectively, which consisted
of Rhode Island Industrial Revenue Bonds with payments due through fiscal 1999
and bearing interest at an average rate of approximately 7.0%. This debt is
collateralized with a guarantee from Products. At December 27, 1997, the
scheduled annual maturities of the long-term debt, for which Imperial is the
direct borrower, are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $194
1999.............................................................. 194
----
$388
----
----
</TABLE>
8. RECEIVABLES FACILITY
Effective July 13, 1994, Imperial Canada and Imperial Wallcoverings, Inc.
along with Products and certain C&A affiliates (each of the foregoing, a
'Seller'), entered into a Receivables Sale Agreement (the 'Bridge Receivables
Sale Agreement') with Carcorp, Inc., ('Carcorp'), a wholly-owned subsidiary of
Products. Under the terms of the Bridge Receivables Sale Agreement, Carcorp
purchased and transferred to a purchaser (on a revolving basis and without
recourse), virtually all trade receivables generated by the Sellers. On March
31, 1995, Products repaid and terminated this receivables financing arrangement
and entered, through a trust formed by Carcorp, into a new receivables facility,
including an amended and restated receivables, sale agreement, through which
Carcorp has sold certain interests in the purchased receivables to outside
parties. Imperial Canada was terminated as a Seller effective January 29, 1995,
and Imperial Wallcoverings, Inc. was terminated as a Seller on September 21,
1996.
Receivables sold by the Company prior to the termination remained in the
trust until their collection. As of January 27, 1996 and December 28, 1996, the
face value of the open accounts receivable of Imperial that had been purchased
by Carcorp aggregated $27.8 million and $1.8 million, respectively. The Company
has no open accounts receivable related to Carcorp at December 27, 1997.
The receivables were purchased by Carcorp at the face amount of the
receivables less a defined discount. The discount percentage included a yield
factor, factors for Carcorp's servicing and processing expenses, as well as
factors, which were subject to variation, based upon the collectibility and
aging of the receivables purchased. In connection with the sale of the
receivables to Carcorp, Imperial recorded losses of $4.3 million and $2.6
million in fiscal 1995 and fiscal 1996, respectively. The Company did not record
any losses during the 52-week period ended December 27, 1997.
The Sellers retain the responsibility of servicing the trade receivables
sold to Carcorp, and they are compensated by Carcorp for their servicing
activities. Servicing fee income, which has been included as an offset to
selling, general and administrative expenses in the accompanying consolidated
and combined statements of operations, was $615,000, $550,000 and $206,000 for
fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
F-58
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
9. COMMITMENTS
Leases
The Company has operating leases covering manufacturing facilities,
warehouses, and production equipment, as well as computer hardware and software.
These leases have various lease terms through 2001. At December 27, 1997, future
minimum lease payments under operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................. $3,300
1999............................................................. 2,603
2000............................................................. 781
2001............................................................. 653
------
$7,337
------
------
</TABLE>
Rental expense under operating leases was $7.1 million, $6.7 million and
$5.3 million for fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
Capital Expenditures
At December 27, 1997, Imperial has commitments totaling approximately $18.2
million for estimated fiscal 1998 capital expenditures.
10. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans
Certain domestic employees of Imperial who meet eligibility requirements,
along with employees of certain other affiliated companies, participate in a
defined benefit plan administered by Products. Plan benefits are generally based
on years of service and employees' compensation during their years of
employment. Funding of retirement costs for these plans complies with the
minimum funding requirements specified by the Employee Retirement Income
Security Act. Assets of the pension plans are held in a Products master trust
that invests primarily in equity and fixed income securities. Actuarially
determined calculations for Imperial as a stand alone entity are included in the
accompanying consolidated and combined financial statements.
The net periodic pension cost for fiscal 1995, fiscal 1996 and fiscal 1997
includes the following components (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Service cost................................................. $ 706 $ 861 $ 761
Interest cost on projected benefit obligation and
service cost............................................... 1,015 933 939
Actual gain on assets........................................ (2,332) (1,644) (1,605)
Net amortization and deferral................................ 1,073 422 267
----------- ------------ ------------
Net periodic pension cost............................... $ 462 $ 572 $ 362
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-59
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
10. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The following table sets forth Imperial's actuarially determined portion of
the plans' funded status and amounts recognized in Imperial's consolidated and
combined balance sheets at January 27, 1996, December 28, 1996 and December 27,
1997 (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations--
Vested benefit obligation.................................. $ (10,968) $ (10,929) $ (11,075)
----------- ------------ ------------
Accumulated benefit obligation............................. $ (11,380) $ (11,328) $ (11,470)
----------- ------------ ------------
Projected benefit obligation................................. $ (13,092) $ (12,512) $ (12,641)
Plan assets at fair value.................................... 14,081 13,648 13,752
----------- ------------ ------------
Funding status............................................... 989 1,136 1,111
Unrecognized net loss........................................ 3,310 2,339 1,728
Prior service cost not yet recognized in net periodic pension
cost....................................................... (1,645) (1,393) (1,119)
----------- ------------ ------------
Pension asset................................................ $ 2,654 $ 2,082 $ 1,720
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.0%. The expected rate of increase in future
compensation levels was 5.5% for fiscal 1995 and fiscal 1996 and 4.5% for fiscal
1997. The expected long-term rate of return on plan assets was 9.0%.
The Company also has a defined benefit plan covering the Imperial Canada
salaried employees. The following table sets forth Imperial's actuarially
determined portion of the plan's funded status at January 27, 1996, December 28,
1996 and December 27, 1997 (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations--
Vested benefit obligation.................................. $(311) $ (390) $ (874)
----------- ------ ------
Accumulated benefit obligation............................. $(314) $ (394) $ (902)
----------- ------ ------
Projected benefit obligation................................. $(473) $ (550) $ (902)
Plan assets at fair value.................................... 565 711 871
----------- ------ ------
Funding status............................................... 92 181 (31)
Unrecognized net (gain) loss................................. (127) (161) 72
----------- ------ ------
Pension (liability) asset.................................... $ (35) -- $ 41
----------- ------ ------
----------- ------ ------
</TABLE>
The net periodic pension cost for fiscal 1995, fiscal 1996 and fiscal 1997
includes the following components (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Service cost................................................. $ 47 $ 51 $ 58
Interest cost on projected benefit obligation and service
cost....................................................... $ 37 $ 41 $ 45
Actual gain on assets........................................ $ (50) $(93) $ (116)
Net amortization and deferral................................ 36 42 44
----- ----- ------
Net periodic pension cost.................................. $ 70 $ 41 $ 31
----- ----- ------
----- ----- ------
</TABLE>
F-60
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
10. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.0%. The expected rate of increase in future
compensation levels was 5.5% for fiscal 1995 and fiscal 1996 and 4.5% for fiscal
1997. The expected long-term rate of return on plan assets was 9.0%.
Defined Contribution Plan
Certain employees of Imperial who meet eligibility requirements participate
in a Products defined contribution plan which qualifies under Section 401(k) of
the Internal Revenue Code. This savings plan allows eligible employees to
contribute from 1% to 10% of their income on a pretax basis to this savings
plan. Imperial does not make contributions to this plan.
Postretirement Benefit Plans
Products provides life and health coverage for certain Imperial domestic
retirees under plans currently in effect. Many of the domestic employees may, or
will, be eligible for coverage if they reach retirement age while still employed
by Imperial. Actuarially determined calculations for Imperial as a stand alone
entity are included in the accompanying consolidated and combined financial
statements.
The net periodic postretirement benefit cost for Imperial's participation
in these plans includes the following components fiscal 1995, fiscal 1996 and
fiscal 1997 (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Service cost................................................. $ 195 $196 $211
Interest cost on accumulated postretirement
benefit obligation......................................... 659 545 598
Net amortization............................................. (241) (219) (279)
----------- ------ ------
Net periodic postretirement benefit cost................ $ 613 $522 $530
----------- ------ ------
----------- ------ ------
</TABLE>
The following table sets forth the amount of accumulated postretirement
benefit obligation for Imperial's participation in these plans included in
Imperial's consolidated and combined balance sheets (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Retirees..................................................... $ 3,391 $3,109 $3,819
Fully eligible active plan participants...................... 1,925 2,086 1,989
Other active plan participants............................... 2,844 2,996 2,927
----------- ------------ ------------
Accumulated postretirement benefits obligation............... 8,160 8,191 8,735
Unrecognized prior service gain from plan amendments......... 3,766 3,486 3,012
Unrecognized net loss........................................ (2,421) (1,945) (2,137)
----------- ------------ ------------
Total accrued postretirement benefit obligation......... $ 9,505 $9,732 $9,610
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%. The plans are currently unfunded.
For measurement purposes, a 11%, 10% and 10% annual rate of increase in the per
capita cost of covered health care benefits was assumed at January 27, 1996,
December 28, 1996 and December 27, 1997, respectively; the rate was assumed to
decrease one percentage point per year to 6% and remain at that level
thereafter. The health care cost trend rate assumption does not have an impact
on the amounts reported because of plan amendments. Effective April 1, 1994,
Products amended the postretirement benefit plan that covers substantially all
of the eligible current and retired employees of Imperial. Pursuant to the
F-61
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
10. EMPLOYEE BENEFIT PLANS--(CONTINUED)
amendment, Imperial's obligation for future inflation of health care costs will
be limited to 6% per year through March 31, 1998. Subsequent to March 1998,
Imperial's portion of coverage costs will not be adjusted for inflation in
health care costs.
The Company also has a retiree life and health program for Imperial Canada
salaried employees. The accompanying consolidated and combined balance sheet as
of December 27, 1997 reflects the Company's estimated obligation under the
program of approximately $650,000.
Other
The Company has certain union employees that participate in multi-employer
pension plans under which contributions are governed by the collective
bargaining agreements. Pension expense for such plans totaled approximately
$600,000, $520,000 and $590,000 for fiscal 1995, fiscal 1996 and fiscal 1997,
respectively. The plans' administrators have not provided information to enable
the Company to determine its share of unfunded vested benefits, if any.
11. RESTRUCTURING CHARGE
In fiscal 1995, Imperial provided for the cost to exit one manufacturing
facility and three distribution centers. The closings affected approximately 200
employees. In addition, certain other assets were determined to have been
impaired as a result of the implementation of management's plan to reengineer
certain other manufacturing processes. The components of the reserves for the
facility closings and other asset impairments are as follows (in thousands):
<TABLE>
<CAPTION>
ANTICIPATED ANTICIPATED
LOSSES EXPENDITURES TO
ASSOCIATED WITH CLOSE AND
DISPOSAL OF DISPOSE OF ANTICIPATED
PROPERTY, PLANT IDLED SEVERANCE
AND EQUIPMENT FACILITIES BENEFITS TOTAL
--------------- --------------- ----------- -------
<S> <C> <C> <C> <C>
Provision for restructuring................... $ 8,720 $ 2,767 $ 1,410 $12,897
Write-down of property, plant and equipment to
net realizable value........................ (8,720) -- -- (8,720)
Expenditures
Close facilities............................ -- (1,910) -- (1,910)
Severance benefits.......................... -- -- (1,220) (1,220)
------- ------- ----------- -------
Balance at December 27, 1997.................. $ -- $ 857 $ 190 $ 1,047
------- ------- ----------- -------
------- ------- ----------- -------
</TABLE>
The closure of the three distribution centers was delayed into 1997 due to
construction delays at the new Knoxville distribution center, which became
operational in 1996.
12. INCOME TAXES
Although Imperial's U.S. operations are included in the consolidated
federal income tax return of C&A, federal, state and foreign income taxes are
provided for book purposes on a separate return basis.
Imperial has a tax sharing agreement with C&A. This agreement provides for
tax sharing payments between Imperial and C&A which are calculated in accordance
with Federal income tax regulations. C&A either pays Imperial's amounts it
receives to the Internal Revenue Service or to the companies in the consolidated
return that incurred losses. Increases to Investments and Advances from (to)
Products of $2.2 million in fiscal 1995,
F-62
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
12. INCOME TAXES--(CONTINUED)
$4.7 million in fiscal 1996 and $9.9 million for fiscal 1997 have been made to
reflect the difference between the tax sharing funding and the Federal tax
payable calculated on a separate return basis.
Components of the income tax provision for fiscal 1995, fiscal 1996 and
fiscal 1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Current:
Federal.................................................... $ (537) $ -- $ --
State...................................................... 377 377 377
Foreign.................................................... (1,626) -- 66
----------- ------------ ------------
(1,786) 377 443
Deferred--Foreign............................................ 259 (689) (506)
----------- ------------ ------------
Income tax benefit........................................... $ (1,527) $ (312) $ (63)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Domestic and foreign components of loss before income taxes are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Domestic..................................................... $ (31,173) $ (18,498) $ (24,410)
Foreign...................................................... (5,020) (9,746) (3,215)
----------- ------------ ------------
$ (36,193) $ (28,244) $ (27,625)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
A reconciliation between income taxes computed at the statutory Federal
rate of 35% and the benefit for income taxes before the cumulative effect of
change in accounting is as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Amount at statutory Federal rate............................. $ (12,668) $ (9,885) $ (9,669)
State income taxes, net of Federal income tax benefit........ 245 245 241
Foreign tax more than Federal tax at statutory rate.......... 390 2,722 685
Other........................................................ (650) (1,685) 1,218
Change in valuation allowance................................ 11,156 8,291 7,462
----------- ------------ ------------
Income tax benefit...................................... $ (1,527) $ (312) $ (63)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-63
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
12. INCOME TAXES--(CONTINUED)
Deferred income taxes are provided for the temporary differences between
the financial reporting and tax basis of Imperial's assets and liabilities. The
components of the net deferred tax assets as of January 27, 1996, December 28,
1996 and December 27, 1997, were as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, DECEMBER 28, DECEMBER 27,
1996 1996 1997
----------- ------------ ------------
(52 WEEKS) (48 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 2,590 $ 8,465 $ 17,968
Canadian loss carryforwards................................ -- 1,773 1,689
Employee benefits.......................................... 5,363 6,320 5,750
Inventory reserves......................................... 6,092 6,288 6,347
Other liabilities and reserves............................. 2,600 3,215 6,965
Valuation allowance........................................ (15,707) (23,998) (34,950)
----------- ------------ ------------
Total deferred tax assets............................... 938 2,063 3,769
Deferred tax liabilities--Property, plant and equipment.... (2,120) (2,569) (3,769)
----------- ------------ ------------
Net deferred tax liability.............................. $ (1,182) $ (506) $ --
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The valuation allowances of $15.7 million at January 27, 1996, $24.0
million at December 28, 1996 and $35.0 million at December 27, 1997, were
established because, in Imperial's assessment, it was uncertain whether the net
deferred tax assets would be realized.
At December 27, 1997, the latest income tax reporting period, Imperial
Canada had loss carryforwards totaling approximately $5.4 million which expire
in 2003.
While Imperial had net operating loss carryovers of $51.3 million for book
purposes calculated on a separate return basis as of December 27, 1997; these
amounts differed from its portion of C & A's consolidated net operating loss
carryforwards. At December 27, 1997, the latest income tax reporting period,
Imperial's portion of C&A's consolidated net operating loss carryovers for
Federal income tax purposes is summarized below (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATE
------ ----------
<S> <C> <C>
Net operating losses:
Regular tax:
Preacquisition, subject to limitations............................ $2,500 2000-2003
Postacquisition, unrestricted..................................... 800 2006-2011
------
$3,300
------
------
Alternative minimum tax:
Preacquisition, subject to limitations............................ $2,100 2000-2003
Postacquisition, unrestricted..................................... 100 2006-2011
------
$2,200
------
------
Alternative minimum tax credits...................................... $ 350 No limit
------
------
</TABLE>
The utilization of these net operating loss carryovers, to the extent not
impacted by the planned disposition, will result in an additional capital
contribution from C&A, and will not affect Imperial's future results of
operations.
F-64
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
13. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
accounts receivable, industrial revenue bonds and foreign currency contracts.
The book values of cash and equivalents and accounts receivable approximate fair
value due to their short maturity.
The fair value of Imperial's forward foreign currency contracts is
estimated based upon the spread between the contract and the spot exchange rate
at the date of measurement.
The estimated fair values of Imperial's financial instruments are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, 1996 DECEMBER 28, 1996 DECEMBER 27, 1997
---------------------- ---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Industrial revenue bonds..................... $679 $679 $582 $582 $388 $388
Forward foreign currency contracts........... -- 77 -- -- -- --
</TABLE>
Imperial conducts a significant portion of its operations in Canada through
Imperial Canada. At January 27, 1996, Imperial Canada had contracts to purchase
4.3 million Canadian dollars at a contracted cost of $3.0 million. These
contracts reduce exposure to currency movements affecting existing foreign
currency denominated assets, liabilities and firm commitments resulting
primarily from trade receivables and payables and intercompany loans. The
contract durations match the duration of the currency positions. The Company had
no outstanding contracts at December 28, 1996 and December 27, 1997. Imperial
does not engage in foreign currency speculation.
Imperial's credit risk in these transactions is the cost of replacing, at
current market rates, these contracts in the event of default by the other
party. Management believes the risk of incurring such losses is remote as the
contracts are entered into with major financial institutions.
14. TRANSACTIONS WITH AFFILIATES
Administrative Functions
Imperial has utilized certain centralized general and administrative
functions of Products (see Note 2) and is charged a fee for such services. The
fees charged totaled $2.7 million, $2.5 million and $2.1 million for fiscal
1995, fiscal 1996, and fiscal 1997, respectively.
Canadian Overdraft Facility
Imperial Canada and a Canadian affiliate of Products are the debtors under
a bank demand line of credit in Canada. This line of credit is used to fund the
combined working capital requirements of these Canadian operations. Imperial
Canada pays interest to the affiliate company to the extent its working capital
needs exceed the combined borrowings from the bank. Similarly, Imperial Canada
receives interest payments to the extent its requirements are less than the bank
borrowings. Interest is computed based upon Canadian prime rates plus .75%. The
amount included in the consolidated and combined financial statements represents
Imperial's outstanding borrowings under the arrangement. Interest expense under
these arrangements totaled $2.1 million in fiscal 1995, $1.9 million in fiscal
1996 and $1.6 million in fiscal 1997.
15. INFORMATION ABOUT SEGMENTS OF IMPERIAL'S OPERATIONS
Imperial produces residential and commercial wallpaper primarily for the
North American market. Imperial performs periodic credit evaluations of its
customers' financial condition and, although Imperial does not generally require
collateral, it does require cash payments in advance when the assessment of
credit risk associated with a customer is substantially higher than normal.
Receivables generally are due within 45 days, and
F-65
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
15. INFORMATION ABOUT SEGMENTS OF IMPERIAL'S OPERATIONS--(CONTINUED)
credit losses have consistently been within management's expectations and are
provided for in the consolidated and combined financial statements.
Information about Imperial's operations in different geographic areas for
fiscal 1995, fiscal 1996 and fiscal 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED OTHER CORPORATE
STATES CANADA COUNTRIES ITEMS TOTAL
-------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
FISCAL 1995 (52 WEEKS)
Net sales.................................. $155,115 $41,794 $ 799 $ -- $197,708
Operating (loss) income(a)................. (21,441) (2,243) (901 ) 363 (24,222)
Depreciation and amortization(b)........... 11,440 2,455 -- -- 13,895
Identifiable assets........................ 87,967 28,214 3,057 -- 119,238
Capital expenditures(c).................... 13,349 2,403 -- -- 15,752
FISCAL 1996 (48 WEEKS)
Net sales.................................. 124,656 31,378 1,537 -- 157,571
Operating loss(a).......................... (12,210) (6,249) (1,057 ) -- (19,516)
Depreciation and amortization(b)........... 10,550 1,993 -- -- 12,543
Identifiable assets........................ 118,246 23,332 3,745 -- 145,323
Capital expenditures(c).................... 16,899 1,115 -- -- 18,014
FISCAL 1997 (52 WEEKS)
Net sales.................................. 126,532 34,863 2,454 -- 163,849
Operating (loss) income(a)................. (23,137) 518 (1,108 ) -- (23,727)
Depreciation and amortization.............. 5,962 1,273 -- -- 7,235
Identifiable assets........................ 120,105 20,502 3,396 -- 144,003
Capital expenditures(c).................... 7,608 1,669 -- -- 9,277
</TABLE>
(Footnotes on next page)
- ------------------
(a) Operating loss is determined by deducting all operating expenses from
revenues. Operating expenses do not include interest expense.
(b) Depreciation and amortization includes the amortization of other assets and
liabilities.
(c) Capital expenditures reflect gross capital expenditure amounts and exclude
amounts related to the purchase and development of designs and engravings.
16. CONTINGENCIES
Imperial is subject to federal, state and local laws and regulations
concerning the environment, and it has received notices that it is a potentially
responsible party in administrative proceedings at one site. It is difficult to
estimate the total cost of remediation due to the complexity of the
environmental laws and regulations, the uncertainty regarding the extent of the
environmental risks and Imperial's responsibility, and the selection of
alternative compliance approaches. When it has been possible to reasonably
estimate Imperial's liability with respect to environmental matters, provisions
have been made in accordance with generally accepted accounting principles and
the Company has recorded an accrual of $850,000 for potential exposures as of
December 27, 1997. In the opinion of Imperial's management, based on the facts
presently known to it, the ultimate outcome of environmental matters will not
have a material effect on Imperial's consolidated and combined financial
position or results of operations.
The tax returns for Imperial Canada are currently under examination by
Revenue Canada for fiscal 1991 to fiscal 1995. Revenue Canada has outstanding
challenges to approximately $15 million of Imperial Canada's previously claimed
tax deductions. The Company disputes the proposed adjustments. If Revenue Canada
were to
F-66
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
16. CONTINGENCIES--(CONTINUED)
maintain its position and such position were to be upheld in litigation, the
Company estimates that taxes and interest due would exceed $6 million. Products
has agreed to indemnify the Company for this exposure and accordingly, no
amounts relating to this matter have been reflected in the accompanying
consolidated and combined financial statements.
Additionally, the Company is involved in certain other legal actions and
claims in the ordinary course of business. In the opinion of management, any
liability which may be ultimately incurred would not materially effect the
Company's consolidated and combined financial position or results of operations.
17. CHANGE IN FISCAL YEAR
During fiscal 1996, the Company changed its fiscal year end to the last
Saturday in December. As a result of this change, fiscal 1996 was a 48-week
period. The following information presents comparative data for the periods
ended December 23, 1995 and December 28, 1996 (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 23, DECEMBER 28,
1995 1996
------------ ------------
(47 WEEKS) (48 WEEKS)
<S> <C> <C>
Net sales........................................................ $180,364 $157,751
Operating loss................................................... (658) (19,516)
Net loss......................................................... (11,153) (27,932)
</TABLE>
18. UNAUDITED QUARTERLY FINANCIAL DATA
The unaudited quarterly data below are based on the Company's historical
fiscal periods during fiscal 1996 and fiscal 1997.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ---------- ---------- ----------
(3 MONTHS) (3 MONTHS) (3 MONTHS) (2 MONTHS) (48 WEEKS)
<S> <C> <C> <C> <C> <C>
FISCAL 1996
Net sales.......................................... $ 49,296 $ 40,783 $ 44,076 $ 23,416 $ 157,571
Gross margin....................................... 17,321 14,625 13,469 6,584 51,999
Operating loss..................................... (979) (3,513) (5,794) (9,230) (19,516)
Net loss........................................... (3,738) (5,745) (8,128) (10,321) (27,932)
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ---------- ---------- ----------
(3 MONTHS) (3 MONTHS) (3 MONTHS) (3 MONTHS) (52 WEEKS)
<S> <C> <C> <C> <C> <C>
FISCAL 1997
Net sales.......................................... $ 44,111 $ 42,072 $ 39,168 $ 38,498 $ 163,849
Gross margin....................................... 15,268 14,180 12,788 12,541 54,777
Operating loss..................................... (4,544) (6,394) (6,138) (6,651) (23,727)
Loss before cumulative effect of change
in accounting................................... (5,106) (7,475) (7,413) (7,568) (27,562)
Net loss........................................... (15,048) (7,475) (7,413) (7,568) (37,504)
</TABLE>
19. MERGER
In November 1997, C&A entered into a definitive agreement among Imperial
Wallcoverings, Inc. ('Imperial U.S.'), BDPI Holdings Corporation, an affiliate
of a significant shareholder of C&A, ('MergerCo') and C&A (the 'Imperial
Acquisition Agreement'). Pursuant to a recapitalization agreement, MergerCo was
F-67
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES WITH AFFILIATE
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 27, 1996, DECEMBER 28, 1996, AND DECEMBER 27, 1997
19. MERGER--(CONTINUED)
merged with and into Borden Decorative Products Holding, Inc. ('BDPH') (the
'Merger'), with BDPH surviving. BDPH acquired all of the outstanding common
stock of Imperial U.S. and a wholly owned subsidiary of BDPH acquired
substantially all of the assets and assumed substantially all of the liabilities
of Imperial Canada (collectively the 'Imperial Acquisition'). BDPH changed its
name to 'The Imperial Home Decor Group Inc.' (the 'Issuer'). The acquisition
closed effective March 13, 1998.
The purchase price for the Imperial Acquisition was $71.2 million, (as
defined in the Imperial Acquisition Agreement), subject to adjustment. In
connection with the Imperial Acquisition, C&A was granted an option to purchase
397,812 shares or 6.7% of BDPH's common stock outstanding as of the closing.
20. SUPPLEMENTAL COMBINING FINANCIAL STATEMENTS
In connection with the Merger and the Imperial Acquisition, the Issuer
issued senior subordinated notes (the 'Notes') to finance the transactions and
the related fees and expenses. The Issuer's payment obligations under the Notes
are fully and unconditionally guaranteed on a joint and several basis
(collectively the 'Guarantees') by the issuer's U.S. domestic subsidiaries which
include the former Imperial Wallcoverings, Inc.
Presented below is combining financial information for Imperial
Wallcoverings, Inc. and its wholly owned subsidiary Marketing Service, Inc.
(collectively the 'Guarantor Subsidiaries') with Imperial Canada and Imperial UK
(the 'Non-Guarantors'). Separate financial statements and other disclosures
concerning each of the Guarantors would not provide additional information that
is material to the prospective investors of the Notes and is therefore not
presented.
The elimination entries eliminate significant intercompany balances and
transactions.
F-68
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
SUPPLEMENTAL COMBINING BALANCE SHEET
AS OF JANUARY 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
----------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ -- $ -- $ 441 $ -- $ 441
Accounts receivable, net....................... 541 8,461 820 -- 9,822
Inventories.................................... 33,600 17,127 1,076 (1,651) 50,152
Other current assets 2,975 1,920 278 -- 5,173
----------- ------------ ----------- ------------ --------
Total current assets...................... 37,116 27,508 2,615 (1,651) 65,588
Property, plant and equipment.................. 30,539 10,632 -- (1,299) 39,872
Designs and engravings, net.................... 10,079 550 -- -- 10,629
Other assets................................... 3,149 -- -- -- 3,149
----------- ------------ ----------- ------------ --------
Total assets.............................. $80,883 $ 38,690 $ 2,615 ($ 2,950) $119,238
----------- ------------ ----------- ------------ --------
----------- ------------ ----------- ------------ --------
LIABILITIES
Canadian overdraft facility.................... $ -- $ 27,996 $ -- $ -- $ 27,996
Current maturities of long-term debt........... 358 43 11 -- 412
Accounts payable............................... 10,591 599 61 -- 11,251
Accrued expenses............................... 13,943 1,547 15 -- 15,505
----------- ------------ ----------- ------------ --------
Total current liabilities................. 24,892 30,185 87 -- 55,164
Long-term debt, including allocated debt of C&A
Products Co.................................. 49,932 13,186 3,297 -- 66,415
Deferred income taxes.......................... -- 1,182 -- -- 1,182
Other, including postretirement benefits....... 13,535 227 -- -- 13,762
Investments and advances to C&A
Products Co.................................. (7,476) (6,090) (769) (2,950) (17,285)
----------- ------------ ----------- ------------ --------
Total liabilities and equity.............. $80,883 $ 38,690 $ 2,615 ($ 2,950) $119,238
----------- ------------ ----------- ------------ --------
----------- ------------ ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this balance sheet.
F-69
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
SUPPLEMENTAL COMBINING BALANCE SHEET
AS OF DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
----------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ -- $ -- $ 782 $ -- $ 782
Accounts receivable, net....................... 20,914 5,133 1,476 -- 27,523
Inventories.................................... 33,769 16,677 1,620 (1,163) 50,903
Other current assets........................... 1,104 1,784 (133) -- 2,755
----------- ------------ ----------- ------------ --------
Total current assets...................... 55,787 23,594 3,745 (1,163) 81,963
Property, plant and equipment.................. 41,674 10,756 -- (1,525) 50,905
Designs and engravings, net.................... 9,341 601 -- -- 9,942
Other assets................................... 2,513 -- -- -- 2,513
----------- ------------ ----------- ------------ --------
Total assets.............................. $ 109,315 $ 34,951 $ 3,745 $ (2,688) $145,323
----------- ------------ ----------- ------------ --------
----------- ------------ ----------- ------------ --------
LIABILITIES
Canadian overdraft facility.................... $ -- $ 30,121 $ -- $ -- $ 30,121
Current maturities of long-term debt........... 377 43 8 -- 428
Accounts payable............................... 7,694 2,770 176 -- 10,640
Accrued expenses............................... 16,734 1,618 -- -- 18,352
----------- ------------ ----------- ------------ --------
Total current liabilities................. 24,805 34,552 184 -- 59,541
Long-term debt, including allocated debt of C&A
Products Co.................................. 43,481 10,221 1,933 -- 55,635
Deferred income taxes.......................... -- 506 -- -- 506
Other, including postretirement benefits....... 12,359 294 -- -- 12,653
Investments and advances from (to) C&A Products
Co........................................... 28,670 (10,622) 1,628 (2,688) 16,988
----------- ------------ ----------- ------------ --------
Total liabilities and equity.............. $ 109,315 $ 34,951 $ 3,745 $ (2,688) $145,323
----------- ------------ ----------- ------------ --------
----------- ------------ ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this balance sheet.
F-70
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATE
SUPPLEMENTAL COMBINING BALANCE SHEET
AS OF DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL
CANADA IMPERIAL UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents....................... $ -- $ -- $ 81 $ -- $ 81
Accounts receivable, net........................ 26,128 5,384 1,465 -- 32,977
Inventories..................................... 38,865 14,114 1,850 (1,401) 53,428
Other current assets............................ 1,436 1,667 -- -- 3,103
---------- ----------- ----------- ------------ --------
Total current assets....................... 66,429 21,165 3,396 (1,401) 89,589
Property, plant and equipment................... 42,491 10,966 -- (1,435) 52,022
Other assets.................................... 2,392 -- -- -- 2,392
---------- ----------- ----------- ------------ --------
Total assets............................... $111,312 $32,131 $ 3,396 $ (2,836) $144,003
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
LIABILITIES
Canadian overdraft facility..................... $ -- $25,395 $ -- $ -- $ 25,395
Current maturities of long-term debt............ 404 33 9 -- 446
Accounts payable................................ 11,125 3,451 25 -- 14,601
Accrued expenses................................ 13,187 1,800 41 -- 15,028
---------- ----------- ----------- ------------ --------
Total current liabilities.................. 24,716 30,679 75 -- 55,470
Long-term debt, including allocated debt of C&A
Products Co................................... 26,646 4,082 1,106 -- 31,834
Other, including postretirement benefits........ 13,931 910 -- -- 14,841
Investments and advances from (to) C&A Products
Co............................................ 46,019 (3,540) 2,215 (2,836) 41,858
---------- ----------- ----------- ------------ --------
Total liabilities and equity............... $111,312 $32,131 $ 3,396 $ (2,836) $144,003
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this balance sheet.
F-71
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JANUARY 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL
CANADA IMPERIAL UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $169,587 $61,597 $ 799 $(34,275) $197,708
---------- ----------- ----------- ------------ --------
Cost of goods sold.............................. 125,562 48,070 1,170 (33,670) 141,132
Selling, general and administrative/Corp.
allocation.................................... 51,915 15,770 216 -- 67,901
Restructuring charge............................ 12,583 -- 314 -- 12,897
---------- ----------- ----------- ------------ --------
190,060 63,840 1,700 (33,670) 221,930
---------- ----------- ----------- ------------ --------
Operating loss.................................. (20,473) (2,243) (901) (605) (24,222)
Interest expense, net........................... 39 2,076 -- -- 2,115
Interest expense allocated from C&A............. 4,348 1,159 290 -- 5,797
Loss on sale of receivables..................... 4,291 -- -- -- 4,291
Other (income) expense.......................... (238) (245) 56 195 (232)
---------- ----------- ----------- ------------ --------
Loss before income taxes........................ (28,913) (5,233) (1,247) (800) (36,193)
Income tax benefit.............................. -- (1,527) -- -- (1,527)
---------- ----------- ----------- ------------ --------
Net loss...................................... $(28,913) $(3,706) $(1,247) $ (800) $(34,666)
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-72
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $141,686 $ 55,131 $ 1,537 $(40,783) $157,571
---------- ----------- ----------- ------------ --------
Cost of goods sold.............................. 102,590 42,326 2,010 (41,354) 105,572
Selling, general and administrative/Corp.
allocation.................................... 51,877 19,054 584 -- 71,515
---------- ----------- ----------- ------------ --------
154,467 61,380 2,594 (41,354) 177,087
---------- ----------- ----------- ------------ --------
Operating loss.................................. (12,781) (6,249) (1,057) 571 (19,516)
Interest expense, net........................... 41 1,889 -- -- 1,930
Interest expense allocated from C&A............. 2,999 712 133 -- 3,844
Loss on sale of receivables..................... 2,572 -- -- -- 2,572
Other expense (income).......................... 79 (31) 25 309 382
---------- ----------- ----------- ------------ --------
Loss before income taxes........................ (18,472) (8,819) (1,215) 262 (28,244)
Income tax benefit.............................. -- (312) -- -- (312)
---------- ----------- ----------- ------------ --------
Net loss........................................ $(18,472) $ (8,507) $ (1,215) $ 262 $(27,932)
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-73
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL
CANADA IMPERIAL UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $150,595 $67,480 $ 2,454 $(56,680) $163,849
---------- ----------- ----------- ------------ --------
Cost of goods sold.............................. 118,194 45,406 1,914 (56,442) 109,072
Selling, general and administrative/Corp.
allocation.................................... 55,300 21,556 1,648 -- 78,504
---------- ----------- ----------- ------------ --------
173,494 66,962 3,562 (56,442) 187,576
---------- ----------- ----------- ------------ --------
Operating income (loss)......................... (22,899) 518 (1,108) (238) (23,727)
Interest expense, net........................... (108) 1,197 538 -- 1,627
Interest expense allocated from C&A............. 2,514 388 105 -- 3,007
Other (income) expense.......................... (780) 33 11 -- (736)
---------- ----------- ----------- ------------ --------
Loss before income taxes........................ (24,525) (1,100) (1,762) (238) (27,625)
Income tax benefit.............................. -- (63) -- -- (63)
---------- ----------- ----------- ------------ --------
Loss before change in accounting................ (24,525) (1,037) (1,762) (238) (27,562)
Cumulative change in accounting................. 9,341 601 -- -- 9,942
---------- ----------- ----------- ------------ --------
Net loss................................... $(33,866) $(1,638) $(1,762) $ (238) $(37,504)
---------- ----------- ----------- ------------ --------
---------- ----------- ----------- ------------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-74
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING CASH FLOWS
FOR THE PERIOD ENDED JANUARY 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Operating:
Net loss...................................... $(28,913) $ (3,706) $(1,247) $ (800) $(34,666)
Adjustments:
Depreciation and amortization................. 3,562 2,455 -- (91) 5,926
Amortization of other......................... 7,491 478 -- -- 7,969
Restructuring charge.......................... 12,583 -- 314 -- 12,897
Change in operating assets:
Accounts receivable, net...................... (9,327) 848 (820) -- (9,299)
Inventories................................... 9,488 1,264 (1,076) 696 10,372
Accounts payable.............................. (1,120) (2,156) 61 -- (3,215)
Other, net...................................... (3,066) 173 (560) -- (3,453)
---------- ----------- ----------- ------ --------
Net cash used by operating activities...... (9,302) (644) (3,328) (195) (13,469)
---------- ----------- ----------- ------ --------
Investing:
Additions to property, plant and equipment,
net........................................ (12,129) (3,608) -- 195 (15,542)
Designs and engravings and other.............. (7,735) (494) -- -- (8,229)
---------- ----------- ----------- ------ --------
Net cash used by investing activities...... (19,864) (4,102) -- 195 (23,771)
---------- ----------- ----------- ------ --------
Financing:
Repayment of long-term debt................... (295) -- -- -- (295)
Net borrowings on overdraft................... -- 14,366 -- -- 14,366
Allocated debt of C&A......................... (29,052) (9,086) 3,308 -- (34,830)
Investments and advances from C&A............. 58,513 (534) 461 -- 58,440
---------- ----------- ----------- ------ --------
Net cash provided by financing activities.. 29,166 4,746 3,769 -- 37,681
---------- ----------- ----------- ------ --------
Net increase in cash............................ -- -- 441 -- 441
Cash, at beginning of year...................... -- -- -- -- --
---------- ----------- ----------- ------ --------
Cash, at end of year............................ $ -- $ -- $ 441 $ -- $ 441
---------- ----------- ----------- ------ --------
---------- ----------- ----------- ------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-75
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
AND AFFILIATES
SUPPLEMENTAL COMBINING CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Operating:
Net loss..................................... $ (18,472) $ (8,507) $ (1,215) $ 262 $ (27,932)
Adjustments:
Depreciation and amortization................ 3,427 1,993 -- (83) 5,337
Amortization of other........................ 6,770 436 -- -- 7,206
Change in Operating Assets:
Accounts receivable, net..................... (20,373) 3,328 (656) -- (17,701)
Inventories.................................. (169) 450 (544) (488) (751)
Accounts payable............................. (2,897) 2,171 115 -- (611)
Other, net................................... 4,159 (380) 464 -- 4,243
---------- ----------- ----------- ------------ ---------
Net cash used by operating activities..... (27,555) (509) (1,836) (309) (30,209)
---------- ----------- ----------- ------------ ---------
Investing:
Additions to property, plant and equipment,
net....................................... (14,563) (2,116) -- 309 (16,370)
Designs and engravings and other............. (6,065) (390) -- -- (6,455)
---------- ----------- ----------- ------------ ---------
Net cash used by investing activities..... (20,628) (2,506) -- 309 (22,825)
---------- ----------- ----------- ------------ ---------
Financing:
Repayment of long-term debt.................. (97) -- -- -- (97)
Net borrowings on overdraft.................. -- 2,125 -- -- 2,125
Allocated debt of C&A........................ (6,338) (2,965) (1,364) -- (10,667)
Investments and advances from C&A............ 54,618 3,855 3,541 -- 62,014
---------- ----------- ----------- ------------ ---------
Net cash provided by financing
activities.............................. 48,183 3,015 2,177 -- 53,375
---------- ----------- ----------- ------------ ---------
Net Increase in Cash........................... -- -- 341 -- 341
Cash, at beginning of year..................... -- -- 441 -- 441
---------- ----------- ----------- ------------ ---------
Cash, at end of year........................... $ -- $ -- $ 782 $ -- $ 782
---------- ----------- ----------- ------------ ---------
---------- ----------- ----------- ------------ ---------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-76
<PAGE>
IMPERIAL WALLCOVERINGS, INC. AND SUBSIDIARIES
WITH AFFILIATES
SUPPLEMENTAL COMBINING CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPERIAL IMPERIAL
CANADA UK
(NON- (NON-
GUARANTORS GUARANTORS) GUARANTORS) ELIMINATIONS COMBINED
---------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Operating:
Net loss...................................... $(33,866) $(1,638) $(1,762) $ (238) $(37,504)
Adjustments:
Depreciation of amortization.................. 6,027 1,298 -- (90) 7,235
Amortization of other......................... 9,341 601 -- -- 9,942
Change in operating assets:
Accounts receivable, net...................... (5,214) (251) 11 -- (5,454)
Inventories................................... (5,186) 2,563 (230) 328 (2,525)
Accounts payable.............................. 3,431 681 (151) -- 3,961
Other, net.................................... (1,777) 472 13 -- (1,292)
---------- ----------- ----------- ------ --------
Net cash (used) provided by operating
activities............................... (27,244) 3,726 (2,119) -- (25,637)
---------- ----------- ----------- ------ --------
Investing:
Additions to property, plant and
equipment, net............................. (6,844) (1,508) -- -- (8,352)
Designs and engravings and other.............. (410) -- -- -- (410)
---------- ----------- ----------- ------ --------
Net cash used by investing activities...... (7,254) (1,508) -- -- (8,762)
---------- ----------- ----------- ------ --------
Financing:
Repayment of long-term debt................... (194) -- -- -- (194)
Net repayments on overdraft................... -- (4,726) -- -- (4,726)
Allocated debt of C&A......................... (16,614) (6,149) (826) -- (23,589)
Investments and advances from C&A............. 51,306 8,657 2,244 -- 62,207
---------- ----------- ----------- ------ --------
Net cash provided (used) by financing
activities............................... 34,498 (2,218) 1,418 -- 33,698
---------- ----------- ----------- ------ --------
Net decrease in cash............................ -- -- (701) -- (701)
Cash, at beginning of year...................... -- -- 782 -- 782
---------- ----------- ----------- ------ --------
Cash, at end of year............................ $ -- $ -- $ 81 $ -- $ 81
---------- ----------- ----------- ------ --------
---------- ----------- ----------- ------ --------
</TABLE>
The accompanying notes to consolidated and combined financial
statements are an integral part of this statement.
F-77
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING MEMORANDUM, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS OFFERING MEMORANDUM NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information.......................... iii
Forward-Looking Statements..................... iii
Summary........................................ 1
Risk Factors................................... 17
The Transactions............................... 26
Use of Proceeds................................ 27
Capitalization................................. 28
Unaudited Pro Forma Combined Financial
Information.................................. 29
Selected Historical Financial Information--
IHDG......................................... 36
Selected Historical Financial Information--
Imperial..................................... 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 43
Business....................................... 50
Management..................................... 69
Security Ownership............................. 74
Certain Transactions........................... 75
The Exchange Offer............................. 77
Description of the Exchange Notes.............. 85
Description of the Senior Credit Facilities.... 115
Certain U.S. Federal Income Tax
Considerations............................... 117
Book-Entry; Delivery and Form.................. 117
Plan of Distribution........................... 119
Legal Matters.................................. 120
Experts........................................ 120
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE IMPERIAL HOME DECOR
GROUP INC.
OFFER TO EXCHANGE ITS
11% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES B,
FOR ANY AND ALL OF ITS
OUTSTANDING 11% SENIOR
SUBORDINATED NOTES DUE 2008
------------------------
PROSPECTUS
------------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE CORPORATIONS
THE IMPERIAL HOME DECOR GROUP INC.
General Corporation Law of the State of Delaware
Section 145 of the Delaware General Corporation Law (the 'DGCL') provides,
in effect, that any person made a party to any action by reason of the fact that
he is or was a Director, officer, employee or agent of The Imperial Home Decor
Group Inc. (the 'Corporation') may and, in certain cases, must be indemnified by
the Corporation against, in the case of a non-derivative action, judgments,
fines, amounts paid in settlement and reasonable expenses (including attorney's
fees) incurred by him as a result of such action, and in the case of a
derivative action, against expenses (including attorney's fees), if in either
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation. This
indemnification does not apply, in a derivative action, to matters as to which
it is adjudged that the Director, officer, employee or agent is liable to the
Corporation, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case, he
is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Delaware corporations may limit the personal liability of their directors
for monetary damages for a breach of fiduciary duty, provided, however, that the
directors can still be held personally liable (i) for a breach of the duty of
loyalty to the corporation and its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (described below), and (iv) for any
transaction from which the director derived an improper personal benefit.
Section 174 of the DGCL makes directors personally liable for unlawful dividends
or unlawful stock repurchases or redemptions in certain circumstances and
expressly sets forth a negligence standard with respect to such liability.
Certificate of Incorporation
Article SEVENTH of the Corporation's Certificate of Incorporation provides
except as otherwise provided by the DGCL as the same exists or may hereafter be
amended, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary charges for breach of fiduciary
duty as a director. Any repeal or modification of Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
By-laws
Article IV of the Corporation's by-laws provides to the fullest extent
permitted by the DGCL, the Corporation shall indemnify any current or former
Director or officer of the Corporation and may, at the discretion of the Board
of Directors, indemnify any current or former employee or agent of the
Corporation against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with any
threatened, pending or completed action, suit or proceeding brought by or in the
right of the Corporation or otherwise, to which he or she was or is a party by
reason of his or her current or former position with the Corporation or by
reason of the fact that he or she is or was serving, at the request of the
Corporation, as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
II-1
<PAGE>
VERNON PLASTICS, INC.
Certificate of Incorporation
Article SEVENTH of the Certificate of Incorporation of Vernon Plastics,
Inc. (the 'Corporation') provides that except as otherwise provided by the DGCL
as the same exists or may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or modification
of Article SEVENTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
By-laws
Article IV of the Corporation's By-laws provides that the Corporation shall
indemnify Directors and Officers (as such terms are defined in the Certificate
of Incorporation) of the Corporation as specified in the Certificate of
Incorporation. In addition, to the fullest extent permitted by the DGCL, the
Corporation shall indemnify any current or former Director or Officer of the
Corporation and may, at the discretion of the Board of Directors, indemnify any
current or former employee or agent of the Corporation against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding brought by or in the right of the Corporation or otherwise, to which
he was or is a party by reason of his current or former position with the
Corporation or by reason of the fact that he is or was serving, at the request
of the Corporation, as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
Expenses incurred by a person who is or was a director or officer of the
Corporation in appearing at, participating in or defending any such action, suit
or proceeding shall be paid by the Corporation at reasonable intervals in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized by this Article. If a claim under
this Article is not paid in full by the Corporation within ninety days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the part, the claimant
shall be paid also the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL or other applicable law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the DGCL or
other applicable law, nor an actual determination by the Corporation (including
its board of directors, independent legal counsel, or its stockholders) that the
claimant has not met the applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
WDP INVESTMENTS, INC.
Certificate of Incorporation
The SEVENTH Article of the certificate of Incorporation WDP Investments,
Inc. (the 'Corporation') provides that except otherwise provided by the DGCL as
the same exists or may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal of Article
SEVENTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
II-2
<PAGE>
By-laws
Article IV of the By-laws of the Corporation provide that to the fullest
extent permitted by the DGCL, the Corporation shall indemnify any current or
former Director or officer of the Corporation and may, at the discretion of the
Board of Directors, indemnify any current or former employee or agent of the
Corporation against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with any
threatened, pending or completed action, suit or proceeding brought by or in the
right of the Corporation or otherwise, to which he or she was or is a party by
reason of his or her current or former position with the Corporation or by
reason of the fact that he or she is or was serving, at the request of the
Corporation, as director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
MARKETING SERVICE, INC.
By-laws
Article VI of the By-laws of Marketing Service, Inc. (the 'Corporation')
provide that the Corporation shall indemnify any person who is made, or
threatened to be made, a party to, or its otherwise involved in, any action,
suit or proceeding (whether civil, criminal, administrative, investigative or
otherwise) by reason of the fact that he, his testator or intestate, is or was a
director or officer of the Corporation or, at the request of the Corporation, is
or was serving any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, to the fullest extent
permitted by the laws of Delaware as from time to time in effect. The
Corporation may, if it so determines in a specific case, indemnify other
employees or agents of the Corporation in the same manner and to the same
extent.
Costs, charges, expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement incurred by any officer or director in defending any
pending, threatened or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than any action by or in the
right of the Corporation), and costs, charges and expenses (including attorneys'
fees) incurred by any officer or director in defending an action by or in the
right of the Corporation shall be paid by the Corporation in advance of the
determination of such director's or officer's entitlement to indemnification
promptly upon receipt of an undertaking by or on behalf of such director or
officer to repay amounts so advanced in the event and to the extent that it
shall ultimately be determined that such director or officer is not entitled to
be indemnified by the Corporation as authorized by this Article. Such amounts
incurred by other employees and agents may be so advanced upon such terms and
conditions, if any, as the Board of Directors deems appropriate. The Board of
Directors may, upon approval of such director or officer, authorize the
Corporation's counsel to represent such director or officer, in any action, suit
or proceeding, whether or not the Corporation is a party thereto.
All rights to indemnification and advances under this Article shall be
deemed to be a contract between the Corporation and each director, officer,
employee or agent of the Corporation who serves or served in such capacity at
any time while this Article is in effect. Any repeal or modification of this
Article or any repeal or modification of relevant provisions of the DGCL or any
other applicable laws shall not in any way diminish any rights to
indemnification and to such advances of such director, officer, employee or
agent or the obligations of the Corporation arising hereunder. The provisions of
this Article shall inure to the benefit of heirs, executors, administrators and
personal representatives of those entitled to indemnification and to such
advances and shall be binding upon any successor to the Corporation to the
fullest extent permitted by the laws of Delaware as from time to time in effect.
The indemnification and advancement provided by this bylaw shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under Delaware law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Any indemnification or advance required by this Article VI shall be made
promptly, and in any event within 30 days, upon the written request of the
indemnified party. The right to indemnification or advances as granted by this
Article shall be enforceable by the indemnified party in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within 30 days. Such persons' cost and expenses
incurred in connection with successfully establishing a right of indemnification
or advances, in whole or in part, in any such action shall also be indemnified
by the Corporation.
II-3
<PAGE>
The Corporation shall have the power to purchase and maintain insurance to
indemnify (a) itself for any obligation which it incurs as a result of the
indemnification of directors and officers and (b) directors and officers in all
instances, whether or not such indemnification is otherwise provided for by law
or the foregoing provisions of this Article, subject to any specific limitations
of law.
DELAWARE LLC
THE IMPERIAL HOME DECOR GROUP (US) LLC
Delaware Limited Liability Company Act
Section 18-303(a) of the Act states that, except as otherwise provided by
the Delaware Limited Liability Company Act (the 'Act'), the debts, obligations
and liabilities of a limited liability company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the
limited liability company, and no member or manager of a limited liability
company shall be obligated personally for any such debt, obligation or liability
of the limited liability company solely be reason of being a member or acting as
a manager of the limited liability company. Section 18-108 of the Act states
that subject to such standards and restrictions, if any, as set forth in its
limited liability company agreement, a limited liability company may, and shall
have the power to, indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands whatsoever.
U.K. COMPANY
IMPERIAL HOME DECOR GROUP HOLDINGS I LIMITED
Section 310 of the U.K. Companies Act 1985 (the 'Act') applies to any
provision, whether contained in a company's articles or in any contract with the
company or otherwise, for exempting any officer of the company or any person
(whether an officer or not) employed by the company as auditor from, or
indemnifying him against, any liability which by virtue of any rule of law would
otherwise attach to him in respect of any negligence, default, breach of duty or
breach of trust of which he may be guilty in relation to the company. Except as
provided by law, any such provision is void. Section 310 does not prevent a
company from purchasing and maintaining for any such officer or auditor
insurance against any such liability, or from indemnifying any such officer or
auditor against any liability incurred by him in defending any proceedings
(whether civil or criminal) in which judgment is given in his favor or he is
acquitted, or in connection with any application under section 144(3) or (4)
(acquisition of shares by innocent nominee) or section 727 (general power to
grant relief in case of honest and reasonable conduct) in which relief is
granted to him by the court.
Paragraph 118 of Table A of the Act provides that subject to the provisions
of the Act but without prejudice to any indemnity to which a director may
otherwise be entitled, every director or other officer or auditor of the company
shall be indemnified out of the assets of the company against any liability
incurred by him in defending any proceedings, whether civil or criminal, in
which judgment is given in his favor or in which he is acquitted or in
connection with any application in which relief is granted to him by the court
from liability for negligence, default, breach of duty or breach of trust in
relation to the affairs of the company.
Memorandum and Articles of Association
Section four of the Memorandum and Articles of Association of Imperial Home
Decor Group Holdings I Limited (the 'Company') provide that the liability of the
Members is limited.
The Memorandum and Articles of Association of the Company provide further
in Section 21 that subject to Section 310 of the Companies Act 1985 and in
addition to such indemnity as is contained in Clause 118 of Table A, every
Director, Officer or Official of the Company shall be indemnified out of the
funds of the Company against all costs, charges, losses, expenses and
liabilities incurred by him in the execution and discharge of is duties or in
relation thereto.
II-4
<PAGE>
ITEM 21. EXHIBITS
Exhibits indicated below are incorporated by reference to documents of the
Company on file with the Securities and Exchange Commission. Exhibit numbers in
parentheses refer to the exhibit numbers in the applicable filing. All other
exhibits are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM EXHIBIT
- ------- -------------------------------------------------------------------------------------------------- -------
<S> <C> <C> <C>
1.1 -- Purchase Agreement dated as of March 11, 1998 among BDPI Holdings Corporation, Chase
Securities Inc. and Bear, Stearns & Co. Inc. as Initial Purchasers.
2.1 -- Recapitalization Agreement dated as of October 14, 1997 among Borden Decorative Products
Holdings, Inc., BDPI Holdings Corporation and Borden, Inc.
2.2 -- First Amendment to Recapitalization Agreement dated as of October 14, 1997 among Borden
Decorative Products Holdings, Inc., BDPI Holdings Corporation and Borden, Inc.
3.1 -- Certificate of Incorporation of Borden Decorative Products Holdings, Inc. filed November 6,
1995.
3.2 -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Holdings, Inc. filed March 15, 1996.
3.3 -- Certificate of Designations of Pay-In-Kind Preferred Stock of Borden Decorative Products
Holdings, Inc. filed June 7, 1996.
3.4 -- Certificate of Designations of Cash Pay Preferred Stock of Borden Decorative Products
Holdings, Inc. filed June 7, 1996.
3.5 -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Holdings Inc. filed March 21, 1997.
3.6* -- Certificate of Incorporation of Vernon Plastics, Inc. filed February 26, 1998.
3.7* -- Certificate of Incorporation of Borden Decorative Products Investments, Inc. filed November
6, 1995.
3.8* -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Investments, Inc., changing its name from Borden Decorative Products Investments, Inc. to
WDP Investments, Inc. filed January 24, 1996.
3.9* -- Certificate of Incorporation of Marketing Service, Inc. filed January 19, 1990.
3.10* -- Certificate of Formation of The Imperial Home Decor Group (US) LLC filed March 2, 1998.
3.11* -- Memorandum and Articles of Association of Imperial Home Decor Group Holdings I Limited filed
March 6, 1998.
3.12 -- By-laws of Borden Decorative Products Holdings, Inc.
3.13* -- By-laws of Vernon Plastics, Inc.
3.14* -- By-laws of WDP Investments, Inc.
3.15* -- By-laws of Marketing Services, Inc.
4.1 -- Exchange and Registration Rights Agreement dated March 13, 1998 by the Company and
Subsidiary Guarantors and accepted by Chase Securities Inc. and Bear, Stearns & Co., Inc.
4.2 -- Indenture dated as of March 13, 1998 by and among the Company, the Subsidiary Guarantors and
The Bank of New York, as Trustee.
4.3 -- Form of Note. (Included in Exhibit 4.2)
4.4 -- Form of Exchange Note. (Included in Exhibit 4.2)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM EXHIBIT
- ------- -------------------------------------------------------------------------------------------------- -------
<S> <C> <C> <C>
5.1* -- Opinion of Jones, Day, Reavis & Pogue.
10.1 -- Credit Agreement dated as of March 13, 1998, among The Chase Manhattan Bank, The Chase
Manhattan Bank of Canada, Chase Manhattan Bank Delaware, the Company, The Imperial Home
Decor Group (Canada) ULC and Imperial Home Decor Group Holdings II Limited.
10.2 -- Amended and Restated Acquisition Agreement dated as of the 4th day of November, 1997 and
amended and restated as of the 9th day of March, 1998 among Collins & Aikman Products Co.,
Imperial Wallcoverings, Inc., and BDPI Holdings Corporation.
10.3 -- Agreement dated as of March 13, 1998 among the Company, The Imperial Home Decor Group
Holdings LLC and Collins & Aikman Corporation.
10.4 -- Stockholders Agreement dated as of March 13, 1998 by and among the Company, BDH One, Inc.,
Borden, Inc., and The Imperial Home Decor Group Holdings LLC.
10.5 -- Indemnification Agreement dated as of November 3, 1997 and effective as of October 14, 1997
by and among Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone Offshore
Capital Partners III L.P., Blackstone Family Investment Partnership III L.P., The Imperial
Home Decor Group Holdings LLC and BDPI Holdings Corporation.
10.6* -- Monitoring Agreement dated as of March 13, 1998 among the Company and Blackstone Management
Partners III L.L.C.
10.7 -- Employment Agreement between the Imperial Wallcoverings, Inc., and Michael Landau dated as
of February 1, 1998.
10.8+ -- Employment Agreement between the Company and James P. Toohey dated as of August , 1998.
12.1* -- Statement re: Computation of Ratios
21.1* -- List of Subsidiaries of the Company
23.1* -- Consent of Deloitte & Touche LLP
23.2* -- Consent of Arthur Andersen LLP
23.3 -- Consent of Jones, Day, Reavis & Pogue (Included in Exhibit 5.1)
24.1 -- Power of Attorney of the Company (See Part II of Registration Statement)
24.2 -- Power of Attorney of the Subsidiary Guarantors (See Part II of Registration Statement)
25.1 -- Statement of the eligibility of the Trustee on Form T-1
27.1* -- Financial Data Schedule
99.1* -- Form of Letter of Transmittal
99.2* -- Form of Notice of Guaranteed Delivery
99.3* -- Form of Letter to DTC Participants
99.4* -- Form of Letter to Clients and Form of Instruction to Book-Entry Transfer Participants
</TABLE>
- ------------------
* Filed herewith. All other exhibits except Exhibit 10.8 were previously filed.
+ To be filed by amendment.
II-6
<PAGE>
ITEM 22. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the 'Securities Act');
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission (the 'Commission') pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the 'Calculation of Registration Fee' table
in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a Director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
'Securities Act'), the Company has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Cleveland, State of Ohio, on August 28, 1998.
THE IMPERIAL HOME DECOR GROUP INC.
By: /s/ JAMES P. TOOHEY
----------------------------------
James P. Toohey
President, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey, Scott R. Levin and William J. Fenstermaker and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ----------------
<S> <C> <C>
* President, Chief Executive Officer August 28, 1998
- ------------------------------------------ and Director (Principal Executive Officer)
James P. Toohey
/s/ SCOTT R. LEVIN Executive Vice President--Administration and August 28, 1998
- ------------------------------------------ Chief Financial Officer (Principal Financial
Scott R. Levin Officer and Principal Accounting Officer)
* Chairman of the Board and Director August 28, 1998
- ------------------------------------------
David A. Stockman
* Director August 28, 1998
- ------------------------------------------
Michael Landau
* Director August 28, 1998
- ------------------------------------------
David I. Foley
* Director August 28, 1998
- ------------------------------------------
Anthony Grillo
* Director August 28, 1998
- ------------------------------------------
David Blitzer
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on August 28, 1998.
VERNON PLASTICS, INC.
By: /s/ SCOTT R. LEVIN
---------------------------------
Scott R. Levin
Executive Vice
President--Administration,
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Scott R. Levin and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- ---------------------
<S> <C> <C>
* President, Chief Executive Officer August 28, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ SCOTT R. LEVIN Executive Vice President--Administration, August 28, 1998
- ------------------------------------------ Chief Financial Officer
Scott R. Levin (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on August 28, 1998.
WDP INVESTMENTS, INC.
By: /s/ SCOTT R. LEVIN
---------------------------------
Scott R. Levin
Executive Vice
President--Administration,
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Scott R. Levin and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ----------------
<S> <C> <C>
* President, Chief Executive Officer August 28, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ SCOTT R. LEVIN Executive Vice President--Administration, August 28, 1998
- ------------------------------------------ Chief Financial Officer
Scott R. Levin (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on August 28, 1998.
MARKETING SERVICE, INC.
By: /s/ SCOTT R. LEVIN
---------------------------------
Scott R. Levin
Executive Vice
President--Administration,
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Scott R. Levin and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- ---------------------
<S> <C> <C>
* President, Chief Executive Officer August 28, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ SCOTT R. LEVIN Executive Vice President--Administration, August 28, 1998
- ------------------------------------------ Chief Financial Officer
Scott R. Levin (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on August 28, 1998.
THE IMPERIAL HOME DECOR GROUP (US) LLC
By: /s/ SCOTT R. LEVIN
---------------------------------
Scott R. Levin
Executive Vice
President--Administration,
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Scott R. Levin and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ----------------
<S> <C> <C>
* President, Chief Executive Officer August 28, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ SCOTT R. LEVIN Executive Vice President--Administration, August 28, 1998
- ------------------------------------------ Chief Financial Officer
Scott R. Levin (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, in the State
of Ohio, on August 28, 1998.
IMPERIAL HOME DECOR GROUP HOLDINGS I
LIMITED
By: /s/ SCOTT R. LEVIN
---------------------------------
Scott R. Levin
Executive Vice
President--Administration,
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James P.
Toohey and Scott R. Levin and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ----------------
<S> <C> <C>
* President, Chief Executive Officer August 28, 1998
- ------------------------------------------ (Principal Executive Officer)
James P. Toohey
/s/ SCOTT R. LEVIN Executive Vice President--Administration, August 28, 1998
- ------------------------------------------ Chief Financial Officer
Scott R. Levin (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-13
<PAGE>
EXHIBIT INDEX
Exhibits indicated below are incorporated by reference to documents of the
Company on file with the Securities and Exchange Commission. Exhibit numbers in
parentheses refer to the exhibit numbers in the applicable filing. All other
exhibits are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM PAGE
- ------- ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C> <C>
1.1 -- Purchase Agreement dated as of March 11, 1998 among BDPI Holdings Corporation, Chase
Securities Inc. and Bear, Stearns & Co. Inc. as Initial Purchasers.
2.1 -- Recapitalization Agreement dated as of October 14, 1997 among Borden Decorative Products
Holdings, Inc., BDPI Holdings Corporation and Borden, Inc.
2.2 -- First Amendment to Recapitalization Agreement dated as of October 14, 1997 among Borden
Decorative Products Holdings, Inc., BDPI Holdings Corporation and Borden, Inc.
3.1 -- Certificate of Incorporation of Borden Decorative Products Holdings, Inc. filed November 6,
1995.
3.2 -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Holdings, Inc. filed March 15, 1996.
3.3 -- Certificate of Designations of Pay-In-Kind Preferred Stock of Borden Decorative Products
Holdings, Inc. filed June 7, 1996.
3.4 -- Certificate of Designations of Cash Pay Preferred Stock of Borden Decorative Products
Holdings, Inc. filed June 7, 1996.
3.5 -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Holdings Inc. filed March 21, 1997.
3.6* -- Certificate of Incorporation of Vernon Plastics, Inc. filed February 26, 1998.
3.7* -- Certificate of Incorporation of Borden Decorative Products Investments, Inc. filed November 6,
1995.
3.8* -- Certificate of Amendment of Certificate of Incorporation of Borden Decorative Products
Investments, Inc., changing its name from Borden Decorative Products Investments, Inc. to WDP
Investments, Inc. filed January 24, 1996.
3.9* -- Certificate of Incorporation of Marketing Service, Inc. filed January 19, 1990.
3.10* -- Certificate of Formation of The Imperial Home Decor Group (US) LLC filed March 2, 1998.
3.11* -- Memorandum and Articles of Association of Imperial Home Decor Group Holdings I Limited filed
March 6, 1998.
3.12 -- By-laws of Borden Decorative Products Holdings, Inc.
3.13* -- By-laws of Vernon Plastics, Inc.
3.14* -- By-laws of WDP Investments, Inc.
3.15* -- By-laws of Marketing Services, Inc.
4.1 -- Exchange and Registration Rights Agreement dated March 13, 1998 by the Company and Subsidiary
Guarantors and accepted by Chase Securities Inc. and Bear, Stearns & Co., Inc.
4.2 -- Indenture dated as of March 13, 1998 by and among the Company, the Subsidiary Guarantors and
The Bank of New York, as Trustee.
4.3 -- Form of Note. (Included in Exhibit 4.2)
4.4 -- Form of Exchange Note. (Included in Exhibit 4.2)
5.1* -- Opinion of Jones, Day, Reavis & Pogue.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM PAGE
- ------- ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C> <C>
10.1 -- Credit Agreement dated as of March 13, 1998, among The Chase Manhattan Bank, The Chase
Manhattan Bank of Canada, Chase Manhattan Bank Delaware, the Company, The Imperial Home Decor
Group (Canada) ULC and Imperial Home Decor Group Holdings II Limited.
10.2 -- Amended and Restated Acquisition Agreement dated as of the 4th day of November, 1997 and
amended and restated as of the 9th day of March, 1998 among Collins & Aikman Products Co.,
Imperial Wallcoverings, Inc., and BDPI Holdings Corporation.
10.3 -- Agreement dated as of March 13, 1998 among the Company, The Imperial Home Decor Group Holdings
LLC and Collins & Aikman Corporation.
10.4 -- Stockholders Agreement dated as of March 13, 1998 by and among the Company, BDH One, Inc.,
Borden, Inc., and The Imperial Home Decor Group Holdings LLC.
10.5 -- Indemnification Agreement dated as of November 3, 1997 and effective as of October 14, 1997 by
and among Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone Offshore
Capital Partners III L.P., Blackstone Family Investment Partnership III L.P., The Imperial
Home Decor Group Holdings LLC and BDPI Holdings Corporation.
10.6* -- Monitoring Agreement dated as of March 13, 1998 among the Company and Blackstone Management
Partners III L.L.C.
10.7 -- Employment Agreement between the Imperial Wallcoverings, Inc., and Michael Landau dated as of
February 1, 1998.
10.8+ -- Employment Agreement between the Company and James P. Toohey dated as of August , 1998.
12.1* -- Statement re: Computation of Ratios
21.1* -- List of Subsidiaries of the Company
23.1* -- Consent of Deloitte & Touche LLP
23.2* -- Consent of Arthur Andersen LLP
23.3 -- Consent of Jones, Day, Reavis & Pogue (Included in Exhibit 5.1)
24.1 -- Power of Attorney of the Company (See Part II of Registration Statement)
24.2 -- Power of Attorney of the Subsidiary Guarantors (See Part II of Registration Statement)
25.1 -- Statement of the eligibility of the Trustee on Form T-1
27.1* -- Financial Data Schedule
99.1* -- Form of Letter of Transmittal
99.2* -- Form of Notice of Guaranteed Delivery
99.3* -- Form of Letter to DTC Participants
99.4* -- Form of Letter to Clients and Form of Instruction to Book-Entry Transfer Participants
</TABLE>
- ------------------
* Filed herewith. All other exhibits except Exhibit 10.8 were previously filed.
+ To be filed by amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
VERNON PLASTICS, INC.
The undersigned, in order to form a corporation for the
purpose hereinafter stated, under and pursuant to the provisions of the
Delaware General Corporation Law, hereby certifies that:
FIRST: The name of the Corporation is Vernon Plastics, Inc.
SECOND: The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
FOURTH: The total number of shares of stock that the
Corporation is authorized to issue is 100 shares of Common Stock, par value
$.01 per share.
FIFTH: The name and address of the incorporator is Mikaal
Shoaib, 425 Lexington Avenue, New York, New York 10017.
SIXTH: The Board of Directors of the Corporation, acting by
majority vote, may alter, amend or repeal the By-Laws of the Corporation.
SEVENTH: Except as otherwise provided by the Delaware
General Corporation Law as the same exists or may hereafter be amended, no
director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
IN WITNESS WHEREOF, the undersigned has this Certificate of
Incorporation on February 26, 1998.
/s/ Mikaal Shoaib
-----------------------------------------
Mikaal Shoaib
Sole Incorporator
<PAGE>
CERTIFICATE OF INCORPORATION
OF
BORDEN DECORATIVE PRODUCTS INVESTMENTS, INC.
The undersigned, in order to form a corporation for the
purpose hereinafter stated, under and pursuant to the provisions of the
Delaware General Corporation Law, hereby certifies that:
FIRST: The name of the Corporation is Borden Decorative
Products Investments, Inc.
SECOND: The registered office and registered agent of the
Corporation is The Prentice-Hall Corporation System, Inc., 32 Loockerman
Square, Suite L-100, Dover, Kent County, Delaware 19904.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporation may be organized under the
General Corporation Law of Delaware.
FOURTH: The total number of shares of stock that the
Corporation is authorized to issue is 100 shares of Common Stock, par value
$0.01 per share.
FIFTH: The name and address of the incorporator is Patricia
A. Heslep, 180 East Broad Street, Columbus, Ohio 43215.
SIXTH: The Board of Directors of the Corporation, acting by
majority vote, may alter, amend or repeal the By-Laws of the Corporation.
SEVENTH: Except as otherwise provided by the Delaware
General Corporation Law as the same exists or may hereafter be amended, no
director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate of Incorporation on November 3, 1995.
/s/ Patricia A. Heslep
-----------------------------------------
Patricia A. Heslep
Sole Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BORDEN DECORATIVE PRODUCTS INVESTMENTS, INC.
BORDEN DECORATIVE PRODUCTS INVESTMENTS, INC., a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify:
FIRST: The Corporation has not received any payment for any
of its stock.
SECOND: The amendment to the Corporation's Certificate of
Incorporation set forth in the following resolutions approved by the
Corporation's sole incorporator was duly adopted in accordance with the
provisions of Section 241 of the General Corporation Law of State of Delaware:
"RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by amending Article FIRST to read:
"FIRST: The name of the Corporation is WDP Investments, Inc."
IN WITNESS WHEREOF, BORDEN DECORATIVE PRODUCTS INVESTMENTS,
INC. has caused this Certificate to be signed and attested by its sole
incorporator this 23rd day of January, 1996.
BORDEN DECORATIVE PRODUCTS
INVESTMENTS, INC.
/s/ Patricia A. Heslep
------------------------------------------
Patricia A. Heslep, Sole Incorporator
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MARKETING SERVICE, INC.
FIRST: The name of the corporation is:
MARKETING SERVICE, INC.
SECOND: The address of the Corporation's registered office
in the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover,
County of Kent. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The total number of shares which the Corporation
shall have authority to issue is One Thousand (1,000) shares of Common Stock,
without par value.
FIFTH: The name and mailing address of the incorporator is
Bradley D. Murchison, Post Office Box 32665, Charlotte, North Carolina 28232.
SIXTH: The powers of the incorporator are to terminate upon
filing of the Certificate of Incorporation and the name and mailing address of
the person who shall serve as Director of the Corporation until his successor
is elected and qualified is as follows: Ronald T. Lindsay, 701 McCullough
Drive, Charlotte, North Carolina 28213.
SEVENTH: The Board of Directors of the Corporation is
expressly authorized to make, alter or repeal bylaws of the Corporation, but
the stockholders may make additional bylaws and may alter or repeal any bylaw
whether adopted by them or otherwise. Election of directors need not be by
ballot.
I, THE UNDERSIGNED, for the purpose of forming a corporation
under the laws of the State of Delaware, do make, file and record this
Certificate, and do certify that the facts herein stated are true, and I have
accordingly hereunto set my hand this 17th day of January 1990.
/s/ Bradley D. Murchison
-------------------------------
Bradley D. Murchison
<PAGE>
CERTIFICATE OF FORMATION
OF
THE IMPERIAL HOME DECOR GROUP (US) LLC
------------------
THIS CERTIFICATE OF FORMATION of The Imperial Home Decor Group (US)
LLC (the "Company") has been duly executed and is being filed by or on behalf
of authorized persons to form a limited liability company under the Delaware
Limited Liability Company Act, as amended from time to time (the "Act").
1. Name. The name of the limited liability company formed hereby is
The Imperial Home Decor Group (US) LLC.
2. Registered Office. The addressed of the registered office of the
Company in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801.
3. Registered Agent. The name and address of the registered agent for
service of process on the Company in the State of Delaware is The Corporation
Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware
19801.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation this 27th day of February, 1998.
By: /s/ Hilda Blair Gilfillan
-------------------------------------------
Hilda Blair Gilfillan
Authorized Person
<PAGE>
CERTIFICATE OF INCORPORATION
OF A PRIVATE LIMITED COMPANY
Company No. 3525561
The Registrar of Companies for England and Wales hereby certifies that
IMPERIAL HOME DECOR GROUP HOLDINGS 1 LIMITED
is this day incorporated under the Companies Act 1985 as a private company and
that the company is limited.
Given at Companies House, London, the 6th March 1998
/s/ S. Bashar
Miss S. Bashar
For The Registrar of Companies
<PAGE>
THE COMPANIES ACTS 1985-1989
COMPANY LIMITED BY SHARES
MEMORANDUM AND ARTICLES
OF ASSOCIATION
IMPERIAL HOME DECOR GROUP
HOLDINGS 1 LIMITED
PRIVATE LIMITED COMPANY NUMBER: 3525561
INCORPORATED: 6th March 1998
- ------------------------------------------------------------------------------
ALPHA SEARCHES AND FORMATIONS LIMITED
2nd Floor
83, Clerkenwell Road
London EC1R 5AR
<PAGE>
THE COMPANIES ACTS 1985-1989
COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION OF
IMPERIAL HOME DECOR GROUP HOLDINGS 1 LIMITED
1. The name of the Company is: IMPERIAL HOME DECOR GROUP HOLDINGS 1 LIMITED.
2. The registered office of the Company will be situate in England.
3. The objects for which the Company is established are:
(a) To carry on business as a general commercial company.
(b) To carry on any other business of any description whatsoever which may
seem to the Company or in the opinion of the Board of Directors thereof
to be advantageously carried on in connection with or ancillary to the
objects of the Company or any of them and calculated directly ro
indirectly to render more profitable the Company's business.
(c) To purchase or by any other means acquire, sell, lease, rent, license,
surrender, accept surrenders of, mortgage, charge or otherwise deal in
any freehold, leasehold or other property wheresoever situate.
(d) To erect, construct, pull down, dismantle, remove or replace, repair
and maintain, alter, hire, enlarge and adapt any buildings both portable
and otherwise and use the same for the Company's business or any of
them.
(e) To purchase or by any other means acquire, take over and undertake all
or any part of the business, property, liabilities and assets of any
person, firm or company carrying on or formed to carry on any business
for which this Company is authorised to carry on or possessed of
property suitable to the purposes of this Company and which is
calculated to advance the interests of this Company and make more
profitable the Company's business and to pay cash or to issue shares,
stock, debentures or debenture stock of this Company as the
consideration for such purpose of acquisition and to undertake any
liabilities or obligations relating to the business or property so
purchased or acquired.
<PAGE>
(f) To buy, sell, export, import, manufacture, exchange or part exchange,
let on hire, build, construct, install, erect, enlarge, improve, adapt,
dismantle, remodel, repair and maintain any engine, machinery, plant and
material of any description capable of being conveniently made, used or
sold in any of the businesses or trades aforesaid.
(g) To enter into partnership or any arrangement of any kind with any
person, persons, firm or company having for its objects similar objects
to those of this Company or any of them with a view to increasing the
business of the Company.
(h) To purchase, subscribe for or otherwise acquire shares, stock or other
interests in any company or corporation.
(i) To act as agents or brokers for any person, firm or company and to
undertake and perform sub-contracts for any person, persons, firms or
companies and also to appoint such agents, sub-contractors and brokers
and to act in any of the businesses of the Company through them.
(j) To apply for, register, purchase or by any means acquire and protect
and prolong and renew any trade marks, patents, licenses, concessions
and designs which may be capable of being dealt with by the Company or
likely to benefit the Company and to grant licences or privileges
thereout.
(k) To sell, let, license, develop, improve or otherwise deal with the
undertaking of all or any part of the property or assets of the Company,
upon such terms as the Company may approve with power to accept shares,
debentures or securities of, or interests in, any other company.
(l) To borrow and raise money in such manner as the Company shall think fit
and in particular by the issue of debentures or debenture stock charged
upon all or any of the Company's property both present and future
including its uncalled capital and to re-issue any debentures at any
time paid off.
(m) To draw, make, accept, endorse, discount, negotiate, execute and issue
promissory notes, bills of exchange, bills of lading, warrants,
debentures and other negotiable instruments.
(n) To guarantee the payment of any debentures, debenture stock, mortgages,
charges, bonds, obligations, interests, dividends, securities, monies or
shares or the performance of contracts or engagements of any other
company or person and to give indemnities and guarantees of all kinds
whenever considered desirable and to guarantee either by personal
obligation or by mortgaging or charging all or any part of the
undertaking property and assets both present and future and uncalled
capital of the Company or by both such methods, the performance of any
contract or obligation of any person, firm or company whatsoever.
2
<PAGE>
(o) To invest and deal with the monies of the Company not immediately
required in such charges or upon such securities and in such manner and
on such conditions as may from time to time be determined.
(p) To lend and advance money and give credit to any persons, firms or
companies on such terms and conditions as the Company may decide.
(q) To make advances to customers and others and allow them credit without
security to enable them to purchase the goods, produce and products of
the Company or use its services and for any other purpose calculated to
enhance the Company's business.
(r) To promote the Company's interests by advertising its products, works
or services in any manner and to take part in competitions, displays and
exhibitions and offer prizes, gifts and concessions to customers or
prospective customers as might seem desirable.
(s) To remunerate any person, firm or company rendering services to this
Company in any manner whatsoever.
(t) To grant pensions to employees and ex-employees and Directors and
ex-Directors or other Officers of the Company, their widows, children
and dependents and to subscribe to benevolent and other funds for the
benefit of any such persons and to subscribe to and assist any
charitable association and assist in the promotion thereof.
(u) To pay all and any expenses incurred in connection with the promotion,
formation and incorporation of this Company and to promote or aid in the
promotion of any other companies.
(v) To distribute any property of the Company in specie among the Members
of the Company.
(w) To procure the Company to be registered or recognized in any part of
the world.
(x) To do all such other things as are incidental or conducive to the
attainment of the above objects or any of them.
It is declared that the foregoing sub-clauses or any of them shall be
construed independently of each other and none of the objects herein
mentioned shall be deemed to be merely subsidiary to the objects
contained in any other sub-clauses.
4. The liability of the Members is limited.
5. The Share Capital of the Company is (pound)1,000 divided into 1,000
Ordinary Shares of (pound)1.00 each, each with power to increase or to
divide the sales in the capital for the time being
3
<PAGE>
into different classes having such rights, privileges and advantages as to
voting or otherwise as the Articles of Association may from time to time
prescribe.
WE, the persons whose names and addresses are desirous of being formed into a
Company in pursuance of the Memorandum of Association and we respectively
agree to take the number of shares in the capital of the Company set opposite
our respective names.
Names, addresses and Shares taken
description of subscribers by each subscriber
- ------------------------------------------------------------------------------
David Parry ONE
2nd Floor
83 Clerkenwell Road
London EC1R 5AR
Company Registration Agent
John Fake ONE
2nd Floor
83 Clerkenwell Road
London EC1R 5AR
Company Registration Agent
Dated: 5 March 1998
- ------------------------------------------------------------------------------
Witness to the above signatures:
Darren Cooper
2nd Floor
83 Clerkenwell Road
London EC1R 5AR
4
<PAGE>
THE COMPANIES ACTS 1985-1989
COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION OF
IMPERIAL HOME DECOR GROUP HOLDINGS 1 LIMITED
PRELIMINARY
1. The Company is a Private Company within the meaning of Section 1(3)
of the Companies Act 1985. Accordingly the Company shall not offer to
the public (whether for cash or otherwise) any shares in or
debentures of the Company or allot or agree to allot (whether for
cash or otherwise) any shares in or debentures of the Company with a
view to all or any of the shares or debentures being offered for sale
to the public. Subject as hereinafter provided the Regulations set
out in Table "A" in the Companies (Tables A to F) Regulations 1985
shall apply to this Company.
2. The following Articles of Table "A" shall not apply to this Company,
videlicet:24, 37, 40, 46, 50, 53, 73, 74, 75, 81, 94 and the last
sentence of Article 79.
SHARE CAPITAL
3. The Directors of the Company shall within a period of five years from
the date of incorporation of the Company be entitled to exercise the
Company's power to allot, grant options over or otherwise dispose of
the entire amount of the original share capital of the Company. The
Members of the Company shall have power from time to time by Ordinary
Resolution to renew or revoke the Directors' exercise of the
Company's power to allot, grant options over or otherwise dispose of
any shares in the capital of the Company.
4. (a) Sections 89(1), 90(1) to (5) and Section 90(6) of the
Companies Act 1985 shall not apply in relation to the issue
of any equity securities by the Company but in substitution
therefor the provisions of sub-paragraph (b) of this Article
shall apply.
(b) Save as otherwise directed by the Company in General
Meeting, any new shares from time to time to be created
shall before they are issued be offered to the Members in
proportion as nearly as possible to the numbers of shares
held by them. Any such offer shall be made by notice
specifying the number of shares offered and limiting a time
within which the offer, if not accepted, will be deemed to
be declined and after the expiration of such time any shares
not accepted and any shares which, by reason of the ratio
which the shares to be issued bear to the shares held by
persons entitled to an offer thereof, cannot, in the opinion
of the
5
<PAGE>
Directors, conveniently be offered under this Article, shall
be at the disposal of the Directors who may allot, grant
options over, or otherwise dispose of the same to such persons
at such time and on such terms as they think proper.
5. Subject to the provisions of the Companies Act 1985 including
Sections 159 and 171 thereof, the Company shall have power to issue
shares which are to be redeemed or are liable to be redeemed at the
option of the Company or the shareholder on such terms and in such
manner as may be prescribed by these Articles.
6. Subject to the provisions of the Companies Act 1985 including
Sections 162 and 171 to 175 thereof, the Company may purchase its own
shares including any redeemable shares.
SHARE CERTIFICATES
7. Every share certificate may, if the Company has a seal, be sealed
with the seal, and shall otherwise be signed by a Director and the
Secretary, or by two Directors and be expressed to be executed by the
Company and shall specify the number, class and distinguishing
numbers (if any) of the shares to which it relates and the amount or
respective amounts paid up thereon, and Article 6 of Table A shall be
modified accordingly.
LIEN
8. The lien conferred by Article 8 in Table A shall also attach to fully
paid up shares and dividends and to all shares registered in the name
of any person indebted or under liability to the Company whether he
shall be the sole registered holder thereof or one of two or more
joint holders thereof.
TRANSFER OF SHARES
9. A Member desiring to transfer shares other than to the Company pursuant
to Article 6 hereof shall give notice in writing handed personally or
sent by registered or recorded delivery post to their correct and
last known address of such intention to the Company, the Directors
and all the shareholders of the Company giving particulars of the
shares in question. The Directors as agent for the Member giving such
notice may dispose of such shares of any of them to Members of the
Company in a direct and pro rata proportion to their existing
holdings at a price to be agreed between the Transferor and the
Directors, or failing agreement at a price fixed by the Auditors of
the Company as a fair value thereof. If within twenty-eight days of
the date of the said notice the Directors are unable to find a Member
or Members willing to purchase all such shares on such conditions the
Transferor may dispose of so many of such shares as shall remain
undisposed of in any manner he may think fit within three months from
the date of the said notice but the Directors may in their absolute
discretion and without assigning any reason therefor decline to
register any such transfer whether or not it is in respect of a fully
paid up share or shares.
6
<PAGE>
GENERAL MEETINGS
10. The Directors may call General Meetings and, on the requisition of
Members pursuant to the provision of the Companies Act 1985, shall
forthwith proceed to convene an Extraordinary General Meeting for a
date not more than twenty-eight days after the date of the notice
convening the Meeting. If there are not within the United Kingdom
sufficient Directors to call a General Meeting, any Director or any
Member of the Company may call a General Meeting.
11. Article 38 of Table A shall be read and construed as if the words
"ninety-five percent" were followed by the words "(or such lesser
percentage, not being less than ninety per cent, as may be determined
by Resolution of the Company in General Meeting in accordance with
Section 379A of the Companies Act 1985)".
PROCEEDING AT GENERAL MEETINGS
12. At any General Meeting a Resolution put to the vote of the Meeting
shall be decided on a show of hands unless a poll is (before or on
the declaration for the result of the show of hands) demanded by the
Chairman or any Member in person or by proxy. Unless a poll is so
demanded, a declaration by the Chairman that a Resolution has on a
show of hands been carried or carried unanimously, or by a particular
majority, or lost, or not carried by a particular majority, and an
entry to that effect in the book containing the minutes of the
proceedings of the Company shall be conclusive evidence of the fact
without proof of the number or proportion of the votes recorded in
favor of or against such Resolution. The demand for a poll may be
withdrawn. In the event of an equality of votes, the Chairman shall
not have a second or casting vote.
DIRECTORS
13. Article 64 of Table A shall apply, with the exception of the words
"but shall not be less than two", and accordingly there may be a sole
Director. If and so long as there is a sole Director, such Director
may act alone in exercising all the powers and authorities by Table A
or those Articles vested in the Directors generally. The first
Directors of the Company shall be the person or persons named in the
Statement delivered to the Registrar of Companies prior to the
formation of the Company pursuant to Section 10(2) of the Companies
Act 1985 and deemed to be appointed Directors accordingly. No
Director shall be subject to retirement by rotation.
14. The Company shall not be subject to Section 293 of the Companies Act
1985 and accordingly any person may be appointed or elected as a
Director whatever his age and no Director shall be required to vacate
his office of Director by reason of his attaining or having attained
the age of seventy years or any other age.
15. In the case of an equality of votes at any Director's Meeting, the
Chairman of the Meeting shall not have a second or casting vote and
Article 88 of Table A shall be modified accordingly.
7
<PAGE>
16. Subject to the provisions of Section 317 of the Companies Act 1985, a
Director may contract with the Company and participate in the profits
of any contracts or arrangements as if he were not a Director. A
Director shall also be capable of voting in respect of such contracts
or arrangement, where he has previously disclosed his interest to the
Company, or in respect of his appointment to any office or place of
profit under the Company, or in respect of the terms thereof and may
be counted in the quorum at any Meeting at which any such matter is
considered.
SECRETARY
17. The first Secretary of the Company shall be the person or persons
named as Secretary in the Statement delivered under Section 10(2) of
the Companies Act 1985 and deemed to be appointed accordingly.
BORROWING POWERS OF THE DIRECTORS
18. The Directors of the Company may exercise all the powers of the
Company to borrow money, whether in excess of the nominal amount of
the shares capital of the Company for the time being issued or not
and to mortgage or charge its undertaking, property or uncalled
capital, or any part thereof, and, subject to Section 80 of the
Companies Act 1985, to issue debentures, debenture stock and other
securities whether outright or as security for any debt, liability or
obligation of the Company or of any third party.
ALTERNATE DIRECTORS
19. Any Director may in writing appoint any person to be his alternate to
act in his place at any Meeting of the Directors at which he is
unable to be present. Every such alternate shall be entitled to
notice of meetings of the Directors and to attend and vote thereat as
a Director when the person appointing him is not personally present
and where he is a Director to have a separate vote on behalf of the
Director he is representing in addition to his own vote. A Director
may at any time in writing revoke the appointment of an alternate
appointed by him. Every such alternate shall be an officer of the
Company and shall not be deemed to be the agent of the Director
appointing him. The remuneration of such an alternate shall be
payable out of the remuneration payable to the Director appointing
him and the proportion thereof shall be agreed between them. An
alternate need not hold any share qualification.
THE SEAL
20. Article 101 of Table A shall be read and construed as if the words
"The Seal" were followed by the words "if any".
INDEMNITY
21. Subject to Section 310 of the Companies Act 1985 and in addition to
such indemnity as is contained in Clause 118 of Table A, every
Director, Officer or Official of the Company
8
<PAGE>
shall be indemnified out of the funds of the Company against all
costs, charges, losses, expenses and liabilities incurred by him in
the execution and discharge of his duties or in relation thereto.
DISQUALIFICATION OF DIRECTORS
22. The office of a Director shall be vacated:
(1) If by notice in writing to the Company he resigns the office
of Director.
(2) If he ceases to be a Director by virtue of Section 291 of
the Companies Act 1985.
(3) If he becomes bankrupt or insolvent or enters into any
arrangements with his creditors.
(4) If he becomes of unsound mind.
(5) If he is prohibited from being a Director by an order made
under the Company Directors Disqualification Act 1986.
(6) If he is removed from office by a Resolution duly passed
under Section 303 of the Companies Act 1985.
9
<PAGE>
Names, addresses and descriptions of subscribers.
- ------------------------------------------------------------------------------
David Parry
2nd Floor
83 Clerkenwell Road
London EC1 5AR
Company Registration Agent
John Fake
2nd Floor
Clerkenwell Road
London EC1 5AR
Company Registration Agent
Dated: 5 March 1998
- ------------------------------------------------------------------------------
Witness to the above signatures:
Darren Cooper
2nd Floor
Clerkenwell Road
London EC1 5AR
10
<PAGE>
VERNON PLASTICS, INC.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the
stockholders of the Corporation shall be held at such place either within or
without the State of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors
and to transact such other business as may properly come before the meeting.
Special meetings of the stockholders may be called by the President for any
purpose and shall be called by the President or Secretary if directed by the
Board of Directors or requested in writing by the holders of not less than 25%
of the capital stock of the Corporation. Each such stockholder request shall
state the purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at
least 10 and not more than 60 days before each meeting of stockholders,
written notice of the time, date and place of the meeting, and, in the case of
a special meeting, the purpose or purposes for which the meeting is called,
shall be given to each stockholder.
Section 4. Quorum. At any meeting of stockholders, the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock shall constitute a quorum
for the transaction of business, except as otherwise provided by law. In the
absence of a quorum, any officer entitled to preside at or to act as secretary
of the meeting shall have power to adjourn the meeting from time to time until
a quorum is present.
Section 5. Voting. Except as otherwise provided by law, all
matters submitted to a meeting of stockholders shall be decided by vote of the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock.
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The
number of Directors that shall constitute the Board of Directors shall not be
less than one or more than fifteen. The first Board of Directors shall consist
of one Director. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or the stockholders.
The Directors shall be elected by stockholders at their annual meeting.
Vacancies and newly created directorships resulting from any increase in the
number of Directors may be filled by a
<PAGE>
majority of the Directors then in office, although less than a quorum, or by
the sole remaining Director or by the stockholders. A Director may be removed
with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as may from time to time be
fixed by the Board of Directors or as may be specified in a notice of meeting.
Section 3. Quorum. One-third of the total number of
Directors shall constitute a quorum for the transaction of business. If a
quorum is not present at any meeting of the Board of Directors, the Directors
present may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until such quorum is present. Except as otherwise
provided by law, the Certificate of Incorporation of the Corporation, these
By-Laws or any contract or agreement to which the Corporation is a party, the
act of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors.
Section 4. Committees. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate one or more
committees, including, without limitation, an Executive Committee, to have and
exercise such power and authority as the Board of Directors shall specify. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
Director to act at the absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a
President, a Vice President, a Secretary, a Treasurer, an Assistant Secretary,
an Assistant Treasurer and such other additional officers with such titles as
the Board of Directors shall determine, all of which shall be chosen by and
shall serve at the pleasure of the Board of Directors. Such officers shall
have the usual powers and shall perform all the usual duties incident to their
respective offices. All officers shall be subject to the supervision and
direction of the Board of Directors. The authority, duties or responsibilities
of any officer of the Corporation may be suspended by the President with or
without cause. Any officer elected or appointed by the Board of Directors may
be removed by the Board of Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
The Corporation shall indemnify Directors and Officers (as
such terms are defined in the Certificate of Incorporation) of the Corporation
as specified in the Certificate of Incorporation. In addition, to the fullest
extent permitted by the Delaware General Corporation Law, the corporation
shall indemnify any current or former Director or officer of the Corporation
2
<PAGE>
and may, at the discretion of the Board of Directors, indemnify any current or
former employee or agent of the Corporation against all expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with any threatened, pending or completed action, suit or
proceeding brought by or in the right of the Corporation or otherwise, to
which he was or is a party by reason of his current or former position with
the Corporation or by reason of the fact that he is or was serving, at the
request of the Corporation, as a director, officer, partner, trustee, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
Expenses incurred by a person who is or was a director or
officer of the Corporation in appearing at, participating in or defending any
such action, suit or proceeding shall be paid by the Corporation at reasonable
intervals in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation as authorized by this
Article. If a claim under this Article is not paid in full by the Corporation
within ninety days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation to
recover the part, the claimant shall be paid also the expense of prosecuting
such claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding
in advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under the Delaware General
Corporation Law or other applicable law for the corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law or other applicable law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or
its stockholders) that the claimant has not met the applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be fixed by the Board of Directors.
3
<PAGE>
WDP INVESTMENTS, INC.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the
stockholders of the Corporations hall be held at such place either within or
without the State of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors
and to transact such other business as may properly come before the meeting.
Special meetings of the stockholders may be called by the Chairman or
President for any purpose and shall be called by the Chairman, President or
Secretary if directed by the Board of Directors or requested in writing by the
holders of not less than 25% of the capital stock of the Corporation. Each
such stockholder request shall state the purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at
least 10 and not more than 60 days before each meeting of stockholders,
written notice of the time, date and place of the meeting, and, in the case of
a special meeting, the purpose or purposes for which the meeting is called,
shall be given to each stockholder.
Section 4. Quorum. At any meeting of stockholders, the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock shall constitute a quorum
for the transaction of business, except as otherwise provided by law. In the
absence of a quorum, any officer entitled to preside at or to act as secretary
of the meeting shall have power to adjourn the meeting from time to time until
a quorum is present.
Section 5. Voting. Except as otherwise provided by law, all
matters submitted to a meeting of stockholders shall be decided by vote of the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock entitled to vote thereon.
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The
number of Directors that shall constitute the Board of Directors shall be not
less than one nor more than fifteen. The Directors shall be elected by
stockholders at their annual meeting. Vacancies and newly created
<PAGE>
directorships resulting from any increase in the number of Directors may be
filled by a majority of the Directors then in office, although less than a
quorum, or by the sole remaining Director or by the stockholders. A Director
may be removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as may from time to time be
fixed by the Board of Directors or as may be specified in a notice of meeting.
Special meetings of the Board of Directors may be held at any time upon the
call of the Chairman or President and shall be called by the Chairman,
President or Secretary if directed by the Board of Directors.
Section 3. Notice. At least one business day before each
regular or special meeting of the Board of Directors, written or telephonic
notice of the time, date and place of the meeting and the purpose or purposes
for which the meeting is called, shall be given to each Director. Written
notice shall be deemed to have been given to a Director in accordance with the
preceding sentence when such notice is sent by facsimile transmission or
otherwise delivered to the principal place of business of each such Director
within the time restrictions as set forth in this Section herein.
Section 4. Quorum. A majority of the total number of
Directors shall constitute a quorum for the transaction of business. If a
quorum is not present at any meeting of the Board of Directors, the Directors
present may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until such a quorum is present. Except as
otherwise provided by law, the Certificate of Incorporation of the
Corporation, these By-Laws or any contract or agreement to which the
Corporation is a party, the act of a majority of the Directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
Section 5. Committees of Directors. The Board of Directors
may, by resolution adopted by a majority of the whole Board, designate one or
more committees, including, without limitation, and Executive Committee, to
have and exercise such power and authority as the Board of Directors shall
specify. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may unanimously
appoint another Director to act at the meeting in place of any such absent or
disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a Chairman,
a President, a Secretary, a Treasurer, and may consist of Vice Presidents,
Assistant Secretaries, Assistant Treasurers and such other additional officers
with such titles as the Board of Directors shall determine, all of whom shall
be chosen by and shall serve at the pleasure of the Board of Directors. All
officers shall be subject to the supervision and direction of the Board of
Directors. The authority, duties or responsibilities of any officer of the
Corporation may be suspended by the Chairman or President with or without
cause. Any officer elected or appointed by the Board of
<PAGE>
Directors may be removed by the Board of Directors with or without cause. In
addition to the powers and duties set forth below, such officers shall have
the usual powers and shall perform all the usual duties incident to their
respective offices.
(a) Chairman. The Chairman shall preside at all meetings of the
stockholders and of the Board of Directors.
(b) President. The President shall be the chief executive officer of
the Corporation; in the absence of the Chairman, he shall preside at
meetings of the stockholders and of the Board of Directors; he shall
have the management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried
into effect.
(c) Vice Presidents. During the absence or disability of the
President, the Vice President, or if there are more than one, the
Executive Vice President, shall have all the powers and function of
the President. Each Vice President shall perform such other duties as
the Board of Directors shall prescribe.
(d) Secretary. The Secretary shall: attend all meetings of the Board
of Directors and all meetings of the stockholders; record all votes
and minutes of all proceedings in a book to be kept for that purpose;
give or cause to be given notice of all meetings of stockholders and
of the special meetings of the Board of Directors; keep in safe
custody the seal of the Corporation and affix it to any instrument
when authorized by the Board of Directors; when required, prepare a
list of stockholders or cause to be prepared and available at each
meeting of stockholders entitled to vote thereat, indicating the
number of shares of each respective class held by each; keep all the
documents and records of the Corporation as required by law or
otherwise in a proper and safe manner; and perform such other duties
as may be prescribed by the Board of Directors.
(e) Assistant Secretaries. During the absence of disability of the
Secretary, the Assistant Secretary, or if there are more than one,
the one so designated by the Secretary or by the Board of Directors,
shall have all the powers and functions of the Secretary,
(e) Treasurer. The Treasurer shall: have the custody of the corporate
funds and securities; keep full and accurate accounts of receipts and
disbursements in the corporate books; deposit all money and other
valuables in the name and to the credit of the Corporation in such
depositories as may be designated by teh Board of Directors; disburse
teh funds of teh Corporation as may be ordered or authorized by the
Board of Directors and preserve proper vouchers for such
disbursements; render to the Chairman, President and Board of
Directors at the regular meetings of the Board of Directors, or
whenever they require it, an account of all his transactions as
Treasurer and of the financial condition of the Corporation; render a
full financial report at the annual meetings of the stockholders if
so requested; be furnished by all corporate officers and agents at
his request, with such reports and statements as he may require as to
all financial transactions of the Corporation; and perform such other
duties as are given to him by the By-Laws or as from time to time are
assigned to him by the Board of Directors or the President.
<PAGE>
(g) Assistant Treasurers. During the absence or disability of the
Treasurer, the Assistant Treasurer, or if there are more than one,
the one so designated by the Secretary or by the Board of Directors,
shall have all the powers and functions of the Treasurer.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation shall indemnify any current or former
Director or officer of the Corporation and may, at the discretion of the Board
of Directors, indemnify any current or former employee or agent of the
Corporation against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
any threatened, pending or completed action, suit or proceeding brought by or
in the right of the Corporation or otherwise, to which he or she was or is a
party by reason of his or her current or former position with the Corporation
or by reason of the fact that he or she is or was serving, at the request of
the Corporation, as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his or her address as it appears in the records of
the Corporation, with postage thereon prepaid. Such notice shall be deemed to
have been given when it is deposited in the United States mail. Notice to
Directors may also be given by telegram or by facsimile transmission.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be fixed by the Board of Directors.
<PAGE>
MARKETING SERVICE, INC.
BYLAWS
ARTICLE I
Seal
The corporate seal shall have inscribed thereon the name of
the corporation, the year of its incorporation and the words "Corporate Seal"
and "Delaware". In lieu of the corporate seal, when so authorized by the Board
of Directors, a facsimile thereof may be impressed or affixed or reproduced.
ARTICLE II
Stockholders
SECTION 1. Annual Meeting.
The annual meeting of the stockholders for the purpose of
electing directors and of transacting such other business as may come before
it shall be held each year on such date and at such hour and place, either
within or without the State of Delaware, as may be specified by the Board of
Directors.
SECTION 2. Special Meetings.
Special meetings of the stockholders shall be held at such
place, either within or without the State of Delaware, as may be designated in
the notice of the meeting, whenever called in the manner required by statute
or the certificate of incorporation for purposes as to which there are special
statutory or charter provisions, and for any purpose whenever called by the
Chairman of the Board, the President or the Board of Directors, and whenever
the holders of outstanding shares entitled to cast at least a majority of the
votes which could be cast at such a meeting shall file with the Secretary a
written application for such meeting stating the date, hour, place and
purposes thereof.
SECTION 3. Notice of Meetings.
Notice of stockholders' meetings, stating the date, hour,
place and purposes thereof, shall be given by the Chairman of the Board, the
President, a Vice President, the Secretary or an Assistant Secretary to each
stockholder of record entitled to vote thereat. Except where a greater notice
period is prescribed by statute, such notice shall be given at least ten (10)
days but not more than fifty (50) days before the date of the meeting.
<PAGE>
SECTION 4. Quorum.
Except as otherwise provided by statute or the certificate
of incorporation, at any meeting of the stockholders the holders of
outstanding shares entitled to cast at least a majority of the votes which
could be cast at such meeting shall be present in person or represented by
proxy in order to constitute a quorum for the transaction of any business. At
any meeting of the stockholders, whether or not a quorum is present, the
holders of outstanding shares who are present in person or represented by
proxy and are entitled to cast at least a majority of the votes which could be
cast by those so present or represented may adjourn the meeting from time to
time without notice other than announcement thereat (subject to applicable
statutory provisions for new notice). Any business may be transacted at any
adjourned meeting of the stockholders which might have been transacted at the
meeting as originally called.
SECTION 5. Voting.
Every stockholder entitled to vote at any meeting of the
stockholders may vote in person or by proxy filed with the secretary of the
meeting before being voted. Except as otherwise provided by the certificate of
incorporation, at any meeting of the stockholders each holder of stock
entitled to vote shall be entitled to one vote for each share of stock held by
him. Except as otherwise provided by statute or the certificate of
incorporation and except for the election of directors, at any meeting of the
stockholders duly called and held at which a quorum is present, a majority of
the votes which could be cast at such meeting upon a given question by the
holders of outstanding shares who are present in person or represented by
proxy shall decide such question. At any election of directors at which a
quorum is present, the directors shall be elected by a plurality of the votes
cast at such election.
SECTION 6. List of Stockholders.
A complete list of the stockholders entitled to vote at any
meeting of the stockholders shall be prepared, in alphabetical order and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder, and shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, either at a place within the city where the meeting is to be held
(specified in the notice of the meeting) or at the place where the meeting is
to be held, for at least ten (10) days before the meeting, and at the place of
the meeting during the whole time thereof.
SECTION 7. Conduct of Meetings.
The presiding officer shall have the power to prescribe such
rules, regulations and procedures and to do all such things as in his judgment
may be necessary or desirable for the proper conduct of any meeting of the
stockholders, including, without limitation, the establishment of procedures
for the maintenance of order and safety, limitations on the time allotted to
questions or comments, restrictions on entry to the meeting after the time
scheduled for the commencement thereof and the opening and closing of the
voting polls.
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ARTICLE III
Directors
SECTION 1. Functions and Definition.
The business and affairs of the corporation shall be managed
by or under the direction of the Board of Directors of the corporation. The
Board of Directors shall have the authority to fix the compensation of the
members thereof. The use of the phrase "whole board" herein refers to the
total number of directors which the corporation would have if there were no
vacancies.
SECTION 2. Qualification and Number.
A director need not be a stockholder, or a citizen or
resident of the United States or the State of Delaware. The Board of Directors
shall consist of three (3) persons. The number of directors may be fixed from
time to time by action of the stockholders or of the directors, or, if the
number is not fixed, the number shall be three (3). The number of directors
may be increased or decreased by action of the stockholders or of the
directors.
SECTION 3. Election and Term.
The first Board of Directors, unless the members thereof
shall have been named in the certificate of incorporation, shall be elected by
the incorporator or incorporators and shall hold office until the first annual
meeting of stockholders and until their successors are elected and qualified
or until their earlier resignation or removal. Any director may resign at any
time upon written notice to the corporation. Directors who are elected at an
annual meeting of stockholders, and directors who are elected in the interim
to fill vacancies and newly created directorships, shall hold office until the
next annual meeting of stockholders or until their successors are elected and
qualified or until their earlier resignation or removal. In the interim
between annual meetings of stockholders or of special meetings of stockholders
called for the election of directors and/or for the removal of one or more
directors and for the filling of any vacancies in that connection, newly
created directorships and any vacancies in the Board of Directors, including
unfilled vacancies resulting from the removal of directors for cause or
without cause, may be filled by the vote of a majority of the remaining
directors then in office although less than a quorum, or by the sole remaining
directors.
SECTION 4. Meeting.
- Time. Meetings shall be held at such time as the Board
shall fix, except that the first meeting of a newly elected Board shall be
held as soon after its election as the directors may conveniently assemble.
- Place. Meetings shall be held at such place within or
without the State of Delaware as shall be fixed by the Board.
- Call. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board,
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if any, the Vice-Chairman of the Board, if any, or the President, or of a
majority of the directors in office.
- Notice or Actual or Constructive Waiver. No notice shall
be required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be
given for special meetings in sufficient time for the convenient assembly of
the directors thereat. Notice need not be given to any director or to any
member of a committee of directors who submits a written waiver of notice
signed by him before or after the time for the meeting stated therein.
Attendance of any such person at a meeting shall constitute a waiver of notice
of such meeting, except when he attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
- Quorum and Action. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
Board. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as herein
otherwise provided, and except as otherwise provided by the General
Corporation Law, the vote of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board. The quorum
and voting provisions herein stated shall not be construed as conflicting with
any provisions of the General Corporation Law and these bylaws which govern a
meeting of directors held to fill vacancies and newly created directorships in
the Board or action of disinterested directors.
- Chairman of the Meeting. The Chairman of the Board, if any
and if present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the
President, if present and acting, or any other director chosen by the Board,
shall preside.
SECTION 5. Removal of Directors.
Except as may otherwise be provided by the General
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares when
entitled to vote at an election of directors.
SECTION 6. Committees.
The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate member of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided
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in the resolution of the Board, shall have and may exercise the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation with the exception of any authority the delegation
of which is prohibited by Section 141 of the General Corporation Law, and may
authorize the seal of the corporation to be affixed to all papers which may
require it.
SECTION 7. Written Action.
Any action required or permitted to be taken at any meeting
of the Board of Directors or any committee thereof may be taken without a
meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
SECTION 8. Electronic Communication.
Any member or members of the Board of Directors or of any
committee designated by the Board, may participate in a meeting of the Board,
or any such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other.
ARTICLE IV
Officers
SECTION 1. Officers.
The officers of the corporation shall be chosen by the Board
of Directors and shall be a Chairman of the Board, a President, one or more
Vice Presidents, a Treasurer, a Secretary, a Controller, and such other
officers as the Board of Directors shall determine. Any number of offices may
be held by the same person.
SECTION 2. Division Officers.
The Board of Directors of the Chairman of the Board may
appoint officers with titles indicating their responsibilities in operating
divisions of the corporation which may include President, Vice President, and
any other divisional titles which may be deemed appropriate.
SECTION 3. Other Officers.
The Board of Directors of the Chairman of the Board may
appoint one or more Vice Presidents and such other officers with titles
indicating their responsibilities in staff functions who shall have such
duties as the Board of Directors or the Chairman of the Board shall determine.
SECTION 4. Compensation.
The compensation of all officers of the corporation shall be
fixed by the Board of Directors.
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SECTION 5. Term of Office.
The terms of office of all officers elected or appointed by
the Board of Directors shall be until the first meeting of the Board of
Directors following the annual meeting of stockholders and until their
respective successors are chosen and qualified, or for such other term as may
be determined by the Board of Directors. The officers appointed by the
Chairman of the Board serve for such period as the Chairman of the Board shall
determine. Any officer may be removed from office, with or without cause, at
any time by a vote of a majority of the whole Board of Directors. Any officer
appointed by the Chairman of the Board may be removed from office, with or
without cause, at any time by the Chairman of the Board. Removal of an officer
without cause shall be without prejudice to such person's contract rights, and
the election or appointment of an officer shall not of itself create contract
rights.
ARTICLE V
Duties of Officers
SECTION 1. Chairman of the Board.
The Chairman of the Board shall be the chief executive
officer of the corporation. He shall preside at all meetings of the
stockholders and of the Board of Directors and shall do and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
SECTION 2. President.
Subject to the authority of the Chairman of the Board, the
President shall have general and active management of the business of the
corporation. He shall do and perform such other duties as from time to time
may be assigned to him by the Board of Directors or the Chairman of the Board.
In the absence of the Chairman of the Board, he shall preside at all meetings
of the stockholders and of the Board of Directors.
SECTION 3. Vice Presidents and Other Officers.
Executive Vice Presidents, Vice Presidents and other
officers and agents shall have such powers and shall do and perform such
duties as from time to time may be assigned by the Board of Directors, the
Chairman of the Board or the President.
SECTION 4. Treasurer.
The Treasurer shall have the custody of all the funds and
securities of the corporation. When necessary or proper, he shall endorse, on
behalf of the corporation, for collection, checks, notes and other obligations
and shall deposit the same to the credit of the corporation in such banks or
depositaries as may be designated by the Board of Directors or by any officer
acting under authority conferred by the Board of Directors. He shall disburse
the funds of the corporation. He shall enter regularly, in books to be kept
for the purpose, full and accurate account of all monies received and paid by
him on account of the corporation and, whenever required by the Board of
Directors or by
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the Chairman of the Board or the President, shall render an account of all his
transactions as Treasurer and of the financial condition of the corporation.
He shall do and perform all duties normally incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors, the Chairman of the Board or the President.
SECTION 5. Assistant Treasurer.
The Board of Directors may choose an Assistant Treasurer or
more than one Assistant Treasurer, who shall do and perform such duties as
from time to time may be assigned by the Board of Directors, the Chairman of
the Board or the President.
SECTION 6. Secretary.
The Secretary shall attend all meetings of the stockholders
and all meetings of the Board of Directors, and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for committees of the Board, if any, when so required. He
shall give, or cause to be given, notice of all meetings of stockholders and
of the Board of Directors and of committees. He shall keep in safe custody the
seal of the corporation and affix the same to any instrument when appropriate.
He shall do and perform all duties as from time to time may be assigned to him
by the Board of Directors, the Chairman of the Board or the President.
SECTION 7. Assistant Secretaries.
The Board of Directors may choose an Assistant Secretary or
more than one Assistant Secretary, who shall do and perform such duties as
from time to time may be assigned by the Board of Directors, the Chairman of
the Board or the President.
SECTION 8. Controller.
The Controller shall provide and maintain accounting
controls over the business and affairs of the corporation. He shall do and
perform all duties normally incident to the office of the Controller and such
other duties as from time to time may be assigned to him by the Board of
Directors, the Chairman of the Board or the President.
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ARTICLE VI
Indemnification
The corporation shall indemnify any person who is made, or
threatened to be made, a party to, or is otherwise involved in, any action,
suit or proceeding (whether civil, criminal, administrative, investigative or
otherwise) by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation or, at the request of the
corporation, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity, to
the fullest extent permitted by the laws of Delaware as from time to time in
effect. The corporation may, if it so determines in a specific case, indemnify
other employees or agents of the corporation in the same manner and to the
same extent.
Costs, charges, expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred by any officer or
director in defending any pending, threatened or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than any action by or in the right of the corporation), and costs, charges and
expenses (including attorneys' fees) incurred by any officer or director in
defending an action by or in the right of the corporation shall be paid by the
corporation in advance of the determination of such director's or officer's
entitlement to indemnification promptly upon receipt of an undertaking by or
on behalf of such director or officer to repay amounts so advanced in the
event and to the extent that it shall ultimately be determined that such
director or officer is not entitled to be indemnified by the corporation as
authorized by this Article. Such amounts incurred by other employees and a
gents may be so advanced upon such terms and conditions, if any, as the Board
of Directors deems appropriate. The Board of Directors may, upon approval of
such director or officer, authorize the corporation's counsel to represent
such director or officer, in any action, suit or proceeding, whether or not
the corporation is a party thereto.
All rights to indemnification and advances under this
Article shall be deemed to be a contract between the corporation and each
director, officer, employee or agent of the corporation who serves or served
in such capacity at any time while this Article is in effect. Any repeal or
modification of this Article or any repeal or modification of relevant
provisions of the Delaware General Corporation Law or any other applicable
laws shall not in any way diminish any rights to indemnification and to such
advances of such director, officer, employee or agent or the obligations of
the corporation arising hereunder. The provisions of this Article shall inure
to the benefit of heirs, executors, administrators and personal
representatives of those entitled to indemnification and to such advances and
shall be binding upon any successor to the corporation to the fullest extent
permitted by the laws of Delaware as from time to time in effect. The
indemnification and advancement provided by this bylaw shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under Delaware law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Any indemnification or advance required by this Article VI shall be
made promptly, and in any event within 30 days, upon the written request of
the indemnified party. The right to indemnification or advances as granted by
this article shall be enforceable by the indemnified party in any court of
competent jurisdiction if the corporation denies such request, in whole or in
part, or if no disposition
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thereof is made within 30 days. Such persons' costs and expenses incurred in
connection with successfully establishing a right of indemnification or
advances, in whole or in part, in any such action shall also be indemnified by
the corporation.
The corporation shall have the power to purchase and
maintain insurance to indemnify (a) itself for any obligation which it incurs
as a result of the indemnification of directors and officers and (b) directors
and officers in all instances, whether or not such indemnification is
otherwise provided for by law or the foregoing provisions of this Article,
subject to any specific limitations of law.
ARTICLE VII
Certificates of Stock
SECTION 1. Certificates; Transfer.
The interest of each stockholder of the corporation shall be
evidenced by certificates for shares of stock in such form as the Board of
Directors may from time to time prescribe. The share of stock of the
corporation shall be transferable on the books of the corporation by the
holder thereof in person or by his attorney.
SECTION 2. Execution.
The certificates for shares of stock shall be signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary, and
shall be countersigned and registered in such manner, if any, as the Board of
Directors may prescribe.
ARTICLE VIII
Record Date
In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action.
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ARTICLE IX
Registered Stockholders
SECTION 1. Only Record Holders Recognized.
The corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof and accordingly
shall not be bound to recognize any equitable or other claims to or interest
in such share on the part of any other person, whether or not it shall have
express or other notice thereof, save as otherwise expressly provided by the
laws of the State of Delaware.
SECTION 2. Addresses of Stockholders.
It shall be the duty of every stockholder to notify the
corporation of his post office address and of any change therein. The latest
address furnished by each stockholder shall be entered on the stock ledger of
the corporation and the latest address appearing thereon shall be deemed
conclusively to be the post office address and the last-known post office
address of such stockholder. In any stockholder shall fail to notify the
corporation of his post office address, it shall be sufficient to send
corporate notices to such stockholder at the address, if any, understood by
the Secretary to be his post office address or, in the absence of such
address, to such stockholder at the General Post Office in the city, town or
place in the State of Delaware where the registered office of the corporation
is located.
ARTICLE X
Lost Certificates
Any person claiming a stock certificate in lieu of one lost,
destroyed or stolen, or his legal representative, shall give the corporation
an affidavit as to his ownership of the certificate and of the facts which go
to prove that it has been lost, destroyed or stolen. If required by the Board
of Directors, he or his legal representative shall also give the corporation a
bond, in such form and with such surety or sureties as may be approved by the
Board of Directors, or without surety if the Board of Directors so determines,
sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, destruction or theft of the
certificate or the issuance of a new certificate.
ARTICLE XI
Inspection of Books
The directors shall determine from time to time whether,
and, if allowed, when and under what conditions and regulations, the accounts
and books of the corporation (except such as may by statute be specifically
open to inspection), or any of them, shall be open to the inspection of the
stockholders, and the stockholders' rights in this respect are and shall be
restricted and limited accordingly.
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ARTICLE XII
Checks
All checks and other orders or obligations for the payment
of money and notes of the corporation may be signed by such officer or
officers or other person or persons as the Board of Directors may from time to
time designate. Such authority may be general or confined to specific
instances.
ARTICLE XIII
Fiscal Year
The fiscal year of the corporation shall be a 52-53 week
fiscal period ending the last Saturday in January.
ARTICLE XIV
Notices and Waivers
SECTION 1. Notices.
Whenever any notice is required to be given to any
stockholder or officer, whether by statute, certificate of incorporation,
bylaws or otherwise, such notice, except as otherwise provided by law, may be
given personally or, in the case of officers, by telegram, telex, cable or
like transmission, addressed to such officer at his place of business with the
corporation, if any, or at such address as appears on the books of the
corporation; or the notice may be given in writing by mail, in a sealed
wrapper, postage prepaid, addressed to such stockholder at the address
referred to in Section 2 of Article IX, or to such officer at his place of
business with the corporation, if any, or at such address as appears on the
books of the corporation. Any notice given by telegram, telex, cable or like
transmission shall be deemed to have been given when it shall have been
delivered for transmission and any notice given by mail shall be deemed to
have been given when it shall have been deposited in a post office, in a
regularly maintained letter box or with a postal carrier.
SECTION 2. Waivers
A waiver of any such notice in writing, signed by the person
entitled to such notice, or, in the case of a stockholder, by his duly
authorized attorney, whether before or after the time of the action for which
such notice is required, shall be deemed the equivalent thereof; and the
presence at any meeting of any person entitled to notice thereof or, in the
case of a stockholder, his duly authorized attorney, shall be deemed a waiver
of such notice as to such person, except when such person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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ARTICLE XV
Amendments
These bylaws may be altered, amended or repealed, and new
bylaws made by the stockholders at any meeting thereof or by the affirmative
vote of a majority of the members of the Board of Directors at any regular or
special meeting of the Board.
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EXHIBIT 5.1
[FORM OF JDRP OPINION]
August , 1998
The Imperial Home Decor Group Inc.
The Subsidiary Guarantors named in Annex A hereto
c/o The Imperial Home Decor Group Inc.
23645 Mercantile Road
Cleveland, Ohio 44122
Gentlemen:
We are acting as special counsel for The Imperial Home Decor Group Inc., a
Delaware corporation (the 'Company'), and each of its subsidiaries named in
Annex A hereto (collectively, the 'Subsidiary Guarantors'), in connection with
the offer of the Company to exchange $1,000 principal amount of its 11% Senior
Subordinated Notes due 2008, Series B (the 'Exchange Notes') for each $1,000
principal amount of its outstanding 11% Senior Subordinated Notes due 2008 (the
'Old Notes') of which $125,000,000 aggregate principal amount is outstanding.
The Exchange Notes will be issued under and entitled to the benefits of the
Indenture, dated as of March 13, 1998 (the 'Indenture') by and among the
Company, the Subsidiary Guarantors named therein and The Bank of New York, as
trustee (the 'Trustee'). The Exchange Notes will be fully and unconditionally
guaranteed (subject to insolvency and fraudulent conveyance limitations),
jointly and severally, on an unsecured senior subordinated basis (the
'Subsidiary Guarantees') by the Subsidiary Guarantors.
Our opinions expressed below are limited to the laws of the State of New
York, Delaware corporate law and the federal law of the United States of
America, as currently in effect, and we do not express any opinion herein
concerning any other law.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and based thereupon we are of the
opinion that:
1. When the Exchange Notes have been duly executed by authorized
officers of the Company, authenticated by the Trustee in accordance
with the Indenture and issued in exchange for the Old Notes in
accordance with the Indenture and the Exchange Offer, the Exchange
Notes will be valid and binding obligations of the Company.
2. When the Exchange Notes have been duly executed by authorized
officers of the Company, authenticated by the Trustee in accordance
with the Indenture and issued in exchange for the Old Notes in
accordance with the Indenture and the Exchange Offer, the
Subsidiary Guarantees will be valid and binding obligations of the
Subsidiary Guarantors.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement on Form S-4 filed by the Company and the Subsidiary
Guarantors to register the exchange and issuance of the Exchange Notes for the
Old Notes, and the Subsidiary Guarantees thereof, under the Securities Act of
1933, as amended, and to the reference to our firm under the caption 'Legal
Matters' in the prospectus constituting a part of such Registration Statement.
Very truly yours,
Jones, Day, Reavis & Pogue
<PAGE>
ANNEX A
SUBSIDIARY GUARANTORS
Vernon Plastics, Inc. (a Delaware corporation)
WDP Investments, Inc. (a Delaware corporation)
Marketing Service, Inc. (a Delaware corporation)
Imperial Home Decor Groups (US) LLC (a Delaware limited liability company)
Imperial Home Decor Group Holdings I Limited (a UK company)
<PAGE>
MONITORING AGREEMENT
---------------------
MONITORING AGREEMENT (this "Agreement"), dated as of March 13,
1998, among THE IMPERIAL HOME DECOR GROUP INC., a Delaware corporation
("IHDG"), and BLACKSTONE MANAGEMENT PARTNERS III L.L.C., a Delaware limited
liability company ("BMP").
Recitals
--------
A. BMP, by and through itself, its affiliates and their
respective officers, employees and representatives, has expertise in the areas
of management, finance, strategy, investment and acquisitions relating to the
business of IHDG; and
B. IHDG desires to avail itself, for the term of this
Agreement, of the expertise of BMP in the aforesaid areas and BMP wishes to
provide the services to IHDG as herein set forth;
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing recitals
and the covenants and conditions contained herein, the parties hereto agree as
follows:
1. Appointment. IHDG hereby engages BMP to render the
advisory and consulting services described in Section 2 hereof for the term of
this Agreement.
2. Services. BMP hereby agrees that during the term of this
Agreement it shall render to IHDG and its subsidiaries, by and through itself,
its affiliates, and their respective officers, members, employees and
representatives as BMP in its sole discretion shall designate from time to
time, advisory and consulting services in relation to the affairs of IHDG and
its subsidiaries, including, without limitation, (i) advice in designing
financing structures and advice regarding relationships with IHDG and its
subsidiaries' lenders and bankers; (ii) advice regarding the structure and
timing of public offerings of debt and equity securities of IHDG and its
subsidiaries; (iii) advice regarding property dispositions or acquisitions;
and (iv) such other advice directly related or ancillary to the above
financial advisory services as may be reasonably requested by IHDG. It is
expressly agreed that the services to be performed hereunder shall not include
investment banking or other financial advisory services rendered by BMP or its
affiliates to IHDG in connection with any specific acquisition, divestiture,
refinancing or recapitalization by IHDG or any of its subsidiaries. BMP may be
entitled to receive additional compensation for providing services of the type
specified in the preceding sentence by mutual agreement of IHDG or such
subsidiary and BMP.
3. Fees. In consideration of the services contemplated by
Section 2 and for similar services rendered prior to the date hereof (a) IHDG
agrees to pay to BMP the sum of $4,000,000, payable on the date hereof, and
(b) for the term of this Agreement, IHDG and its respective successors,
jointly and severally, agree to pay to BMP an annual fee (the "Monitoring
Fee") of $1,500,000, payable in quarterly installments on March 31, June 30,
September 30 and
<PAGE>
December 31 of each year commencing on the date hereof through the date (the
"Termination Date") on which affiliates of BMP hold, directly, beneficial
ownership of less than 10% of the equity interest in IHDG acquired in the
Transactions, or such earlier date as IHDG and BMP shall agree. The Monitoring
Fee shall not be prorated for the first calendar year of this Agreement. Any
Monitoring Fee for the last calendar year of this Agreement shall be prorated
for the period of such year ending on the Termination Date. To the extent
required by any debt financing of IHDG or its subsidiaries, the Monitoring Fee
shall be deferred until the (i) dissolution of IHDG, and (ii) payment of the
Monitoring Fee shall bear interest at a rate of ten percent (10%) per annum,
compounded annually, from the date deferred until paid. The "Transactions" are
the transactions contemplated by the Recapitalization Agreement (the
"Recapitalization Agreement"), dated as of October 14, 1997, as amended, among
Borden, Inc., a New Jersey corporation, Borden Decorative Products Holdings,
Inc., a Delaware corporation, and BDPI Holdings Corporation ("MergerCo"), a
Delaware corporation and an Amended and Restated Acquisition Agreement (the
"Imperial Acquisition Agreement"), dated as of November 4, 1997 and amended
and restated on March 9, 1998, among Imperial Wallcoverings, Inc., a Delaware
corporation, Collins & Aikman Products Co., a Delaware corporation and
MergerCo.
4. Reimbursements. In addition to the fees payable pursuant
to this Agreement, IHDG shall pay directly or reimburse BMP for its
Out-of-Pocket Expenses. Promptly following IHDG's request therefor, BMP will
provide written back-up relating to any Out-of-Pocket Expenses to be paid or
reimbursed by IHDG pursuant to this Agreement. For the purposes of this
Agreement, the term "Out-of-Pocket Expenses" shall mean the reasonable
out-of-pocket costs and expenses reasonably incurred by BMP or its affiliates
in connection with the services rendered hereunder in pursuing, or otherwise
related to, the business or IHDG and the transactions contemplated by the
Recapitalization Agreement and the Imperial Acquisition Agreement, including,
without limitation, (i) fees and disbursements of any independent
professionals and organizations, including independent accountants, outside
legal counsel or consultants, (ii) costs of any outside services or
independent contractors such as financial printers, couriers, business
publications, on-line financial services or similar services, (iii) research
and research related expenses and (iv) transportation, per diem costs, word
processing expenses or any similar expense not associated with its ordinary
operations. All reimbursements for Out-of-Pocket Expenses shall be made
promptly upon or as soon as practicable after presentation by BMP to IHDG of a
written statement thereof.
5. Indemnification. (a) IHDG will indemnify and hold
harmless BMP, its affiliates and their respective partners (both general and
limited), members (both managing and otherwise), officers, directors,
employees, agents and representatives (each such person being an "Indemnified
Party") from and against any and all losses, claims, damages and liabilities,
whether joint or several (the "Indemnifiable Losses"), related to, arising out
of or in connection with the advisory and consulting services contemplated by
this Agreement or the engagement of BMP pursuant to, and the performance by
BMP of the services contemplated by, this Agreement, whether or not pending or
threatened, whether or not an Indemnified Party is a party and whether or not
such action, claim, suit, investigation or proceeding is initiated or brought
by IHDG, and will reimburse any Indemnified Party for all reasonable costs and
expenses (including reasonable attorneys' fees and expenses) as they are
incurred in connection with investigating, preparing,
2
<PAGE>
pursuing, defending or assisting in the defense of any action, claim, suit,
investigation or proceeding for which the Indemnified Party would be entitled
to indemnification under the terms of this sentence, or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
thereto, provided that, subject to the following sentence, IHDG shall be
entitled to assume the defense thereof at its own expense, with counsel
satisfactory to such Indemnified Party in its reasonable judgment. Any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense, and in any action, claim, suit, investigation or
proceeding in which both IHDG and/or one or more of its subsidiaries, on the
one hand, and an Indemnified Party, on the other hand, is, or is reasonably
likely to become, a party, such Indemnified Party shall have the right to
employ separate counsel at the expense of IHDG and to control its own defense
of such action, suit, claim, investigation or proceeding if, in the reasonable
opinion of counsel to such Indemnified Party, a conflict or potential conflict
exists between IHDG, on the one hand, and such Indemnified Party, on the other
hand, that would make such separate representation advisable. The Company
agrees that it will not, without the prior written consent of the applicable
Indemnified Party, settle, compromise or consent to the entry of any judgment
in any pending or threatened claim, suit, investigation, action or proceeding
relating to the matters contemplated hereby (if any Indemnified Party is a
party thereto or has been threatened to be made a party thereto) unless such
settlement, compromise or consent includes an unconditional release of the
applicable Indemnified Party and each other Indemnified Party from all
liability arising or that may arise out of such claim, suit, investigation,
action or proceeding. Provided IHDG is not in breach of its indemnification
obligations hereunder, no Indemnified Party shall settle or compromise any
claim subject to indemnification hereunder without the consent of the IHDG.
IHDG will not be liable under the foregoing indemnification provision with
respect to any Indemnified Party, to the extent that any loss, claim, damage,
liability, cost or expense is determined by a court, in a final judgment from
which no further appeal may be taken, to have resulted primarily from the
willful misconduct of BMP. If an Indemnified Party is reimbursed hereunder for
any expenses, such reimbursement of expenses shall be refunded to the extent
it is finally judicially determined that the Indemnifiable Losses in question
resulted primarily from the willful misconduct of BMP.
(b) The Company agrees that if any indemnification sought
by any Indemnified Party pursuant to this Section is unavailable for any
reason or is insufficient to hold the Indemnified Party harmless against any
Indemnifiable Losses referred to herein, then IHDG shall contribute to the
Indemnifiable Losses for which such indemnification is held unavailable or
insufficient in such proportion as is appropriate to reflect the relative
benefits received (or anticipated to be received) by IHDG, on the one hand,
and BMP, on the other hand, in connection with the transactions which gave
rise to such Indemnifiable Losses or, if such allocation is not permitted by
applicable law, not only such relative benefits but also the relative faults
of IHDG, on the one hand, and BMP, on the other hand, as well as any other
equitable considerations, subject to the limitation that in any event the
aggregate contribution by the Indemnified Parties to all Indemnifiable Losses
with respect to which contribution is available hereunder shall not exceed the
fees actually received by BMP in connection with the transactions which gave
rise to such Indemnifiable Losses (excluding any amounts paid as reimbursement
of such expenses).
3
<PAGE>
(c) Notwithstanding any provision herein to the contrary,
no officer or director of IHDG shall be liable for any obligations of IHDG
hereunder, including, without limitation, the payment of the Monitoring Fee
pursuant to Section 3, the payment or reimbursement of Out-of-Pocket Expenses
pursuant to Section 4 and the indemnification obligations under Section 5(a).
6. Accuracy of Information. IHDG shall furnish or cause to
be furnished to BMP such information as BMP believes appropriate to its
monitoring services hereunder and to the ownership by affiliates of BMP of
equity interests of IHDG (all such information so furnished being the
"Information"). IHDG recognizes and confirms that BMP (i) will use and rely
primarily on the Information and on information available from generally
recognized public sources in performing the services contemplated by this
Agreement without having independently verified the same, (ii) does not assume
responsibility for the accuracy or completeness of the Information and such
other information and (iii) is entitled to rely upon the Information without
independent verification.
7. Term. This Agreement shall be effective as of the date
hereof and shall continue until the Termination Date, provided that Section 4
shall remain in effect with respect to Out-of-Pocket Expenses incurred, and
any Monitoring Fee that has become payable, prior to the Termination Date. The
provisions of Section 5, 6 and 8 and otherwise as the context so requires
shall survive the termination of this Agreement.
8. Permissible Activities. Subject to applicable law,
nothing herein shall in any way preclude BMP, its affiliates or their
respective partners (both general and limited), members (both managing and
otherwise), officers, directors, employees, agents or representatives from
engaging in any business activities or from performing services for its or
their own account or for the account of others, including for companies that
may be in competition with the business conducted by IHDG.
9. Miscellaneous.
--------------
(a) No amendment or waiver of any provision of this
Agreement, or consent to any departure by either party hereto from any such
provision, shall be effective unless the same shall be in writing and signed
by all of the parties hereto. Any amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The waiver by any party of any breach of this Agreement shall not
operate as or be construed to be a waiver by such party of any subsequent
breach.
(b) Any notices or other communications required or
permitted hereunder shall be sufficiently given if delivered personally or
sent by facsimile, Federal Express, or other overnight courier, addressed as
follows or to such other address of which the parties may have given notice:
If to BMP: c/o The Blackstone Group L.P.
345 Park Avenue, 31st Floor
4
<PAGE>
New York, New York 10154
Attention: Mr. David A. Stockman
Senior Managing Director
Facsimile: (212) 754-8720
Telephone: (212) 836-9818
If to IHDG: The Imperial Home Decor Group Inc.
23645 Mercantile
Cleveland, Ohio 44122
Attention: James P. Toohey
President and Chief Executive Officer
Facsimile: (216) 763-8677
Telephone: (216) 765-8661
Unless otherwise specified herein, such notices or other communications shall
be deemed received (i) on the date delivered, if delivered personally or sent
by facsimile, and (ii) one business day after being sent by Federal Express or
other overnight courier.
(c) This Agreement shall constitute the entire agreement
between the parties with respect to the subject matter hereof, and shall
supersede all previous oral and written (and all contemporaneous oral)
negotiations, commitments, agreements and understandings relating hereto.
(d) This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York. This
Agreement shall inure to the benefit of, and be binding upon, BMP, IHDG and
their respective successors and assigns. The provisions of Section 5 shall
inure to the benefit of each Indemnified Party.
(e) This Agreement may be executed by one or more parties
to this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(f) The waiver by any party of any breach of this
Agreement shall not operate as or be construed to be a waiver by such party of
any subsequent breach.
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall be not invalidate or render
unenforceable such provision in any other jurisdiction.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered by their duly authorized officers or agents as of
the date first above written.
BLACKSTONE MANAGEMENT PARTNERS
III L.L.C.
By:
-------------------------------
Name:
Title:
THE IMPERIAL HOME DECOR GROUP INC.
By:
-------------------------------
Name:
Title:
6
<PAGE>
EXHIBIT 12.1
IMPERIAL HOME DECOR GROUP INC.
------------------------------
(FORMERLY KNOWN AS
------------------
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.)
------------------------------------------
HISTORICAL COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------------
(IN MILLIONS)
IHDG
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before taxes and cumulative
effect of accounting changes.............. $ 27.2 $ 26.1 $ 28.5 $ 31.4
Plus: Fixed charges......................... 1.7 1.3 2.2 1.3
----------------------------------------------------------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ 28.9 $ 27.4 $ 30.7 $ 32.7
================================================================
FIXED CHARGES:
Interest expense............................ 0.0 (0.1) 0.9 (0.2)
One third of rental expense, representing
interest portion.......................... 1.7 1.4 1.3 1.5
----------------------------------------------------------------
$ 1.7 $ 1.3 $ 2.2 $ 1.3
================================================================
Ratio of Earnings to Fixed Charges.......... 17.2 21.3 13.8 24.8
<CAPTION>
TWELVE SIX
MONTHS MONTHS
ENDED ENDED
-------------- ------------
DECEMBER 31, JUNE 27,
1997 1998
-------------- ------------
<S> <C> <C>
Income before taxes and cumulative
effect of accounting changes.............. $ 33.8 $ (22.4)
Plus: Fixed charges......................... 1.1 10.6
------------ ------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ 34.9 $ (11.8)
============ ============
FIXED CHARGES:
Interest expense............................ (0.4) 9.9
One third of rental expense, representing
interest portion.......................... 1.5 0.7
------------ ------------
$ 1.1 $ 10.6
============ ============
Ratio of Earnings to Fixed Charges.......... 31.9 N/A
</TABLE>
<PAGE>
IMPERIAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
JANUARY 29, JANUARY 28, JANUARY 27, DECEMBER 28,
1994 1995 1996 1996
-----------------------------------------------------
<S> <C> <C> <C> <C>
Income before taxes and cumulative
effect of accounting changes.............. $ (24.2) $ 0.2 $ (36.2) $ (28.2)
Plus: Fixed charges......................... 5.6 10.1 14.6 10.5
-----------------------------------------------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ (18.6) $ 10.3 $ (21.6) $ (17.7)
=====================================================
Deficiency.................................. (24.2) (36.2) (28.2)
FIXED CHARGES:
Interest expense............................ 3.1 6.5 7.9 5.7
Loss on sale of receivables................. 0.0 1.3 4.3 2.6
One third of rental expense, representing
interest portion.......................... 2.5 2.3 2.4 2.2
-----------------------------------------------------
$ 5.6 $ 10.1 $ 14.6 $ 10.5
=====================================================
Ratio of Earnings to Fixed Charges.......... N/A 1.0 N/A N/A
<CAPTION>
TWELVE
MONTHS
ENDED (72 DAYS)
-------------------------
DECEMBER 31, MARCH 13,
1997 1998
-------------------------
<S> <C> <C>
Income before taxes and cumulative
effect of accounting changes.............. $ (27.6) $ (10.3)
Plus: Fixed charges......................... 6.8 1.7
-------------------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ (20.8) $ (8.6)
=========================
Deficiency.................................. (27.6) (10.3)
FIXED CHARGES:
Interest expense............................ 4.6 1.3
Loss on sale of receivables................. 0.0 0.0
One third of rental expense, representing
interest portion.......................... 2.2 0.4
-------------------------
$ 6.8 $ 1.7
=========================
Ratio of Earnings to Fixed Charges.......... N/A N/A
</TABLE>
<PAGE>
IMPERIAL HOME DECOR GROUP INC.
------------------------------
(FORMERLY KNOWN AS
------------------
BORDEN DECORATIVE PRODUCTS HOLDINGS, INC.)
------------------------------------------
SCHEDULE OF RATIO OF EARNINGS TO FIXED CHARGES (PRO FORMA)
----------------------------------------------------------
(IN MILLIONS)
-------------
PRO FORMA
------------------------------
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 27, JUNE 27,
1997 1998
------------------------------
Income before taxes and cumulative
effect of accounting changes.............. $ (15.7) $ (23.6)
Plus: Fixed charges......................... 36.9 18.2
------------------------------
Income before taxes and cumulative
effect of accounting changes plus
fixed charges............................. $ 18.9 $ (5.4)
Deficiency.................................. (15.7) (23.6)
FIXED CHARGES:
Cash interest expense....................... 31.1 15.7
Amortization of deffered financing charges.. 2.6 1.3
One third of rental expense, representing
interest portion.......................... 3.3 1.2
------------------------------
$ 36.9 18.2
==============================
Ratio of Earnings to Fixed Charges.......... 0.5 (0.3)
<PAGE>
Direct and Indirect Subsidiaries of
The Imperial Home Decor Group Inc.(1)
<TABLE>
<CAPTION>
Entity Its Shareholder
- ------ ---------------
<S> <C>
The Imperial Home Decor Group (Canada) ULC The Imperial Home Decor Group Inc. (100%)
Imperial Home Decor Group Holdings I Limited The Imperial Home Decor Group Inc. (100%)
WDP Investments, Inc. The Imperial Home Decor Group Inc. (100%)
The Imperial Home Decor Group (US) LLC The Imperial Home Decor Group Inc. (100%)
Vernon Plastics, Inc. The Imperial Home Decor Group Inc. (100%)
Imperial Home Decor Group Holdings II Limited Imperial Home Decor Group Holdings I Limited (100%)
The Imperial Home Decor Group (UK) Limited Imperial Home Decor Group Holdings II Limited (100%)
Storeys Decorative Products Limited (UK) Imperial Home Decor Group Holdings II Limited (100%)
Imperial Home Decor Group Realty (UK) Limited Imperial Home Decor Group Holdings II Limited (100%)
Imperial Pension Trustees Limited (UK) Imperial Home Decor Group Holdings II Limited (50%)
The Imperial Home Decor Group (UK) Limited (50%)
Crown Wallpapers, Limited Imperial Home Decor Group Holdings II Limited (100%)
Multicolor Wallpapers, Limited Imperial Home Decor Group Holdings II Limited (100%)
Riggs of Bridlington, Limited Imperial Home Decor Group Holdings II Limited (100%)
Mystique Wallcoverings, Limited Imperial Home Decor Group Holdings II Limited (100%)
</TABLE>
- --------
(1) Excluding Reebor Limited (UK), which is 50% owned by The Imperial Home Decor
Group Inc. and 50% owned by others.
<PAGE>
<TABLE>
<S> <C>
Shand Kydd, Limited Imperial Home Decor Group Holdings II Limited (100%)
Transprints (UK) Limited Imperial Home Decor Group Holdings II Limited (100%)
Rembrandt Engravers, Limited Imperial Home Decor Group Holdings II Limited (100%)
Texales (Converters) Limited Imperial Home Decor Group Holdings II Limited (100%)
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-58913 of The Imperial Home Decor Group Inc. of our report regarding The
Imperial Home Decor Group Inc., formerly known as Borden Decorative Products
Holdings, Inc., dated March 25, 1998, appearing in the Prospectus, which is part
of this Registration Statement. We also consent to the reference to us under
the headings "Selected Historical Financial Information--IHDG" and "Experts" in
such Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------------
DELOITTE & TOUCHE LLP
Columbus, Ohio
August 27, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in this registration
statement.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
August 27, 1998
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ANY AND ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2008
OF
THE IMPERIAL HOME DECOR GROUP INC.
UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY ON A
SENIOR SUBORDINATED UNSECURED BASIS BY
VERNON PLASTICS, INC., IMPERIAL HOME DECOR GROUP (US) LLC,
WDP INVESTMENTS, INC., MARKETING SERVICE, INC.,
AND IMPERIAL HOME DECOR GROUP HOLDINGS LIMITED
Pursuant to the Prospectus dated _______, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
__________, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for The Exchange Offer is:
The Bank of New York
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmission Number: By Hand or Overnight Delivery:
(Eligible Institutions Only)
The Bank of New York (212) 815-6339 101 Barclay Street
101 Barclay Street, Floor 7E Corporate Trust Services Window
New York, New York 10286 Ground Level
Attn.: Reorganization Section Confirm by Telephone: New York, New York 10286
or For Information Call: Attn: Reorganization Section - Floor 7E
(212) 815-5788
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID
DELIVERY.
The undersigned acknowledges that he or she has received the
Prospectus dated __________, 1998 (as amended or supplemented from time to
time, the "Prospectus") of The Imperial Home Decor Group Inc., a Delaware
corporation (the "Company"), and this Letter of Transmittal (as amended or
supplemented from time to time, the "Letter of Transmittal"), which together
constitute the offer of the Company (the "Exchange Offer") to exchange $1,000
principal amount of its 11% Senior Subordinated Notes due 2008, Series B (the
"Exchange Notes"), registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a registration statement of which the
Prospectus is a part, for each $1,000 principal amount of its outstanding 11%
Senior Subordinated Notes due 2008 (the "Old Notes") of which $125,000,000
aggregate principal amount is outstanding. The form and terms of the Exchange
Notes are the same as the form and terms of the Old Notes in all material
respects except that (i) the Exchange Notes will bear a Series B designation,
(ii) the Exchange Notes will have been registered under the Securities Act and
will not bear legends restricting the transfer thereof and (iii) holders of
the Exchange Notes will not be entitled to the rights of holders of Old Notes
under the Exchange and Registration Rights Agreement (as defined in the
Prospectus). The Exchange Notes will evidence the same debt as the Old Notes
(which they replace) and will be issued under and be entitled to the benefits
of the Indenture dated as of March 13, 1998, as supplemented from time to time
(the "Indenture"), by and among the Company, the Subsidiary Guarantors and The
Bank of New York, as trustee. The Old Notes and the Exchange Notes are
sometimes referred to herein collectively as the "Notes." See "The Exchange
Offer" and "Description of the Exchange Notes" in the Prospectus.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE
THIS LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein have the meanings given
to such terms in the Prospectus.
<PAGE>
This Letter of Transmittal is to be completed by holders of Old Notes
either if Old Notes are to be forwarded herewith or if tenders of Old Notes
are to be made by book-entry transfer to an account maintained by The Bank of
New York (the "Exchange Agent") at The Depository Trust Company (the
"Book-Entry Transfer Facility" or "DTC") pursuant to the procedures set forth
in the Prospectus under "The Exchange Offer -- Procedures for Tendering."
Delivery of this Letter of Transmittal and any other required documents should
be made to the Exchange Agent.
Any beneficial owner whose Old Notes are held through DTC or a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such holder of Old Notes promptly and instruct such
holder of Old Notes to tender on behalf of the beneficial owner. If such
beneficial owner wishes to tender on his own behalf, such beneficial owner
must, prior to completing and executing this Letter of Transmittal and
delivering his Old Notes, either make appropriate arrangements to transfer
record ownership of the Old Notes in such beneficial owner's name or obtain a
properly completed bond power from the record holder of Old Notes. The
transfer of record ownership may take considerable time. In order to properly
complete this Letter of Transmittal, a holder of Old Notes must (i) complete
the box entitled "Description of Old Notes," (ii) if appropriate, check and
complete boxes relating to book entry transfer, guaranteed delivery, Special
Issuance Instructions and Special Delivery Instructions, (iii) sign the Letter
of Transmittal by completing the box entitled "Please Sign Here" and (iv)
complete the Substitute Form W-9. Each holder of Old Notes should carefully
read the detailed instructions below prior to completing the Letter of
Transmittal.
Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available, (ii) who cannot deliver their Old Notes, this
Letter of Transmittal, or any other required documents to the Exchange Agent
or (iii) who cannot complete the procedures for book-entry transfer prior to
the Expiration Date may effect a tender of such Old Notes in accordance with
the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate numbers and
principal amount of Old Notes should be listed on a separate schedule affixed
hereto.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES (1) (2) (3)
- -------------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Aggregate Principal Amount
(Please fill in, if blank) Principal of Old Notes
Certificate Amount of Tendered
Number(s)* Old Notes (if less than all)**
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------- ----------------------- ------------------------
---------------------- ----------------------- ------------------------
---------------------- ----------------------- ------------------------
---------------------- ----------------------- ------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
holders.
** Old Notes may be tendered in whole or in part in integral multiples of
$1,000, provided that if any Old Notes are tendered for exchange in part,
the untendered principal amount thereof must be any integral multiple of
$1,000. See instruction 3. Unless this column is completed, a holder will
be deemed to have tendered the full aggregate principal amount of the Old
Notes represented by the Old Notes indicated in column 2.
-2-
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS1 ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________________________________
Account Number ________________________________________________________
Transaction Code Number _______________________________________________
By crediting Old Notes to the Exchange Agent's account at DTC in
accordance with DTC's ATOP (defined in Instruction 1) and by complying with
applicable ATOP procedures with respect to the Exchange Offer, including
transmitting a computer-generated message to the Exchange Agent in which the
holder of the Old Notes acknowledges and agrees to be bound by the terms of
this Letter of Transmittal, the participant in DTC confirms on behalf of
itself and the beneficial owners of such Old Notes all provisions of this
Letter of Transmittal applicable to it and such beneficial owners as fully as
if it had completed the information required herein and executed and
transmitted this Letter of Transmittal to the Exchange Agent.
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) _______________________________________
Window Ticket Number (if any) _________________________________________
Name of Eligible Institution that Guaranteed Delivery _________________
Date of Execution of Notice of Guaranteed Delivery ____________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution _________________________________________
Account Number ________________________________________________________
Transaction Code Number _______________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER THAT ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES AND
WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF
ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _________________________________________________________________
Address: ______________________________________________________________
- -----------------
1 The first paragraph of Instruction 4 contains the definition of an
"Eligible Institution."
-3-
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Company the aggregate principal amount
of Old Notes indicated above in exchange for a like aggregate principal amount
of Exchange Notes. By executing this Letter of Transmittal or causing the
transmission of an Agent's Message (defined in Instruction 1) and, subject to,
and effective upon, the acceptance for exchange of the Old Notes tendered
hereby, the undersigned hereby irrevocably exchanges, assigns and transfers
to, or upon the order of, the Company all right, title and interest in and to
such Old Notes.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company) with respect to the
tendered Old Notes with the full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest), subject to
the right of withdrawal described in the Prospectus, to (i) deliver
certificates for such Old Notes to the Company and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company,
(ii) present such Old Notes for transfer on the books of the Company and (iii)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Old Notes, all in accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned
is the owner of and has full power and authority to tender, exchange, assign
and transfer the Old Notes tendered hereby and to acquire Exchange Notes
issuable upon the exchange of such tendered Old Notes and that, when the same
are accepted for exchange, the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claims or proxies. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
exchange, assignment and transfer of the Old Notes tendered hereby, and the
undersigned will comply with its obligations under the Exchange and
Registration Rights Agreement. The undersigned has read and agreed to all of
the terms of the Exchange Offer.
The undersigned agrees that acceptance of any tendered Old Notes by
the Company and the issuance of Exchange Notes in exchange therefor will
constitute performance in full by the Company of its obligations under the
Exchange and Registration Rights Agreement and that the Company will have no
further obligations or liabilities thereunder (except in limited
circumstances).
The name(s) and address(es) of the registered holders of the Old
Notes tendered hereby should be printed above, if they are not already set
forth above, as they appear on the Old Notes. The Certificate number(s) and
the Old Notes that the undersigned wishes to tender should be indicated in the
appropriate boxes above.
The undersigned also acknowledges that this Exchange Offer is being
made in reliance upon certain interpretations of the staff of the Securities
and Exchange Commission (the "Commission") set forth in certain no-action
letters issued to third parties in unrelated, but similar transactions. On the
basis thereof, the Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder that is (i) an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act or (ii) a broker-dealer that
acquired the Old Notes as an initial purchaser thereof or in a transaction as
a part of its market-making or other trading activities) without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such holder's business and such holder has no arrangement or understanding
with any person to participate in the distribution of such Exchange Notes.
The undersigned acknowledges that any holder of Old Notes using the
Exchange Offer to participate in a distribution of the Exchange Notes (i)
cannot rely on the position of the staff of the Commission enunciated in its
interpretive letter with respect to Exxon Capital Holdings Corporation
(available April 13, 1989) or similar letters and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of Exchange Notes. If the undersigned
is a broker-dealer that will receive Exchange Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The undersigned represents that (i) any Exchange Notes to be received
by it will be acquired in the ordinary course of business, (ii) it will have
no arrangements or understanding with any person to participate in the
distribution of the Old Notes
-4-
<PAGE>
or the Exchange Notes within the meaning of the Securities Act, (iii) it is
not an affiliate of the Company or, if it is such an affiliate, it will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable, (iv) if it is not a broker-dealer, that it is
not engaged in, and does not intend to engage in, the distribution of Exchange
Notes and (v) if it is a broker-dealer that will receive Exchange Notes for
its own account (a "Participating Broker-Dealer") in exchange for Old Notes
that were acquired as a result of market-making or other trading activities,
that it will deliver a prospectus in connection with any resale of such
Exchange Notes.
The Company and the Subsidiary Guarantors have agreed that, subject
to the provisions of the Exchange and Registration Rights Agreement, the
Prospectus may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer for its own account as
a result of market-making activities or other trading activities, for a period
ending 180 days after the date of the Prospectus or, if earlier, when all such
Exchange Notes have been disposed of by such Participating Broker-Dealer.
Each Participating Broker-Dealer, by tendering such Old Notes and
executing this Letter of Transmittal, agrees that, upon receipt of notice from
the Company of the occurrence of any event or the discovery of any fact which
makes any statement contained or incorporated by reference in the Prospectus
untrue in any material respect or which causes the Prospectus to omit to state
a material fact necessary in order to make the statements contained or
incorporated by reference therein, in light of the circumstances under which
they were made, not misleading or of the occurrence of certain other events
specified in the Exchange and Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant
to the Prospectus until the Company and the Subsidiary Guarantors have amended
or supplemented the Prospectus to correct such misstatement or omission and
have furnished copies of the amended or supplemented Prospectus to the
Participating Broker-Dealer or the Company has given notice that the sale of
the Exchange Notes may be resumed, as the case may be. If the Company gives
such notice to suspend the sale of the Exchange Notes, the 180-day period
referred to above during which Participating Broker-Dealers are entitled to
use the Prospectus in connection with the resale of Exchange Notes shall be
extended by the number of days during the period from and including the date
of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the supplemented or amended
Prospectus necessary to permit resales of the Exchange Notes or to and
including the date on which the Company has given notice that the sale of
Exchange Notes may be resumed, as the case may be.
The undersigned understands that tenders of the Old Notes pursuant to
any one of the procedures described under "The Exchange Offer -- Procedures
for Tendering" in the Prospectus and in the instructions hereto and the
acceptance thereof by the Company will constitute agreement between the
undersigned and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Prospectus.
The undersigned recognizes that under certain circumstances set forth
in the Prospectus under "The Exchange Offer -- Conditions" the Company will
not be required to accept for exchange any of the Old Notes tendered. Old
Notes not accepted for exchange or withdrawn will be returned to the
undersigned at the address set forth below unless otherwise indicated in the
box entitled "Special Delivery Instructions" below (or, in the case of Old
Notes tendered by book-entry transfer, credited to an account maintained by
the tendering holder at DTC).
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, the undersigned hereby directs that the Exchange
Notes (and, if applicable, any substitute certificates representing Old Notes
not exchanged or not accepted for exchange) be issued in the name(s) of the
undersigned and be delivered to the undersigned at the address, or, in the
case of book-entry transfer of Old Notes, be credited to the account at DTC
shown above in the box entitled "Description of Old Notes."
The Exchange Notes will bear interest from their date of issuance.
Holders of Old Notes that are accepted for exchange will receive, in cash,
accrued interest thereon from the last Interest Payment Date on which interest
was paid, or if no interest has been paid, the date of issuance of the Old
Notes to, but not including, the date of issuance of the Exchange Notes. Such
interest will be paid with the next interest payment on the Exchange Notes on
March 15, 1998 to persons who are registered holders of the Exchange Notes on
March 1, 1998. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
The undersigned will, upon request, execute and deliver any
additional documents deemed by the Company to be necessary or desirable to
complete the sale, assignment and transfer of the Old Notes tendered hereby.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. This tender
may be withdrawn only in accordance with the procedures set forth in the
Prospectus and in the instructions contained in this Letter of Transmittal.
-5-
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL AND DELIVERING SUCH OLD
NOTES AND THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT, WILL BE DEEMED TO
HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
- ------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9)
X _________________________________ Date: ______________, 1998
X _________________________________ Date: ______________, 1998
Signature(s) of Owner
The above lines must be signed by the registered holder(s) exactly as
their name(s) appear(s) on the Old Notes, or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of
Transmittal. If Old Notes to which this Letter of Transmittal relate are held
of record by two or more joint holders, then all such holders must sign this.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, then please set forth full title. See
Instruction 4.
Name(s): ____________________________________________________________
_____________________________________________________________________
(Please Type or Print)
Capacity: ___________________________________________________________
Address: ____________________________________________________________
_____________________________________________________________________
(Including Zip Code)
Area Code and Telephone Number: _____________________________________
Tax Identification or
Social Security Number(s): __________________________________________
SIGNATURE GUARANTEE
(If required by Instruction 4)
Signatures Guaranteed
by an Eligible Institution: _________________________________________
(Authorized Signature)
_____________________________________________________________________
(Title)
_____________________________________________________________________
(Name of Firm)
_____________________________________________________________________
(Address and Telephone Number)
Dated: _________________, 1998
- ------------------------------------------------------------------------------
-6-
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------- ---------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5) (See Instructions 4 and 5)
To be completed ONLY if certificates for Old To be completed ONLY if certificates for Old
Notes not exchanged and/or Exchange Notes are to be Notes not exchanged and/or Exchange Notes are to
be issued in the name of and sent to someone other than to be sent to someone other than the person or persons
the person or persons whose signature(s) appear(s) on whose signature(s) appear(s) on this Letter of
this Letter of Transmittal above. Transmittal above or to such person or persons at an
address other than shown in the box above entitled
Issue Exchange Notes and/or Old Notes to: "Description of Old Notes."
Name(s): ................................................ Deliver Exchange Notes and/or Old Notes to:
(Please Type or Print)
Name(s): ................................................
......................................................... (Please Type or Print)
(Please Type or Print)
.........................................................
Address: ................................................ (Please Type or Print)
......................................................... Address:.................................................
(Zip Code)
.........................................................
Telephone Number:........................................ (Zip Code)
Tax Identification or Telephone Number:........................................
Social Security Number(s):...............................
Tax Identification or
(Complete Substitute Form W-9) Social Security Number(s):...............................
- ---------------------------------------------------------- ---------------------------------------------------------
</TABLE>
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH,
THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (OR, IN THE CASE OF A
BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE) (TOGETHER WITH THE CERTIFICATE(S) FOR
OLD NOTES AND ANY OTHER DOCUMENTS REQUIRED) MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
-7-
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY
TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
Forming Part of the Terms and Conditions of the Exchange Offer
1. Procedures for Tendering.
Only a holder of Old Notes may tender such Old Notes in the Exchange
Offer. To tender in the Exchange Offer, a holder must complete, sign and date
this Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by this Letter of Transmittal or transmit an
Agent's Message in connection with a book-entry transfer, and mail or
otherwise deliver this Letter of Transmittal or a facsimile thereof or Agent's
Message, together with the Old Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
To be tendered effectively, the Old Notes, this Letter of Transmittal or
Agent's Message and other required documents must be completed and received by
the Exchange Agent at the address set above prior to 5:00 p.m., New York City
time, on the Expiration Date. Delivery of the Old Notes may be made by
book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
The term "Agent's Message" means a message, transmitted by a
book-entry transfer facility to, and received by, the Exchange Agent forming a
part of a confirmation of a book-entry, which states that such book-entry
transfer facility has received an express acknowledgment from the participant
in such book-entry transfer facility tendering the Old Notes that such
participant has received and agrees: (i) to participate in the Automated
Tender Option Program ("ATOP"); (ii) to be bound by the terms of this Letter
of Transmittal; and (iii) that the Company may enforce such agreement against
such participant.
By executing this Letter of Transmittal or Agent's Message, each
holder will make to the Company the representations set forth above in the
Prospectus in the third paragraph under the heading "The Exchange
Offer--Purpose and Effect of the Exchange Offer."
The Company shall be deemed to have accepted validly tendered Old
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from the Company.
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth in the Prospectus and in
this Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THIS LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT
THE ELECTION AND SOLE RISK OF THE HOLDER, AND DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY CONFIRMED BY THE EXCHANGE AGENT. AS AN ALTERNATIVE TO
DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS. THE METHOD OF DELIVERY USED IS AT THE
TENDERING HOLDER'S RISK.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf.
Although delivery of the Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, unless an Agent's Message is received by the Exchange Agent
in compliance with ATOP, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
-8-
<PAGE>
All questions as to the validity, form, eligibility (including time
of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the Company, the
Exchange Agent nor any person shall incur any liability for failure to give
such notification. Tender of Old Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering holders, unless otherwise provided in
this Letter of Transmittal, as soon as practicable following the Expiration
Date.
The Company will not accept any alternative, conditional or
contingent tenders. By execution of this Letter of Transmittal or delivery of
an Agent's Message, each tendering holder waives any right to receive notice
of the acceptance of such tender.
2. Guaranteed Delivery Procedures.
Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available, (ii) who cannot deliver their Old Notes, this
Letter of Transmittal or any other required documents to the Exchange Agent or
(iii) who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) on or prior to the Expiration Date, the Exchange Agent
received from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth
the name and address of the holder, the certificate
number(s) of the such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, this Letter
of Transmittal (or facsimile hereof) (or, in the case of a
book-entry transfer, an Agent's Message) together with the
certificate(s) representing the Old Notes (or a confirmation
of book-entry transfer of such Notes into the Exchange
Agent's account at the Book- Entry Transfer Facility), and
any other documents required by this Letter of Transmittal
or the instructions hereto will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) the certificate(s) representing all tendered Old Notes in
proper form for transfer (or a confirmation of a book-entry
transfer of such Old Notes into the Exchange Agent's account
at the Book Entry Transfer Facility), together with this
Letter of Transmittal (of facsimile hereof), properly
completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an
Agent's Message) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent
within three New York Stock Exchange trading days after the
Expiration Date.
3. Partial Tenders and Withdrawal Rights.
The Company will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000. If less than all the Old Notes evidenced by any
Certificate submitted are to be tendered, fill in the principal amount of Old
Notes which are to be tendered in the box entitled "Principal Amount of Old
Notes Tendered (if less than all)." In such case, new certificate(s) for the
remainder of the Old Notes that were evidenced by your old certificate(s) will
only be sent to the holder of the Old Notes (or, in the case of Old Notes
tendered pursuant to book-entry transfer, will only be credited to the account
at DTC maintained by the holder of the Old Notes) promptly after the
Expiration Date. All Old Notes represented by certificates or subject to a
Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
-9-
<PAGE>
Except as otherwise provided in the Prospectus, tenders of Old Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received
by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) include a
statement that such holder is withdrawing its election to have such Old Notes
exchanged, (iv) be signed by the holder in the same manner as the original
signature on this Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents
of transfer sufficient to have the Trustee with respect to the Old Notes
register the transfer of such Old Notes into the name of the person
withdrawing the tender and (v) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn
are validly retendered. Any Old Notes which have been tendered but which are
not accepted for exchange will be returned to the holder thereof without cost
to such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"Procedures for Tendering" at any time prior to the Expiration Date.
4. Signatures on this Letter of Transmittal; Bond Powers and
Endorsements; Guarantee of Signatures.
Signatures on this Letter of Transmittal or a notice of withdrawal,
as the case may be, must be guaranteed by an Eligible Institution unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on this Letter of Transmittal (which shall
include any participant in DTC whose name appears on the register of holders
as owner of the Old Notes) or (ii) for the account of an Eligible Institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by an Eligible Institution. An "Eligible Institution" is a firm or
other entity identified in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, as an "eligible guarantor institution," including (as such
terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker, municipal securities dealer, government securities broker,
government securities dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or learning agency; or (v) a
savings association that is a participant in a Securities Transfer Association
recognized program.
If this Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed herein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company of their authority to so act must be submitted
with this Letter of Transmittal.
5. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box
the name and address or account at DTC to which Exchange Notes issued pursuant
to the Exchange Offer and/or substitute Old Notes for principal amounts not
tendered or not accepted for exchange are to be issued, sent or deposited if
different from the name and address or account of the person signing this
Letter of Transmittal. In the case of issuance in a different name, the
employer identification or social Security number of the person named must
also be indicated. If no such instructions are given, any Exchange Notes will
be issued in the name of, and delivered to, the name and address (or account
at DTC, in the case of any tender by book-entry transfer) of the person
signing this Letter of Transmittal, and any Old Notes not accepted for
exchange will be returned to the name and address (or account at DTC, in the
case of any tender by book-entry transfer) of the person signing this Letter
of Transmittal.
-10-
<PAGE>
6. Backup Federal Income Tax Withholding and Substitute Form W-9.
Under the federal income tax laws, payments that may be made by the
Company on account of Exchange Notes issued pursuant to the Exchange Offer may
be subject to backup withholding at the rate of 31%. In order to avoid such
backup withholding, each tendering holder should complete and sign the
Substitute Form W-9 included in this Letter of Transmittal and either (a)
provide the correct taxpayer identification number ("TIN") and certify, under
penalties of perjury, that the TIN provided is correct and that (i) the holder
has not been notified by the Internal Revenue Service (the "IRS") that the
holder is subject to backup withholding as a result of failure to report all
interest or dividends or (ii) the IRS has notified the holder that the holder
is no longer subject to backup withholding; or (b) provide an adequate basis
for exemption. If the tendering holder has not been issued a TIN and has
applied for one, or intends to apply for one in the near future, such holder
should write "Applied For" in the space provided for the TIN in Part I of the
Substitute Form W-9, sign and date the Substitute Form W-9 and sign the
Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For"
is written in Part I, the Company (or the Paying Agent under the Indenture
governing the Exchange Notes) will retain 31% of payments made to the
tendering holder during the 60-day period following the date of the Substitute
Form W-9. If the holder furnishes the Exchange Agent or the Company with its
TIN within 60-days after the date of the Substitute Form W-9, the Company (or
the Paying Agent) will remit such amounts retained during the 60-day period to
the holder and no further amounts shall be retained or withheld from payments
made to the holder thereafter. If, however, the holder has not provided the
Exchange Agent or the Company with its TIN within such 60-day period, the
Company (or the Paying Agent) will remit such previously retained amounts to
the IRS as backup withholding. In general, if a holder is an individual, the
taxpayer identification number is the Social Security Number of such
individual. If the Exchange Agent or the Company is not provided with the
correct taxpayer identification number, the holder may be subject to a $50
penalty imposed by the IRS. Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, such holder must submit a statement
(generally, IRS Form W-8), signed under penalties of perjury, attesting to
that individual's exempt status. Such statements can be obtained from the
Exchange Agent. For further information concerning backup withholding and
instructions for completing the Substitute Form W-9 (including how to obtain a
taxpayer identification number if you do not have one and how to complete the
Substitute Form W-9 if Old Notes are registered in more than one name),
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself,
cause Old Notes to be deemed invalidly tendered, but may require the Company
(or the Paying Agent) to withhold 31% of the amount of any payments made on
account of the Exchange Notes. Backup withholding is not an additional federal
income tax. Rather, the federal income tax liability of a person subject to
backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
7. Transfer Taxes.
Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to this Instruction
7, transfer taxes with respect to the exchange of Old Notes pursuant to the
Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "The Exchange Offer--Fees and Expenses" in the Prospectus. If,
however, Exchange Notes and/or substitute Old Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered herewith, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the transfer of Old Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer
taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary
for transfer the stamps to be affixed to the Old Notes specified in this
Letter of Transmittal.
8. Waiver of Conditions.
The Company reserves the absolute right to waive, in whole or in
part, any of the conditions to the Exchange Offer set forth in the Prospectus.
-11-
<PAGE>
9. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders of Old
Notes or transmittals of this Letter of Transmittal will be accepted. All
tendering holders of Old Notes, by execution of this Letter of Transmittal,
shall waive any right to receive notice of the acceptance of their Old Notes
for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
10. Inadequate Space.
If the space provided herein is inadequate, the aggregate principal
amount of Old Notes being tendered and the certificate number or numbers (if
applicable) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter of Transmittal.
11. Mutilated, Lost, Stolen or Destroyed Old Notes.
If any certificate has been lost, mutilated, destroyed or stolen, the
holder should promptly notify The Bank of New York at 101 Barclay Street (7
East), New York, New York 10286, telephone (212) 815-2742. The holder will
then be instructed as to the steps that must be taken to replace the
certificate. This Letter of Transmittal and related documents cannot be
processed until the Old Notes have been replaced.
12. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as
requests for additional copies of the Prospectus and this Letter of
Transmittal, may be directed to the Exchange Agent at the address and
telephone number indicated above.
13. Validity of Tenders.
All questions as to the validity, form, eligibility (including time
of receipt) and acceptance of tendered Old Notes will be determined by the
Company, in its sole discretion, which determination will be final and
binding. The Company reserves the right to reject any and all Old Notes not
validly tendered or any Old Notes, the Company's acceptance of which may, in
the opinion of the Company or counsel to the Company, be unlawful. The Company
also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Old Notes as to any ineligibility of
any holder who seeks to tender Old Notes in the Exchange Offer, whether or not
similar conditions or irregularities are waived in the case of other holders.
The interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) by the
Company shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. The Company will use reasonable
efforts to give notification of defects or irregularities with respect to
tenders of Old Notes, but neither the Company nor the Exchange Agent shall
incur any liability for failure to give such notification.
14. Acceptance of Tendered Old Notes and Issuance of Exchange Notes;
Return of Old Notes.
Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Expiration Date and will issue Exchange Notes therefor
as soon as practicable thereafter. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted tendered Old Notes when, as and if
the Company has given written and oral notice thereof to the Exchange Agent.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for
any reason, such unexchanged Old Notes will be returned, without expense, to
the name and address shown above or, if Old Notes have been tendered by
book-entry transfer, to the account at DTC shown above, or at a different
address or account at DTC as may be indicated under "Special Delivery
Instructions."
-12-
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 6)
PAYOR'S NAME: __________________________________________
<TABLE>
<S> <C>
==================================================================================================================
SUBSTITUTE FORM W-9 Part I--Taxpayer Identification
Number
Department of the Treasury __________________________________
Internal Revenue Service Enter your taxpayer identification Social Security Number
number in the appropriate box. For
most individuals, this is your social OR
Security number. If you do not have a
number, see how to obtain a "TIN" in
the enclosed Guidelines. __________________________________
Employer Identification Number
NOTE: If the account is in more than
one name, see the chart on page 2 of
the enclosed Guidelines to determine
what number to give.
-----------------------------------------------------------------------------
Part II--For Payees Exempt from Backup Withholding (see enclosed
Guidelines)
-----------------------------------------------------------------------------
Payor's Request for Taxpayer CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY
Identification Number (TIN) THAT:
and Certification (1) the number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject
to backup withholding as a result of a failure to report all interest
or dividends or the IRS has notified me that I am no longer subject to
backup withholding.
SIGNATURE___________________________________________ DATE____________________
==================================================================================================================
</TABLE>
Certificate Guidelines--You must cross out Item (2) of the above certification
if you have been notified by the IRS that you are subject to backup
withholding because of underreporting of interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject to
backup withholding, you received another notification from the IRS that you
are no longer subject to backup withholding, do not cross out Item (2).
==============================================================================
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal
Revenue Service Center or Social Security Administration Office (or I intend
to mail or deliver an application in the near future). I understand that if I
do not provide a Taxpayer Identification Number to the payor, 31% of all
payments made to me on account of the Exchange Notes shall be retained until I
provide a Taxpayer Identification Number to the payor and that, if I do not
provide my Taxpayer Identification Number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as a backup
withholding and 31% of all reportable payments made to me thereafter will be
withheld and remitted to the Internal Revenue Service until I provide a
Taxpayer Identification Number.
SIGNATURE______________________________________ DATE__________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE
NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
-13-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF ANY AND ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
11% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
OF
THE IMPERIAL HOME DECOR GROUP INC.
UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY ON A
SENIOR SUBORDINATED UNSECURED BASIS BY
VERNON PLASTICS, INC., IMPERIAL HOME DECOR GROUP (US) LLC,
WDP INVESTMENTS, INC., MARKETING SERVICE, INC.,
AND IMPERIAL HOME DECOR GROUP HOLDINGS LIMITED
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used by registered holders of outstanding 11% Senior Subordinated
Notes due 2008 (the 'Old Notes') of The Imperial Home Decor Group Inc., a
Delaware corporation (the 'Company'), who wish to tender each of their $1,000
principal amount of the Old Notes for $,000 principal amount of the Company's
11% Senior Subordinated Notes due 2008, Series B (the 'Exchange Notes') that
have been registered under the Securities Act of 1933, as amended and (i) whose
Old Notes are not immediately available, (ii) who cannot deliver their Old
Notes, the duly completed and executed Letter of Transmittal or any other
required documents to The Bank of New York, as exchange agent (the 'Exchange
Agent'), or (iii) who cannot complete the procedures for book-entry transfer
prior to 5:00 P.M., New York City time on the Expiration Date.
This Notice of Guaranteed Delivery may be delivered by facsimile
transmission, mail or hand delivery (receipt confirmed by telephone and an
original delivered by guaranteed overnight delivery), to the Exchange Agent. See
'The Exchange Offer--Guaranteed Delivery Procedures' in the Prospectus. The
Company has the right to reject a tender of Old Notes made pursuant to the
guaranteed delivery procedures unless the registered holder using the guaranteed
delivery procedure submits either (a) the Old Notes tendered thereby, in proper
form for transfer, or (b) confirmation of book-entry transfer set forth in the
Prospectus, in either case together with one or more properly completed and duly
executed Letter(s) of Transmittal (or facsimile thereof) (or, in the case of a
book-entry transfer, an Agent's Message) and any other documents required by the
Letter of Transmittal within five New York Stock Exchange trading days after the
Expiration Date.
Capitalized terms used but not defined herein have the meanings given to
such terms in the Prospectus dated , 1998, as the same may be
amended or supplemented from time to time (the 'Prospectus').
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail Facsimile Transmissions: By Hand Or Overnight Delivery
(Eligible Institutions Only)
The Bank of New York (212) 815-6339 The Bank of New York
101 Barclay Street 101 Barclay Street
New York, NY 10286 CONFIRM BY TELEPHONE Corporate Trust Services Window
Attn: Corporate Trust Operations or for information Call: Ground Level
(212) 815-5788 New York, NY 10286
Attn: Reorganization Section,
Floor 7E
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN 'ELIGIBLE INSTITUTION' UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions set forth in the Prospectus
and the related Letter of Transmittal (which together constitute the 'Exchange
Offer'), receipt of which is hereby acknowledged, the undersigned hereby tenders
to the Company the aggregate principal amount of the Old Notes set forth below,
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption 'The Exchange Offer-- Guaranteed Delivery Procedures' and in
instruction 2 to the Letter of Transmittal.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT
APPEARS ON THE OLD NOTES CERTIFICATE NUMBER(S) OF AGGREGATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF
(PLEASE PRINT) OLD NOTES TENDERED REPRESENTED BY OLD NOTES* OLD NOTES TENDERED
<S> <C> <C> <C>
- -------------------------- ------------------------- -------------------------- --------------------------
- -------------------------- ------------------------- -------------------------- --------------------------
- -------------------------- ------------------------- -------------------------- --------------------------
- -------------------------- ------------------------- -------------------------- --------------------------
- -------------------------- ------------------------- -------------------------- --------------------------
- -------------------------- ------------------------- -------------------------- --------------------------
- -------------------------- ------------------------- -------------------------- --------------------------
</TABLE>
- ------------------
* Must be in denominations of a principal amount of U.S. $1,000 and integral
multiples thereof.
If the Old Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number:___________________
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X________________________________________ Date:__________________________, 1998
X________________________________________ Date:__________________________. 1998
Signature(s) of Owner(s)
or Authorized Signatory
Area Code and Telephone Number:____________________________________
Must be signed by the holder(s) of the Old Notes as their name(s) appear(s) on
certificates of the Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery.
2
<PAGE>
If a signature or signatures on the previous page is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below.
<TABLE>
<S> <C>
Please print name(s) and address(es)
Names(s): _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Capacity: _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Address(es): _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
</TABLE>
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED
3
<PAGE>
THIS GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not To Be Used For Signature Guarantee)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an 'eligible guarantor
institution,' including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
learning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program, hereby guarantees to deliver
to the Exchange Agent, at one of its addresses set forth above, either (a) the
Old Notes tendered hereby, in proper form for transfer, or (b) confirmation of
the book-entry transfer of such Old Notes into the Exchange Agent's account at
The Depositary Trust Company maintained for such purpose, pursuant to the
procedures for book-entry transfer set forth in the Prospectus, in either case
together with one or more properly completed and duly executed Letter(s) of
Transmittal (or facsimile thereof) (or, in the case of a book-entry transfer, an
Agent's message) and any other documents required by the Letter of Transmittal
within five New York Stock Exchange trading days after the Expiration Date.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
<TABLE>
<S> <C>
Name of Firm:______________________________________ ____________________________________________
(Authorized Signature)
Address:___________________________________________ Title:______________________________________
___________________________________________ Name:_______________________________________
(zip code) (Please type or print)
Area Code and
Telephone Number:__________________________________ Date:________________________________________
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
4
<PAGE>
Exhibit 99.3
OFFER TO EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ANY AND ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2008
OF
THE IMPERIAL HOME DECOR GROUP INC.
UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY ON A
SENIOR SUBORDINATED UNSECURED BASIS BY
VERNON PLASTICS, INC., IMPERIAL HOME DECOR GROUP (US) LLC,
WDP INVESTMENTS, INC., MARKETING SERVICE, INC.,
AND IMPERIAL HOME DECOR GROUP HOLDINGS LIMITED
To The Depository Trust Company Participants:
We are enclosing herewith a Prospectus dated , 1998 (as
amended and supplemented from time to time, the 'Prospectus') of The Imperial
Home Decor Group Inc., a Delaware corporation (the 'Company'), and the related
Letter of Transmittal (as amended and supplemented form time to time, the
'Letter of Transmittal') which together constitute the offer of the Company (the
'Exchange Offer') to exchange $1,000 principal amount of its outstanding 11%
Senior Subordinated Notes due 2008, Series B (the 'Exchange Notes'), registered
under the Securities Act of 1933, as amended (the 'Securities Act'), pursuant to
a registration statement of which the Prospectus is a part, for each $1,000
principal amount of its outstanding 11% Senior Subordinated Notes due 2008 (the
'Old Notes') of which $125,000,000 aggregate principal amount is outstanding.
Capitalized terms not defined herein have the meanings given to such terms in
the Prospectus.
Enclosed herewith are copies of the following documents;
1. Prospectus dated , 1998;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instructions to Registered Holder and/or Book-Entry Transfer
Participant from Beneficial Owner; and
5. Letter which may be sent to your clients for whose account you hold
Old Notes in your name or in the name of your nominee, to accompany
the instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE
OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
To tender in the Exchange Offer, a holder (a 'Holder') must transmit an
Agent's Message together with a book-entry transfer, the Old Notes and any other
required documents, to The Bank of New York (the 'Exchange Agent') prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Agent's Message and other required documents must be completed and received
by the Exchange Agent at the address set forth in the Letter of Transmittal
prior to 5:00 p.m., New York City time, on the Expiration Date. Confirmation of
book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
The term 'Agent's Message' means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
('ATOP'); (ii) to be bound by the terms of the Letter of Transmittal; and (iii)
that the Company may enforce such agreement against such participant.
<PAGE>
Pursuant to the Letter of Transmittal, each Holder will represent to the
Company that (i) any Exchange Notes to be received by it will be acquired in the
ordinary course of business, (ii) it will have no arrangements or understanding
with any person to participate in the distribution of the Old Notes or the
Exchange Notes within the meaning of the Securities Act, (iii) it is not an
affiliate of the Company or, if it is such an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable, (iv) if it is not a broker-dealer, that it is not engaged in,
and does not intend to engage in, the distribution of Exchange Notes and (v) if
it is a broker-dealer that will receive Exchange Notes for its own account (a
'Participating Broker-Dealer') in exchange for Old Notes that were acquired as a
result of market-making or other trading activities, that it will deliver a
prospectus in connection with any resale of such Exchange Notes. If the
tendering Holder is Participating Broker-Dealer, you will represent on behalf of
such broker-dealer that the Old Notes to be exchanged for the Exchange Notes
were acquired by it as a result of market-making activities or other trading
activities, and acknowledge on behalf of such broker-dealer that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such Exchange Notes. By acknowledging that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes, such broker-dealer will not be deemed to admit
that it is an 'underwriter' within the meaning of the Securities Act.
The enclosed Instruction to the Book-Entry Transfer Participant contains an
authorization by the beneficial owners of the Old Notes for you to make the
foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 7 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from The Bank of
New York, 101 Barclay Street, Floor 7E, New York, NY 10286, Attention:
Reorganization Section.
Very truly yours,
THE IMPERIAL HOME DECOR GROUP INC.
BY: __________________________________
Scott R. Levin
Executive Vice President--
Administration and
Chief Financial Officer
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF THE IMPERIAL HOME DECOR GROUP INC. OR THE BANK OF NEW YORK OR
AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN
CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
EXHIBIT 99.4
OFFER TO EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ANY AND ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2008
OF
THE IMPERIAL HOME DECOR GROUP INC.
UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY ON A
SENIOR SUBORDINATED UNSECURED BASIS BY
VERNON PLASTICS, INC., IMPERIAL HOME DECOR GROUP (US) LLC,
WDP INVESTMENTS, INC., MARKETING SERVICE, INC.,
AND IMPERIAL HOME DECOR GROUP HOLDINGS LIMITED
To Our Clients:
We are enclosing herewith a Prospectus dated , 1998 (as amended
and supplemented from time to time, the 'Prospectus') of The Imperial Home Decor
Group Inc., a Delaware corporation (the 'Company'), and the related Letter of
Transmittal (as amended and supplemented form time to time, the 'Letter of
Transmittal') which together constitute the offer of the Company (the 'Exchange
Offer') to exchange $1,000 principal amount of its outstanding 11% Senior
Subordinated Notes due 2008, Series B (the 'Exchange Notes'), registered under
the Securities Act of 1933, as amended (the 'Securities Act'), pursuant to a
registration statement of which the Prospectus is a part, for each $1,000
principal amount of its outstanding 11% Senior Subordinated Notes due 2008 (the
'Old Notes') of which $125,000,000 aggregate principal amount is outstanding.
Capitalized terms not defined herein have the meanings given to such terms in
the Prospectus.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the participants in the book-entry transfer facility of Old Notes
held by us for your account. A tender of such Old Notes can be made only by us
as the participant in the book-entry transfer facility and pursuant to your
instructions. The Letter of Transmittal is furnished to you for your information
only and cannot be used by you to tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal that are to be
made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each Holder will represent to the
Company that (i) any Exchange Notes to be received by it will be acquired in the
ordinary course of business, (ii) it will have no arrangements or understanding
with any person to participate in the distribution of the Old Notes or the
Exchange Notes within the meaning of the Securities Act, (iii) it is not an
affiliate of the Company or, if it is such an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable, (iv) if it is not a broker-dealer, that it is not engaged in,
and does not intend to engage in, the distribution of Exchange Notes and (v) if
it is a broker-dealer that will receive Exchange Notes for its own account (a
'Participating Broker-Dealer') in exchange for Old Notes that were acquired as a
result of market-making or other trading activities, that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
Each Participating Broker-Dealer that receives Exchange Notes for its own
account in exchange for Old Notes must acknowledge that it (i) acquired the Old
Notes for its own account as a result of market-making activities or other
trading activities, (ii) has not entered into any arrangement or understanding
with the Company or any 'affiliate' of the Company (within the meaning of the
Rule 405 under the Securities Act) to distribute the Exchange Notes to be
received in the Exchange Offer and (iii) will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. By acknowledging that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, such broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
Very truly yours,
2
<PAGE>
INSTRUCTION TO
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
OF
11% SENIOR SUBORDINATED NOTES DUE 2008
OF
THE IMPERIAL HOME DECOR GROUP INC.
UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY ON A
SENIOR SUBORDINATED UNSECURED BASIS BY
VERNON PLASTICS, INC., IMPERIAL HOME DECOR GROUP (US) LLC,
WDP INVESTMENTS, INC., MARKETING SERVICE, INC.,
AND IMPERIAL HOME DECOR GROUP HOLDINGS LIMITED
To Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (as amended or supplemented from time to time, the
'Prospectus') of The Imperial Home Decor Group Inc. (the 'Company') and a
related Letter of Transmittal (which together constitute the 'Exchange Offer').
Capitalized terms used but not defined herein have the meaning given to such
terms in the relevant Prospectus.
This will instruct you, the book-entry transfer facility participant, as to
the action to be taken by you relating to the Exchange Offer with respect to the
Old Notes held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$ of the 11% Senior Subordinated Notes Due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate statement):
A. / / TO TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered):
$ (1) of the 11% Senior Subordinated Notes Due 2008,
and not to tender other Old Notes, if any, held by you for the account of
the undersigned;
OR
B. / / NOT TO TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) it
is not an affiliate of the Company or any of its subsidiaries, or, if the
undersigned is an affiliate of the Company or any of its subsidiaries, it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable, (ii) the Exchange Notes are being acquired in the
ordinary course of business of the person receiving such Exchange Notes, whether
or not such person is the holder, (iii) the undersigned has not entered into an
arrangement or understanding with any other person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes,
(iv) the undersigned is not a broker-dealer who purchased the Notes for resale
pursuant to an exemption under the Securities Act, and (v) the undersigned will
be able to trade Exchange Notes acquired in the Exchange Offer without
restriction under the Securities Act. If the undersigned is a broker-dealer
(whether or not it is also an 'affiliate') that will receive Exchange Notes for
its own account pursuant to the Exchange Offer, it represents that such Old
Notes to be exchanged were acquired by it as a result of market-making
activities or other trading activities, and it acknowledges that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such Exchange Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes, the undersigned will not be
deemed to admit that it is an 'underwriter' within the meaning of the Securities
Act.
- ------------------
(1) Must be in a minimum aggregate principal amount of $1,000 any integral
multiple thereof in excess thereof.
3
<PAGE>
SIGN HERE
Name of beneficial owner(s): ___________________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
(zip code)
Telephone Number: ______________________________________________________________
(area code)
Taxpayer identification or Social Security Number:
_____________________________________________
Date:_______________________________________
4
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1060242
<NAME> IMPERIAL HOME DECOR GROUP INC.
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 JUN-27-1998
<CASH> 3,795 6,018
<SECURITIES> 0 0
<RECEIVABLES> 55,160 103,725
<ALLOWANCES> 1,758 3,935
<INVENTORY> 59,479 118,668
<CURRENT-ASSETS> 138,816 276,775
<PP&E> 125,469 103,223
<DEPRECIATION> 58,729 110,096
<TOTAL-ASSETS> 239,634 415,209
<CURRENT-LIABILITIES> 61,558 145,817
<BONDS> 0 0
163,800 59
30,389 0
<COMMON> 200 0
<OTHER-SE> (27,656) (77,386)
<TOTAL-LIABILITY-AND-EQUITY> 239,634 415,209
<SALES> 372,738 215,030
<TOTAL-REVENUES> 372,738 215,030
<CGS> 242,718 146,315
<TOTAL-COSTS> 96,551 69,779
<OTHER-EXPENSES> 0 11,340
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 9,902
<INCOME-PRETAX> 33,772 (22,306)
<INCOME-TAX> 11,384 124
<INCOME-CONTINUING> 22,388 (22,430)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 22,388 (22,430)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
