<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1995
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
DECORA INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 10775 68-0003300
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1 MILL STREET
FORT EDWARD, NEW YORK 12828
(518) 747-6255
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TIMOTHY N. BURDITT
1 MILL STREET
FORT EDWARD, NEW YORK 12828
(518) 747-6255
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
_____________________
COPIES OF COMMUNICATIONS TO:
DALE S. MILLER, ESQ.
MILLER & HOLGUIN
2029 CENTURY PARK EAST, SUITE 1060
LOS ANGELES, CALIFORNIA 90067
(310) 556-1990
_____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. /x/
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CALCULATION OF REGISTRATION FEE
===========================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to Be Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit Offering Price Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 768,307 shares $1.30(1) $1,000,000 $264.91
Common Stock, $.01 par value 872,461 shares $1.03(1) $ 587,250(1) $300.82
-------
Total $565.73
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
</TABLE>
(1) The value of the claim being satisfied by issuance of shares pursuant to
this registration statement is $587,250. The number of shares to be
registered includes 572,461 shares based upon a current calculation and
300,000 shares which may be required to be issued if the share price
decreases in the 30 days following the effective date of this
registration statement.
_____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
DECORA INDUSTRIES, INC.
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-K
Showing the Location in the Prospectus of the Information
Required by Part I of Form S-1
FORM S-1 ITEM NUMBER HEADING OR SUBHEADING IN PROSPECTUS
-------------------- -----------------------------------
1. Forepart of the Registration Facing Page of Registration Statement;
Statement and Outside Front Cross Reference Sheet; Outside Cover of
Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back Covers of
Cover Pages of Prospectus Prospectus
3. Summary Information, Risk Prospectus Summary; Certain Factors
Factors and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds Outside Front Cover of Prospectus;
Prospectus Summary; Plan of Distribution
and Use of Proceeds
5. Determination of Offering Price Inapplicable
6. Dilution Inapplicable
7. Selling Security Holders Inapplicable
8. Plan of Distribution Outside Front Cover of Prospectus; Plan
of Distribution and Use of Proceeds
9. Description of Securities to be Description of Securities
Registered
10. Interests of Named Experts and Legal Matters; Experts
Counsel
11. Information with Respect to the
Registration Prospectus Summary; the Company; Certain
Factors; Price Range of Common Stock and
Dividend Policy; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business of the
Company; Directors and Executive
Officers; Executive Compensation; Market
Price of the Securities; Legal
Proceedings; Security Ownership of
Certain Beneficial Owners and
Management; Certain Relations and
Related Transactions; Financial
Statements
12. Disclosure of Commission Inapplicable
Position on Indemnification for
Securities Act Liabilities
<PAGE> 3
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 STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, Dated June 28, 1995
PROSPECTUS
__________
DECORA INDUSTRIES, INC.
1 Mill Street
Fort Edward, New York 12828
(518) 747-6255
__________
1,640,769 Shares of Common Stock
__________
This Prospectus relates to the issuance by Decora Industries, Inc. (the
"Company") to certain individuals (the "Security Holders") of 1,640,769 shares
of Common Stock in settlement of certain litigation. All of the Security Holders
were given the right to have their shares registered under the Securities Act of
1933, as amended (the "Act"). The Company will not receive any cash proceeds
from the sale of the securities offered hereunder by the Security Holders.
However, the registration of the shares is in full satisfaction of a claim of
the Security Holders against the Company. See "Plan of Distribution and Use of
Proceeds".
The Common Stock is quoted on NASDAQ under the symbol "DECO". The closing bid
price of the Common Stock reported by NASDAQ on June 5, 1995, was $1.19. See
"Price Range of Common Stock and Dividend Policy."
______________________
<PAGE> 4
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. SEE "CERTAIN FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION 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______________, 1995
<PAGE> 5
No dealer, salesman or other person has been authorized to give any information
or make any representations, other than those contained in this Prospectus, in
connection with the offering hereby, and, if given or made, such information and
representations must not be relied upon as having been authorized by the Company
or the Security Holders. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, any securities to any person in any State
or other jurisdiction in which such offer or solicitation is unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company or the facts herein set forth since the date hereof.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission, in its
Washington, D.C. office, the Registration Statement (of which this Prospectus is
a part), on Form S-1 pursuant to the Securities Act of 1933, as amended, with
respect to the securities of the Company being registered hereby. The Prospectus
contains only a portion of the information contained in the Registration
Statement. For further information pertaining to the securities registered
hereby, and the Company, reference is made to the Registration Statement and to
the schedules and exhibits filed. Statements contained in this Prospectus as to
the contents of any contracts or other documents referred to herein are not
necessarily complete. Where such contract or other document is an exhibit to the
Registration Statement, each said statement is deemed to be qualified in all
respect by the provisions of the exhibits.
The Company is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, and, in accordance therewith, files reports, proxy
statements and other information with the Commission. All such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at the headquarters office of
the Commission, Room 1024, 450 5th Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621-2511. Copies of such material may also be
obtained from the Public Reference Section of the Commission, 450 5th Street,
N.W., Washington, D.C. 20549, at prescribed rates.
<PAGE> 6
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY..................................................... 2
CERTAIN FACTORS........................................................ 5
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY........................ 7
SELECTED FINANCIAL INFORMATION......................................... 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................... 10
BUSINESS............................................................... 17
MANAGEMENT............................................................. 25
EXECUTIVE COMPENSATION................................................. 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................................. 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................... 32
PLAN OF DISTRIBUTION AND USE OF PROCEEDS............................... 33
DESCRIPTION OF SECURITIES.............................................. 33
LEGAL MATTERS.......................................................... 34
EXPERTS................................................................ 34
INDEX TO FINANCIAL STATEMENTS.......................................... F-1
INFORMATION NOT REQUIRED IN PROSPECTUS................................. II-1
<PAGE> 7
PROSPECTUS SUMMARY
The following is a brief summary of certain information contained elsewhere in
this Prospectus. The summary should not in any way be considered complete and is
qualified in its entirety by and reference is made to the more detailed
information contained in this Prospectus and the documents referred to herein.
THE COMPANY
Decora Industries, Inc. (the "Company" or "Decora"), a holding company, is a
Delaware corporation operating through its subsidiary, Decora, Incorporated
("Decora Manufacturing" and its divisions). The main emphasis of Decora
Manufacturing is the development, manufacture and sale of consumer decorative
products and of specialty industrial products, utilizing its pressure-sensitive,
self-adhesive, release and coating technologies including a new proprietary
technology known as Wearlon(R).
The Company's principal offices are located at 1 Mill Street, Fort Edward, New
York 12828, and its telephone number is (518) 747-6255.
PLAN OF DISTRIBUTION
The Company will issue certain shares, within seven business days of the
effectiveness of its registration statement, in settlement of certain debt
obligations and litigation with the Rabinowitz family, the former owners of its
discontinued Yorkville Industries, Inc. subsidiary (the "Settlement Shares") as
follows: (i) 768,307 shares of common stock; (ii) the number of shares of its
common stock determined by dividing $587,250 by the average of the closing bid
price for the 60 consecutive trading days prior to the effective date of the
registration statement but in no event less than 475,000 shares; and (iii) in
the event that the average closing bid price during the 30 consecutive trading
days before the effective date of the registration statement, and the 30
consecutive trading days after the effective date of the registration statement
do not exceed $587,250, the Company will issue the number of additional shares
of its common stock necessary to achieve a net sales value of $587,250 for the
shares issued described in subparagraph (ii) above. The Settlement Shares will
be issued to members of the Rabinowitz family in satisfaction of amounts owed to
them by the Company for the purchase of Yorkville which occurred in December
1989. In connection with such settlement which was finalized in July 1994, the
Company agreed to register such Settlement Shares under the Act. This Prospectus
was prepared pursuant to the foregoing contractual commitment to register the
Settlement Shares.
2
<PAGE> 8
THE OFFERING
<TABLE>
<S> <C>
Total Shares Offered to the
Security Holders (1)................................................. 1,640,769 shares
Common Stock Outstanding Prior
to this Offering..................................................... 30,669,562 shares
Common Stock to Be Outstanding
After Completion of this
Offering(2).......................................................... 32,310,331 shares
Certain Factors........................................................ This offering is speculative and involves a high degree
of risk. See "Certain Factors."
Use of Proceeds........................................................ The Company will not receive cash proceeds from the
issuance of Shares pursuant to this Prospectus.
However, the registration of the Shares is part of a
settlement of claims totaling $1,587,250.
NASDAQ symbol.......................................................... DECO
</TABLE>
- --------------------
(1) Additional shares may be issued pursuant to the settlement, the amount
of shares to be issued, if any, shall be determined 30 days following
the effective date of the registration statement pursuant to the terms
of the settlement with Security Holders..
(2) Does not include (i) 4,454,000 shares issuable upon the exercise of
certain options; (ii) 975,000 shares issuable upon the exercise of
certain warrants; (iii) 1,765,355 shares issuable upon the exercise of
certain convertible securities; (iv) 1,200,000 shares reserved for
issuance under the Company's 1987 Stock Option Plan; or (v) 500,000
shares reserved for issuance under the Company's 1988 Stock Purchase
Plan. See "Description of Securities."
3
<PAGE> 9
SUMMARY FINANCIAL DATA
The following table sets forth summary historical financial data with respect to
the Company which should be read in conjunction with and is qualified in its
entirety by the consolidated financial statements and accompanying notes of the
Company included herein.
DECORA INDUSTRIES, INC.
SELECTED FINANCIAL DATA
For the five years ended March 31, 1994
and the nine month periods ended December 31, 1994 and 1993(1)(2)(3)
(In thousands except per share data)
<TABLE>
<CAPTION>
Year Ended March 31,
Nine Months Ended
December 31,
(Unaudited)
------------------ --------------------------------------------------------
1994 1993 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $30,517 $29,281 $39,955 $38,543 $40,751 $35,472 $ 0
Operating Income (Loss) $ 3,158 $ 3,250 $ 4,192 $ 3,107 $ 3,291 $ 3,530 $(1,054)
Income (Loss) from Continuing Operations $ 1,306 $ 1,143 $ 1,629 $ 623 $ (428) $ (136) $(1,261)
Income (Loss) from Discontinued Operations $ (283) $ (194) $(1,481) $ 68 $(8,673) $(2,225) $ (592)
------- ------- ------- ------- ------- -------- -------
Net Income (Loss) $ 1,023 $ 1,337 $ 148 $ 691 $(9,101) $(2,361) $(1,852)
======= ======= ======= ======= ======= ======= =======
Income (Loss) Per Share:
Continuing Operations $ 0.04 $ 0.04 $ 0.06 $ 0.02 $ 0 $ (0.01) $ (0.08)
Discontinued Operations $ (0.01) $ 0.01 $ (0.05) $ 0.01 $ (0.44) $ (0.13) $ (0.04)
------- ------- ------- ------- ------- ------- -------
Income (Loss) Per Share(1) $ 0.03 $ 0.05 $ 0.01 $ 0.03 $ (0.44) $ (0.14) $ (0.12)
======= ======= ======= ======= ======= ======= =======
Balance Sheet Data:(3)
Total Assets $30,773 $36,434 $30,023 $34,952 $34,165 $55,038 $26,565
Working capital (deficit) $(2,092) $(3,570) $ 515 $(1,904) $(5,605) $(7,980) $(2,424)
Long-term Obligations $13,769 $14,859 $18,937 $18,146 $19,358 $22,033 $ 5,195
Stockholders Equity: (deficit) $ 4,275 $ 3,582 $ 2,577 $ 1,666 $(2,878) $ (431) $ 1,918
Cash Dividends per common share(2) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- -----------------------
(1) Includes shares issuable upon exercise of outstanding warrants and options
to purchase Common Stock if their inclusion is dilutive.
(2) The Company does not anticipate paying cash dividends in the foreseeable
future.
(3) Historical balance sheet data has not been restated for discontinued
operations in years prior to the year in which the relevant measurement date
occurred.
4
<PAGE> 10
CERTAIN FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk, and should not be acquired by any investor who cannot afford the
loss of his entire investment. Prior to making an investment decision with
respect to the securities offered hereby, prospective investors should carefully
consider, along with the other matters discussed in this Prospectus, the
following risk factors:
1. Major Source of Revenues in Single Market and from Single Purchaser. The
Company's core business, operated through its Decora Manufacturing subsidiary,
has been dependant on a large purchaser for substantially all of its revenues.
Over 95% of Decora Manufacturing's revenues in its last full fiscal year were
from sales to Rubbermaid Incorporated ("Rubbermaid") of variations of its
decorative covering products. See "Customers" and "Products and Services -
Consumer Decorative Products Group". Demand for its ConTact(R) line, its oldest
decorative covering product can vary, but has been relatively flat in the last
two years. The Company is working to address this product dependence by
expanding its product line both with Rubbermaid to include new variations on its
existing product and by expanding its offerings in the consumer decorative,
adhesive and industrial areas with new products utilizing its proprietary
technology, including Wearlon(R). The Company has introduced Fabri-Art(TM),
Cushion(TM), and Ultra in the last year, but so far only 5% of its revenues are
derived from these new products. The market acceptance of the new products which
is necessary to relieve its dependence on its older ConTact(R) product has yet
to be proven. At the same time, the Company's dependence on Rubbermaid has
recently increased as a result of the signing of a new manufacturing agreement
which incorporates new processes into Decora's Rubbermaid product operations and
which is estimated to increase Rubbermaid product revenues by approximately 18%
in the first full year of operations. At present, Decora Manufacturing's
continuing profitable operations are dependent on maintaining sales of its core
product and a continuing relationship with Rubbermaid. The current Manufacturing
Agreement with Rubbermaid was recently extended until 1999.
2. Risks in Developing and Commercializing New Technology. Decora Manufacturing
has recently developed a number of new self adhesive consumer decorative
products with its new technology. See "Decora Manufacturing Products and
Services". The commercialization and sale of these new products are partially
new ventures with high costs, expenses, difficulties and delays associated with
commercialization of new products. Such new product development necessitates new
production processes for cost effective manufacture in commercial quantities. At
the same time, the Company has developed a distribution plan for each product,
either through an internal sales and marketing organization or through
establishing relationships with companies with existing distribution networks.
This development process typically spans over a period of years. Although the
Company in the last few years has expended substantial sums on accomplishing
development of new products from its new technologies which has taxed the
Company's resources, significant additional funds must be expended for the new
product and process development and marketing activities to continue. Further,
certain of the industrial products are in the testing phase. See "Decora
Manufacturing - Marketing, Research and Development". The Company has introduced
certain new products in the last year through its existing relationship with
Rubbermaid and other distributors and is still seeking strategic partners for
its industrial products. However, thus far only 5% of its revenues are derived
from its new products. The sale of the new products have not yielded significant
revenue and/or profits and no assurances can be given that such revenues or
profits will be achieved. Further, until significant revenues are achieved and
efficiencies created in the production process for new product, the earnings of
the Company will be adversely impacted through significant research and
development expenditures. See "Management's Discussion and Analysis".
3. Competition. Although ConTact(R) products are not sold by the Company to the
ultimate consumer, competition experienced by Rubbermaid affects the Company's
revenues directly. Although there are competitive products, management believes
Rubbermaid dominates the market, based on price and superior product. Some of
the Company's new industrial products are based on technology which compete with
similar
5
<PAGE> 11
applications derived from other technologies. Furthermore, the markets served
are extremely competitive and are composed of many companies, many of which have
more capital, marketing expertise and personnel resources than that of the
Company. There can be no assurance that the Company will be able to compete
successfully in each market in which it is embarking. See "Decora Manufacturing
- - Competition".
4. Significant Company Debt. The Company (Decora Industries, Inc. or the
"Parent") has short term debt obligations including convertible notes in the
amount of $1,500,000 to a significant shareholder due in November 1995 and
$550,000 due to a lender in December 1995. The Company has also guaranteed the
debt of its discontinued ComTel subsidiary which following the sale of the
assets has a remaining balance of $764,519 and is being restructured. The
Company intends to increase debt by $2,000,000-$3,000,000 over the next twelve
months to finance the necessary expansion required in connection with the
expanded Manufacturing Agreement with Rubbermaid (see "Management's Discussion
and Analysis of Financial Condition"). In addition, it has guaranteed Decora
Manufacturing's debt which includes a $4,000,000 sinking fund payment due in
April 1996 and $1,500,000 for each of the next two years in April of each year
and ongoing quarterly payments of $333,000 to its primary lender. Although, the
Company intends to seek extension of the existing convertible notes and sinking
fund obligations of Decora Manufacturing, management believes its Decora
Manufacturing subsidiary will have sufficient funds both to make its upcoming
sinking fund payment and to pay its outstanding bank debt in the ordinary course
of its business. In the event additional funds are needed to address any
shortfall in payments, the Company anticipates some combination of an extension
and a refinancing, all of which the Company has successfully accomplished in the
past. No assurances can be given that these plans will be successfully
implemented. To the extent that the Company is not able to obtain the necessary
extensions or otherwise satisfy each of the foregoing creditors, its ability to
effectively operate may be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition".
5. Earnings History. Although the Company has significant revenues and has been
profitable for the past two full fiscal years, the Company has never had
substantial net income. The income from continuing operations of the Company for
its last fiscal year, which ended March 31, 1994, was $1,629,000 or $0.06 per
share on revenues of $39,955,000 and for the nine month period ended December
31, 1994 was $1,306,000 or $0.04 per share on revenues of $30,517,000. See
"Selected Financial Information" and "Management's Discussion and Analysis of
Financial Condition".
6. Dependence on Key Personnel. The Company is dependent on its executive
officers including Nathan Hevrony, its Chief Executive Officer and Chairman of
the Board and key staff members of Decora Manufacturing. See "Management" which
describes the employment agreements which the Company has entered into with
these individuals and other members of management. Should any such officer cease
to be affiliated with the Company before an acceptable replacement is found,
there could be a material adverse affect on the Company's business and
prospects. No assurances can be given that suitable replacements could be hired,
if at all, except at substantial additional cost to the Company. No key person
Insurance has been obtained by the Company for management. In addition, John
Smith, a full time consultant to the Company's Decora Manufacturing subsidiary
is the head of the subsidiary's research and development efforts pursuant to a
consulting agreement which term ends in August 1996 (unless extended by mutual
agreement). Decora Manufacturing purchased the rights to much of its current
technology from Mr. Smith. If Mr. Smith terminates such consulting arrangement,
it could have a material adverse effect on the development by the Company of new
technologies. Decora Manufacturing has purchased key person life insurance
policies in the amount of $5,000,000 on various key personnel. See "Description
of Business - Decora Manufacturing".
7. Proprietary Rights. The Company has certain patents and proprietary
registrations for certain of its products. In addition, it has applied for many
foreign patents and tradename registrations for certain other products. The
Company's ability to compete effectively with other companies will depend in
part on its ability
6
<PAGE> 12
to maintain the proprietary nature of its technologies. The Company has in the
course of its development of the pressure sensitive and new coating technology,
licensed its technology to various parties and provided samples of various
components of its technology to certain third parties. Although the Company
relies on Trade Secrets and Confidentiality Agreements with licensees, employees
and other parties, the law in this area is not free from doubt and rights of the
Company may be difficult to enforce. A theft or other appropriation of the
Company's technology by a competitor could materially and adversely affect the
Company's business. Additionally, there is no guarantee that technology deemed
by the Company to be proprietary will not be challenged by other parties as
either belonging to them or existing in the public domain. The legal costs of a
trade dispute could be expensive and could sharply affect the Company's growth
of its new technology. It is also possible that competitors will develop
products substantially similar to those outside the protection of any trade
secret or other protection. See "Proprietary Rights".
8. Dilution. The Company's refinancing plans or requirements to satisfy its debt
may involve issuances of additional securities of the Company to certain lenders
or third parties; such issuances could result in immediate dilution to
purchasers of the Company's common stock. See "Management's Discussion and
Analysis of Financial Condition".
9. No Dividends. The Company has never paid any cash dividends and does not
intend to pay any dividends in the foreseeable future. The Company intends to
retain any future earnings for use in its business.
10. Authorization of "Blank Check" Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of preferred stock, par value $.01 per
share ("Preferred Stock"), with such designation, rights and preferences as may
be determined from time to time by the by the Board of Directors. Accordingly,
the Board of Directors is empowered, without further action or approval by the
holders of the Company's Common Stock, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of Common Stock. Under certain
circumstances, issuance of Preferred Stock could have the effect of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
Preferred Stock, there can be no assurance that the Company will not do so in
the future. See "Description of Securities."
11. Shares Eligible for Future Sale. 5,449,000 shares have been reserved for
issuance by the Company upon the exercise of outstanding options and warrants
shares have been reserved for issuance by the Company upon conversion of
outstanding convertible debt instruments, 1,200,000 shares have been reserved
for issuance by the Company under the Company's 1987 Stock Option Plan, and
500,000 shares have been reserved for issuance by the Company under the
Company's 1988 stock purchase plan. Sales of such shares in the public market
(which, in the case of freely tradeable stock, can occur at any time or, in the
case of stock subject to restrictions, after applicable restrictions lapse)
could adversely affect the market price of the Company's Common Stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded in the over-the-counter market. The
Company's Common Stock has been quoted on NASDAQ since 1986. Until April 1992
the stock traded under the symbol UTLL. After the completion of the
reincorporation in the State of Delaware and the change of the Company's name,
the Company's NASDAQ symbol was changed to DECO.
7
<PAGE> 13
The following table reflects inter-dealer quotations, without retail markup,
markdown or commission, and may not necessarily represent actual transactions.
The high and low range of the Common Stock and bid prices for the dates
indicated have been provided by the National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
Common Stock
------------
Bid Prices
----------
High Low
---- ---
<S> <C> <C>
Fiscal 1995:
First Quarter 1 5/16 5/16
Second Quarter 2 3/32 1 1/8
Third Quarter 1 13/32 1 7/16
Fourth Quarter 1 1/4 15/16
Fiscal 1994:
First Quarter 2 1/8 1 1/2
Second Quarter 2 1/32 1 7/16
Third Quarter 1 5/8 1 7/16
Fourth Quarter 1 9/16 1
Fiscal 1993:
First Quarter 2 1/8 1 1/4
Second Quarter 2 13/32 1 1/2
Third Quarter 2 3/8 1 7/16
Fourth Quarter 2 9/32 1 5/8
</TABLE>
On June 5, 1995, the closing bid and asked prices for the shares in the
over-the-counter market were $1.19 and $1.25, respectively, as reported by the
National Quotation Bureau, Inc. The Company has also authorized a class of
preferred stock, although no shares of preferred stock have yet been issued. The
estimated number of beneficial owners of the Company's Common Stock is
approximately 1,761 and the number of stockholders of record on June 5, 1995 was
929.
The Company has never paid a cash dividend and intends to retain earnings, if
any, for use in its business. The Company's agreements with its lenders restrict
the ability of the Company to pay cash dividends and the Company does not
presently intend to pay any cash dividends on its Common Stock for the
foreseeable future.
SELECTED FINANCIAL INFORMATION
The following selected financial data of the Company as to the five fiscal years
ended March 31, 1994 are derived from the consolidated financial statements that
have been audited by Price Waterhouse LLP as to all years.
The interim information for the nine month periods ended December 31, 1994 and
1993 is unaudited; however, such data reflects all adjustments, consisting of
normal recurring adjustments, which are, in the opinion of management, necessary
for a fair presentation of the financial condition and operating results for the
interim period. Results for operations for the nine month period ended December
31, 1994 are not necessarily an indication of the results to be expected for the
entire year ending March 31, 1995.
The following table should be read in conjunction with the Company's financial
statements and the notes thereto. None of the information in the table includes
discontinued operations of the Company. See Note 3 of the financial statements.
See also "Management's Discussion and Analysis".
8
<PAGE> 14
DECORA INDUSTRIES, INC.
SELECTED FINANCIAL DATA
For the five years ended March 31, 1994
and the nine month periods ended December 31, 1994 and 1993(1)(2)(3)
(In thousands except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
(Unaudited) Year Ended March 31,
----------------- ---------------------------------------------------------
1994 1993 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $30,517 $29,281 $39,955 $38,543 $40,751 $35,472 $ 0
Operating Income (Loss) $ 3,158 $ 3,250 $ 4,192 $ 3,107 $ 3,291 $ 3,530 $(1,054)
Income (Loss) from Continuing Operations $ 1,306 $ 1,143 $ 1,629 $ 623 $ (428) $ (136) $(1,261)
Income (Loss) from Discontinued Operations $ (283) $ (194) $(1,481) $ 68 $(8,673) $(2,225) $ (592)
------- ------- ------- ------- ------- ------- -------
Net Income (Loss) $ 1,023 $ 1,337 $ 148 $ 691 $(9,101) $(2,361) $(1,852)
======= ======= ======= ======= ======= ======= =======
Income (Loss) Per Share:
Continuing Operations $ 0.04 $ 0.04 $ 0.06 $ 0.02 $ 0 $ (0.01) $ (0.08)
Discontinued Operations $ (0.01) $ 0.01 $ (0.05) $ 0.01 $ (0.44) $ (0.13) $ (0.04)
------- ------- ------- ------- ------- ------- -------
Income (Loss) Per Share(1) $ 0.03 $ 0.05 $ 0.01 $ 0.03 $ (0.44) $ (0.14) $ (0.12)
======= ======= ======= ======= ======= ======= =======
Balance Sheet Data:(3)
Total Assets $30,773 $36,434 $30,023 $34,952 $34,165 $55,038 $26,565
Working capital (deficit) $(2,092) $(3,570) $ 515 $(1,904) $(5,605) $(7,980) $(2,424)
Long-term Obligations $13,769 $14,859 $18,937 $18,146 $19,358 $22,033 $ 5,195
Stockholders Equity: (deficit) $ 4,275 $ 3,582 $ 2,577 $ 1,666 $(2,878) $ (431) $ 1,918
Cash Dividends per common share(2) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- -----------------------
(1) Includes shares issuable upon exercise of outstanding warrants and options
to purchase Common Stock if their inclusion is dilutive.
(2) The Company does not anticipate paying cash dividends in the foreseeable
future.
(3) Historical balance sheet data has not been restated for discontinued
operations in years prior to the year in which the relevant measurement date
occurred.
9
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's financial statements include the consolidated financial position
at March 31, 1994 and March 31, 1993 and the consolidated results of operations
for the nine months ended December 31, 1994 and 1993 and the three fiscal years
ended March 31, 1994 of Decora Industries, Inc. (the "Company") and its
subsidiaries. The Company operates through its wholly-owned subsidiary, Decora
Manufacturing. After an extensive period of product and market development
utilizing the Company's proprietary Wearlon(R) coating and adhesives
technologies, the Company's results of operations for the nine months ended
December 31, 1994 reflect increased revenues and significantly increased
start-up manufacturing costs resulting from such new products and programs.
Certain of those costs were non-recurring; others are anticipated to continue.
In April 1994, management decided to discontinue the operations of a second
wholly-owned subsidiary, ComTel Industries, Inc. ("ComTel"). Accordingly, the
continuing operations of the Company now comprise the various divisions of
Decora Manufacturing, which constitute a single significant business segment.
The operating results for the business being divested and the estimated losses
on disposal have been segregated and reported net of tax as a discontinued
operation. The Company completed the sale of substantially all of the assets of
ComTel on June 14, 1995. Proceeds from the sale of the operations were used
primarily to reduce the debt of the subsidiary. (See Discontinued Operations
below and Note 4 to the Financial Statements for the nine months ended December
31, 1994.)
On July 22, 1994, the Company completed a refinancing and settlement transaction
("Refinancing and Settlement Transaction") which refinanced all of the past due
debt and settlement obligations of the Company including obligations to Chase
Manhattan Bank, InterEast Capital Limited, Security Holders and a former
director. These obligations totaling $7,552,000 as of March 31, 1994, consisted
of debt securities and previous settlements related largely to the previously
discontinued operations. All of such obligations became due and payable during
fiscal 1994. The total amount due was settled for a combination of cash,
securities and forgiveness of debt. (See Note 13 to the financial statements for
the year ended March 31, 1994).
Unless the context requires otherwise, the terms "Company" or "Parent" in this
discussion refer to the holding company Decora Industries, Inc.
RESULTS OF CONTINUING OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1994 VS. NINE MONTHS ENDED DECEMBER 31, 1993
Revenues of the Company for the nine months ended December 31, 1994 grew 4% over
the same period in the prior year increasing from $29,281,000 to $30,517,000.
Revenues associated with the Company's largest customer were approximately the
same as during the same period in the prior year while revenues of new products
and programs contributed an increase of $1,500,000 of incremental revenues
versus the prior year as a result of significant product and market development
activities during the year.
Gross profit for the nine months ended December 31, 1994 increased 14% over the
same period in the prior year from $7,593,000 to $8,668,000. Such increase
resulted primarily from increased sales volume noted above while gross profit
margins increased from 26% to 28% partially as a result of the discontinuance of
certain less profitable industrial products and manufacturing cost reductions
which were partially offset by new product start-up inefficiencies in the second
and third quarters as reflected in higher selling, marketing,
10
<PAGE> 16
general and administrative expenses which were not reflected in the gross profit
margin. Such manufacturing inefficiencies may recur as a result of the continued
development and sale of new products as described below. Since historically the
majority of the Company's revenues have been derived from one product line,
gross margins have typically demonstrated traditional trends. As the Company
introduces and manufactures an increasing mix of products with varying
profitability, gross margin analysis from quarter-to-quarter may become less
predictable.
Operating income for the nine months ended December 31, 1994 decreased slightly
from prior year's period from $3,250,000 to $3,158,000 primarily as a result of
increased expenses and inefficiencies in start-up of new product programs.
Management expects to maintain its selling, marketing, general and
administrative expenditures to support new product development and sales and
anticipates that once more new products are produced on a consistent basis and
consumer acceptance is gained, the inefficiencies related to such products will
be replaced with greater sales volume and profitability.
The reduction of operating income was offset by reduced interest expenses which
resulted from the reduction of debt at the Decora Manufacturing subsidiary
during the prior twelve months, the forgiveness of interest due as part of the
Refinancing and Settlement Transaction completed on July 22, 1994 (see "General"
heading above) and the extension of the CIGNA warrants put exercise date which
required no additional accrual of the obligation related to the warrants during
the period (see "Liquidity and Capital Resources" below). This resulted in a 14%
increase in income from continuing operations from $1,143,000, or $0.04 per
share, for the nine months ended December 31, 1993 to $1,306,000, or $0.04 per
share, for the nine months ended December 31, 1994.
Net income for the nine months ended December 31, 1993 was $1,023,000, or $0.03
per share, versus $1,337,000, or $0.05 per share, for the nine months ended
December 31, 1994. Although income from continuing operations increased, after
giving effect to a loss for the period from the Company's ComTel discontinued
operations, net income declined $477,000 versus the prior year period (see
"Discontinued Operations" below).
Management believes that revenues for its entire fiscal year will be slightly
higher than the prior year. The increase will result from increases in sales of
new products offset by lower revenues for core products and discontinued
industrial products.
FISCAL 1994 VS. FISCAL 1993
Revenues of Decora Manufacturing increased by 4% or $1,412,000 from $38,543,000
in fiscal 1993 to $39,955,000 in fiscal 1994. The prior year's results included
$618,000 of revenues from other industrial products of Decora Manufacturing
which were previously discontinued and thus revenues from comparable existing
and new product lines increased by approximately 5% or $2,030,000 in fiscal 1994
over the prior fiscal year as new products lines began to show results.
Approximately 40% of the increase in such revenues was derived from new products
and their respective selling programs which had no revenue in the prior year
including sales of the new thin film decorative products, sales of Wearlon(R)
coatings and chemicals and international sales of ConTact(R) products by the
Company's international sales group. Additionally, approximately 28% of such
increase in revenues was derived from sales of new ConTact(R) products including
Fabri-Art(TM) textile products, Kids Scapes(TM) self adhesive wall murals and
decorative trims and borders, and 24% of the increase in sales resulted from the
Company's proprietary industrial transprint release paper products. Traditional
ConTact(R) products provided the remainder of the growth in revenues increasing
less than 1% over the prior year.
11
<PAGE> 17
Operating income of Decora Manufacturing increased by $785,000, during the
current fiscal year from $3,921,000 in fiscal 1993 to $4,706,000 in fiscal 1994.
Higher sales and marketing expenses were partially offset by lower research and
development costs as well as increased gross profit resulting from the
combination of higher revenues and reduced fixed and variable expenses. As the
Company started to market its new products, it increased investment in sales and
marketing efforts and to a lesser degree on research and development, spending
an aggregate of $2.8 million in fiscal 1994 as compared with $2.0 million in the
prior year for all such activities with all of the increase related to increased
sales and marketing activities. These expenses include all marketing, sales and
development costs which are also related to the consumer products being
distributed by Rubbermaid. While the Company continues to invest in product
development, in the near future, only a small portion of the expenditures are
anticipated to be spent on pure R&D and a significant portion will be invested
on refining and commercializing products for the growing applications for
Wearlon(R) liquid coatings. The primary emphasis is now the fulfillment of its
major customer product requirements and the domestic and international sales and
marketing of products which are the result of research and development
activities over the past three years.
During fiscal 1994 and in the first quarter of fiscal 1995, Decora Manufacturing
signed several potentially significant agreements which reflect the increased
emphasis on sales and marketing. With regard to consumer products, during the
fourth quarter of fiscal 1994, the Company signed a new and exclusive six year
Manufacturing Agreement with Rubbermaid covering the traditional ConTact(R)
products as well as new products including Fabri-Craft(TM) self-adhesive
textiles and Kid Scapes(TM) wall murals. In addition, the new agreement allows
Decora Manufacturing to sell its decorative products in certain international
markets. The Company generated over $500,000 of such sales during the last half
of fiscal 1994 in the Middle East and South America.
With regard to industrial products, during the first quarter of fiscal 1995,
Decora Manufacturing signed two five year exclusive license and supply
agreements with North American Decorative Products, Inc. ("Norwall"). Under the
first agreement, Decora Manufacturing will provide proprietary coating and
laminating services and components for the conversion of Norwall's standard
wallcovering products into repositionable, removable, self-adhesive products for
sale into the North American wallcovering market. This agreement contains
minimum purchase volumes in order for Norwall to retain exclusivity in addition
to royalties to be paid based on the sale of self-adhesive wallcovering
products. The Company also signed a five year exclusive license and supply
agreement with Norwall for the manufacture and supply of decorative thin film
coordinated accents for the North American market which also contains minimum
purchase volumes in order to maintain exclusivity. Although revenues have begun
to be generated under these agreements, production is in beginning stages and
more significant revenues are expected to increase later in calender 1995.
Corporate expenses were approximately $200,000 greater in the current fiscal
year compared to the prior year as the result of the significant one-time legal
and professional fees incurred in connection with the debt restructurings
finalized in July 1994.
Interest expense decreased 3% from $2,514,000 in fiscal 1993 to $2,451,000 in
fiscal 1994. This decrease resulted primarily from the favorable impact of the
two year extension of the potential put obligation relating to the warrants in
the subsidiary (see Note 5(b) to the financial statements for the year ended
March 31, 1994) which was partially offset by higher interest expense of Decora
Manufacturing resulting from increases in prime rate and higher average line of
credit borrowings.
For the fourth quarter of fiscal 1994, revenues of Decora Manufacturing were
higher by $1,881,000 (21%) as compared to the comparable period of the prior
year, resulting in higher gross profit in the current period. The revenues and
operating results of ComTel (discontinued operations) experienced a sharp
decline in the fourth quarter mainly as the result of the poor performance in
ComTel's manufacturing division, primarily
12
<PAGE> 18
in El Paso, Texas. In June 1994, ComTel disposed of its El Paso, Texas
manufacturing operation and recorded a charge of $212,000 relating to this
divestiture in addition to the significant operating losses mentioned above. The
net loss of $1,189,000 for the fourth quarter is attributable to the losses
incurred by ComTel, offset in part by the profits of Decora Manufacturing. There
were no other material unusual charges or adjustments during the fourth quarter.
The Company's near and long term growth is anticipated by management to come
primarily from the production and sale of Wearlon(R) coating and self-adhesive
systems for wallcovering as well as decorative thin film products, increased
sales of Wearlon(R) liquid coatings in the industrial maintenance market and the
international expansion of sales activities for Rubbermaid products. It is
anticipated that such products and marketing activities will add growth to the
relatively flat revenues experienced in the last few years from the mature
domestic Con-Tact(R) business. Longer term expansion is anticipated from the
aforementioned in addition to further international expansion and growth in
Wearlon(R) coating sales in additional applications currently under development
including a wide range of marine coatings, ice-phobic applications and specialty
road marking paints, although no assurances can be given that such growth will
occur.
FISCAL 1993 VS. FISCAL 1992
Revenues of Decora Manufacturing declined by $2,208,000 (5.4%) from 1992 to
1993. This was partially the result of management's decision to reduce the
number of products in Decora's Specialty Products line which were marginally
profitable products, such as specialty roll label stocks and tapes. The
elimination of these products permitted the maintenance of approximately the
same gross margin (21%) on the reduced revenues. Sales of Con-Tact(R) products
to Rubbermaid were also lower than the record sales achieved in the prior year.
Management believes that the fiscal 1992 record sales were the result of the
extensive revitalization of the line conducted by Rubbermaid in calendar 1991,
which entailed an extensive expansion of displays, patterns and catalogs as well
as increased special advertising and promotions.
Operating profit of Decora Manufacturing declined from the prior year due to the
aforementioned reduced revenues and increased marketing research and development
expenditures. The investment by the Company in intensive marketing, research and
development begun in fiscal 1992 continued in 1993. Decora Manufacturing's
expenditures for research, development and marketing in the development of its
new technology and additional products were increased in spite of declining
revenues and amounted to approximately $2.0 million for the year ended March 31,
1993, compared to $1.3 million in the prior year.
Corporate and other expenses were lower in 1993 than the prior year. This was
due to the incurring in fiscal 1992 of certain costs for litigation, refinancing
and restructuring matters which were mostly non-recurring expenses. In addition,
as a result of the discontinuance of the Yorkville operation and the
consolidation of the corporate headquarters into Decora Manufacturing's Fort
Edward, New York location, the fixed corporate expenses declined.
The decline in interest expense in 1993 was the result of the aforementioned
reduction in the overall borrowing of the Company, the repayment of long-term
debt of Decora Manufacturing, the reduction in the put warrant (see Note 5(b) to
the financial statements for the year ended March 31, 1994) and a decline in
interest rates. The prior fiscal year included interest expense on convertible
debentures which had been converted to equity securities by March 31, 1992, thus
no comparable interest expense is included in 1993.
RECENT EVENTS
On April 17, 1995, the Company's Decora Manufacturing subsidiary signed an
expanded exclusive manufacturing agreement with its largest customer, Rubbermaid
Incorporated. Under the new agreement
13
<PAGE> 19
which expires on March 31, 1999, the Company will consolidate consumer packaging
operations for its decorative products line which are currently performed in
Rubbermaid's Statesville, NC manufacturing facility into the Company's Fort
Edward, NY facility. The Company anticipates that the additional manufacturing
operations, which will centralize an integrated manufacturing process with
resulting time and cost efficiencies, will generate incremental annual revenues
of approximately $7,500,000 in the first full year of operations and is
anticipated to contribute to the overall profitability of the decorative
coverings business. The agreement becomes effective upon the relocation of the
operations which is ongoing and is anticipated to be completed in July 1995.
Integrating the operations requires relocation of machinery and equipment from
North Carolina to New York as well as improvements to the Company's facility.
The Company has developed a financing plan to fund the required improvements
which it is in the process of executing (See "Liquidity and Capital Resources"
below).
LIQUIDITY AND CAPITAL RESOURCES
Changes in the Company's consolidated balance sheet from March 31, 1994 to
December 31, 1994 reflect an overall net working capital decrease of $2,607,000.
Such change is anticipated to be temporary and resulted primarily from a balance
sheet reclassification from long term to short term of: (i) the first
installment payment due CIGNA in the amount of $2,500,000 which was due April
15, 1995 and was subsequently extended by CIGNA until April 15, 1996; (ii) a
convertible note of the Company in the amount of $550,000 which was due June 30,
1995 and was extended to December 31, 1995; and (iii) a subordinated convertible
note of the company in the principal amount of $1,500,000 which is due November
3, 1995. Inventory increased $1,570,000 primarily as a result of increases in
raw materials required to support new product production and as a result of
related cost effective minimum order quantities purchased. Accounts payable and
accrued liabilities decreased as a result of significant seasonal payments
having been made to primary raw material suppliers. These changes in total
created a temporary negative working capital balance of $2,092,000.
Consolidated cash balances as of December 31, 1994 were $189,000, the majority
of which were held by Decora Manufacturing and which are limited by certain debt
covenants as to use. The Parent Company therefore has limited cash resources.
During recent fiscal periods, the Company and its subsidiaries generated cash
from operations which was utilized primarily to fund working capital
requirements and repay debt. During the recent fiscal nine month period Decora
Manufacturing generated positive operating cash flow while the Parent Company,
due to administrative expenses and expenses associated with the Refinancing and
Settlement Transaction had negative cash flow (see Note 13 to the financial
statements for the year ended March 31, 1994). Certain former directors have
obtained and entered a judgment of approximately $188,000 which resulted from a
prior settlement and restricted stock issuance in 1992 and which came due in
September 1994. The Company anticipates negotiating a settlement and payment
terms in accordance with the Parent Company's cash flow resources, although no
assurances can be given.
In conjunction with the Refinancing and Settlement Transaction described above,
Decora Manufacturing's revolving credit line was increased to $6,000,000 and
extended to July 31, 1996. In addition, the remaining term loan balance of
$2,000,000 as of the closing date was refinanced together with an additional
$6,000,000 of new debt in a five-year term loan facility and an additional
$1,000,000 was made available under the term loan facility if required to fund
capital expenditures until July 31, 1995. The $6,000,000 of new term loan
funding was utilized to refinance Parent Company debt. (see Note 13 to the
financial statements for the year ended March 31, 1994). As of December 31,
1994, the balance of the term loan was $7,750,000, the balance of the revolving
credit facility was $2,916,000. As of December 31, 1994, the Company had not
drawn down any of the available capital expenditure term loan facility.
In connection with the acquisition of Decora Manufacturing by the Company in
April 1990, Decora Manufacturing issued $7,000,000 principal amount of
subordinated notes to CIGNA, of which $2,500,000 was
14
<PAGE> 20
due April 15, 1995 and $1,500,000 on each April 15 thereafter through 1998.
CIGNA and the Company have agreed to extend the April 15, 1995 payment until
April 15, 1996 when a total of $4,000,000 will be due. These notes were issued
with warrants which include certain put features which may become payable in May
1997 and call features which begin in May 1998. This put feature was extended
from its previous effective date of May 1995 as part of the Refinancing and
Settlement Transaction and $1,425,000 has been reserved for this liability (See
note 5 to the financial statements for the year ended March 31, 1995).
Management believes that Decora Manufacturing's cash flow from operations and
lending facilities will be adequate to meet its debt service and fund its
working capital needs. With regard to the $550,000 convertible note due June 30,
1995, the Company extended the date of such note to December 31, 1995. With
regard to the Company's discontinued ComTel Industries subsidiary, the Company
has repaid the majority of the debt through the sale of assets and is
restructuring payment of the remaining $764,519 consistent with the Company's
ability to retire the remaining balance (see "Discontinued Operations" below).
Capital expenditures for the nine months ended December 31, 1994 were
approximately $855,000. Management considers the aforementioned amount of
capital expenditures to be typical amounts spent historically by Decora. As a
result of the new manufacturing agreement signed with Rubbermaid, and the
consolidation of new manufacturing processes into the Company's facility, during
fiscal year 1996 the Company anticipates spending approximately $2,500,000 on
capital improvements, employee hiring and training and other fees and expenses
in addition to routine capital expenditures of approximately $1,200,000. The
Company is in the process of executing a financing plan for those expenditures
which combines raising additional debt in the amount of approximately $2,875,000
through the issuance of tax-exempt industrial development bonds, and through a
low cost loan from the Local Development Corporation; receipt of interest
subsidy and job training grants available from State agencies; the sharing of
certain projected costs with Rubbermaid; the utilization of existing bank
facilities and the use of operating cash flow. The additional operations are
expected to generate sufficient cash flow to service the additional debt to be
raised, although no assurances can be given that such funds will be adequate or
that the financing plan will be executed as currently planned.
SUMMARY
Management believes that the Company's overall short term liquidity needs will
be met by a combination of extensions of obligations, management fees and other
sources which may include private placements of debt or equity.
DISCONTINUED OPERATIONS
At December 31, 1994 (and at the date of filing of its Form 10-Q for the quarter
then ended), the Company was in active discussions with parties interested in
acquiring various remaining assets and operations of ComTel whose businesses had
been subject to a plan of discontinuation adopted in April 1994. At that time,
operating losses of the discontinued operations of ComTel for the nine-month
period ended December 31, 1994 aggregated $283,000.
Based on these active discussions and indications of interest, and after giving
effect to anticipated values to be realized as a result of the disposition of
the ComTel assets, the Company estimated that no further net losses would be
incurred on the combined disposition and operations of ComTel. At December 31,
1994, the Company estimated that the disposition of the ComTel assets would
result in a net gain approximating $296,000 (comprised of an anticipated gain on
the sale of the Company's telecommunication assets of $91,000
15
<PAGE> 21
and an anticipated gain on the sale of the Company's manufacturing assets of
$205,000). Further, the Company did not expect to incur additional operating
losses on the discontinued operations in excess of this gain through the date of
disposition. Accordingly, neither a provision for additional losses on the
disposal or from operations of ComTel was made, nor was a gain recognized, at
December 31, 1994.
On March 31, 1995, the Company sold the telecommunications assets of ComTel for
$1,810,000 (consisting of cash of $250,000 and notes receivable of $1,560,000).
In addition, the purchaser assumed approximately $1,700,000 of the Company's
liabilities. The notes receivable bear interest monthly at 7% with interest only
accruing during the first three years and level interest and principal payments
due thereafter until maturity on March 31, 2002. The notes are secured by the
assets of the purchaser and are guaranteed by the purchaser's parent company.
The transaction resulted in a gain approximating $118,000.
On June 14, 1995, the Company completed the sale of the fixed assets and
inventory related to the manufacturing division of ComTel's business. The
selling price was $1,385,000 (consisting of $1,100,000 cash and a note for
$270,809) plus the assumption of approximately $75,000 of liabilities. The note
is scheduled to be repaid during the six months following closing as inventory
purchased is used by the purchaser to fulfill customer purchase orders. In
addition, in conjunction with the sale, claims on ComTel's assets with respect
to a $300,000 note payable to a customer were forgiven except for $50,000 which
is to be paid from the proceeds of the note receivable. The assets of the
Company were sold to a buyer who does not intend to continue in the same
business and therefore did not assume operational liabilities which were
anticipated to be assumed. As a result, the net loss arising from this
transaction was approximately $440,000 (which was approximately $645,000 less
than the net gain anticipated at December 31, 1994).
Certain liabilities of the ComTel businesses, which were not guaranteed by the
Company, were not assumed by the buyers of those business units. As a result,
the Company is in the process of settling these liabilities for less than face
value and expects to be able to do so. Certain remaining notes and accounts
receivable were not sold to the buyers, and the Company anticipates that losses
will be incurred in the liquidation process. The Company presently expects that
the net effects of the assets and liabilities (not settled in connection with
the sale transactions described above) will result in a gain approximating
$500,000.
At December 31, 1994, the Company had expected that gains on the sale of assets
described above would offset any additional operating losses through the date of
disposition. The Company was not able to complete the sale transactions soon
enough to stop additional operating losses. The additional operating losses of
the ComTel businesses recorded during the quarter ended March 31, 1995 are
currently estimated to have been $592,000.
As a result of the consummation of these transactions at March 31, 1995 and June
14, 1995, and the expected settlement of the remaining liabilities, the Company
expects to record an aggregate additional loss from discontinued operations
approximating $1,014,000 in the fourth quarter of its fiscal year ended March
31, 1995. As a result, the aggregate loss from discontinued operations for the
year ended March 31, 1995 is estimated to approximate $1,297,000 consisting of
operating losses of $875,000 and losses on disposal of $422,000.
While the Company remains obligated for certain net liabilities of its former
ComTel business, no operations remain and no further losses are expected to be
incurred with respect to the ComTel operations. Cash generated from the
transactions were used to pay down debt owned to ComTel's lender Fleet Bank and
Fleet Credit Corporation. Following completion of the sales, $764,519 remains
due to Fleet which the Company is in the process of restructuring with Fleet to
complete repayment of amounts owed through cash flow from the remaining notes
receivable and management fees available to the parent.
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<PAGE> 22
BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Decora Industries, Inc. (the "Company" or "Decora"), a holding company, is a
Delaware Corporation operating through its primary subsidiary, Decora
Incorporated ("Decora Manufacturing"). The main emphasis of the Company is the
development, manufacture and sale of self-adhesive consumer decorative products
and of specialty industrial products, utilizing its proprietary
pressure-sensitive, self-adhesive, release and protective coating technologies.
In April 1994, the Company made the decision to sell the operations of ComTel
Industries, Inc. ("ComTel"), a full service telecommunications company which
manufactures, sells and services new and used telephone equipment and
accessories (see "Discontinued Operation" below).
HISTORY OF THE COMPANY
The Company, as presently structured, is the result of a 1988 change in control
effected by a group of investors who completed a management change and new
strategic plan. In March 1992, the Company, formerly named Utilitech,
Incorporated, changed its name to reflect the strategic decision of management
to place future emphasis on consumer decorative products as well as specialized
industrial products derived from its coating, laminating, adhesive and release
technologies. In 1988, the Company was a diversified holding company with a
number of subsidiaries operating various businesses, including industrial
lighting, utility repair, utility software, and pipe manufacture. Management
evaluated these businesses and determined that the majority of these businesses
either did not possess sufficient growth potential or did not fit with the
Company's strategic direction. From late 1988 to 1990, the Company engaged in
the divestiture of these entities and meanwhile sought other opportunities.
On April 18, 1990, the Company acquired the assets of the Decora Division of
United Merchants and Manufacturers, Inc. (a NYSE company). Decora Manufacturing
has been in business since 1945 and was the originator of the
pressure-sensitive, stylized, decorative covering material bearing the brand
name Con-Tact(R). Concurrent with the acquisition, Decora Manufacturing entered
into a five-year manufacturing and distribution agreement (the "Manufacturing
Agreement") with Rubbermaid Incorporated ("Rubbermaid") which has since been
extended to 1999, whereby decorative self-adhesive vinyl and textile products
are exclusively manufactured for and distributed by Rubbermaid under their
Con-Tact(R), Fabri-Art(TM), and Kid Scapes(TM) brand names. The Con-Tact(R)
manufacturing and adhesive technology and trademark were originally developed
and owned by Decora Manufacturing and in the 1950's enabled Decora Manufacturing
to establish its market leadership position in the industry. Decora
Manufacturing has continued to invest in and improve the coating and adhesive
technology involved in the manufacture of these products, and in conjunction
with the development of its Wearlon(R) technology, has recently developed a new
group of proprietary products for Rubbermaid and for new strategic partners.
In May 1989 the Company acquired ComTel (then known as Utility Marketing and
Development Corporation), a privately held, fully integrated telecommunications
enterprise - installing, refurbishing and servicing new and used
telecommunications equipment and systems. In July 1990 and September 1991,
respectively ComTel's 80%-owned subsidiary, ComTel Metals, Inc., acquired the
Siemens-Stromberg Carlson ("SSC") metal manufacturing divisions in El Paso,
Texas and Sanford, Florida. The purchases included 5-year supply contracts for
all metal parts required to produce SSC's line of central office equipment. In
June of 1993, ComTel acquired the assets of the SSC International Division
("SCCI") of Sun Financial Group, Inc. to expand its market base into the
telemarketing of repair, resale, installation, service and maintenance of
secondary market customer-premises telephone equipment. Included with the
acquisition was a marketing support agreement whereby ComTel will have access to
Sun Financial Group's customer base. In December 1993,
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<PAGE> 23
ComTel entered into a purchase and service support agreement with Fujitsu
Business Communications Systems to provide secondary market support for
Fujitsu's Focus 960 telecommunications switching system. As a result of its
desire to focus resources on its core Decora Manufacturing subsidiary, in April
1994, the Company made the decision to sell the operations of ComTel. The ComTel
business has now been disposed of (see "Discontinued Operations" below).
In December 1989, the Company, in a leveraged acquisition acquired all of the
stock of Yorkville Industries, Inc. ("Yorkville"), a nationwide distributor of
specialty light bulbs and lighting products which was then severely
undercapitalized. The Company at that time had another lighting subsidiary and
intended to expand its lighting business. The Company intended to raise
significant working capital by selling Yorkville's real estate holdings and
creating liquidity for working capital purposes. Following the acquisition, the
planned turnaround was not viable due to a continuing severe shortage of capital
caused in large measure by the recissionary drastic decrease in the value of the
real estate as well as reduced demand for Yorkville's products due primarily to
the recession. Yorkville continued to incur substantial losses. After reviewing
the deteriorating financial condition of Yorkville, and its overall business
plan and growth plan, in January 1992, the Company liquidated the assets and
discontinued substantially all of the operations of Yorkville.
NARRATIVE DESCRIPTION OF THE BUSINESS
GENERAL
Decora Industries, Inc. is a holding company operating through its subsidiary,
Decora Manufacturing. The Company provides complete management oversight to its
subsidiaries including the direction of strategic planning, financing and
business development. The "Company" as used herein shall refer to the holding
company and its subsidiaries unless the context indicates otherwise.
DECORA MANUFACTURING
Decora Manufacturing is in the business of developing, manufacturing and selling
self-adhesive consumer decorative products and specialty industrial products. It
develops and manufactures these products utilizing its proprietary
pressure-sensitive adhesive and release technologies, including its technology
known as Wearlon(R). At this time, 92% of the Company's revenues are for sales
of its core ConTact(R) product and other decorative houseware products similar
to ConTact(R) under a single contract with Rubbermaid. Following the acquisition
in April 1990, Management began to seek growth and diversification opportunities
in order to complement Decora Manufacturing's mature core business. In the
development of long-term growth strategies management's main focus has been:
To maximize its strategic alliance with Rubbermaid and its
outstanding consumer distribution network;
To utilize its modular product components and technologies to
create self-adhesive products for new applications and market
segments;
To establish additional strategic relationships for distribution
of new products in segments and channels not served by
Rubbermaid; and
To compliment its consumer products with other applications and
products for the industrial and coatings and substrates
markets.
Significant resources have been invested in researching and initiating new
product programs arising from the Company's base technology. The development
program has resulted in a new generation of decorative consumer products
including several for its core business with Rubbermaid as well as for other new
strategic
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distributors. Several new consumer products were introduced during this past
fiscal year and the Company continues to invest in research efforts as well as
in the commercialization and refinement of new products and the expansion of
marketing relationships and distribution channels.
As a compliment to the Company's consumer products business, Decora
Manufacturing also introduced new industrial release coating and coated
substrate products based upon its Wearlon(R) adhesive and release coating
technologies. These industrial products further broaden the Company's potential
market opportunities.
Products and Services - Consumer Decorative Products Group
Decora Manufacturing manufactures decorative self-adhesive products for sale
into an increasing number of market segments including housewares, arts and
crafts, wallcovering and hardware. Such products are produced with a modular
system of varying substrates, coatings, finishes and packaging depending on the
requirements of the application, distribution channel and end user. The
Company's goal is to maximize this modular system through the development and
sale of self-adhesive products for as many household applications and through as
many market segments as possible.
The Company's traditional and primary consumer product is Con-Tact(R), a
repositionable, self-adhesive, vinyl decorative covering material which is used
for do-it-yourself shelf decorations, surface protection, arts and crafts and
other applications. Con-Tact(R) is manufactured by Decora Manufacturing
utilizing the Company's proprietary and patented repositionable adhesive
technology and is sold in roll form with a wide range of finishes including
printed patterns, solid colors, clear vinyl and specialty metallics. All of
Decora Manufacturing's Con-Tact(R) production is purchased by Rubbermaid under a
recently renewed Manufacturing Agreement which currently expires in 1999.
Rubbermaid markets and sells Con-Tact(R) primarily in the housewares departments
of mass merchandisers in the U.S., including WalMart, K-Mart, Target and others.
In addition to Con-Tact(R), Decora Manufacturing has developed several new
products for distribution by Rubbermaid which are being sold to an increasing
range of market segments. These include decorative self-adhesive Rubbermaid
Borders for the wallcovering segment, FabriArt(TM) self-adhesive textiles for
the arts and crafts segment, Kid Scapes(TM) self-adhesive wall murals and
borders for the juvenile segment, Con-Tact(R) Cushion foam shelf-liner for the
housewares segment and Con-Tact(R) Ultra self-adhesive woodgrains for the
hardware/Do-it-yourself ("DIY") segment.
Under the Manufacturing Agreement, Decora Manufacturing provides Rubbermaid with
100% of its worldwide product needs according to periodically negotiated pricing
levels which are adjusted primarily based on changes in raw material costs and
volume. The recently renewed Manufacturing Agreement also permits Decora
Manufacturing to market Rubbermaid's decorative products in certain
international markets and to market its own line of decorative products in
Europe as well as to perform the consumer packaging component of the
manufacturing process.
In July 1994, Decora Manufacturing established a strategic distribution
relationship for its decorative products in Europe with the signing of a License
Agreement with Friedola Debr. Holzapfel GmbH & Co. KG ("Friedola") under which
Friedola purchases from Decora self-adhesive decorative products for exclusive
distribution throughout western Europe. In conjunction with Friedola, the
Company expanded product offering with a new range of decorative designs,
substrates and finishes. The Europe line was introduced to the market at the
Heimtextil show in Frankfurt, Germany in January 1995. Due to manufacturing
inefficiencies and customer response, the product is currently being refined.
Revenues are anticipated beginning at the end of calender 1995. In addition to
its European activities, the Company is also selling decorative products
internationally to customers in South America and the Middle East.
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Decora Manufacturing has also recently introduced new technology based products
for the wallcovering and home decorating market. The Company has introduced
self-adhesive thin film products based on a new, proprietary thin film
technology (patents pending) developed over the last three years. These new
decorative film products are very thin, yet durable and removable and printed in
a variety of solid colors and decorative patterns. Sold in the form of accents
or stencil-like products, they blend seamlessly onto most smooth or textured
surfaces. The Company recently signed a long-term exclusive supply agreement
with North American Decorative Products, Inc. ("Norwall"), a leading
wallcovering manufacturer, for the manufacture and supply of such thin film
decorative products to be sold by Norwall under the brand name Artworks(TM).
In addition to the thin film products, the Company has developed a potential
system through which a conventional wallpaper substrate is converted into a
stable, self-wound, self-adhesive, repositionable and removable wallcovering.
Using Wearlon(R) and Decora Manufacturing's other adhesive and coating
technologies, the Company believes this is a breakthrough for the wallcovering
industry with significant market potential primarily in the area of decorative
border products. In addition to the agreement with Norwall noted above, in June
1994, Decora Manufacturing signed an exclusive Licensing and Supply Agreement
with Norwall, under which the Company will supply its self-adhesive wall
covering system exclusively for Norwall's wallcovering products which are sold
primarily through the mass merchants in North America. Both agreements with
Norwall expire five years from the date of first successful commercial shipments
and in order to maintain exclusivity, Norwall must purchase minimum volumes of
such products from the Company over the life of the agreements. While issues
related to the efficient large scale production of these new products continue
to be addressed, the Company anticipates significant revenues to be generated
from such products during the second half of fiscal 1996.
Management believes these new products and marketing efforts broaden Decora
Manufacturing's potential consumer products revenue base beyond housewares and
across new market segments such as hardware, paint and sundries, arts and crafts
and wallcovering, both in the U.S. and internationally. During the first nine
months of fiscal 1995, 92% of Decora Manufacturing's sales were to Rubbermaid,
as opposed to 96% for the same period in the prior year. Decora Manufacturing
plans to continually introduce new consumer products through its principal
distributors and to pursue its growth plan both domestically and
internationally.
Products and Services - Industrial Products Group
In addition to its consumer decorative products, Decora Manufacturing has
developed an industrial liquid coatings business which markets coatings under
the Wearlon(R) brand name to the specialty industrial coatings market. The
Company has recently embarked on a program of marketing such coatings for use in
a wide range of applications in the specialty industrial coatings market. These
unique non-stick, yet abrasion resistant coatings are water-based and cure at
room temperature, providing the industrial market with an environmentally
friendly coating system for specialized applications. These include industrial
maintenance applications such as machinery valves and clean rooms, marine
maintenance and foul release, and specialized OEM product and process
applications. The Company has established a sales network in North America,
consisting initially of eight manufacturers representatives and twenty-three
qualified professional applicators through which the product is marketed for a
variety of applications. To date, the coatings have been sold through this
network on a limited basis for use in the automotive, marine, paper, petroleum
and food processing industries.
The Company is also marketing Wearlon(R) on a direct basis to large potential
end users including government agencies, utilities and OEM's where there are
several ongoing pilot programs. Wearlon(R) is currently being tested by the U.S.
Navy for marine applications as well as by several North American utility
companies for Zebra mussel protection and friction reduction applications. In
addition to these programs, in November 1994, the Company signed a License and
Technology Development and Cooperation Agreement with The B.F.
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<PAGE> 26
Goodrich Company for the development of specialty coatings for its various
divisions utilizing Wearlon(R). The Company is actively engaged in research and
development under this agreement.
As a result of the high performance nature of the coating and the costs
associated with installing such coatings in large projects, testing for specific
applications and any associated tailored product development takes many months
and requires additional product development in response to testing response. As
a result, revenue potential for Wearlon(R)-based specialty coatings is
anticipated to develop over a longer time frame than is associated with new
consumer decorative products. Although management continues to believe that
liquid coating products hold significant opportunity for the Company, to date
revenues from all coating products have not been material to Decora
Manufacturing's overall business. The necessity of long-term evaluation and
testing programs required for various industrial applications and related long
selling cycle result in a slower initial growth of revenue opportunities than is
achievable with certain of the Company's consumer products.
In addition to the products summarized above, Decora Manufacturing's Industrial
Products Group also markets various other products, including commercial
laminating, coating and printing services and a line of high quality hazardous
marking tapes and electrical tapes sold under the Cobra(R) tradename.
For the first nine months of fiscal 1995, industrial products represented 3% of
Decora Manufacturing's revenues. Ongoing technology development and
commercialization efforts may generate additional revenues in the future both
through its own direct development and selling efforts and through domestic and
international strategic relationships.
Manufacturing
The majority of the products sold by Decora Manufacturing are produced at its
facility in Fort Edward, New York. Management believes that the plant currently
has available capacity which will be utilized in connection with the proposed
expansion of existing and new decorative self-adhesive products and industrial
products. The Company also utilizes outside suppliers when required for certain
printing, coating and finishing purposes for which it does not have industrial
capabilities. Management also anticipates making significant capital
expenditures in the future in order to increase operating efficiencies and to
add additional capacity as warranted by product demand and mix. The Company is
currently spending significant capital on the addition of finished consumer
packaging equipment to its Fort Edwards facility for its ConTact(R) product
line. The primary raw materials used in Decora Manufacturing's products are
paper, vinyl, adhesives, inks, silicone and other chemicals. Decora
Manufacturing uses two primary suppliers for its vinyl and relations with such
suppliers are good. The Company believes that it has alternative sources of its
significant and primary raw materials.
Marketing, Research and Development
Decora Manufacturing's strategy for its consumer products is to develop and sell
products and marketing programs through strategic partners with existing and
significant distribution capabilities. Such distribution partners may have broad
market impact such as Rubbermaid, or more focus in a particular market segment,
such as the wallcovering manufacturer. Accordingly, for the majority of sales of
product covered by the Manufacturing Agreement and other supply agreements,
Decora Manufacturing does not incur what might otherwise be typical marketing
and selling expenses relating to consumer decorative products and has relied on
the services of third party sales and marketing consultants when deemed
necessary. Establishment of distribution relationships for a new product is
ordinarily a long term process because the distributor must become familiar with
the new product and engage in testing prior to agreeing to the distribution of a
new product. Of course, the product is often modified based upon response to
pilot testing. The Company has taken a similar strategy for international sales
of its Consumer Decorative Products as reflected by its new distributor
agreement with Friedola. Initial sales to its European distributor began in the
third quarter of fiscal
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1995 although time and effort required to initiate market penetration is
significant revenues are not anticipated until the second half of fiscal 1996.
For its Industrial Products Group, Decora Manufacturing is pursuing varying
marketing strategies for different markets. As noted above, for its industrial
coatings, the Company has established a manufacturer's representative network in
the U.S. and with this network has developed relationships with carefully
selected professional applicators across the country to market and apply its
Wearlon(R) coatings in industrial maintenance, OEM and marine applications. The
Company is also actively pursuing opportunities for strategic relationships in
other specific niche markets where Wearlon(R) coatings are believed by
management to have the most potential, such as it has in the anti-graffiti and
aviation markets. As described above, due to the nature of these products, the
development process for the industrial products is expected to span a
significant duration.
With regard to research and development, Decora Manufacturing maintains a small
internal research group which has made significant progress in producing various
new products based on Wearlon(R) and the rest of its proprietary adhesive and
coating technologies. The majority of recent efforts have been placed on the
refinement and enhancement of products already developed: However, that group
also continues to focus its efforts on the pursuit of new consumer and
industrial applications. In addition, the Company has been seeking other
entities which have development expertise in certain niche areas to complement
the Company's commercialization efforts such as B.F. Goodrich. This strategy
will allow the Company to conserve its existing resources.
Since fiscal 1992, Decora Manufacturing has increased significantly its
expenditures on marketing, research and development as it seeks to expand its
product lines through the commercialization of new products and technology in
the consumer and industrial markets. Expenditures on marketing, research and
development amounted to approximately $2.8 million, $2.0 million and $1.3
million in fiscal 1994, 1993 and 1992, respectively. Management anticipates
continued expenditures at the same or greater rate as new distribution
relationships are developed, new product applications are explored and
developed, and the same process is repeated as international marketing channels
are opened. As new products have recently been commercialized, additional
resources have been invested on the development of strategic marketing
relationships and distribution channels as preparation for expansion of
production and sales activities (see Management's Discussion and Analysis of
Results of Continuing Operations).
Proprietary Rights
Decora Manufacturing owns the rights to the pressure sensitive adhesive
technology used in the manufacturing of Con-Tact(R) products, although the
tradename is owned by Rubbermaid. In addition, it has applied for tradename and
patent protection for certain of its new products including the self-adhesive
wallcovering system, protective and decorative thin film products and Wearlon(R)
liquid coatings and was recently issued a U.S. patent for its new protective
wallcovering product. Several of the Company's new products utilize Wearlon(R)
technology as a component of their construction. Decora Manufacturing's rights
to Wearlon(R) were formalized in fiscal 1991 and the technology is the result of
more than a decade of research and development in adhesive and coating systems.
Wearlon(R) includes a water based polymer which management believes is a
breakthrough in coatings requiring extraordinary non-stick and slip-lubricity
properties combined with excellent levels of resistance to corrosion, abrasion,
chemicals and solvents. It also provides the ability to control surface release
characteristics across a broad spectrum for a variety of applications and cures
at room temperature. The Company believes that its commercial position is
enhanced by the patents it owns as well as the know-how and trade secrets it has
developed and maintains. Decora Manufacturing has also applied for foreign
protection for certain of its established and new technologies and has acquired
certain trademark protection. In the interests of product development and
establishment of a distribution network, certain of its
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technologies have been licensed to third parties. The Company has executed trade
secrets and confidentiality agreements with its licensees and others to protect
its proprietary rights as part of its overall secrecy protection program.
Customers
During fiscal 1994, sales to Rubbermaid represented 95% of Decora
Manufacturing's revenues while during the first nine months of fiscal 1995, such
sales totaled 92% of the Company's revenues. Con-Tact(R), Fabri Art(TM) and
other related products are distributed through Rubbermaid on a nationwide basis
to consumers in conjunction with the extensive product lines of Rubbermaid. The
Company has also recently signed supply agreements with Norwall and Friedola
both of which have the future potential of becoming significant contributors to
Decora Manufacturing's business. Decora Manufacturing has approximately 50
customers in addition to Rubbermaid, Norwall and Friedola, primarily for its
Industrial Products Group but also for international decorative product sales.
Decora Manufacturing plans to develop strategic distribution relationships for
its industrial products, similar to the relationship it has with Rubbermaid for
its consumer products.
Competition
Although Con-Tact(R) and associated products are not sold by Decora
Manufacturing to the ultimate consumer, competition experienced by Rubbermaid
affects the purchase requirements under the Manufacturing Agreement and Decora
Manufacturing's ultimate revenues. Management believes that the Con-Tact(R)
product dominates the U.S. market for its class of decorative material as well
as miscellaneous end-use surface protection applications. There are several
similar products, including a low cost shelf liner produced and sold by
Rubbermaid, which, in Management's opinion, have not significantly penetrated
the market. Management believes that Decora Manufacturing (and ultimately
Rubbermaid) compete effectively on the basis of price and the superior quality
of their product.
Domestic and international markets for self-adhesive decorative products and
industrial coating products are very competitive with competitors who are larger
and have more financial resources than the Company. Management believes that the
formulation and performance characteristics of Wearlon(R)-based products are
unique, and that the proprietary technology utilized in several new products may
provide a competitive advantage in certain applications. Management intends to
focus on such specific applications. Other than Con-Tact(R) sold in the U.S.,
Decora Manufacturing does not yet have any significant market share in its
various other consumer decorative or industrial coating products.
Seasonality
Decora Manufacturing generally experiences higher earnings in its first two
fiscal quarters due to the purchase requirements of Rubbermaid to meet late
spring and late summer slightly seasonal demand for Con-Tact(R). There is no
identified seasonality for Decora Manufacturing's other products.
Employees
At May 31, 1995, the Company employed 172 people of which 169 were in Decora
Manufacturing and three were employed in the Company's corporate office. One
hundred and fifteen of Decora Manufacturing's employees are represented by a
labor union. The contract with such union currently expires in April 1996. There
have been no major work stoppages in recent years and the Company believes that
its relations with its labor force are good.
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DISCONTINUED OPERATIONS OF COMTEL INDUSTRIES, INC.
In April 1994, the Company decided to sell the operations of its last non-core
subsidiary, ComTel Industries, Inc. ("ComTel"), headquartered in Tampa, Florida.
ComTel is a full service telecommunications company which manufactures, sells
and services new and used telephone equipment and proprietary accessories. The
first step in the plan to divest the operations was completed in June 1994 with
the sale of ComTel's El Paso, Texas manufacturing operation to a third party.
The second phase was completed on March 31, 1995 with the sale of the Secondary
Market and Services Division which was headquartered in Tampa, Florida, and the
sale of the remaining operation located in Sanford, Florida was completed on
June 14, 1995 (see "Management's Discussion and Analysis - Discontinued
Operations").
PROPERTIES
Decora Manufacturing owns its 220,000 square foot facility located on
approximately 12 acres in Fort Edward, New York. The Company's corporate
headquarters are located within this facility.
Management of the Company believes that the facilities of the Company are
adequate for present and foreseeable future needs including the addition of new
consumer packaging operations in the facility.
LEGAL PROCEEDINGS
In May 1994, a complaint was filed by in the U.S. District Court, Eastern
District of California, by Rudolph J. Burgin, a former employee of the Company's
Elsco Lighting & Products, Inc. subsidiary prior to the Company's disposition of
such entity. The complaint alleges various ERISA violations as well as a failure
to pay benefits and seeks unspecified damages. The Company has been in
negotiations to resolve this matter and anticipates settling the claim by
payment of his accrued contributions. The Company believes that such amount will
be less than $100,000.
In June 1992, a complaint was filed against the Company's ComTel Metals, Inc
subsidiary in the 210th Judicial District Court of Texas, by a former employee
of the subsidiary. The claim seeks damages stemming from the alleged wrongful
termination of the plaintiff, although management believes that this claim has
no merit. Trial is set for July 1995.
In July 1993, the Company's Decora Manufacturing subsidiary was notified by the
Environmental Protection Agency ("EPA") that a site in which it disposed of
hazardous waste has been named a Superfund site and that it is a potentially
responsible party. It is likely that Decora Manufacturing will be required to
contribute to the cost of cleanup of the site. The amount of such cleanup cost
cannot be quantified at this time although the Company is pursuing a potential
de minimis party settlement and has reserved an estimated amount based upon
available information.
The Company and its subsidiaries are defendants in other pending actions, which,
in the opinion of management of the Company, are not material to the Company's
financial condition or results of operations. Although no assurances can be
given regarding the ultimate outcome of such matters, the Company has accrued
amounts for defense and settlement costs which the Company considers adequate.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain biographical information, present occupation,
and business experience for the past five years of each director and executive
officer, including those persons nominated to serve on the Board of Directors:
<TABLE>
<CAPTION>
Year First
Became
Name Age Position Director
- ---------------------- --- ---------------------------- ----------
<S> <C> <C> <C>
Nathan Hevrony 43 Director, Chairman, 1988
Chief Executive Officer
Roger Grafftey-Smith 63 Director 1988
Gabriel Thomas 53 Director 1991
Stephen Verchick 54 Director 1993
Ronald Artzer 52 Director 1994
Timothy N. Burditt 40 Executive Vice President, -
Administration and Finance,
Secretary
Richard A. DeCoste 56 Executive Vice President, -
Decora Industries; President
Decora Manufacturing,
Consumer Decorative Products Group
Frank J. Nolfi, Jr. 63 Vice President - Finance, -
Decora Manufacturing
</TABLE>
NATHAN HEVRONY. Mr. Hevrony has served as a director and secretary of the
Company since August 1988. He was elected Chief Executive Officer and Chairman
of the Board in September 1989. He was a Director of two publicly traded
companies, until June 1988 while he was employed as a Director of Planning and
Development at a publicly traded holding Company from June 1986 to June 1988.
ROGER GRAFFTEY-SMITH. Mr. Grafftey-Smith has served as a director of the Company
since August 1988 and has been a managing partner of Grafftey-Smith & Associates
since 1981, an international financial consulting firm. Mr. Grafftey-Smith also
serves as a director of Americanino Capital Corporation, a publicly-traded
corporation.
GABRIEL THOMAS. Mr. Thomas has served as a director of the Company since June
1991. He has served as President and Director of Unilab Corporation since
December 1989. During the period from 1986 to 1991, Mr. Thomas has been a
consultant in international marketing and management. In 1985 to 1986, he was a
consultant to Frankfurt Consult, the mergers and acquisitions subsidiary of BHF
Bank, Frankfurt, Germany.
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STEPHEN H. VERCHICK. Mr. Verchick was elected to the Board of Directors in
October 1993. He has been engaged in the private practice of law as President of
Stephen H. Verchick & Associates, Professional Corporation, in Beverly Hills,
California, for the past 24 years. Mr. Verchick is also President of Warner
Capital Associates, a Los Angeles based investment banking and venture capital
firm.
RONALD A. ARTZER. Mr. Artzer was elected to the Board of Directors in May 1994.
In March 1994, Mr. Artzer became President and Chief Executive Officer of
Signature Foods, a food processing and packaging company. From 1991 to 1993, Mr.
Artzer served as President and Chief Executive Officer of Design Foods, a
Division of Sara Lee Corporation. From 1988 to 1991, he was President of STP
Consumer Services, Inc., a subsidiary of First Brands Corporation. From 1984 to
1988 he was President of Toddle House Restaurants, Inc., a subsidiary of Carson
Pirie Scott & Company. Prior thereto, he served in various Executive Officer
capacities of Sambo's Restaurants, Pepsi-Cola Company and General Foods
Corporation.
Directors of the Company hold office until the next annual meeting of
shareholders, until successors are elected and qualified or until their earlier
resignation or removal.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors convened five formal meetings during the year ended March
31, 1994 and six formal meetings during fiscal 1995. In addition, the Board took
action numerous times during the fiscal year by unanimous written consent.
Management confers frequently with its directors on an informal basis to discuss
Company affairs.
The Board of Directors has two standing committees: an Audit Committee and a
Compensation Committee. The Board does not have a Nominating Committee.
The function of the Audit Committee is to review and approve the selection of
and all services performed by the Company's independent accountants, to meet and
consult with, and to receive reports from, the Company's independent accountants
and its financial and accounting staff and to review and act or report to the
Board of Directors with respect to the scope of audit procedures, accounting
practices, and internal accounting and financial controls of the Company. The
current members of the Audit Committee are Roger Grafftey-Smith, Gabriel Thomas
and Stephen Verchick. The Audit Committee held one meeting during fiscal 1994
and two meetings in fiscal 1995 and took action by written consent.
The Compensation Committee is generally authorized to review and recommend to
the Board the compensation to be paid to the Company's principal officers and to
administer the Company's 1987 Stock Option Plan. The current members of the
Compensation Committee are Roger Grafftey-Smith (Chairman), Gabriel Thomas and
Stephen Verchick. The Compensation Committee held three meetings during fiscal
1994 and took action several times by written consent.
COMPENSATION OF DIRECTORS
Directors are paid $1,000 for each Board meeting which they attend, and $500 for
each committee meeting which they attend. Directors may also receive stock
options under the Company's 1987 Stock Option Plan, or by other grant by the
Company. The Company reimburses directors for reasonable expenses incurred in
connection with their attendance at meetings and other Company related
functions.
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EXECUTIVE OFFICERS
TIMOTHY N. BURDITT. Mr. Burditt was named as Executive Vice President,
Administration and Finance in April 1993 and was named Secretary in August 1993.
From 1991 until his employment with the Company, Mr. Burditt was President and
Chief Operating Officer of Monitor Television, Inc., a Boston area cable and
broadcasting television station and worldwide shortwave radio network. Prior to
his employment with Monitor, Mr. Burditt was Vice President, Investment Banking,
of Fleet Associates, Inc., an investment banking firm, from 1988 through 1991,
Senior Associate for Investment Banking for the First Boston Corporation from
1986 to 1987 and held various positions with GE Capital, Inc. from 1983 to 1986.
RICHARD A. DECOSTE. Mr. DeCoste was named as the President of the Company's
Decora Manufacturing subsidiary in January 1993. In February 1994, Mr. DeCoste
became President of its Consumer Decorative Products Group. In November 1994, he
became Executive Vice President of the Company. From 1989 through 1991 Mr.
DeCoste was President of Plural Technologies, a manufacturer of commercial
coatings. In addition, he has owned DeCoste Remodeling/Design, a building
materials company since 1987.
FRANK J. NOLFI, JR. Mr. Nolfi has served as Vice President - Finance of the
Company's Decora Manufacturing subsidiary since the Company's acquisition in
April 1990. He served in the same position for the Uniglass Industries division
of the prior owner, United Merchants and Manufacturers, Inc.
Officers of the Company are elected by the Board of Directors and hold office
until their successors are chosen and qualified, until their death or until they
resign or have been removed from office. All corporate officers serve at the
discretion of the Board of Directors. There are no family relationships between
any director or executive officer of the Company and any other director or
executive officer of the Company. Richard DeCoste was an officer of Plural
Technologies, Inc. when it filed a petition for bankruptcy under Chapter 7 of
the Bankruptcy Code in September 1991.
27
<PAGE> 33
EXECUTIVE COMPENSATION
The tables and discussion below set forth information about the compensation
awarded to, earned by, or paid to the Company's Chief Executive Officer and to
its most highly compensated executive officers during the fiscal years ended
March 31, 1994, 1993 and 1992.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- ----------------------
FISCAL
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS STOCK OPTIONS
- --------------------------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C>
Nathan Hevrony 1994 $125,000 --
Chief Executive Officer 1993 $125,000(2) $25,000(2) --
1992 $120,000 -- 750,000
Richard Winslow 1994 $ 90,000 -- --
Executive Vice President 1993 $ 94,061(3) $15,000 250,000(3)
President, ComTel 1992 $148,000 -- --
Industries, Inc.
Timothy N. Burditt 1994 $ 81,000(2) -- --
Executive Vice President, 1993 -- -- 100,000
Administration & Finance 1992 -- -- --
Thomas J. Burns 1994 $110,000 $10,000 --
Vice President, Finance 1993 $110,000 $25,000 --
1992 96,000 -- 50,000(6)
Walter E. Buske 1994 $130,000 (5) 350,000(4)
President, Decora 1993 -- -- --
Manufacturing 1992 -- -- --
Richard DeCoste 1994 $116,000 -- --
Executive Vice President, 1993 $ 32,900 -- 75,000(7)
Decora Manufacturing 1992 -- -- --
</TABLE>
- -----------------------
(1) Messrs. Hevrony, DeCoste and Burditt were compensated pursuant to employment
agreements. See "Employment Agreements", below.
(2) See "Employment Agreements", below.
(3) In addition to his salary during fiscal 1993, the Company's ComTel
subsidiary forgave $34,204 as partial forgiveness of a promissory note
originally in the principal amount of $127,732, executed in favor of ComTel
by Mr. Winslow. Such forgiveness was a condition of and a part of the
consideration for the Company's acquisition of ComTel, and is not considered
to be part of Mr. Winslow's annual salary.
(4) Although Mr. Buske was originally granted 350,000 options, the Company and
Mr. Buske have agreed to reduce the number to 50,000. Mr. Buske is no longer
employed by Decora Manufacturing.
28
<PAGE> 34
(5) Mr. Buske's bonus was to be determined at the end of each fiscal year in
accordance with guidelines established in his employment agreement. His
employment agreement is no longer in effect.
(6) Although Mr. Burns was originally granted 100,000 options, the Company and
Mr. Burns have agreed that the number of options shall be reduced to 50,000
and to reduce his bonus. Mr. Burns is no longer employed by the Company.
(7) Options vest on a quarterly basis, with one-third vesting during each fiscal
year from the date of grant.
- -----------------------
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Hevrony, its
Chief Executive Officer which has recently been extended for an additional three
years until May 31, 1997. The prior agreement provided for minimum annual
compensation in the amount of $125,000 for the first year, which sum was to be
adjusted upward by the Board of Directors in subsequent years. In August 1993
the Compensation Committee increased Mr. Hevrony's salary to $185,000 per year;
however, Mr. Hevrony elected not to draw on this higher amount pending
resolution of the outstanding refinancing and settlement transactions. The
extended agreement provides for an annual salary of $185,000 and a cash bonus of
up to $60,000 for the fiscal year ended March 31, 1995. The maximum of $60,000
shall be paid if the Company's earnings per share are twice the prior year's
earnings. Such amount shall be prorated proportionately down as earnings per
share decrease. No bonus shall be paid unless earnings per share exceed the
prior year's amount ($.06 per share). In addition, during August 1994, Mr.
Hevrony received an option to purchase up to 400,000 shares at $2.00 per share.
The options vest as follows: 150,000 vest if the share price is $3.00 or more
for 30 consecutive days and 250,000 shall vest if the share price is $4.00 or
more for 30 consecutive days any time until May 31, 1997. None of these options
are vested at this time. The agreement shall terminate upon breach of a material
term of the agreement or upon the permanent disability of Mr. Hevrony. In the
event of termination without cause (as defined in such agreement), Mr. Hevrony
is entitled to receive compensation for the remainder of the term of the
agreement (through May 31, 1997) and an additional 24 month period.
The Company has entered into a three year employment agreement with Mr.
DeCoste which initially provides for minimum annual compensation in the amount
of $90,000. During fiscal 1994, such amount was increased to $125,000. In
addition, such agreement provides for an annual bonus of up to $37,500
contingent upon certain performance criteria. Upon termination without cause,
Mr. DeCoste is entitled to receive compensation and health and medical benefits
for a period of one year from the date of termination.
The Company has entered into a three year employment agreement with Mr.
Burditt which provides for a minimum annual compensation in the amount of
$90,000. In addition, such agreement provides for an annual bonus in the amount
of $27,000. Upon termination without cause, Mr. Burditt is entitled to receive
any earned but unpaid bonuses on a pro-rata basis, plus compensation in the
amount of twelve months during the first year of the term, nine months
compensation during the thirteenth to eighteenth month of the term and the
lesser of six months or until the end of the Term if terminated after the
eighteenth month.
29
<PAGE> 35
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK PRICE
GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION ---------------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE(1) 0% 5% 10%
- --------------- ---------- ------------ -------------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Timothy Burditt 100,000(3) 100% $1.70 7/1/03 $30,000 $106,900 $270,900
</TABLE>
- -----------------------
(1) Options have a term of ten years, subject to termination upon the
termination of employment. Unvested options are subject to acceleration upon
a consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of substantially all of the
Company's outstanding stock by a single person or entity (unless the terms
of such agreement specifically provide for the assumption of such options),
or in the event of the sale or transfer of substantially all of the
Company's assets.
(2) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only, compounded on an annual basis. Actual gains, if any, on
stock option exercises are dependent on the future performance of the Common
Stock and overall stock conditions. The amounts reflected in this table may
not necessarily be achieved.
(3) Options were granted at 85% of market value (closing bid price for the
Company's Common Stock as reported by NASDAQ) at date of grant. Options vest
50% on July 1, 1993, 25% on July 1, 1994 and 25% on July 1, 1995.
AGGREGATED MARCH 31, 1994 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END
----------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(3)
- --------------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Nathan Hevrony 750,000 0 $ -0- $ -0-
Richard Winslow 191,500(1)(2) 83,500 $ -0- $ -0-
Timothy Burditt 50,000(1)(2) 50,000 $ -0- $ -0-
Richard DeCoste 31,425(1)(2) 43,755 $ -0- $ -0-
</TABLE>
- -----------------------
(1) Options were granted at 85% of market value (closing bid price for the
Company's Common Stock as reported by NASDAQ) at date of grant.
(2) Options have a term of ten years, subject to termination upon the
termination of employment. Unvested options are subject to acceleration upon
a consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of substantially all of the
Company's outstanding stock by a single person or entity (unless the terms
of such agreement specifically provide for the assumption of such options),
or in the event of the sale or transfer of substantially all of the
Company's assets.
30
<PAGE> 36
(3) Value of unexercised in-the-money options was calculated using the average
of the bid and asked price for the Company's stock on March 31, 1994.
During fiscal 1994 none of the executive officers exercised any outstanding
stock options. The only unexercised options held by such executive officers as
of March 31, 1994, are shown in the table above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1993, the Company did not have a Compensation Committee. Nathan
Hevrony, the Company's Chief Executive Officer, participated in deliberations
with the other members of the Board of Directors regarding the compensation,
including salary, bonus and option grants, of the Company's executive officers.
As Mr. Hevrony is compensated pursuant to a three year employment agreement
which established prearranged salary and bonus levels (See "Employment
Agreements"), the Board did not consider Mr. Hevrony's salary or bonus during
fiscal 1993, although the Compensation Committee has since reviewed his
compensation and provided an increase in salary to Mr.
Hevrony as well as additional options.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of June 5, 1995, certain information with
respect to the Common Stock of the Company which may be deem ed to be
beneficially owned by each stockholder who is known by the Company to own more
than 5% of the outstanding Common Stock, by each director of the Company and by
all directors and officers as a group.
<TABLE>
<CAPTION>
NAME AND PERCENT
ADDRESS OF COMMON OTHER OF
BENEFICIAL OWNER(1) STOCK SECURITIES TOTAL CLASS
- -------------------------- ------- ---------- --------- -------
<S> <C> <C> <C> <C>
Nathan Hevrony 753,750 750,000(2) 1,503,750 4.6%
1 Mill Street
Fort Edward, NY 12828
Gabriel Thomas -0- 262,000(2) 262,000 (4)
1 Mill Street
Fort Edward, NY 12828
Roger Grafftey-Smith 375,000 262,000(2) 637,000 2.0%
1 Mill Street
Fort Edward, NY 12828
Stephen H. Verchick -0- 75,000(2) 75,000 (4)
21550 Oxnard Street
Suite 300
Woodland Hills, CA 91367
Ronald Artzer -0- 50,000(2) 50,000 (4)
315 Mullins Street
Mullins, South Carolina 29574
</TABLE>
31
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C>
Timothy N. Burditt -0- 100,000(2) 100,000 (4)
1 Mill Street
Fort Edward, NY 12828
Richard DeCoste -0- 68,745(2) 68,745 (4)
1 Mill Street
Fort Edward, NY 12828
Frank J. Nolfi, Jr. -0- -0- -0- (5)
1 Mill Street
Fort Edward, NY 12828
Robert W. Johnson, IV(6) 926,909(3) 1,207,353(2)(5) 2,134,262 6.6%
The Johnson Company
630 Fifth Avenue
Suite 918
New York, NY 10111
All directors and officers as
a group including the named
persons (10 persons) 1,138,750 1,897,745 3,036,495 9.3%
</TABLE>
- -----------------------
(1) Unless otherwise indicated, each person included in the table has sole
investment power and sole voting power with respect to the securities
beneficially owned.
(2) The amounts shown reflect shares of common stock underlying stock options,
convertible notes or warrants which are exercisable within 60 days of June
5, 1995.
(3) Mr. Johnson disclaims beneficial interest in 40,000 shares which are held by
a trust for which he is a trustee.
(4) Each of these persons owns less than 1% of the outstanding common stock of
the Company.
(5) Includes 882,353 shares issuable upon the conversion of the Johnson Note.
(6) Pursuant to the terms of a Note and Warrant Agreement, dated November 3,
1992, by and between the Company and Mr. Johnson, the Company is obligated
to name Mr. Johnson as a director nominee. Mr. Johnson has indicated to the
Company that he does not intend to exercise such right at the present time.
- -----------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1994, the Company issued options to Stephen Verchick, a director of the
Company, to purchase 75,000 shares of common stock and to Ronald Artzer, also a
director, an option to purchase 50,000 shares of common stock both at an
exercise price of $1.25 per share, exercisable for five years.
In January 1995, the Company entered into a consulting agreement with Gabriel
Thomas, a director of the Company where Mr. Thomas is paid $75,000 per annum for
consulting services which includes assistance with European operations.
32
<PAGE> 38
PLAN OF DISTRIBUTION AND USE OF PROCEEDS
The Company will issue certain shares, within seven business days of the
effectiveness of its registration statement, in settlement of litigation with
the Rabinowitz family, the former owners of its discontinued Yorkville
Industries, Inc. subsidiary (the "Settlement Shares") as follows: (i) 768,307
shares of common stock; (ii) the number of shares of its common stock determined
by dividing $587,250 by the average of the closing bid price for the 60
consecutive trading days prior to the effective date of the registration
statement but in no event less than 475,000 shares; and (iii) in the event that
the average closing bid price during the 30 consecutive trading days before the
effective date of the registration statement, and the 30 consecutive trading
days after the effective date of the registration statement do not exceed
$587,250, the Company will issue the number of additional shares of its common
stock necessary to achieve a net sales value of $587,250 for the shares issued
described in subparagraph (ii) above. The Settlement Shares will be issued to
members of the Rabinowitz family as settlement of amounts owed to them by the
Company for the purchase of Yorkville which occurred in December 1989. In
connection with such settlement which was finalized in July 1994, the Company
agreed to register such Settlement Shares under the Act. This Prospectus was
prepared pursuant to the foregoing contractual commitment to register the
Settlement Shares. The Company will bear all costs and expenses of the
registration of the Shares under the Act and certain state securities laws,
other than fees of counsel (if any) retained by the Security Holders.
The Settlement Shares will be issued in settlement of claims against the
Company. No cash will be paid to the Company, although the Security Holders have
a judgment of $1,587,000 which will be satisfied by issuance of shares under
this registration statement. Further, as part of the settlement with the
Security Holders, the Company has agreed to pay up to $7,500 of their brokerage
commissions for the sale of Shares. The Security Holders have agreed with the
Company that they may sell only as many Shares as Rule 144 of the Act would
permit.
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 45,000,000 shares of Common
Stock, $.01 par value per share and 5,000,000 shares of Preferred Stock, $.01
par value per share.
COMMON STOCK
Holders of Common Stock are entitled to one vote, either in person or by proxy,
for each share held of record by them on all matters submitted to a vote of
stockholders. Except as otherwise provided by law, action can be taken by a
majority of shares entitled to vote at a meeting. Holders of Common Stock are
entitled to dividends when, as and if declared by the Board of Directors out of
funds legally available therefor, subject to the prior rights of the holders of
any Preferred Stock. In the event of liquidation or dissolution and winding up
of the Company, holders of Common Stock are entitled to share ratably in the
assets of the Company remaining after payment of liabilities and after provision
has been made for each class of stock, including any Preferred Stock outstanding
at that time, that has preference over the Common Stock. Holders of Common
Stock, as such, have no conversion, preemptive or other subscription rights, and
there are no redemption or sinking fund provisions applicable to the Common
Stock. All of the outstanding shares of Common Stock are, and, when issued, the
Option Shares and Warrant Shares of Common Stock offered under this Prospectus
will be, fully paid and nonassessable.
33
<PAGE> 39
PREFERRED STOCK
Shares of Preferred Stock may be issued without stockholder approval. The Board
of Directors is authorized to issue such shares in one or more series and to fix
the rights, preferences, powers, qualifications, limitations and restrictions
thereof, including dividend rights and rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without any
vote or action by the stockholders. As of the date of this Prospectus, the
Company has no current plans for the issuance of any shares of Preferred Stock.
However, any Preferred Stock that may be issued in the future could rank prior
to the Common Stock offered hereby with respect to dividend rights and rights on
liquidation. The Board of Directors may, without stockholder approval, issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of holders of the Common Stock offered hereby or create
impediments to persons seeking to gain control of the Company, although there is
no present intention to do so. See "Certain Factors."
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer & Trust
Company, New York, New York.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities offered
hereby, will be passed upon for the Company by Miller & Holguin, Attorneys at
Law, 2029 Century Park East, Suite 1060, Los Angeles, California 90067, counsel
for the Company. Miller & Holguin and/or its principals are the beneficial
owners of 787,857 shares of the Company's Common Stock and the beneficial owners
of an option to purchase 150,000 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Decora Industries, Inc. included in
this prospectus, have been audited by Price Waterhouse LLP, independent
accountants, as stated in their report appearing herein, and are included in
reliance on their report given on the authority of that Firm as experts in
accounting and auditing.
34
<PAGE> 40
INDEX TO AUDITED FINANCIAL STATEMENTS
INDEX TO AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants..................................F-2
Consolidated Balance Sheets........................................F-3
Consolidated Statements of Operations..............................F-5
Consolidated Statements of Cash Flows..............................F-6
Consolidated Statements of Stockholders' Equity (Deficit)..........F-7
Notes to the Consolidated Financial Statements.....................F-8
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets........................................F-22
Consolidated Statements of Operations (nine months)................F-24
Consolidated Statements of Cash Flows..............................F-25
Notes to Unaudited Consolidated Financial Statements...............F-26
F-1
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Decora Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Decora Industries, Inc. and its subsidiaries at March 31, 1994 and
1993 and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 1994, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Syracuse, New York
July 29, 1994
F-2
<PAGE> 42
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 320,000 $ 366,000
Accounts receivable, less allowance for
doubtful accounts of $71,000 and
$197,000 3,907,000 4,434,000
Inventories (Notes 1 and 3) 3,008,000 5,949,000
Prepaid expenses and other current assets 364,000 862,000
----------- -----------
Total current assets 7,599,000 11,611,000
Property and equipment, net (Notes 1 and 4) 7,898,000 10,333,000
Intangibles, net (Notes 1 and 2) 12,314,000 12,530,000
Net non-current assets of discontinued operations -
ComTel (Note 2) 2,115,000 --
Other assets 97,000 478,000
----------- -----------
Total Assets $30,023,000 $34,952,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 43
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1994 1993
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,749,000 $ 4,299,000
Accrued liabilities 1,949,000 2,244,000
Current portion of long-term debt (Note 5) 875,000 4,664,000
Net current liabilities of discontinued
operations - ComTel in 1994 and
Yorkville in 1993 (Note 2) 511,000 2,308,000
------------ ------------
Total current liabilities 7,084,000 13,515,000
Long-term debt (Note 5) 11,314,000 14,219,000
Liabilities settled in refinancing (Note 13) 6,284,000 --
Net non-current liabilities of discontinued
operations - Yorkville (Note 2) 1,339,000 3,927,000
------------ ------------
Total liabilities 26,021,000 31,661,000
------------ ------------
Warrants in subsidiary (Note 5) 1,425,000 1,625,000
------------ ------------
Shareholders' equity:
Preferred stock, $0.01 par value;
5,000,000 shares authorized
Common stock, $.01 par value;
45,000,000 and 35,000,000 shares
authorized; 29,859,000 and
29,389,000 shares issued and
outstanding (Note 6) 299,000 294,000
Additional paid-in capital 27,588,000 26,830,000
Accumulated deficit (25,310,000) (25,458,000)
------------ ------------
Total shareholders' equity 2,577,000 1,666,000
------------ ------------
Commitments and Contingencies (Notes 9 and 10)
------------ ------------
Total Liabilities and Shareholders' Equity $ 30,023,000 $ 34,952,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 44
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues $39,955,000 $38,543,000 $40,751,000
Cost of goods sold 29,569,000 30,104,000 32,216,000
----------- ----------- -----------
Gross profit 10,386,000 8,439,000 8,535,000
Marketing, general and administrative
expense 6,194,000 5,332,000 5,244,000
----------- ----------- -----------
Operating income 4,192,000 3,107,000 3,291,000
Interest expense 2,451,000 2,514,000 3,923,000
----------- ----------- -----------
Income (loss) from continuing
operations before taxes 1,741,000 593,000 (632,000)
Provision (benefit) for taxes (Notes 1 and 8) 112,000 (30,000) (204,000)
----------- ----------- -----------
Income (loss) from continuing operations 1,629,000 623,000 (428,000)
----------- ----------- -----------
Discontinued operations (Note 2):
Income (loss) from operations - ComTel (1,269,000) 68,000 246,000
Income (loss) from operations - Yorkville -- -- (379,000)
Provision for discontinued operations - ComTel (212,000) -- --
Provision for discontinued operations -
Yorkville -- -- (8,540,000)
----------- ----------- -----------
Income (loss) from discontinued operations (1,481,000) 68,000 (8,673,000)
----------- ----------- -----------
Net income (loss) $ 148,000 $ 691,000 $(9,101,000)
=========== =========== ===========
Income (loss) per common share (Note 1):
Continuing operations $ 0.06 $ 0.02 $ (0.02)
Discontinued operations - Yorkville -- -- (0.44)
Discontinued operations - ComTel (0.05) 0.01 0.02
----------- ----------- -----------
Income (loss) per common share $ 0.01 $ 0.03 $ (0.44)
=========== =========== ===========
Average shares of common stock used in
computation of income (loss) per
share (Note 1) 29,690,000 27,587,000 20,840,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 45
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 148,000 $ 691,000 $(9,101,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,534,000 1,966,000 1,864,000
Amortization of debt discount 261,000 184,000 194,000
Loss on disposal of fixed assets -- 9,000 170,000
Provision for loss on disposal of
discontinued operations 212,000 -- 7,726,000
Accrued interest on debt converted
to common stock -- -- 251,000
Stock issued for services -- -- 342,000
Net changes in current assets and
liabilities, exclusive of acquisitions and
dispositions of subsidiaries (Note 12) 555,000 (463,000) 764,000
----------- ----------- -----------
Net cash provided by operating activities 2,710,000 2,387,000 2,210,000
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of discontinued operations -- -- 325,000
Cash of discontinued operations (66,000) -- --
Purchase of fixed assets (1,275,000) (1,298,000) (1,396,000)
Decrease in liabilities - discontinued
operations (376,000) (1,787,000) --
----------- ----------- -----------
Net cash used in investing activities (1,717,000) (3,085,000) (1,071,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from additional borrowings 1,050,000 5,131,000 2,656,000
Repayment of debt (2,600,000) (6,168,000) (5,611,000)
Proceeds from exercise of stock options -- 228,000 --
Proceeds from issuance of common stock -- 1,207,000 1,086,000
Stock issued in connection with
debt restructuring 230,000 150,000 --
Stock issued to pay interest expense 133,000 -- --
Stock issued in acquisition 400,000 -- --
Accretion (reduction) of warrants
in subsidiary (200,000) (125,000) 350,000
Other (52,000) 42,000 --
----------- ----------- -----------
Net cash provided by (used in)
financing activities (1,039,000) 465,000 (1,519,000)
----------- ----------- -----------
Net increase (decrease) in cash (46,000) (233,000) (380,000)
Cash at beginning of period 366,000 599,000 979,000
----------- ----------- -----------
Cash at end of period $ 320,000 $ 366,000 $ 599,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 46
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------
ADDITIONAL
PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT
<S> <C> <C> <C> <C>
Balance at March 31, 1991 17,658,000 $177,000 $17,302,000 $(17,048,000)
Common shares issued in
private placements 1,670,000 17,000 1,069,000 --
Debentures converted to
common shares 6,140,000 61,000 4,277,000 --
Common shares issued
for services 312,000 3,000 309,000 --
Stock options exercised 50,000 1,000 25,000 --
Common shares issued in
litigation settlement 26,000 -- 30,000 --
Net loss -- -- -- (9,101,000)
---------- -------- ----------- ------------
Balance at March 31, 1992 25,856,000 259,000 23,012,000 (26,149,000)
Common shares issued in
private placements 782,000 8,000 1,199,000 --
Common shares issued in
debt restructuring 1,691,000 17,000 1,853,000 --
Interest paid in common
shares 90,000 1,000 179,000 --
Stock options exercised 733,000 7,000 221,000 --
Common shares issued in
litigation settlement 94,000 1,000 126,000 --
Other 143,000 1,000 240,000 --
Net income -- -- -- 691,000
---------- -------- ----------- ------------
Balance at March 31, 1993 29,389,000 294,000 26,830,000 (25,458,000)
Interest paid in
common shares 96,000 1,000 132,000 --
Common shares issued in
acquisition 200,000 2,000 398,000 --
Other 174,000 2,000 228,000 --
Net income -- -- -- 148,000
---------- ------- ------------ ------------
Balance at March 31, 1994 29,859,000 $299,000 $27,588,000 $(25,310,000)
========== ======== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 47
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Decora Industries, Inc. (the "Company"), formerly Utilitech,
Incorporated, is a holding company primarily engaged in the development,
manufacture, and sale of consumer decorative products and of specialty
industrial products, utilizing its proprietary pressure-sensitive,
self-adhesive, release and protective technologies. The Company operates
through its wholly-owned subsidiary, Decora Manufacturing. In April
1994, management decided to discontinue the operations of a second
wholly-owned subsidiary, ComTel Industries, Inc. ("ComTel"), which
manufactures, installs and services telecommunications equipment and
systems (see Note 2). Accordingly, the continuing operations of the
Company now comprise the various divisions of Decora Manufacturing,
which constitutes a single significant business segment.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Decora
Industries, Inc., its operating subsidiary and the discontinued
subsidiary. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain prior year amounts have been
reclassified on the consolidated financial statements to reflect the
discontinued operation.
The financial statements have been prepared on a going concern basis.
Management recently entered into a Refinancing and Settlement
Transaction as more fully described in Note 13. Subsequent to such
transaction, management believes that the future liquidity and debt
service needs of the Company and its subsidiaries will be provided for
adequately through operations.
CASH AND CASH EQUIVALENTS
The Company invests surplus cash in highly liquid debt instruments which
have original maturities of less than three months and are considered to
be cash equivalents.
SERVICE AND PRODUCT REVENUES
Revenues from sales of products and services are recognized when
products are shipped and services are performed.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Cost includes materials, labor and manufacturing overhead.
DEPRECIATION
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally five to thirty years.
INTANGIBLES
The excess of the aggregate purchase price over the fair market value of
the net assets of businesses acquired has been recorded as goodwill and
is being amortized on a straight-line basis over periods ranging from
ten to forty years. Trademarks are being amortized over twenty years.
F-8
<PAGE> 48
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
EARNINGS/LOSS PER SHARE
The number of shares of common stock and common stock equivalents used
in the computation of earnings/loss per share for each period is the
weighted average number of shares of common stock outstanding during the
periods and, if dilutive, common stock options, warrants and convertible
securities which are common stock equivalents. Fully diluted
earnings/loss per share is not presented for each of the periods since
the effect would be anti-dilutive.
INCOME TAXES
The Company adopted in fiscal year 1993 the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"), retroactive to April 1, 1992. SFAS 109 required a company
to recognize deferred tax liabilities and assets for the expected future
tax consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between
the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in the years in which the
differences are expected to reverse. The Company has not recognized the
benefit of any net operating loss carryforwards as the result of
adopting SFAS 109.
RESEARCH AND DEVELOPMENT
Company-sponsored research and development costs related to both present
and future products are expensed currently. Research and development
expenses amounted to $1,364,000, $1,639,000 and $967,000 in fiscal 1994,
1993 and 1992, respectively.
2. DISCONTINUED OPERATIONS
Yorkville Industries, Inc. - In January 1992, the Company sold
substantially all of Yorkville's inventory and other fixed assets to an
unrelated third party for approximately $325,000. Certain product lines,
compatible with other ongoing businesses of the Company, were retained.
The trademark associated with these product lines is included in the
financial statements and is being amortized over twenty years. The
remaining assets of Yorkville have been liquidated and the proceeds used
to reduce the obligation to Yorkville's former secured lender, Chase
Manhattan Bank ("Chase"). Concurrent with the sale, Yorkville ceased
operations. Yorkville had been acquired by the Company in December 1989.
Revenues of Yorkville's discontinued operations for fiscal 1992 were
$3,033,800. The net liabilities of these operations have been included
in net liabilities of discontinued operations based on the applicable
balance sheet classifications. The composition of net liabilities
relating to Yorkville is as follows:
F-9
<PAGE> 49
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
March 31,
1994 1993
<S> <C> <C>
Cash $ 2,000 $ 45,000
Receivables 60,000 29,000
Accrued liabilities (125,000) (315,000)
Due to Chase Manhattan Bank (3,885,000) (3,506,000)
Due to Former Yorkville owners (1,911,000) (2,488,000)
----------- -----------
(5,859,000) (6,235,000)
Less amounts settled (Note 13) 4,520,000 --
----------- -----------
Total net liabilities $(1,339,000) $(6,235,000)
=========== ===========
Net current liabilities $ -- $(2,308,000)
=========== ===========
Net non-current liabilities $(1,339,000) $(3,927,000)
=========== ===========
</TABLE>
The Company had entered into a repayment and forbearance agreement with Chase
for the Yorkville debt which had previously been guaranteed by the Company and a
binding settlement pursuant to a court stipulation with the former owners of
Yorkville (the "Former Yorkville Owners") requiring cash payments and the
registration and issuance of the common stock of the Company to the Former
Yorkville Owners. Pursuant to the Refinancing and Settlement transaction
completed on July 22, 1994 (see Note 13), the Chase obligation was fully
satisfied, and the remaining obligation to the Former Yorkville Owners consists
of registering and issuing no less than 875,000 shares of common stock of the
Company to the Former Yorkville Owners by June 30, 1995 with an aggregate
minimum value of $1,587,000. The present value of the remaining payments (cash
and stock) which had been due under the forbearance and settlement agreements as
of March 31, 1994 and prior to the Refinancing and Settlement Transaction are
included in the consolidated balance sheet in net liabilities of discontinued
operations. As a result of completion of the Refinancing and Settlement
Transaction, all such net liabilities have been classified as long-term (see
Note 13).
ComTel Industries, Inc. - In April 1994, management of the Company decided to
divest its telecommunications services and manufacturing operations ("ComTel")
and recorded a pretax charge of $212,000 to provide for the comprehensive
divestiture of the operations of this subsidiary. In June 1994, the Company sold
the assets of ComTel's El Paso, Texas manufacturing operation. The Company
anticipates that the sale of the remaining operations will be completed by the
end of fiscal 1995 and that proceeds from the sale of the operations will be
used primarily to reduce debt.
F-10
<PAGE> 50
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The results of operations of ComTel have been reported as discontinued
operations in the accompanying financial statements and consist of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenues $ 11,603,000 $ 13,378,000 $ 10,243,000
Operating Income (Loss) $ (1,269,000) $ 360,000 $ 397,000
Net Income (Loss) $ (1,481,000) $ 68,000 $ 246,000
</TABLE>
The net assets and liabilities of these operations have been included in
net assets or liabilities of discontinued operations based on the
appropriate balance sheet classifications.
The composition of net assets of discontinued operations for ComTel are
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1994
<S> <C>
Cash $ 66,000
Receivables 1,582,000
Inventories 3,423,000
Property and equipment, net 2,587,000
Other assets 283,000
Current portion of long-term debt (Note 5) (3,143,000)
Other current liabilities (2,439,000)
Long term liabilities (755,000)
-----------
Net assets of discontinued operations $ 1,604,000
===========
Net non-current assets $ 2,115,000
Net current liabilities (511,000)
-----------
Net assets of discontinued operations $ 1,604,000
===========
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
March 31,
1994 1993
<S> <C> <C>
Inventories consist of:
Raw materials $1,803,000 $2,914,000
Work-in-process 814,000 1,288,000
Finished goods 391,000 1,747,000
---------- ----------
$3,008,000 $5,949,000
========== ==========
</TABLE>
F-11
<PAGE> 51
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1994 1993
<S> <C> <C>
Land and buildings $ 3,885,000 $ 3,885,000
Vehicles and related equipment 38,000 295,000
Machinery and equipment 7,038,000 8,761,000
Furniture and fixtures 285,000 444,000
Leasehold improvements 617,000 1,484,000
----------- -----------
11,863,000 14,869,000
Less accumulated depreciation 3,965,000 4,536,000
----------- -----------
$ 7,898,000 $10,333,000
=========== ===========
</TABLE>
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1994 1993
<S> <C> <C>
Decora Industries, Inc. Credit Facility (a) $ 564,000 $ 964,000
Decora Manufacturing Acquisition Debt (b) 9,500,000 11,500,000
Decora Manufacturing Line of Credit (b) 1,194,000 694,000
ComTel Term Loan (c) 900,000
ComTel Line of Credit (c) 1,687,000
ComTel Acquisition Debt (c) 673,000
Convertible Notes (d) 2,200,000 1,650,000
Note Payable to Former Director (e) 1,200,000 1,200,000
Other 581,000
------------ ------------
14,658,000 19,849,000
Less: Amounts due within one year (875,000) (4,664,000)
Amounts Settled (a and e) (Note 13) (1,764,000)
Unamortized Debt Discount (705,000) (966,000)
------------ ------------
$ 11,314,000 $ 14,219,000
============ ============
</TABLE>
F-12
<PAGE> 52
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(a) During fiscal 1990, the Company entered into a $4 million credit
facility with InterEast Capital Limited ("IECL") for working capital and
to partially finance the acquisitions of Decora and Yorkville. Interest
was charged at 12% per annum. In addition, the Company granted a warrant
to IECL to purchase 550,000 shares of common stock at $1 per share with
a decreasing exercise price under certain circumstances. On November 23,
1992, the Company entered into an amendment agreement with IECL to
settle the amount due (approximately $3,900,000, including interest),
which had been in default. Pursuant to the agreement, the Company issued
860,000 shares of its common stock (valued at $1.40 per share) in
satisfaction of $1,204,000 of the amount due, repaid $1,700,000 in cash,
and restructured the remaining obligation of $964,200 to a convertible
note due July 1993, bearing interest at 12% per annum. The note was
convertible into common stock of the Company at a rate of $1.40 per
share at any time the note was outstanding. In consideration for the
restructuring of the obligation, the extension of the credit and the
forbearance of the defaults, the Company issued 550,000 shares under
warrants in connection with the original loan in fiscal 1990 and waived
payment of the exercise price. The value of the 550,000 shares
($385,000) has been reflected as additional interest expense in the
consolidated financial statements. During July 1993, the balance of the
note was further restructured. The Company repaid $400,000 in cash, and
repayment of the remaining obligation ($564,000) was extended to
February 1994. The remaining balance was repaid in the Refinancing and
Settlement Transaction described in Note 13.
(b) The acquisition of Decora Manufacturing in fiscal 1991 was partially
financed by a $10 million term loan payable in quarterly instalments of
$500,000, plus interest at prime plus 1-1/2%. The balance outstanding at
March 31, 1994 and 1993 was $2,500,000 and $4,500,000, respectively. The
loan is secured by certain of Decora Manufacturing's accounts
receivable, inventory and property and equipment. Decora Manufacturing
also has a line of credit of up to $5 million secured by various
accounts receivable, inventory and equipment. Availability under this
credit facility is limited by specified percentages of receivables and
inventories. The amount outstanding under the facility bears interest at
prime plus 1.25%. Both the term loan and the line of credit facility
were extended and modified in July 1994 as part of the Refinancing and
Settlement Transaction described in Note 13.
In addition to the term loan, Decora Manufacturing issued $7 million of
14% senior subordinated notes of which $2.5 million is due on April 15,
1995 and $1.5 million is due on each of April 15, 1996, 1997 and 1998.
Interest on the notes is payable semi-annually. Warrants were issued
which are exercisable by April 15, 1998 (or upon the public offering of
the shares of Decora Manufacturing, if earlier) into 20% of the equity
of Decora Manufacturing for a nominal cash payment. If there has been no
public offering of the shares of Decora Manufacturing by April 15, 1997,
these warrants can then be "put" to the Company for a cash payment based
upon earnings of Decora Manufacturing. The date of such put was extended
from April 15, 1995 to April 15, 1997 with the consent of the lender as
part of the Refinancing and Settlement Transactions described in Note
13. At March 31, 1994, the warrants were valued at $1,425,000. Changes
in the value of the warrants (based upon results of operations and
financial position of Decora Manufacturing) are charged or credited to
interest expense. During the years ended March 31, 1994, 1993 and 1992,
$200,000 and $125,000 were credited and $350,000 was charged,
respectively. The note is recorded net of unamortized discount of
$646,000 and $866,000 at March 31, 1994 and 1993, respectively.
F-13
<PAGE> 53
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(c) In connection with the acquisitions of the Siemens divisions, ComTel
issued promissory notes for $1,375,000. The balance on the notes at
March 31, 1993 was $673,000. The $673,000 note was refinanced during
fiscal 1993 and is currently being renegotiated with Siemens. The loan
in included in long-term liabilities of discontinued operations at March
31, 1994.
On September 28, 1992, ComTel entered into a credit agreement with Fleet
Bank which provided for a $1,000,000 term loan and up to a $2,500,000
revolving credit facility, secured by certain of its fixed assets and
substantially all of its inventory and receivables. In addition to the
$1,000,000 term loan, ComTel drew down $1,200,000 of the revolving
credit facility at closing. As part of the transaction relating to the
sale of its El Paso facility, ComTel repaid $550,000 of the Term Loan
subsequent to March 31, 1994. The Company has agreed to repay the
balance of the term loan ($200,000) by October 1994. The line of credit
($2,175,000 at March 31, 1994) has been extended until October 1994, at
which time, unless an additional extension is obtained, it will either
be repaid from the proceeds of the sale of ComTel or from other sources.
The term loan and line of credit are included in net current liabilities
of discontinued operations.
(d) On November 3, 1992, the Company borrowed $1,500,000 from a private
lender and issued a convertible note. As part of the transaction, the
Company also issued 89,076 shares of its common stock, warrants to
purchase 225,000 shares of common stock at $1.40 per share and warrants
for an additional 100,000 shares of common stock at prices contingent
upon the future market price of the Company's common stock. The
convertible note is due November 3, 1995, and bears interest at 12% per
annum, payable in the form of the Company's common stock. Interest for
the first year was prepaid in the form of 90,000 shares of the Company's
commons stock valued at $2.00 per share. The note is convertible at any
time into shares of the Company's common stock at a conversion rate of
$1.70 per share.
In June 1993, the Company borrowed $550,000 from a private lender and
issued a convertible note. The note is payable on June 15, 1995, and is
convertible into shares of the company's common stock computed at 55% of
the market price on the date of conversion. Interest is payable at the
rate of 12%.
At March 31, 1994, the Company had a convertible note in the principal
amount of $150,000 payable to a private investor. In June 1994, the note
was converted to 132,000 shares of the Company's common stock.
(e) The amount owed to a former director ($1,200,000), which had previously
been extended to October 1993, has been in default since that date. This
amount was satisfied through a payment of $1,014,000 ($800,000 principal
and $214,000 of legal fees and interest) from the proceeds of the
Refinancing and Settlement Transaction described in Note 13.
F-14
<PAGE> 54
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. COMMON STOCK
At March 31, 1994, the Company had an aggregate of 5,124,000 shares of
common stock reserved for: (1) Options for the purchase of 4,324,000
shares of common stock, and (2) exercise of warrants for common stock of
450,000 at $0.75, 300,000 at $2.10 and 50,000 at $1.40 per share. On
October 5, 1988, the shareholders of the Company approved the Decora
Industries, Inc. 1988 Employee Stock Purchase Plan pursuant to which a
total of 500,000 shares of the Company's common stock may be issued to
participants during the term of the Plan at an issue price of 85% of
fair market value at the date of purchase. No shares have been purchased
pursuant to the Plan.
7. STOCK OPTIONS
The Company has a Stock Option Plan covering the directors and employees
of the Company and its subsidiaries adopted in 1987 ("1987 Plan") under
which 1,700,000 shares of common stock are available for grant. The Plan
is administered by a committee of the Board of Directors of the Company
who are not covered by the Plan. All options granted under the 1987 Plan
terminate either five years or ten years after the date of grant and
those granted vest quarterly subsequent to the grant date over a
three-year period unless modified by the Company. Options for 680,000
shares of common stock have been exercised to date.
F-15
<PAGE> 55
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes the Company's stock option activity for the
years ended March 31, 1994 and 1993:
<TABLE>
<CAPTION>
MARCH 31,
1994 1993
NUMBER OF PRICE NUMBER OF PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
<S> <C> <C> <C> <C>
Beginning balance 4,324,000 $ .50 - $2.25 3,372,000 $.20 - $2.25
Options granted 1,075,000 $1.03 - $1.86 1,705,000 $.25 - $1.61
Options exercised (733,000) $.25 - $1.00
Options expired (1,075,000) $ .85 - $2.25 (20,000) $.20 - $0.57
---------- ------------- --------- ------------
Ending balance 4,324,000 $ .50 - $1.86 4,324,000 $.50 - $2.25
========== ============= ========= ============
Exercisable 3,470,000 2,113,000
========== =========
</TABLE>
8. INCOME TAXES
The provision (benefit) for income taxes charged to continuing
operations for the years ended March 31, 1994, 1993 and 1992 were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current tax expense (benefit):
Federal $ 31,000 $ $
State 81,000 (30,000) (204,000)
-------- -------- ---------
Total current 112,000 (30,000) (204,000)
Deferred tax expense
-------- -------- ---------
Provision (benefit) for income taxes $112,000 $(30,000) $(204,000)
======== ========= =========
</TABLE>
F-16
<PAGE> 56
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following at
March 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Depreciation $ 158,000 $ 684,000
Discontinued operations 388,000 387,000
Organization cost amortization 81,000 97,000
----------- -----------
627,000 1,168,000
----------- -----------
Net operating loss carryforwards (6,654,000) (6,726,000)
Inventory reserves (127,000) (140,000)
Compensation reserves (101,000) (117,000)
Other (86,000) (183,000)
----------- -----------
(6,968,000) (7,166,000)
----------- -----------
Deferred tax assets valuation allowance 6,341,000 5,998,000
----------- -----------
Deferred taxes, net $ -- $ --
=========== ===========
</TABLE>
The provision (benefit) for income taxes for the three years ended March
31, 1994 differs from the amount of income tax determined by applying
the applicable U.S. statutory federal income tax rate to pretax income
from continuing operations as a result of the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Pretax income at statutory rate $ 106,000 $ 225,000 $(215,000)
State tax (benefit) net 81,000 (30,000) (204,000)
Effect of net operating loss (75,000) (225,000) 215,000
--------- --------- ---------
Provision (benefit) for income taxes $ 112,000 $ (30,000) $(204,000)
========= ========= =========
</TABLE>
Approximately $19,000,000 of the company's loss carryforwards remain
available at March 31, 1994. Their use is limited to future taxable
earnings of the Company. The carryforwards expire over the period 1999
through 2007.
F-17
<PAGE> 57
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. COMMITMENTS
LEASES
The Company and its subsidiaries lease various office and warehouse
facilities and equipment under noncancellable operating leases. Most of
the leases require the payment of property taxes, insurance and normal
maintenance and repairs. Leases pertaining to continuing operations are
not significant.
NOTE GUARANTEE
In connection with the acquisition of a subsidiary in fiscal 1988, the
Company issued a $500,000 promissory note payable to the seller. In
connection with the sale of such subsidiary, which occurred in fiscal
1990, the buyer assumed the note. The amount of the note has since been
reduced to $200,000. The Company has guaranteed performance under the
note through September 1994.
10. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, the ultimate
resolution of which, in the opinion of management of the Company, will
not have a material impact on the financial condition or results of
operations of the Company.
11. BUSINESS AND CREDIT CONCENTRATIONS
Decora Manufacturing's primary customer is Rubbermaid Inc., who
accounted for $37,327,000 (94%), $37,255,000 (97%) and $39,294,000 (96%)
of net sales in fiscal 1994, 1993 and 1992, respectively. Gross accounts
receivable with Rubbermaid at March 31, 1994, 1993 and 1992 were
$2,806,000 (81%), $1,969,000 (89%) and $1,295,000 (87%), respectively.
The Company believes there are no significant concentrations of credit
risk in existence with respect to these accounts receivable.
F-18
<PAGE> 58
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and liabilities, exclusive of acquisitions and
dispositions of subsidiaries, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
(Increase) decrease in
short-term investments $ -- $ -- $ 550,000
(Increase) decrease in
accounts receivable (1,055,000) (1,167,000) 1,156,000
(Increase) decrease in inventory (306,000) (690,000) (387,000)
(Increase) decrease in other current
assets 322,000 340,000 (565,000)
Increase (decrease) in
accounts payable 1,342,000 1,046,000 (124,000)
Increase (decrease) in
accrued liabilities 252,000 8,000 134,000
----------- ----------- -----------
$ 555,000 $ (463,000) $ 764,000
=========== =========== ===========
Supplemental cash flow information is as follows:
Cash paid during the year for interest $ 1,519,000 $ 2,215,000 $ 3,064,000
=========== =========== ===========
Cash paid during the year for
income taxes $ 133,000 $ 175,000 $ 142,000
=========== =========== ===========
</TABLE>
13. REFINANCING AND SETTLEMENT TRANSACTION - SUBSEQUENT EVENT
On July 22, 1994, the Company and its subsidiary, Decora Manufacturing,
entered into several transactions to repay four major creditors of the
Company. The transactions and the effect upon each creditor is described
below.
Effective July 1994, Decora Manufacturing extended and modified its
existing term loan and line of credit facility and entered into a new
borrowing arrangement with its lender. The borrowing transaction
resulted in an increase in the amount outstanding under the term loan
from $2,000,000 to
F-19
<PAGE> 59
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$8,000,000. In addition, Decora Manufacturing obtained a commitment for
up to an additional $1,000,000 to finance capital improvements. The
terms of the line-of-credit facility (Note 5) were also modified and the
expiration of the facility was extended to July 31, 1996. The additional
net proceeds from the borrowing ($6,000,000) were advanced by Decora
Manufacturing to the Parent Company (Decora Industries, Inc.) for the
purpose of repaying certain creditors as described below. The repayment
of the creditors was effected as follows:
1. Under a Forbearance Agreement with Chase Manhattan Bank ("Chase")
relating to the Company's former Yorkville Industries, Inc.
subsidiary ("Yorkville"), a payment of $2,200,000 was due on
February 1, 1994. Since that payment was not made, Chase demanded
payment of the entire amount due (approximately $3,885,000). Chase
received $3,380,000 from the proceeds of the Refinancing and
Settlement Transaction and has released all claims against the
Company.
2. To comply with the settlement terms reached in November 1992 with
the former owners of Yorkville (the "Former Yorkville Owners"), the
Company was obligated to register with the Securities and Exchange
Commission and issue to the Former Yorkville Owners its commons
shares valued at approximately $1,587,000. The Company was unable
to register the securities due to matters pertaining to other
creditors as described herein. In addition, pursuant to the
settlement terms with the Former Yorkville Owners, monthly payments
were continuing to such owners and to Chase. As part of the
Refinancing and Settlement Transaction, the Company paid $751,000
to the Former Yorkville Owners to defease the monthly payment
obligations and has also obtained an extension of the effective
date of the registration requirements. The transaction (and related
settlement with Chase) also released the Former Yorkville Owners'
collateral then being held by Chase and concurrently the obligation
of the Company to indemnify the Former Yorkville Owners if such
collateral had been sold by Chase. After the Settlement and
Repayment Transaction, the only remaining obligation of the Company
to the Former Yorkville Owners is the registration and issuance to
them of no less than 875,000 shares of the Company's common shares
having an aggregate minimum value of $1,587,000 by June 30, 1995.
The Company believes it will be in compliance with this obligation
and that the ultimate full settlement with the Former Yorkville
Owners will have no material adverse impact on the cash flow or
operations of the Company.
3. The balance of a note due to IECL of approximately $564,000 was
paid in full from the proceeds of the Refinancing and Settlement
Transaction (see Note 5).
4. The note payable to the former director was satisfied through a
payment of $1,014,000 from the proceeds of the Refinancing and
Settlement Transaction (see Note 5).
5. In addition to repayment of the creditors, the repayment terms of
the increased term loan ($8,000,000) to Decora Manufacturing were
also modified to provide for four quarterly payments of $125,000
from August 31, 1994 to May 31, 1995; an additional fifteen
quarterly payments of $333,000 from August 31, 1995 through
February 28, 1999 and a final payment of $2,505,000 on May 31,
1999.
F-20
<PAGE> 60
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The debt which was settled as reflected in the accompanying consolidated balance
sheet at March 31, 1994 was as follows:
<TABLE>
<S> <C>
Amount due Chase Manhattan Bank $3,885,000
Note payable to former director 1,200,000
Monthly cash payments due former
Yorkville owners (at present value) 635,000
Amount due IECL 564,000
----------
Total debt settled and refinanced $6,284,000
==========
</TABLE>
The Company expects to report an extraordinary gain during the second
quarter of fiscal 1995 from the Refinancing and Settlement Transaction.
Long-term debt and the settled liabilities relating to discontinued
operations (after giving effect to the Refinancing and Settlement
Transaction) matures as follows:
<TABLE>
<CAPTION>
PRIOR TO PRO-FORMA *
YEAR ENDING MARCH 31, REFINANCING (UNAUDITED)
<S> <C> <C>
Current debt refinanced $ 6,284,000 $ --
1995 875,000 875,000
1996 5,674,000 5,675,000
1997 3,195,000 4,026,000
1998 1,500,000 2,832,000
1999 1,650,000 2,832,000
Thereafter -- 2,655,000
----------- -----------
Total $19,178,000 $18,895,000
=========== ===========
</TABLE>
* Pro forma for new debt incurred in July at the scheduled maturity.
F-21
<PAGE> 61
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 MARCH 31, 1994
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 189,000 $ 320,000
Accounts receivable, less allowances 3,915,000 3,907,000
Inventories (Note 2) 4,580,000 3,008,000
Net current assets of discontinued
operations - ComTel 407,000 --
Prepaid expenses and other current assets 121,000 364,000
----------- -----------
Total current assets 9,212,000 7,599,000
Property and equipment, net 7,715,000 7,898,000
Intangibles, net & other assets 12,285,000 12,411,000
Net non-current assets of discontinued operations -
ComTel 1,561,000 2,115,000
----------- -----------
Total Assets $30,773,000 $30,023,000
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-22
<PAGE> 62
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 MARCH 31, 1994
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 3,380,000 $ 3,749,000
Accrued liabilities 1,032,000 1,949,000
Current portion of long-term debt 5,438,000 875,000
Net current liabilities of discontinued
operations - Yorkville 1,454,000 --
Net current liabilities of discontinued
operations - ComTel -- 511,000
------------ ------------
Total current liabilities 11,304,000 7,084,000
Long-term debt 13,769,000 11,314,000
Liabilities settled in refinancing -- 6,284,000
Net non-current liabilities of discontinued
operations - Yorkville -- 1,339,000
------------ ------------
Total liabilities 25,073,000 26,021,000
------------ ------------
Warrants in subsidiary 1,425,000 1,425,000
------------ ------------
Shareholders' equity:
Common stock, $.01 par value;
45,000,000 shares authorized;
30,412,000 and 29,859,000 shares
issued and outstanding 307,000 299,000
Additional paid-in capital 28,255,000 27,588,000
Accumulated deficit (24,287,000) (25,310,000)
------------ ------------
Total shareholders' equity 4,275,000 2,577,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 30,773,000 $ 30,023,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-23
<PAGE> 63
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-------------------------------
1994 1993
---- ----
<S> <C> <C>
Revenues $ 30,517,000 $ 29,281,000
Cost of goods sold 21,849,000 21,688,000
------------ ------------
Gross profit 8,668,000 7,593,000
Marketing, general and
administrative expense 5,510,000 4,343,000
------------ ------------
Operating income 3,158,000 3,250,000
Interest expense 1,782,000 2,012,000
------------ ------------
Income (loss) from continuing
operations before taxes 1,376,000 1,238,000
Provision (benefit) for taxes 70,000 95,000
------------ ------------
Income from continuing operations 1,306,000 1,143,000
Income (loss) from discontinued
operations - ComTel (283,000) 194,000
------------ ------------
Net income $ 1,023,000 $ 1,337,000
============ ============
Income (loss) per common share (Note 3):
Continuing operations $ 0.04 $ 0.04
Discontinued operations - ComTel (0.01) 0.01
------------ ------------
Net Income $ 0.03 $ 0.05
============ ============
Average shares of common stock used in
computation of income (loss) per
share : 30,240,000 29,634,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-24
<PAGE> 64
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,023,000 $ 1,337,000
Adjustments to reconcile net income to net cash
provided (used) by operating
activities:
Depreciation and amortization 1,219,000 1,421,000
Amortization of debt discount 196,000 171,000
Accretion of put warrants 300,000
Changes in assets and liabilities, exclusive of
acquisitions and dispositions of
subsidiaries:
Decrease (Increase in accounts receivable (8,000) (399,000)
Decrease (Increase) in inventory (1,572,000) (336,000)
Decrease (Increase) in prepaids and other assets 130,000 (409,000)
(Decrease) Increase in accounts payable (369,000) (1,069,000)
(Decrease) Increase in accrued liabilities (917,000) (568,000)
----------- -----------
Net cash provided by operating activities (298,000) 448,000
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (797,000) (1,724,000)
Increase (Decrease) in net assets and
liabilities of discontinued operations (249,000) 83,000
----------- -----------
Net cash used in investing activities (1,046,000) (1,641,000)
----------- -----------
Cash flows from financing activities:
Long-term borrowings 7,572,000 2,888,000
Repayment of debt (750,000) (2,082,000)
Liabilities settled in refinancing (6,284,000) --
Proceeds from issuance of common stock 675,000 400,000
----------- -----------
Net cash provided by (used in) financing activities 1,213,000 1,206,000
----------- -----------
Net increase (decrease) in cash (131,000) 13,000
Cash at beginning of period 320,000 366,000
----------- -----------
Cash at end of period $ 189,000 $ 379,000
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-25
<PAGE> 65
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 1994
(UNAUDITED)
NOTE 1 - Integration of Financial Statements Reported on Form 10-K
The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the Company's audited consolidated financial statements
included in its Form 10-K for the fiscal year ended March 31, 1994, filed with
the Securities and Exchange Commission (File No. 0-16072) (the "Form 10-K"). In
the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (consisting of normal recurring accruals) necessary to
present fairly the Company's financial position as of December 31, 1994 and
March 31, 1994, and the results of its operations and cash flows for the periods
presented. Certain reclassifications of prior year amounts have been made to
conform to current year's presentation.
NOTE 2 - Inventories
Inventories at December 31, 1994 and March 31, 1994 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 MARCH 31, 1994
----------------- --------------
<S> <C> <C>
Raw Materials $ 2,982,000 $ 1,803,000
Work-in-Process 1,266,000 814,000
Finished Goods 332,000 391,000
----------- -----------
$ 4,580,000 $ 3,008,000
=========== ===========
</TABLE>
NOTE 3 - Earnings per Share
The number of shares of common stock and common stock equivalents used in the
computation of earnings per share for each period is the weighted average number
of shares outstanding during the periods and, if dilutive, common stock options,
warrants and convertible securities which are common stock equivalents.
NOTE 4 - Subsequent Events
Continuing Operations
On April 17, 1995 the Company's Decora Manufacturing Subsidiary signed an
expanded exclusive manufacturing agreement with its largest customer, Rubbermaid
Incorporated. Under the new agreement which expires on March 31, 1999, the
Company will consolidate consumer packaging operations for its decorative
products line which are currently performed in Rubbermaid's Statesville, NC
manufacturing facility into the Company's Fort Edward, NY facility. The Company
anticipates that the additional manufacturing operations, which will centralize
an integrated manufacturing process with resulting time and cost efficiencies,
will generate incremental annual revenues of
F-26
<PAGE> 66
DECORA INDUSTRIES, INC. AND SUBSIDIARIES
approximately $7,500,000 in the first full year of operations and is anticipated
to contribute to the overall profitability of the decorative coverings business.
The agreement becomes effective upon the relocation of the operations which is
ongoing and is anticipated to be completed in July 1995. Integrating the
operations requires relocation of machinery and equipment from North Carolina to
New York as well as improvements to the Company's facility and is anticipated to
create approximately fifty additional manufacturing jobs at the Company's
facility.
Discontinued Operations
At December 31, 1994 (and at the date of filing of its Form 10-Q for the quarter
then ended), the Company was in active discussions with parties interested in
acquiring various remaining assets and operations of ComTel whose businesses had
been subject to a plan of discontinuation adopted in April 1994. At that time,
operating losses of the discontinued operations of ComTel for the nine-month
period ended December 31, 1994 aggregated $283,000.
Based on these active discussions and indications of interest, and after giving
effect to anticipated values to be realized as a result of the disposition of
the ComTel assets, the Company estimated that no further net losses would be
incurred on the combined disposition and operations of ComTel.
On March 31, 1995, the Company sold the telecommunications assets of ComTel for
$1,810,000 (consisting of cash of $250,000 and notes receivable of $1,560,000).
In addition, the purchaser assumed approximately $1,700,000 of the Company's
liabilities. The notes receivable bear interest monthly at 7% with interest only
accruing during the first three years and level interest and principal payments
due thereafter until maturity on March 31, 2002. The notes are secured by the
assets of the purchaser and are guaranteed by the purchaser's parent company.
The transaction resulted in a gain approximating $118,000 with respect to the
estimated book value of the assets as of March 31, 1995.
On June 14, 1995, the Company completed the sale of the fixed assets and
inventory related to the manufacturing division of ComTel's business. The
selling price was $1,370,000 (consisting of $1,100,000 cash and a note for
$270,000) plus the assumption of approximately $75,000 of liabilities. The note
will be repaid during the six months following closing as inventory purchased is
used by the purchaser to fulfill assumed customer purchase orders. In addition,
in conjunction with the sale, claims on ComTel's assets with respect to a
$300,000 note payable to a customer were forgiven except for $50,000 which is to
be paid from the proceeds of the note receivable. The net loss arising from this
transaction was approximately $540,000 (which was approximately $745,000 less
than the net gain anticipated at December 31, 1994).
Certain liabilities of the ComTel businesses, which were not guaranteed by the
Company, were not assumed by the buyers of those business units. As a result,
the Company is in the process of settling these liabilities for less than face
value and expects to be able to do so. Certain remaining notes and accounts
receivable were not sold to the buyers, and the Company expects that losses will
be incurred on a portion of such receivables. The Company presently expects that
the net effects of the assets and liabilities (not settled in connection with
the sale transactions described above) will result in a gain approximating
$500,000.
At December 31, 1994, the Company had expected that gains on the sale of assets
described above would offset any additional operating losses through the date of
disposition. The additional operating losses of the ComTel businesses recorded
during the quarter ended March 31, 1995 are currently estimated to have been
$592,000.
As a result of the consummation of these transactions at March 31, 1995 and June
14, 1995, and the expected settlement of the remaining liabilities, the Company
expects to record an aggregate additional loss from discontinued operations
approximating $1,014,000 in the fourth quarter of its fiscal year ended March
31, 1995. As a result, the aggregate loss from discontinued operations for the
year ended March 31, 1995 is estimated to approximate $1,297,000 consisting of
operating losses of $875,000 and losses on disposals of $422,000.
While the Company remains obligated for certain net liabilities of its former
ComTel business, no operations remain and no further losses are expected to be
incurred with respect to the ComTel operations.
F-27
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses in connection with the distribution
described in this Registration Statement will be as shown below. All expenses
incurred with respect to the distribution will be paid by the Company. See "Plan
of Distribution and Use of Proceeds."
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 565.73
Printing expenses......................................................... 2,000
Accounting fees and expenses.............................................. 20,000
Legal fees and expenses................................................... 30,000
Fees and expenses for qualification
under state securities laws............................................. 3,000
Miscellaneous............................................................. 2,000
--------
Total................................................................... $57,565.75
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits the Registrant's
Board of Directors to indemnify any person against expenses (including
attorneys' fees), 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 in which such person is made a party by
reason of his being or having been a director, officer, employee or agent of the
Registrant, in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act"). The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Registrant's Certificate of Incorporation (Exhibit 3.1 hereto) provides for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by law. The Registrant has obtained directors and
officers' liability insurance that may cover, among other things, liabilities
under the federal securities laws.
The Registrant's Bylaws (Exhibit 3.2 hereto) provide for mandatory
indemnification of directors and officers of the Company, and those serving at
the request of the Company as directors, officers, employees, or agents of other
entities (collectively, "Agents") to the maximum extent permitted by law. The
Bylaws provide that such indemnification shall be a contract right between each
Agent and the Company.
The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
II-1
<PAGE> 68
The Company has purchased a directors and officers liability insurance policy
which provides up to one million dollars of insurance coverage for certain
actions against directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company believes that the issuances of securities pursuant to the
foregoing transactions were all either exempt from registration under the Act by
virtue of Section 4(2) thereof as transactions not involving any public
offerings, or were not subject to the registration requirements of the Act by
virtue of Rule 903 of Regulation S promulgated under the Act. In each case under
Section 4(2), the investor confirmed to the Company his investment intent, and
the Company had reason to believe that the investor qualified as an accredited
investor for purposes of the Act. In each case under Rule 903, the offers and
sales were made in offshore transactions, without any directed selling efforts,
to investors which certified that they were not U.S. persons.
Securities Issued to Employees, Directors and Consultants.
<TABLE>
<CAPTION>
TITLE OF EXEMPTION
DATE SECURITIES AMOUNT PURCHASERS CONSIDERATION CLAIMED
- ---- ---------- ------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
July 15, 1992 Option 250,000 Officer N/A (services rendered) (1)
July 15, 1992 Option 15,000 Employee N/A (services rendered) (1)
July 15, 1992 Option 40,000 Employee N/A (services rendered) (1)
July 27, 1992 Option 250,000 Director N/A (services rendered) (1)
July 27, 1992 Option 50,000 Employee N/A (services rendered) (1)
September 29, 1992 Common Stock 142,857 Consultants Settlement of amounts (1)
due for services rendered
in the amount of $200,000
January 11, 1993 Option 75,000 Officer N/A (services rendered) (1)
January 15, 1993 Option 25,000 Employee N/A (services rendered) (1)
May 5, 1993 Option 250,000 Director N/A (services rendered) (1)
May 5, 1993 Option 60,000 Consultants N/A (services rendered) (1)
July 1, 1993 Option 100,000 Officer N/A (services rendered) (1)
August 29, 1993 Option 40,000 Consultant N/A (services rendered) (1)
October 8, 1993 Option 200,000 Consultants N/A (services rendered) (1)
December 1, 1993 Option 250,000 Consultant N/A (services rendered) (1)
</TABLE>
II-2
<PAGE> 69
<TABLE>
<S> <C> <C> <C> <C> <C>
March 31, 1994 Common Stock 150,000 Consultant Settlement of amounts due (1)
for services rendered in
the amount of $135,000
March 31, 1994 Option 275,000 Employee N/A (services rendered) (1)
July 15, 1994 Option 350,000 Employee N/A (services rendered) (1)
July 15, 1994 Option 75,000 Director N/A (services rendered) (1)
July 15, 1994 Option 50,000 Director N/A (services rendered) (1)
August 15, 1994 Option 400,000 Employee N/A (services rendered) (1)
August 22, 1994 Common Stock 50,000 Employee N/A (exercise of (1)
previously issued
option)
</TABLE>
Securities Issued in Private Placements and/or in Connection with Financings.
<TABLE>
<CAPTION>
TITLE OF EXEMPTION
DATE SECURITIES AMOUNT PURCHASERS CONSIDERATION CLAIMED
- ---- ---------- ------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
March 31, 1992 Warrant 550,000 InterEast Capital N/A (consideration (1)
Limited for financing)
May 13, 1992 Common Stock 39,250 Private, accredited N/A (exercise of (1)
purchasers in private warrants issued in
placement connection with
prior debt)
June 4, 1992 Common Stock 30,000 Abraxas Development N/A (exercise of (1)
SA warrants issued in
connection with
prior debt)
July 2, 1992 Common Stock 830,089 Non-U.S. accredited $1,162,125 (2)
investors
July 2, 1992 Common Stock 192,000 Abraxas Development Conversion of prior (1)
S.A. advances in the
amount of $144,000
July 2, 1992 Common Stock 182,667 Transinvest Limited Cancellation of prior (1)
debt in the amount
of $137,000
July 6, 1992 Common Stock 142,857 Private, accredited $200,000 (1)
</TABLE> purchaser in private
placement
II-3
<PAGE> 70
<TABLE>
<S> <C> <C> <C> <C> <C>
November 3, 1992 Common Stock 89,076 Robert W. Johnson IV N/A (partial (1)
consideration for
loan)
November 3, 1992 Common Stock 90,000 Robert W. Johnson IV Prepaid interest of (1)
$160,000
November 3, 1992 Convertible Note 882,353 Robert W. Johnson IV $1,500,000 (1)
November 3, 1992 Warrant 225,000 Robert W. Johnson IV N/A (issued in (1)
consideration for
financing)
November 3, 1992 Warrant 100,000 Robert W. Johnson IV N/A (issued in (1)
consideration for
financing)
November 25, 1992 Common Stock 550,000 InterEast Capital N/A (exercise of warrant
Limited issued in connection with
prior financing)
November 25, 1992 Common Stock 860,000 InterEast Capital Conversion of prior debt (1)
Limited in the amount of
$1,200,000
December 10, 1992 Common Stock 23,250 Sanbarco N/A (exercise of warrants (1)
issued in prior
financing)
December 15, 1992 Common Stock 10,000 Private, accredited $10,000 (1)
purchaser in private
placement
December 18, 1992 Common Stock 383,334 Private, accredited $552,000 (1)
purchasers in private
placement
May 14, 1993 Common Stock 200,000 Sun Financial Group, Consideration valued at (1)
Inc. $400,000 in connection
with the acquisition of
division)
July 1, 1993 Convertible Note (3) Non-U.S. investors $550,000 (2)
July 1, 1993 Warrant 100,000 Non-U.S. investors N/A (partial (2)
consideration for loan
of $550,000)
July 26, 1993 Warrant 50,000 InterEast Capital N/A (issued in (1)
Limited consideration for
financing)
July 26, 1993 Convertible Note 402,857 InterEast Capital $564,000 (1)
Limited
November 3, 1993 Common Stock 95,755 Robert W. Johnson IV Interest payment of (1)
$160,000
June 9, 1994 Common Stock 130,595 Transinvest Limited Conversion of debt (1)
in the amount of
$182,833
</TABLE>
II-4
<PAGE> 71
<TABLE>
<S> <C> <C> <C> <C> <C>
August 29, 1994 Common Stock 125,458 Private, Accredited $150,000 (1)
purchaser in private
placement
October 5, 1994 Common Stock 50,108 Non-U.S. Investor Interest payment of (2)
$33,000
June 1, 1994 Warrant 50,000 Non-U.S. investors N/A (extension of loan) (2)
November 14, 1994 Common Stock 112,327 Robert W. Johnson IV Interest payment of (1)
$180,000
February 15, 1995 Common Stock 48,175 Non-U.S. Investor Interest payment of (2)
$33,000
</TABLE>
Securities Issued in Settlement of Litigation.
<TABLE>
<CAPTION>
TITLE OF EXEMPTION
DATE SECURITIES AMOUNT PURCHASERS CONSIDERATION CLAIMED
- ---- ---------- ------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
July 10, 1992 Common Stock 24,000 Plaintiff in lawsuit N/A (court-approved (1)
settlement of
litigation)
July 10, 1992 Common Stock 18,000 Plaintiff in lawsuit N/A (court-approved (1)
settlement of
litigation)
July 10, 1992 Common Stock 13,500 Plaintiff in lawsuit N/A (court-approved (1)
settlement of
litigation)
July 10, 1992 Common Stock 4,500 Plaintiff in lawsuit N/A (court-approved (1)
settlement of
litigation)
July 13, 1992 Warrant 450,000 Plaintiff in lawsuit N/A (court-approved (1)
settlement of
litigation)
September 29, 1992 Common Stock 182,217 Plaintiffs in lawsuit N/A (court-approved (1)
settlement of
litigation)
December 3, 1992 Common Stock 33,846 Plaintiffs in lawsuit N/A (court-approved (1)
settlement of
litigation)
July 22, 1994 Common Stock 125,000 Plaintiffs in lawsuit N/A (settlement of (1)
litigation
</TABLE>
II-5
<PAGE> 72
<TABLE>
<S> <C> <C> <C> <C> <C>
November 18, 1994 Common Stock 20,000 Plaintiffs in lawsuit N/A (settlement of (1)
litigation)
</TABLE>
- -------------------------------------------------
(1) Exempt pursuant to Section 4(2) of the Securities Act regarding
transactions not involving public offerings. In each case under Section 4(2),
the investor confirmed to the Company his investment intent, and the Company had
reason to believe that the investor qualified as an accredited investor for
purposes of the Act.
(2) Exempt pursuant Rule 903 of Regulation S. In each case under Rule
903, the offers and sales were made in offshore transactions, without any
directed selling efforts, to investors which certified that they were not U.S.
persons.
(3) Number of shares to be issued upon conversion is subject to
fluctuations in the trading price of the Company's stock.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
(3) Articles of Incorporation and By-Laws
3.1 Certificate of Incorporation filed on March 27, 1992.(9)
3.2 By-laws.(9)
(4) Instruments Defining the Rights of Security Holders
4.1 Certificate of Incorporation (see Exhibits 3.1-3.2).
4.2 Form of Specimen Certificate.
(5) Opinion re Legality
5.1 Opinion of Miller & Holguin as to certain securities
law matters.(12)
(10) Material Contracts
10.1 Utilitech, Incorporated, 1987 Stock Option Plan.(1)
10.2 Management Agreement dated as of April 18, 1990 by
and between Utilitech and Decora Manufacturing.(2)
10.3 Loan and Security Agreement dated as of April 18,
1990 by and between Decora Manufacturing, Utilitech
and Norstar Bank of Upstate NY ("Norstar").(2)
II-6
<PAGE> 73
10.4 Mortgage dated as of April 18, 1990 by and between
Decora Manufacturing and Norstar.(2)
10.5 Guaranty of Utilitech to Norstar dated as of April
18, 1990.(2)
10.6 Secured Revolving Line of Credit Agreement dated as
of April 18, 1990 by and between Decora Manufacturing
and Norstar.(2)
10.7 Form of Warrant to Purchase Common Stock of Decora
Manufacturing expiring April 15, 1998 dated as of
April 18, 1990 by and between Decora and CIGNA
Mezzanine Partners II, L.P., CIGNA Property and
Casualty Insurance Company and Zande and Co.(2)
10.8 Forms of 14% Senior Subordinated Notes due April 15,
1998 dated as of April 18, 1990 in the amounts of
$3,206,480.21, $1,327,732.26, $1,138,055.27 and
$1,327,732.26 to CIGNA Mezzanine Partners II, L.P.,
CIGNA Property and Casualty Property and Casualty
Insurance Company and Zande and Co.(2)
10.9 Securities Purchase Agreement dated as of April 15,
1990 by and between Utilitech, Decora Manufacturing
and Purchasers of 14% Senior Subordinated Notes due
1998 and Warrants to Purchase Common Stock of Decora
Manufacturing.(2)
10.10 Stockholder Agreement by and between Quality Metal
Industries Inc., Raymond E. Murray and Utility
Marketing and Development Corporation dated June 30,
1990.(3)
10.11 Agreement and Plan of Merger by and between Decora
Industries, Inc. and Utilitech, Incorporated dated
March 3, 1992.(4)
10.12 Option Agreement dated as of January 7, 1992, by and
between Utilitech, Incorporated and Nathan Hevrony.(5)
10.13 Option Agreement dated as of January 7, 1992, by and
between Utilitech, Incorporated and Roger
Grafftey-Smith.(5)
10.14 Option Agreement dated as of January 7, 1992, by and
between Utilitech, Incorporated and Gabriel Thomas.(5)
10.15 Employment Agreement dated as of January 7, 1992, by
and between Utilitech, Incorporated and Nathan
Hevrony.(5)
10.16 Note and Warrant Purchase Agreement by and between
Decora Industries, Inc. and Robert W. Johnson IV,
dated November 3, 1992.(6)
10.17 Convertible Negotiable Promissory Note by and between
Decora Industries, Inc. and Robert W. Johnson IV,
dated November 3, 1992.(6)
10.18 Series A Warrant to Purchase Common Stock of Decora
Industries, Inc., dated November 3, 1992 issued to
Robert W. Johnson IV.(6)
10.19 Series B Warrant to Purchase Common Stock of Decora
Industries, Inc., dated November 3, 1992 issued to
Robert W. Johnson IV.(6)
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10.20 Settlement and Release Agreement dated April 19, 1993
among Decora Industries, Inc., Yorkville Industries,
Inc. and certain members of the Rabinowitz Family.(7)
10.21 License Agreement dated August 9, 1991, by and
between the Company and John Smith.(8)
10.22 Loan and Security Agreement, in the amount of
$1,000,000, dated September 28, 1992, by and between
ComTel Industries, Inc. ComTel Metals, Inc., Decora
Manufacturing and Fleet Bank of New York.(8)
10.23 Term Note, in the amount of $1,000,000, executed by
ComTel Industries, Inc. and ComTel Metals, Inc. in
connection with the Loan and Security Agreement.(8)
10.24 Secured Revolving Working Capital Line of Credit
Agreement, in the amount of $2,500,000 dated
September 28, 1992, by and between ComTel Industries,
Inc. and Fleet Bank of New York.(8)
10.25 Secured Working Capital Promissory Note, in the
amount of $1,500,000 executed by ComTel Industries,
Inc. in connection with the Working Capital Line of
Credit Agreement dated as of September 28, 1992.(8)
10.26 Option Agreement dated as of May 5, 1993, by and
between Arnold Zimmerman and the Company.(8)
10.27 Form of Option Agreement dated as of January 11,
1993, by and between Richard A. DeCoste and the
Company.(8)
10.28 Form of Option Agreement dated as of July 15, 1992,
by and between Richard G. Winslow and the Company.(8)
10.29 Asset Purchase Agreement date May 14, 1993 by and
among ComTel Industries, Inc., the Company and Sun
Financial Group, Inc.(8)
10.30 Lease and Agreement dated May 1, 1993 between J.B.P.
Properties and ComTel Industries, Inc.(8)
10.31 Employment Agreement, dated as of July 1, 1993, by
and between the Company and Timothy J. Burditt.(8)
10.32 1988 Employee Stock Purchase Plan.(8)
10.33 Amendment Agreement dated as of July 3, 1993 by and
between the Company and InterEast Capital.(9)
10.34 Second Amendment to Secured Revolving Line of Credit
Agreement dated as of July 29, 1993 by and between
Decora and Fleet Bank of New York (successor to
Norstar).(9)
10.35 Revision to Secured Promissory Note (originally dated
July 5, 1990, in the principal amount of $850,000),
effective September 28, 1992, by and between ComTel
Metals, Inc. and Siemens Stromberg-Carlson.(9)
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<PAGE> 75
10.36 Subordination Agreement, dated September 28, 1992, by
and among ComTel, ComTel Metals, Inc., Siemens
Stromberg-Carlson and Fleet Bank of New York.(9)
10.37 Labor Agreement, effective June 9, 1992, by and
between Decora Manufacturing and Local #13 United
Paperworkers International Union.(9)
10.38 Lease Agreement, dated September 19, 1991, by and
between Cobia Boat Company and ComTel Metals,
relating to the lease of property in Sanford,
Florida.(9)
10.39 Asset Purchase Agreement by and between Fujitsu
Business Communications, Inc. and ComTel Industries,
Inc. dated as of December 10, 1993.(9)
10.40 Manufacturing Agreement dated as of February 18,
1994, by and Between Decora Industries, Inc., Decora
Incorporated and Rubbermaid Incorporated.(9)
10.41 Promissory Note in the amount of $8,500,000 by and
between Decora Incorporated and Fleet Bank of New
York dated July 20, 1994.(9)
10.42 Amendment No. 1 to Loan and Security Agreement
between Decora Incorporated and Fleet Bank of New
York dated July 20, 1994.(9)
10.43 Promissory Note in the amount of $1,000,000 by and
between Decora Incorporated and Fleet Bank of New
York dated July 20, 1994.(9)
10.44 Loan and Security Agreement in the amount of
$1,000,000 by and between Decora Incorporated and
Fleet Bank of New York dated July 20, 1994.(9)
10.45 Revolving Line of Credit Note in the amount of
$6,000,000 by and between Decora Incorporated and
Fleet Bank of New York dated July 20, 1994.(9)
10.46 Third Amendment to Secured Revolving Line of Credit
Agreement by and between Decora Incorporated and
Fleet Bank of New York dated July 20, 1994.(9)
10.47 Asset Purchase Agreement by and among ComTel Metals,
Inc., ComTel Industries, Inc. and Keptel, Inc. dated
June 28, 1994.(9)
10.48 Amendment to License Agreement dated March 31, 1994
by and among Decora Industries, Inc., Decora
Incorporated and John R. Smith.(9)
10.49 Assignment of Ownership dated June 30, 1994 by and
among Decora Industries, Inc., Decora Incorporated
and John R. Smith relating to License Agreement.(9)
10.50 Form of InterEast Warrant dated May 4, 1994 to
purchase common stock of Decora.(9)
10.51 Warrant to Confidesa AG to Purchase 100,000 Shares of
Common Stock dated June 29, 1993.(9)
10.52 Form of Warrant to Confidesa AG to Purchase 50,000
shares of Common Stock dated June 1994.(9)
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<PAGE> 76
10.53 Form of Convertible Promissory Note dated June 1994,
in the amount of $550,000 by and between Confidesa AG
and Decora Industries, Inc.(9)
10.54 Scrap Management Contract by and between The United
Telephone Company of Pennsylvania and United
Telephone Company of New Jersey, Inc. and ComTel
Industries, Inc., dated July 9, 1993.(9)
10.55 Letter of Fleet Bank to Decora Industries dated July
29, 1994 regarding the extension of the line of
credit of ComTel Industries, Inc.(9)
10.56 Amendment to Securities Purchase Agreement dated as
of July 19, 1994 by and between Decora, Incorporated
and Cigna Mezzanine Partners, Inc., Cigna Property
and Casualty and Insurance Company of North
America.(9)
10.57 General Mutual Releases, Settlement Agreement and
Covenants for Peace from Further Litigation,
Proceedings, Claims, Purported Advocacy of Claims and
Unwanted Publicity, by and between Jacqueline B.
Cotsen and Decora Industries, Inc., dated July 20,
1994.(9)
10.58 Assignment Agreement by and among Chase Manhattan
Bank, N.A., Decora Industries, Inc., and Winslow Bank
Limited, dated July 20, 1994.(9)
10.59 Restated Settlement and Release Agreement by and
between Stanley Rabinowitz, Milton Rabinowitz, the
Estate of Solomon Rabinowitz, the Estate of Clara
Rabinowitz, Sherri Rabinowitz Sussman, Suzanne
Rabinowitz, Jeffrey Rabinowitz, Laurence Rabinowitz
and Barbie Rabinowitz Lieber, on the one hand, and
Decora Industries, Inc., and Yorkville Industries,
Inc., on the other hand, dated July 20, 1994.(9)
10.60 Agreement and Release by and between InterEast
Capital Limited and Decora Industries, Inc., dated
July 20, 1994.(9)
10.61 Promissory Note in the amount of $6,000,000 dated as
of July 20, 1994 by and between Decora Industries as
borrower and Decora Incorporated as lender.(9)
10.62 Option Agreement dated as of July 15, 1994, by and
between Decora Industries, Inc. and Walter E.
Buske.(9)
10.63 Form of Employment Agreement dated as of June 1, 1994
by and between Decora Industries, Inc. and Nathan
Hevrony.(9)
10.64 Form of Option Agreement dated as of July 5, 1994 by
and between Decora Industries, Inc. and Stephen
Verchick.(9)
10.65 Form of Option Agreement dated as of July 5, 1994 by
and between Decora Industries, Inc. and Ronald
Artzer.(9)
10.66 Form of Option Agreement dated as of August 15, 1994
by and between Decora Industries, Inc. and Nathan
Hevrony.(10)
10.67 Employment Agreement effective as of August 1, 1994
between the Company and Walter Buske.(10)
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<PAGE> 77
10.68 Letter dated November 18, 1994 from Fleet Bank to
Richard J. Winslow, President, ComTel Industries,
Inc. re extension of revolving working capital line
of credit in the amount of $2,000,000 until December
31, 1994.(10)
10.69 Letter dated November 18, 1994 from Fleet Bank to
Richard J. Winslow, President, ComTel Industries,
Inc. re extension of revolving working capital line
of credit in the amount of $2,000,000 until January
31, 1995.(10)
10.70 Registration Rights Agreement dated as of April 19,
1993 by and between Decora Industries, Inc. and
members of the Rabinowitz family.(11)
10.71 Modification, Extension and Restatement Agreements by
and between Fleet Bank and ComTel.(11)
10.72 Asset Purchase Agreement dated as of March 31, 1995
by and between ComTel Systems Corporation and ComTel
Industries, Inc.
10.73 Secured Promissory Note I dated as of March 31, 1995
in the amount of $850,000 by and between ComTel
Systems Corporation, as Debtor, and ComTel
Industries, Inc., as Lender.
10.74 Secured Promissory Note II dated as of March 31, 1995
in the amount of $710,000 by and between ComTel
Systems Corporation, as Debtor, and ComTel
Industries, Inc., as Lender.
10.75 Amendment to Securities Purchase Agreement dated as
of April 1, 1995, by and among Decora, Incorporated
and Cigna Mezzanine Partners II, L.P., Cigna Property
and Casualty Insurance Company and Insurance Company
of North America.
10.76 Manufacturing Agreement dated April 12, 1995 by and
among Decora Industries, Inc., Decora, Incorporated
and Rubbermaid Incorporated.(13)
10.77 Agreement of Purchase and Sale of Assets dated June
13, 1995, by and between DMX Integration, Inc. and
ComTel Metals, Inc.
10.78 Secured Promissory Note dated June 13, 1995, in the
amount of $270,809.90 by andbetween DMX Integration,
Inc., as Debtor and ComTel Metals, Inc., as Lender.
10.79 Guaranty of Datamax Corporation dated June 13, 1995.
(22) Subsidiaries of the Registrant(9)
(24) Consents of Experts and Counsel
24.1 Consent of Price Waterhouse LLP.
24.2 Consent of Miller & Holguin (contained in Exhibit 5.1).
24.3 Power of Attorney (included on page II-14).
II-11
<PAGE> 78
Notes
(1) Previously filed as Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1988.
(2) Previously filed as Exhibits to the Company's Report on Form
8-K dated April 18, 1990.
(3) Previously filed as Exhibits to the Company's Report on Form
10-K for the fiscal year ended March 31, 1990.
(4) Previously filed as Exhibit to the Company's Report on Form
8-K dated April 6, 1992.
(5) Previously filed as Exhibits to the Company's Report on Form
10-K for the fiscal year ended March 31, 1992.
(6) Previously filed as Exhibits to the Company's Report on Form
8-K dated November 5, 1992.
(7) Previously filed as Exhibit to the Company's Report on Form
8-K dated April 19, 1993.
(8) Previously filed as Exhibit to the Company's Report on Form
10-K for the fiscal year ended March 31, 1993.
(9) Previously filed as Exhibit to the Company's Report on Form
10-K for the fiscal year ended March 31, 1994.
(10) Previously filed as Exhibit to the Company's Report on Form
10-Q for the fiscal quarter ended December 31, 1994.
(11) Previously filed as Exhibit to the Company's Report on Form
8-K dated March 2, 1995.
(12) To be filed by amendment.
(13) Confidential treatment requested.
(B) FINANCIAL STATEMENT SCHEDULES
Not Applicable.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
II-12
<PAGE> 79
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of 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;
(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 of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(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) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-13
<PAGE> 80
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
EDWARD, STATE OF NEW YORK ON JUNE 27, 1995.
DECORA INDUSTRIES, INC.
By: /s/ Nathan Hevrony
-----------------------
Nathan Hevrony
Chief Executive Officer
II-14
<PAGE> 81
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Nathan Hevrony his true and
lawful attorney-in-fact and agent for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Roger Grafftey-Smith Director June 27, 1995
- ----------------------------
Roger Grafftey-Smith
/s/ Gabriel Thomas Director June 27, 1995
- ----------------------------
Gabriel Thomas
/s/ Nathan Hevrony Chief Executive Officer June 27, 1995
- ---------------------------- and Director (Principal
Nathan Hevrony Executive Officer)
/s/ Stephen H. Verchick Director June 27, 1995
- ----------------------------
Stephen H. Verchick
/s/ Ronald Artzer Director June 27, 1995
- ----------------------------
Ronald Artzer
/s/ Timothy Burditt Executive Vice President, June 27, 1995
- ----------------------------- Administration and Finance
Timothy Burditt (Principal Financial and
Accounting Officer)
</TABLE>
II-15
<PAGE> 1
EXHIBIT 10.72
ASSET PURCHASE AGREEMENT
THIS AGREEMENT IS MADE as of this 31st day of March, 1995, by and
between COMTEL SYSTEMS CORPORATION, a Florida corporation with offices at 250
East Park Avenue, Lake Wales, Florida 33853 ("ComTel Systems"), and COMTEL
INDUSTRIES, INC., a Florida corporation with offices at 6801 North 54th Street,
Tampa, Florida 33610 ("ComTel").
In consideration of the mutual covenants, agreements and warranties
herein contained, and for other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, it is agreed that ComTel Systems
shall acquire from ComTel all of the Acquired Assets (defined herein) upon the
terms and conditions hereinafter set forth. The Acquired Assets relate to
ComTel's secondary market and service business.
DEFINITIONS
The following terms shall have the meanings set forth herein for the
purposes of the transactions described in this Agreement:
"Accounts Receivable" shall have the meaning given to it in Section
1.1(g).
"Acquired Assets" shall have the meaning given to it in Section 1.1.
"Affiliate" of any person shall mean any corporation, proprietorship,
partnership or business entity which, directly or indirectly, owns or controls,
is under common ownership or control with, or is owned or controlled by, such
person.
"Agreement" shall mean this Asset Purchase Agreement, including
Exhibits and Schedules hereto, as it may be amended from time to time in
accordance with its terms.
"Assumed Obligations" shall have the meaning given to it in
Section 1.4.
"Balance Sheet" shall have the meaning given to it in Section 3.4.
"Closing" shall mean the consummation of the transactions contemplated
herein in accordance with Article X hereof.
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<PAGE> 2
"Closing Date" shall mean the date on which the Closing occurs or is
to occur.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any rules and regulations promulgated thereunder.
"ComTel Purchase Orders" shall have the meaning given to it in Section
1.2(c).
"Continuing Employees" shall have the meaning given to it in Section
9.1.
"Customer Purchase Orders" shall have the meaning given to it
in Section 1.2(d).
"Equipment" shall have the meaning given to it in Section
1.1 (b).
"Equipment and Other Personal Property Leases" shall have the meaning
given to it in Section 1.2(b).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Excluded Assets" shall have the meaning given to it in Section 1.3.
"Information and Records" shall have the meaning given to it in Section
1.1(c).
"Inventories" shall have the meaning given to it in Section 1.1(d).
"Losses" shall mean all liabilities, losses, costs, damages, penalties
or expenses (including, without limitation, reasonable attorneys' fees and
expenses and costs of investigation and litigation) which have been reduced to
judgment net of the amount received as compensation therefor under any
insurance policies.
"Other Assets" shall have the meaning given to it in Section 1.1(e).
"Other Contracts" shall have the meaning given to it in Section 1.2(e).
"Permits" shall have the meaning given to it in Section 1.2(f).
"Purchase Price" shall mean the purchase price of the Acquired Assets.
2
<PAGE> 3
"Real Property Leases" shall have the meaning given to it in Section
1.2(a).
"Retained Obligations" shall have the meaning given to it in Section
1.5.
"Taxes" shall mean all taxes, charges, fees, duties, levies or other
assessments, including without limitation the taxes enumerated in the first
sentence of Section 3.13 of this Agreement, which are imposed by the United
States, or any state, local or foreign government or subdivision or agency
thereof, and such term shall include any interest, penalties or additions to
tax attributable to such Taxes.
"Tax Return" shall mean any report or return required to be supplied
to a taxing authority in connection with Taxes.
"Toxic or Hazardous Substance, Material or Waste" shall mean any
substance, the presence of which constitutes an unauthorized release, discharge
or emission to the air, soil or water at, on, or under the real property
subject hereto; or requires response or investigation under federal, state or
local laws; or is defined as a toxic or hazardous substance, material or waste,
pollutant or contaminant under any federal, state, or local laws, including,
but not limited to the Comprehensive Environmental Response, Compensation and
Liability Act (42 USC Sections 2601 et seq.); or is hazardous to the
health, safety or welfare of persons on or off the subject property.
"Vehicles" shall have the meaning given to it in Section 1.1(a).
ARTICLE I
PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES
1.1 Acquired Assets. Subject to the terms and conditions set forth
in this Agreement, at the Closing ComTel shall sell, assign, transfer and
deliver to ComTel Systems, and ComTel Systems shall purchase, acquire and take
assignment and delivery of, all of the assets (wherever located) which are
described or referenced in this Section 1.1 or Section 1.2 and not including
those assets described or referenced in Section 1.3 (all of the assets and
rights sold, assigned, transferred and delivered to ComTel Systems hereunder
are referred to collectively herein as the "Acquired Assets"). The Acquired
Assets include the following:
3
<PAGE> 4
(a) Vehicles. Those vehicles described in Schedule
1.1(a) hereto, together with all ancillary equipment and
related property, and together with any additional vehicles
and ancillary equipment purchased by ComTel after the date
hereof and prior to the Closing Date to which ComTel Systems
shall have expressly consented in writing (the "Vehicles");
(b) Equipment. All other tangible operating and trade
assets used in the ordinary course of ComTel's current operations
including, without limitation, furniture and fixtures, equipment and
tools, but excluding those assets listed on Schedule 1.3 hereto (the
"Equipment");
(c) Information and Records. All customer lists and
files which are related to, or used by ComTel in connection with its
business and operations; all personnel and labor relations records and
other records relating to the Continuing Employees; all environmental
control, permitting, monitoring, enforcement and test records; all
maintenance records; all plats and surveys of the real property
subject to the Real Property Leases and all plans and designs of
buildings, structures and fixtures located on such real property (the
"Information and Records"). Further, ComTel shall make available to
ComTel Systems, at ComTel Systems' request, for a period of two (2)
years following the Closing, ComTel's financial, tax and historical
files (or copies thereof);
(d) Inventories. All of ComTel's inventories, including,
without limitation, all spare parts inventory, and all other
inventories and supplies owned by ComTel to be used in the normal
business and operations of ComTel;
(e) Other Assets. Any utility deposits, all prepaid
expense credits, petty cash (not to exceed $1,000), any outstanding
cash advances to any of the Continuing Employees and any assets
acquired by ComTel in the ordinary course of business since March 15,
1995 (the "Other Assets") which used in connection with its operations
and with respect to which acquisition ComTel Systems has consented in
writing;
(f) Other Intangibles. All software used in connection
with ComTel's current operations (excluding the IBM AS400 and related
Mapics software); the goodwill, if any, related to or used in
conjunction with the use of the corporation name "ComTel Industries,
Inc."; the corporate name, telephone numbers, logo and other corporate
insignia
4
<PAGE> 5
of ComTel; and the right to continue the operations of ComTel as a
going concern; and
(g) Accounts Receivable. Except for those receivables
listed on Schedule 1.1(g), any and all trade accounts receivable,
customer revenue accounts and other trade receivables and customer
revenue accruals arising in the ordinary course of business, said
receivables being not less than $1,240,184.00 (the "Accounts
Receivable"). Certain receivables were paid during the period of
March 28, 29, 30 and 31 ("Collected Receivables"), and due to ComTel's
lockbox arrangement, could not be allocated prior to the Closing Date.
ComTel will provide a check to ComTel Systems in the amount of the
Collected Receivables within five (5) business days of confirmation of
such amount from Fleet Bank, its lender.
1.2 Assignment of Contracts, Leases and Other Assets.
Subject to the terms and conditions set forth in this Agreement, and
to the terms and limitations contained in each contract, lease or
other agreement or permit described below in this Section 1.2, ComTel
will assign and transfer to ComTel Systems, effective as of the
Closing Date (to the extent permitted by the other party), all of
ComTel's right, title and interest in and to, and ComTel Systems will
take assignment of, the following (and all of the following shall be
deemed included in the term "Acquired Assets" as used herein):
(a) Real Property Leases. All of the leases of real
property necessary for the continuation of ComTel's business, said
leases having been provided to ComTel Systems prior to Closing (the
"Real Property Leases");
(b) Equipment and Other Personal Property Leases. All of
ComTel's right, title and interest in and to the leases of Equipment
including, without limitation, owner-operator leases, machinery,
copiers, postage meters, installations, Vehicles and other personal
property described on Schedule 1.2(b) (the "Equipment and Other
Personal Property Leases");
(c) ComTel Purchase Orders. All of the purchase orders,
contracts and agreements described in Schedule 1.2(c), for the
purchase of goods, materials and services and such other purchase
orders or contracts as shall be entered into between the date hereof
and the Closing Date in the ordinary course of business and in
accordance with the provisions of Section 5.16 that ComTel Systems may
expressly approve (the "ComTel Purchase Orders");
5
<PAGE> 6
(d) Customer Purchase Orders. All of the customer
purchase orders and maintenance contacts including, but not
limited to, those contracts listed in Schedule 1.2(d), and
such other contracts with customers as shall be entered into
between the date hereof and the Closing Date in the ordinary
course of business that ComTel Systems may expressly approve
(the "Customer Purchase Orders"). With respect to the GSA POTS
contracts, ComTel agrees to execute a Subcontractor Master
Agreement appointing ComTel Systems as its exclusive
subcontractor, to perform all of its obligations thereunder
until such time as said contracts are assigned, or until the
terms of said contracts expire, whichever occurs first;
(e) Other Contracts, Claims and Warranties. All of the
other contracts listed on Schedule 1.2(e), together with all claims
and manufacturers' warranties with respect to the Acquired Assets or
the Assumed Obligations (the "Other Contracts");
(f) Permits. All of the licenses, tags, certificates of
authority, permits, variances, interim permits, applications for any
of the foregoing, approvals or other authorizations under any law,
statute, rule, regulation, order or ordinance required by any
governmental agency or body in connection with the operation of
ComTel's business (the "Permits"); and
(g) Warranties. All manufacturer's and service
warranties with respect to the Acquired Assets.
1.3 Excluded Assets. The assets listed on Schedule 1.3 shall be
retained by ComTel and are not being sold or assigned to ComTel Systems
hereunder (all of the assets retained by ComTel are referred to collectively as
the "Excluded Assets").
1.4 Assumed Obligations. At the Closing, ComTel Systems shall
assume, and agree to pay, perform, fulfill and discharge, the following
obligations of ComTel (the "Assumed Obligations"):
(a) Obligations which are required to be performed, and which
accrue after the Closing Date, under the following contracts and
agreements, except where the consent of any third party is required
for the assignment of such contract or agreement and such consent has
not been obtained within sixty (60) days following the Closing:
(i) the Real Property Leases as modified;
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(ii) the Equipment and Other Personal Property
Leases (excluding the AS400 lease with IBM
Credit Corporation);
(iii) the ComTel Purchase Orders;
(iv) the Customer Purchase Orders; and
(v) the Other Contracts;
If such consent is not obtained within 45 days of the Closing Date, then ComTel
Systems shall notify ComTel. At that time, unless ComTel Systems notifies
ComTel of its willingness to keep negotiating for a consent, the
Agreement shall be terminated immediately by ComTel and ComTel Systems
shall pay for the performance of the Agreement until it is properly terminated.
If ComTel Systems wishes to continue to procure consent, then ComTel Systems
shall do so, but shall assume all further obligations under such agreement.
(b) ComTel's trade payables listed in Schedule 1.4(b)
(c) The accrued payables for the categories of payables
listed on Schedule 1.4(c) (the "Accrued Payables"). Within ten (10)
days of the Closing Date, the parties shall confirm the amounts of
such payables.
(d) All warranty claims related to ComTel's standard policy
of 12 months for services division equipment sold and 6 months for
secondary market warranty claims for repairs and sales.
(e) All litigation not retained by ComTel relating to
payables as provided in Schedule 3.12.
(f) Amounts owed to hourly employees, prior to the Closing
Date, the amount of which was not available on the Closing Date.
(g) Except as expressly provided in this Section 1.4,
ComTel Systems shall not be liable or responsible for any liabilities
or obligations of ComTel, whether accrued, absolute, contingent or
otherwise, and ComTel shall pay all such liabilities and obligations
when due and shall hold ComTel Systems free and harmless therefrom.
1.5 Retained Obligations. ComTel shall retain all of ComTel's
obligations and liabilities not expressly assumed by
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ComTel Systems pursuant to Section 1.4, whether such obligations and
liabilities are existing or contingent, known or unknown, including, without
limitation, all pending and threatened litigation affecting ComTel as of the
Closing Date (the "Retained Obligations"), except as described in Schedule
3.12.
ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 Calculation of Purchase Price. The total purchase price (the
"Purchase Price") for the purchase of the Acquired Assets described above shall
be One Million Eight Hundred Ten Thousand and 00/100 Dollars ($1,810,000).
2.2 Payment of Purchase Price. The Purchase Price shall be
payable as follows:
(a) $250,000 payable at Closing by certified check.
(b) At Closing, ComTel Systems will execute a promissory note
in the amount of $850,000, payable over seven (7) years. Interest
will accrue at the rate of seven percent (7%), with interest only
payable for the first thirty (30) months. Both principal and interest
will thereafter be paid in equal monthly installments for the
remaining fifty-four (54) months ("Note I"). ComTel Systems shall
also execute a Security Agreement granting ComTel a first priority
security interest in the Acquired Assets to secure the amount owed
under said promissory note. The sole shareholder of ComTel Systems,
Association Risk Management Service Company, shall execute a guaranty
of Note I and the obligations of ComTel Systems under this Agreement.
(c) At Closing, ComTel Systems will execute a promissory note
in the amount of $710,000 (this amount is subject to change at closing
based on updated A/R and A/P figures), payable over seven (7) years.
Interest will accrue on said amount at the rate of seven percent (7%).
Interest will accrue but no payments will be due for the first thirty
(30) months following execution of the note, with principal and
interest thereafter being in equal monthly installments for the
remaining fifty-four (54) months ("Note II"). ComTel Systems shall
also execute a Security Agreement granting ComTel a first priority
security interest in the Acquired Assets to secure the amount owed
under said Promissory Note. The sole shareholder of ComTel Systems,
Association Risk Management Service Company, shall execute a guaranty
of Note II (the guaranties of Note I and
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Note II and other obligations hereunder shall be referred to as the
"Guaranty")
2.3 Allocation of Purchase Price. The Purchase Price shall be
allocated as provided in Schedule 2.3.
2.4 Prorations. Except as otherwise provided herein and on
Schedule 1.4(b), ComTel and ComTel Systems agree that all of the items listed
below relating to the business and operations of ComTel and the Acquired Assets
will be prorated as of the Closing Date, with ComTel liable to the extent such
items relate to any time period up to and including the Closing Date, and
ComTel Systems liable to the extent such items relate to periods subsequent to
the Closing Date:
(a) personal property, real estate, occupancy and water
taxes and special assessments, if any, on or with respect to the
business and operations of ComTel or the Acquired Assets;
(b) rents, taxes and other items payable by ComTel under
any lease, contract or other agreement or arrangement to be assigned
to and assumed by ComTel Systems hereunder;
(c) the amount of any license, certificate of authority,
tag or registration fees with respect to any licenses, tags or
registrations which are being assigned or transferred hereunder;
(d) the amount of sewer rents and charges for water,
telephone, electricity and other utilities and fuel; and
(e) all items included in Section 1.4(b) (to the extent
not specifically described in subsections (a)-(d) above) which are
normally prorated in connection with similar transactions.
ComTel agrees to furnish ComTel Systems with such documents and other records
as ComTel Systems reasonably requests in order to confirm all adjustment and
proration calculations made pursuant to this Section 2.4.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMTEL
Except as otherwise provided in this Article III, ComTel
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represents and warrants to ComTel Systems as follows, only as such
representations and warranties relate to the Acquired Assets:
3.1 Due Incorporation, etc. ComTel is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida with all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
ComTel is duly organized and in good standing as a foreign corporation
authorized to do business in each jurisdiction where the failure to be
qualified would have a material adverse effect.
3.2 Due Authorization. ComTel has full power and authority to
enter into this Agreement and to carry out the transactions contemplated
herein, and this Agreement has been duly and validly executed and delivered by
ComTel, and constitutes the legal, valid and binding obligation of ComTel,
enforceable in accordance with its terms, subject to any applicable bankruptcy,
insolvency, moratorium or similar laws affecting the rights of creditors
generally, and the effect of general principles of equity. The execution,
delivery and performance of this Agreement and all other instruments,
agreements, certificates and documents contemplated hereby by ComTel do not, on
the date hereof, and will not, on the Closing Date, (i) violate any decree or
judgment of any court or governmental authority which may be applicable to the
interest of ComTel in any of the Acquired Assets; (ii) to the knowledge of
ComTel, violate any law (or any order, rule or regulation promulgated under any
law); (iii) violate any decree or judgment of any court or governmental
authority binding on ComTel or any of the Acquired Assets; (iv) violate or
conflict with, or result in a breach of, or constitute a default (or an event
which, with or without notice or lapse of time or both, would constitute a
default) under, or result in the creation of, any mortgage, lien, restriction,
charge, security interest, claim, right of another, or other encumbrance upon
the Acquired Assets under any of the terms, conditions, or provisions of any
note, bond, mortgage, indenture, lease, license, franchise, permit, or other
agreement or instrument known to ComTel to which ComTel is a party, or by which
ComTel or any of the Acquired Assets are bound (subject to ComTel obtaining the
consents required, if any, to assign and transfer leases, contracts and other
items described in Section 1.2); or (v) violate or conflict with any provision
of the Articles of Incorporation or bylaws of ComTel.
3.3 Permits, Consents and Approvals. To the best of ComTel's
knowledge and belief, other than the Permits held by ComTel, no other licenses,
certificates of authority, tags, permits, franchises and rights, whether
federal, state, local or
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foreign, are currently necessary for the lawful operation of ComTel's business.
ComTel warrants its Permits are in full force and effect and that it has
received no notice that any of them have been suspended or canceled by the
agency which issued them.
No consent, approval, order or other authorization, corporate or
governmental, is required to be obtained by ComTel in connection with the
execution and delivery by ComTel of this Agreement or the sale and transfer by
ComTel of the Acquired Assets, except (i) such as have been or will be obtained
and are or will be in effect on and as of the Closing Date; (ii) consents which
may be required for the assignment or transfer of specific contracts, permits,
licenses, authorizations and similar documents under the terms thereof between
ComTel and third parties as disclosed on Schedule 3.3; and (iii) such other
consents and approvals as are not material to the business or operations of
ComTel, taken as a whole.
3.4 Financial Statements. All accounts receivables listed in
Schedule 3.4 are valid receivables, subject to no setoffs or counterclaims.
3.5 No Adverse Change. Except as listed on Schedule 3.5, since
January 1, 1995, there has not been (i) any material adverse change in the
financial condition, financial statements, business, properties, assets, or
results of the business and operations of ComTel, (ii) any material loss or
damage (whether or not covered by insurance) to any of the Acquired Assets
which materially affects or impairs the ability of ComTel to conduct its
business, (iii) any mortgage or pledge of any of the Acquired Assets, (iv) any
indebtedness incurred by ComTel relating to, or taking as security any interest
whatsoever in, the Acquired Assets, (v) any contract or other transaction
entered into by ComTel relating to, or otherwise affecting in any way, the
business and operations, other than in the ordinary course of business, (vi)
any sale or transfer of the Acquired Assets, or any cancellation of any debts
or claims of ComTel, except in the ordinary course of business, or (vii) any
changes in the accounting systems, policies or practices of ComTel. Since
January 1, 1995, the business of ComTel has been conducted in all respects only
in the ordinary course and there has not been any material change in its
affairs which has not been fully disclosed in writing to ComTel Systems.
Without limiting the generality of the foregoing since January 1, 1995:
(i) other than normal trade payables, accruals and other
obligations incurred in the ordinary course of business and in
conformity with this Agreement, ComTel has not created, incurred, or
assumed any indebtedness (including capitalized lease
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obligations) either involving more than $10,000 on an individual basis
or $50,000 in the aggregate or outside the ordinary course of
business;
(ii) ComTel has not canceled, compromised, waived or released
any right or claim (or series of related rights and claims) with
respect to the Acquired Assets or Assumed Obligations either involving
more than $10,000 or outside the ordinary course of business; and
(iii) there has not been any other occurrence, event,
incident, action, failure to act, or transaction either within or
outside the ordinary course of business that would materially
adversely affect the Acquired Assets.
3.6 Title to and Condition of Properties. ComTel has good and
marketable title to, is the lawful owner of, and has the full right to sell,
convey, transfer, assign and deliver the Acquired Assets, free and clear of any
mortgage, lien, pledge, security interest, option, lease (or sublease),
conditional sales agreement, title retention agreement, charge, claim,
encumbrance, easement or encroachment, except as disclosed in Schedule 3.6
hereto. Except for title to vehicles listed on Schedule 1.1(a), at and as of
the Closing, ComTel will convey the Acquired Assets to ComTel Systems by deeds,
bill of sale, certificates of title and instruments of assignment, and shall
transfer good and valid record and marketable title to all of the Acquired
Assets to ComTel Systems, free and clear of all liens, charges, restrictions
and encumbrances other than those described or referenced in this Section 3.6.
ComTel will cooperate with ComTel Systems so that clear title to the vehicles
can be obtained.
3.7 Real Property. Schedule 1.2(a) hereto lists real property
used in connection with its business and operations which, after the Closing
Date, is to be leased to ComTel Systems. To the best of ComTel's knowledge,
the respective lessors are the owners of all such real property free and clear
of all material liens and encumbrances that might in any material respect
interfere with the full use and enjoyment thereof, and each such site has full
and complete access for the uses being conducted thereon. Except for the air
conditioning unit in Tampa, Florida, to the best of ComTel's knowledge, the
buildings, facilities, installations, fixtures and other structures or
improvements located on or at the Tampa property and the Homewood property have
been well maintained for industrial properties and are in good operating
condition and repair (with the exception of normal wear and tear). The
activities carried on in such buildings, plants, facilities, installations,
fixtures and other structures
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or improvements, and the buildings, plants, facilities, installations, fixtures
and other structures or improvements themselves, are not in any material
respect in violation of or in conflict with any applicable zoning, health
regulation or ordinance or any other similar law, statute, regulation or
ordinance. ComTel has delivered to ComTel Systems true, correct and complete
copies of all Real Property Leases which are not month to month. Except as set
forth in Schedule 3.7, to the best knowledge of ComTel, without inquiry, none
of the real property comprising a part of the Real Property Leases is or has
been designated as an environmental clean up/contamination site of any nature
whatsoever within the meaning of any federal or state law and ComTel has no
basis for believing that any such real property may be so designated in the
future.
3.8 Vehicles, Equipment, and Other Personal Property Leases. The
Equipment and Other Personal Property Leases listed in Schedule 1.2(b) hereto
include all leases by ComTel of any item of personal property used in
connection with its business and operations, except for those leases which
ComTel Systems has elected not to assume hereunder. Except as disclosed in
Schedule 3.8 hereto, all of the Vehicles and Equipment and all of the personal
property leased by ComTel under the Equipment and Other Personal Property
Leases is presently utilized by ComTel in the ordinary course of its business
and operations and is well maintained and in good operating condition and
repair (with the exception of normal wear and tear), free from known material
defects. ComTel has delivered to ComTel Systems true, correct and complete
copies of all Equipment and Other Personal Property Leases.
3.9 Contracts. Schedules 1.2(a), (b), (c), (d) and (e) and
Schedule 3.9 list all material contracts, agreements and instruments relating
to the business, assets and operation of ComTel. ComTel has delivered to
ComTel Systems true and correct copies of each listed document. Except as set
forth on Schedule 3.9, there are no oral agreements of ComTel material to its
operations and ComTel Systems is not assuming and shall not be subject to any
such agreements.
Such contracts include, without limitation:
(i) any pension, retirement, incentive
compensation, bonus, stock purchase, stock option, welfare,
hospitalization or insurance plan or arrangement or any vacation pay,
or severance pay or any other employee benefit arrangement for its
officers, employees, consultants or agents whether pursuant to a
written contract or pursuant to custom or informal understanding,
together with the most
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recent annual report completed with respect to each such plan or
arrangement;
(ii) any contract, lease or purchase order or
other arrangement of any kind material to the conduct of ComTel's
business with any person or entity affiliated with or controlled by
(or with power to control) any officer, director, employee or
stockholder;
(iii) any contract or agreement with a broker,
sales agency, advertising agency or other person engaged in sales,
distributing or promotional activities;
(iv) any material indentures, credit agreements,
loan agreements, notes, mortgages, security agreements, leases of real
or personal property and agreements for financing;
(v) any commitment or arrangement involving a
partnership, joint venture or other cooperative undertaking, or
involving any restrictions of the geographical area of operations or
scope or type of business of ComTel;
(vi) any property, casualty and other forms of
insurance;
(vii) any arrangement concerning confidentiality or
non-competition;
(viii) agreements under which the requirements for
performance extend beyond thirty (30) days from the date of this
Agreement; and
(ix) all other material contracts not made in the
ordinary course of business which are to be performed at or after the
date of this Agreement.
Each such contract (A) is in full force and effect, and (B) will
continue to be in full force and effect on identical terms following the
Closing Date (unless otherwise addressed herein) assuming, if applicable, that
required consents to assignment are obtained. Except for ComTel's payment
obligations listed in Section 1.4, neither ComTel nor, to the best of ComTel's
knowledge, any other party to any such contract is in breach or default, and to
the best of ComTel's knowledge, no event has occurred which with notice or
lapse of time would constitute a breach or default or permit termination,
modification, or acceleration thereunder and no party has made any claim
thereunder. Neither ComTel nor, to the best of ComTel's knowledge, any other
party has repudiated any provision of any
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such contract. No purchase order or commitment of ComTel has been made in
excess of normal requirements.
3.10 Employee Benefit Plans. Other than those plans described on
Schedule 3.10, ComTel has no profit sharing or other employee benefit plan, nor
does it maintain any retirement or deferred compensation plan. A true and
correct copy of each of the plans and arrangements listed on Schedule 3.10 and
each trust agreement relating to each such plan and arrangement has been
supplied to ComTel Systems. In the case of any plan or arrangement which is
not in written form, ComTel Systems has been supplied with an accurate
description of such plan or arrangement as in effect on the Closing Date.
3.11 No Violations.
(a) ComTel is in material compliance with and is not, in any
material respect, in violation or default under or with respect to, any law,
governmental regulation, permit or rule or order of any court or governmental
authority that is applicable in any way to its business or operations, whether
federal, state, local or foreign. Except as set forth in Schedule 3.11, to the
knowledge of ComTel none of the properties owned or leased by ComTel which are
included in the Acquired Assets, is in material violation of any law, building,
zoning or other ordinance, code or regulation applicable to it, or is subject
to any law, ordinance, code, regulation or order requiring any change,
assessment or penalty, which would materially adversely affect the business of
ComTel, and no notice from any governmental body has been served upon ComTel or
threatened claiming any violation of any such law, ordinance, code or
regulation or requiring any work or construction or asserting any assessment or
penalty which would have a material adverse effect on the business or
operations of ComTel.
(b) To the best of ComTel's knowledge, ComTel has complied with
all applicable laws (including rules and regulations thereunder) relating to
the employment of labor, employee civil rights, and equal employment
opportunities, the noncompliance with which would have a material adverse
effect on the operations of ComTel.
(c) To the best of ComTel's knowledge, ComTel has not violated in
any respect or received a notice or charge asserting any violation of the
Sherman Act, the Clayton Act, the Robinson-Patman Act, or the Federal Trade
Commission Act, each as amended, the violation of which would have a material
adverse effect on the operations of ComTel.
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(d) To the best of ComTel's knowledge, ComTel has possession of
all records and documents it was required to retain under all applicable laws
(including rules and regulations thereunder).
3.12 Litigation. Except as disclosed in Schedule 3.12, there are no
actions, suits, labor disputes or other litigation, proceedings or governmental
investigations pending or, to the knowledge of ComTel, threatened (excluding
verbal and written threats made by creditors seeking payment of outstanding
payables) against or affecting ComTel or any of the Acquired Assets, or any
officers, directors, employees or the stockholders thereof in their capacity as
such, or relating to the transactions contemplated by this Agreement.
3.13 Taxes. All taxes, license fees, and other charges imposed on
or with respect to the Acquired Assets or ComTel's business or operations, to
the extent they may have an effect on the Acquired Assets if not timely paid,
imposed by the United States or by any state, county, municipality or
subdivision, or instrumentality thereof, or of any foreign country or by any
other tax authority, including penalty and interest, have been determined in
accordance with applicable rules and regulations and have been paid in full on
time. ComTel has duly filed all Tax Returns of every nature required to be
filed by it, in every jurisdiction in which the same may have been so required,
and has paid all Taxes disclosed on such returns. All Taxes of which notice
has been received or which shall accrue on or prior to the Closing Date (except
those included in the Assumed Obligations) have been paid or shall be paid by
ComTel in due course. ComTel does not have outstanding waivers of the statute
of limitations for any Taxes for any taxable year. All deposits required by law
to be made by ComTel with respect to employees' withholding taxes have been
made. There are no tax liens on any assets of ComTel, except liens for Taxes
not yet due and with respect to which ComTel has agreed to pay a pro rata
portion thereof as of the Closing Date. There are no claims pending against
ComTel for past due Taxes and ComTel does not know of any such threatened claim
or the basis for any such claim. Except for a State of Florida Sales and Use
tax audit, there are not now any matters under discussion with any, and no
notice (written or oral) of intent to audit or request for information has been
received from any federal, state, local or other authority with respect to any
additional Taxes or assessments relating to ComTel.
ComTel is not a foreign person within the meaning of Section
1445(f)(3) of the Code for purposes of withholding tax on disposition of United
States real estate interests.
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3.14 Insurance Policies. ComTel currently has insurance, including
employee health and accident insurance, and property, general liability, and
workers' compensation insurance, as described on Schedule 3.14. Schedule 3.14
contains a list of each insurance policy currently providing coverage for the
assets of ComTel or its business and a copy of each such policy as it pertains
to the Acquired Assets, the Assumed Obligations or loss or liability resulting
from environmental contamination has been delivered to ComTel Systems.
3.15 Collective Bargaining. There are no unfair labor practices,
employment related litigation, administrative proceedings or controversies
pending or, to the knowledge of ComTel, threatened involving any employee of
ComTel. Except for electric workers union agreement which was terminated by
mutual consent some time ago, ComTel is not and has never been a party to any
collective bargaining agreement. ComTel is in compliance in all material
respects with its obligations under all statutes, executive orders and other
governmental regulations governing its employment practices, including without
limitation, provisions relating to wages, hours, equal opportunity and payment
of social security and other taxes. ComTel has not suffered or sustained any
labor disputes resulting in any work stoppage and no such work stoppage is
threatened. To the knowledge of ComTel, there are no attempts being made to
organize any employees presently employed by ComTel.
3.16 Undisclosed Liabilities. ComTel has no material liability
(and there is no basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand against ComTel
giving rise to any material liability), except for (i) liabilities set forth in
the Financial Statements, (ii) liabilities which have arisen after the date
hereof in the ordinary course of business and in conformity with this Agreement
and (iii) liabilities identified on the Schedules hereto.
3.17 Accuracy of Statements. Neither this Agreement nor any
statement, list, certificate or other information furnished or to be furnished
by ComTel to ComTel Systems in connection with this Agreement or any of the
transactions contemplated hereby contains or will contain, to the knowledge of
ComTel, any untrue statement of a material fact or omits to state any material
fact regarding ComTel, the Acquired Assets, the Assumed Obligations or the
business or operations of ComTel necessary in order to make the statements and
information contained herein and the schedules, exhibits and attachments
hereto, in light of the circumstances in which they are made, not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMTEL SYSTEMS
Except as otherwise provided in this Article IV, ComTel Systems
represents and warrants to ComTel as follows:
4.1 Due Incorporation, etc. ComTel Systems is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma with all requisite corporate power and authority (including necessary
authorization to do business as a foreign corporation where required) to own,
lease and operate its properties and to carry on its business as now being
conducted.
4.2 Corporate Authority. ComTel Systems has all requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations under this Agreement. The execution, delivery and performance of
this Agreement by ComTel Systems have been duly authorized by all necessary
corporate action on the part of ComTel Systems. This Agreement has been duly
executed and delivered by ComTel Systems and constitutes the legal, valid and
binding obligation of ComTel Systems, enforceable in accordance with its terms.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, violate any provisions of the
Articles of Incorporation or bylaws of ComTel Systems or violate any provision
of or result in the acceleration of any obligation or the creation or any lien
or security interest under any agreement, indenture, instrument, lease,
security, mortgage, lien, order, arbitration award, judgment or decree to which
ComTel Systems is a party or by which it or its respective properties is bound,
and will not violate any other restriction of any character to which it is
subject.
4.3 Consents. Except as set forth on Schedule 4.3, no notice to,
filing with, authorization of, exemption by, or consent of any person, entity,
or public or governmental authority is required in order for ComTel Systems to
consummate the transactions contemplated hereby.
4.4 Knowledge. ComTel Systems is purchasing the Acquired Assets with
the intention to operate the business as a going concern in connection with the
existing Central Communication and Automation Co. business. ComTel Systems has
the know-how, financial resources, and management to operate the business
related to the Acquired Assets as a going concern and intends to do so.
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ARTICLE V
COVENANTS OF COMTEL
ComTel hereby agrees:
5.1 Implementing Agreement. ComTel will take all necessary action
within its control required of it to fulfill its obligations under the terms of
this Agreement and the transactions contemplated herein.
5.2 Consents and Approvals. ComTel shall use its best efforts to
transfer the Permits to ComTel at Closing and to obtain all consents and
approvals to the performance of this Agreement and the transactions
contemplated hereby by each party to any of the Assumed Obligations, together
with any other necessary consents and approvals. In the event that certain
Permits are not transferable or replacements therefor are not obtainable on or
before the Closing, but such Permits may be transferable or replacements
therefor may be obtainable after the Closing, ComTel shall continue to use such
efforts in cooperation with ComTel Systems after the Closing as may be required
to obtain all required consents and approvals to transfer, or obtain
replacements for, such Permits after the Closing.
5.3 No Modifications. Subsequent to Closing, ComTel shall not
modify, amend or otherwise alter or change any of the material terms or
provisions of any of the Assumed Obligations.
5.4 Corporate Name. ComTel shall, as soon as practicable
following the Closing Date, change its name to protect ComTel Systems' right to
use "ComTel Industries, Inc." as provided in Section 1.1(f). Within ninety
(90) days following the Closing Date, ComTel's subsidiary, ComTel Metals, Inc.,
shall change its name to protect ComTel Systems' right to use "ComTel
Industries, Inc." as provided in Section 1.1(f).
5.5 Discontinue Operations. ComTel shall discontinue is
telecommunications operations, except for those operations currently performed
by ComTel Metals, Inc., and shall not resume said operations for a period of
seven (7) years from the Closing Date.
ARTICLE VI
COVENANTS OF COMTEL SYSTEMS
ComTel Systems agrees that from the date hereof to the Closing Date:
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6.1 Corporate and Other Action. ComTel Systems will take all
necessary action within its control required to fulfill its obligations under
this Agreement and the transactions contemplated hereby.
6.2 Consents and Approvals. ComTel Systems shall use its best
efforts to obtain all necessary consents and approvals to the performance of
its obligations under this Agreement and the transactions contemplated hereby.
ComTel Systems shall make all filings, applications, statements and reports to
all federal or state government agencies or entities which are required to be
made prior to the Closing Date by or on behalf of ComTel Systems pursuant to
any applicable statute, rule or regulation in connection with this Agreement
and the transactions contemplated hereby.
6.3 Assumed Obligations. ComTel Systems shall execute and deliver
to ComTel and ComTel's appropriate customers, suppliers and other creditors all
assumptions, assignments and other agreements as may be necessary or reasonably
requested to assure ComTel Systems' assumption of the Assumed Obligations.
6.4 Employment of Existing Employees. ComTel Systems will not
undertake to assume any existing labor contracts affecting the operation of
ComTel nor shall it assume any liability for workers' compensation claims.
ComTel Systems will not be obligated for severance pay and other benefits with
respect to the Continuing Employees, except to the extent expressly reflected
in the Assumed Obligations.
6.5 Access to Information and Records; Employees. ComTel Systems
shall provide to ComTel unlimited access to the Information and Records to the
extent ComTel Systems receives the originals thereof and to Continuing
Employees for the following purposes: (i) preparing Tax Returns, (ii)
monitoring and collecting Accounts Receivable reassigned to it pursuant hereto,
(iii) defending claims and suits asserted or pending against it following the
Closing Date, and (iv) other matters related to its business or assets prior to
the Closing Date.
ARTICLE VII
INTENTIONALLY DELETED
ARTICLE VIII
INTENTIONALLY DELETED
ARTICLE IX
20
<PAGE> 21
EMPLOYEES AND BENEFIT PLANS
9.1 Employees. Schedule 9.1(a) is a true, correct and complete
list of all of ComTel's employees, wherever located, indicating the rate of pay
of each such employee as of March 1, 1995 and the location of such employee.
Such employees shall remain on ComTel's payroll records until the Closing Date
(except for those employees who resign or are terminated by ComTel), and shall
be paid by ComTel all amounts of wages, bonuses and other remuneration
(including, without limitation, discretionary benefits and bonuses) payable to
such employees with respect to periods on or prior to the Closing Date pursuant
to employment and not included in the Assumed Obligations. ComTel Systems
agrees to offer employment to all employees listed on Schedule 9.1(b) (the
"Continuing Employees"); provided, however, that in the event that between the
date hereof and the Closing Date an event or action occurs or becomes known to
ComTel Systems with respect to any of the employees listed on Schedule 9.1(b)
which, in ComTel Systems' judgment, would provide reasonable grounds for the
termination of such employee if such employee were then employed by ComTel
Systems, ComTel Systems may determine not to hire such employee after the
Closing Date and such employee shall no longer be a Continuing Employee and
ComTel Systems shall have no obligations whatsoever with respect to such
employee. To the extent permitted by applicable law, ComTel hereby covenants to
provide promptly to ComTel Systems from time to time prior to the Closing (with
or without a request by ComTel Systems) all information which ComTel Systems
would reasonably consider material concerning an employee for the purposes of
the immediately preceding sentence. Nothing in this Section 9.1 shall obligate
ComTel Systems to offer employment to a Continuing Employee in the identical
job or with the identical responsibilities as such Continuing Employee was
provided by ComTel. ComTel will be responsible for and shall pay, to the extent
not included in the Assumed Obligations, all deferred compensation payments and
vacation pay or pay for other compensated absences earned or accrued by the
Continuing Employees as of the close of business on the Closing Date to the
appropriate Continuing Employee, and any related payroll burden (FICA and other
employment taxes) with respect thereto to the appropriate governmental
authority or private party, whether or not such pay is vested or has been
accrued on the books of ComTel at such close of business, based upon the
remuneration of such Continuing Employees normally used in computing such
vacation pay or pay for other compensated absences. Notwithstanding anything
to the contrary contained herein, ComTel Systems shall have no obligation or
liability with respect to the employment by ComTel of, and ComTel shall pay any
and all workers' compensation claims, severance or other employment benefits
that may be due
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<PAGE> 22
and payable or accrued as of the Closing Date to ComTel's employees, including
those listed on Schedule 9.1(b).
9.2 COBRA Compliance. ComTel (and each other member of ComTel's
control group of corporations) has complied in good faith with the requirements
of Sections 10001 and 10002 of the Consolidated Omnibus Reconciliation Act of
1985 (Public Law No. 99-272) to the extent necessary to prevent the
disallowance of all health care deductions under Section 162 of the Code and
with respect to taxable years beginning after December 31, 1988, to the extent
necessary to prevent the imposition of taxes under Section 4980B of the Code.
ARTICLE X
CLOSING
10.1 Closing. The Closing shall take place at the offices of ComTel
Systems, at 250 East Park Avenue, Lake Wales, Florida, at such date and time to
which the parties hereto shall agree.
10.2 Deliveries by ComTel. At the Closing, ComTel will deliver the
following to ComTel Systems in form and substance reasonably satisfactory to
ComTel Systems:
(i) Bill of sale in the form set forth
in Exhibit A;
(ii) Assignment of the Real Property Leases;
(iii) Originals of, and duly executed assignments
of, all of the following (including, where
necessary, the consent of each third party
thereto):
(A) the Equipment and Other
Personal Property Leases
(and, if such Equipment and
Other Personal Property
Leases or a memorandum
thereof have been recorded,
such assignments shall be in
recordable form);
(B) the ComTel Purchase Orders;
(C) the Customer Purchase orders;
and
(D) the Other Contracts;
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<PAGE> 23
(iv) The originals of all of the Permits,
as available;
(v) The title for each of the Vehicles
and all other motor vehicles and equipment
included in the Acquired Assets for
which certificates of title have been
issued, duly endorsed for transfer by ComTel
to ComTel Systems as available; and
(vi) Lien releases.
10.3 Deliveries by ComTel Systems. At the Closing, ComTel Systems
will deliver the following to ComTel:
(i) The portion of the Purchase Price
payable to ComTel pursuant to Section 2.2(a);
(ii) The Promissory Notes and Security
Agreements referred to in Sections 2.2(b)
and (c);
(iii) Assumption Agreements contemplated by
Section 6.4.
ARTICLE XI
INTENTIONALLY DELETED
ARTICLE XII
SURVIVAL AND REMEDY: INDEMNIFICATION
12.1 Survival. The representations and warranties of the parties
hereto contained herein or in any other certificate or other writing delivered
pursuant hereto shall survive the Closing for a period of one (1) year
following the Closing Date.
12.2 Indemnification by ComTel. ComTel agrees to indemnify ComTel
Systems and each of its Affiliates against, and agrees to hold it and them
harmless from, any and all Losses incurred or suffered by such entity arising
out of any of the following: (a) any material breach of or any inaccuracy in,
any representation or warranty made by ComTel pursuant to this Agreement; (b)
any operations of ComTel (including its predecessor companies) prior to the
closing; (c) any long or short term debts, liabilities or
23
<PAGE> 24
obligations of ComTel other than Assumed Obligations; (d) any claims or
liabilities with respect to any personal injury claims made by any third party
against ComTel Systems or any of its Affiliates which relate to the use and
ownership of the Acquired Assets or the business or operation of ComTel on or
prior to the Closing Date; (e) any claims by or liabilities with respect to any
Continuing Employee arising out of or related to his or her employment or
termination of employment on or prior to the Closing Date by ComTel (whether or
not such termination is in accordance with the provisions of Section 9.1),
including, without limitation, any and all workers' compensation claims or
liabilities arising out of any accidents, illness or other events which
occurred on or prior to the Closing Date; (f) except as otherwise provided
herein, any claims by or liabilities with respect to any employee of ComTel who
is not a Continuing Employee, whether such claims are made or such liabilities
arise before or after the Closing Date; and (g) the Retained Obligations.
12.3 Indemnification by ComTel Systems. ComTel Systems agrees to
indemnify ComTel and each of its Affiliates against, and agrees to hold it and
them harmless from, any and all Losses incurred or suffered by such person
arising out of any of the following: (a) any material breach of or any
inaccuracy in, any representation or warranty made by ComTel Systems pursuant
to this Agreement; (b) any operations relating to the Acquired Assets after
Closing to the extent liability for such Losses is not otherwise allocated to
and assumed by ComTel herein; (c) the failure of ComTel Systems to fulfill any
of its duties under or with respect to the Assumed Obligations; or (d) any
claims of Continuing Employees not assumed by ComTel in Section 9.1.
12.4 Notice; Assumption of Defense. The indemnified party shall
give prompt notice to the indemnifying party, in accordance with the terms of
Section 13.4, of the assertion of any claim, or the commencement of any suit,
action or proceeding in respect of which indemnity may be sought hereunder and
of any Losses which the indemnified party deems to be within the ambit of this
Article XII, specifying with reasonable particularity the basis therefor and to
give the indemnifying party such information with respect thereto as the
indemnifying party may reasonably request. The indemnifying party may, at its
own expense, (i) participate in and, (ii) upon notice to the indemnifying party
and the indemnifying party's written agreement that the indemnified party is
entitled to indemnification pursuant to Section 12.2 or Section 12.3 for Losses
arising out of such claim, suit, action or proceeding, at any time during the
course of any such claim, suit, action or proceeding, assume the defense
thereof; provided that (x) the indemnifying party's counsel is reasonably
24
<PAGE> 25
satisfactory to the indemnified party, and (y) the indemnifying party shall
thereafter consult with the indemnified party upon the indemnified party's
reasonable request for such consultation from time to time with respect to such
claim, suit, action or proceeding. If the indemnifying party assumes such
defense, the indemnified party shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the indemnifying party. Whether or not
the indemnifying party chooses to defend or prosecute any such claim, suit,
action or proceeding, all of the parties hereto shall cooperate in the defense
or prosecution thereof.
12.5 Settlement or Compromise. Any settlement or compromise made or
caused to be made by the indemnified party, or the indemnifying party, as the
case may be, of any such claim, suit, action or proceeding of the kind referred
to in Section 12.2 or Section 12.3 shall also be binding upon the indemnifying
party or the indemnified party, as the case may be, in the same manner as if a
final judgment or decree had been entered by a court of competent jurisdiction
in the amount of such settlement or compromise. The indemnified party will give
the indemnifying party at least 20 days notice of any proposed settlement or
compromise of any claim, suit, action or proceeding it is defending, during
which time the indemnifying party may assume the defense of such claim, suit,
action or proceeding and if it does so the proposed settlement or compromise
may not be made.
12.6 Failure of Indemnifying Party to Act. In the event that the
indemnifying party does not elect to assume the defense of any claim, suit,
action or proceeding, then any failure of the indemnified party to defend or to
participate in the defense of any such claim, suit, action or proceeding, or to
cause the same to be done, shall not relieve the indemnifying party of its
obligations hereunder, provided, that the indemnified party gives the
indemnifying party at least 20 days notice of its proposed failure to defend or
participate and affords the indemnifying party the opportunity to assume the
defense thereof.
12.7 Procedure for Indemnification. Upon becoming aware of a claim
for indemnification hereunder, the indemnified party shall promptly give, in
accordance with the terms of Section 13.4, notice of such claim (a "Claim
Notice") to the indemnifying party, providing reasonable detail of how the
claim has arisen and an estimate of the amount the indemnified party reasonably
anticipates that it will be entitled to on account of indemnification by the
indemnifying party. If the indemnifying party does not object to such claim
within 20 business days of receiving notice thereof, the indemnified party
shall be entitled to recover the amount of such claim. If, however, the
25
<PAGE> 26
indemnifying party advises the indemnified party that it disagrees with the
indemnified party's claim, the parties shall, for a period of 20 business days
after the indemnifying party advises the indemnified party of such
disagreement, attempt to resolve the difference and, failing to do so in such
time, the matter shall be submitted to arbitration pursuant to the provisions
of Section 13.5.
12.8 Limits on Indemnification.
(a) Notwithstanding the foregoing, ComTel shall not be
required to compensate ComTel Systems for any Losses of ComTel Systems unless
such Loss exceeds $500, and shall not be required to compensate ComTel Systems
for any Losses exceeding $810,000.
(b) Losses incurred by ComTel Systems pursuant to Section 12
shall be paid by ComTel by notice of ComTel Systems' right to offset the Note I
installment payments as they become due. No offset shall be made other than
pursuant to this Section 12. No offset shall be made against Note I.
ARTICLE XIII
MISCELLANEOUS
13.1 Expenses. Each party hereto shall bear his own expenses with
respect to this transaction.
ComTel Systems shall pay all sales, use, stamp, transfer, service,
recording, real estate and like taxes or fees, if any, imposed by the United
States or any state or political subdivision thereof, required to be paid in
connection with the transfer and assignment of the Acquired Assets that are
imposed upon such party under the laws of the applicable jurisdiction.
13.2 Amendment. This Agreement may be amended, modified or
supplemented, but only in writing signed by all of the parties hereto.
13.3 Brokers. ComTel Systems and ComTel each warrant to the other
that they have dealt with no business broker or consultant, or any other
person, firm or entity which is or might be entitled to a fee, commission, or
other compensation in connection with this transaction. Accordingly, the
parties hereby covenant to indemnify and hold the other harmless from and
against any and all loss, liability , cost or expense incurred in connection
with this transaction as a result of the acts, conduct or representations of
the other which result in claims or demand made by any broker, consultant or
other person, firm or entity seeking any commission or other compensation
arising out of the
26
<PAGE> 27
sale by ComTel or purchase by ComTel Systems of the Acquired Assets, and such
indemnification shall specifically include reimbursement for the other's
attorneys' fees and costs of court occasioned thereby.
13.4 Notices. Any notice, request, instruction or other document to
be given hereunder by a party hereto shall be in writing and shall be deemed to
have been given, when received if delivered by hand, facsimile machine or
overnight delivery, or, if delivered by mail, five (5) days from deposit in the
U.S. mail, certified or registered mail, return receipt requested, postage
prepaid:
(a) If to ComTel, addressed as follows:
c/o Decora Industries, Inc.
One Mill Street
Ft. Edward, New York 12828
Attn: Nathan Hevrony
(b) If to ComTel Systems, addressed as follows:
ComTel Systems
250 East Park Avenue
Lake Wales, Florida 33853
Attn: R. Michael Grimes
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
13.5 Amounts in United States Dollars. For purposes of this
Agreement, all figures set out herein which are preceded by the "$" symbol
shall be deemed amounts in United States Dollars.
13.6 Entire Understanding. This Agreement sets forth the entire
agreement and understanding of the parties hereto in respect to the
transactions contemplated hereby and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof,
including, particularly, the Letter of Intent between the parties hereto, dated
as of March 16, 1995, and is not intended to confer upon any other person any
rights or remedies hereunder. There have been no representations or statements,
oral or written, that have been relied on by any party hereto, except those
expressly set forth in this Agreement.
13.7 Waivers. The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver by a party of any condition or
of any breach of any term, covenant, representation or warranty contained in
this Agreement
27
<PAGE> 28
shall be effective unless in writing, and no waiver in any one or more
instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.
13.8 Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.9 Headings. The headings preceding the text of Articles,
Sections and Schedules of this Agreement are for convenience only and shall not
be deemed part of this Agreement.
13.10 Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Florida.
13.11 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
13.12 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and their respective Affiliates and no provision
of this Agreement (including, without limitation, the provisions of Article IX)
shall be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
13.13 Other Discussions. Upon execution of this Agreement, ComTel
and its officers, directors, employees, representatives and agents will not
commence any discussions and negotiations with any other persons, or solicit or
entertain any other offers, regarding the sale or transfer of any of the
Acquired Assets, any of the shares of the stock of ComTel, or all or
substantially all of any of ComTel's business or assets other than the Acquired
Assets, and neither ComTel nor any of its Affiliates will provide any
prospective purchasers (other than ComTel Systems and its Affiliates) or their
employees, representatives or agents, with any information regarding such sale
or transfer or otherwise cooperate with any other persons in connection with
such sale or transfer prior to the Closing Date.
13.14 Tax Matters.
13.14.1 ComTel Systems and ComTel shall treat and report the
transactions contemplated by this Agreement in all respects consistently for
purposes of any federal, state or local tax,
28
<PAGE> 29
including, without limitation, the calculation of gain, loss and basis with
reference to the Purchase Price allocation made pursuant to Section 2.3 hereof.
The parties hereto shall not take any actions or positions inconsistent with
the obligations set forth herein.
13.14.2 ComTel Systems shall make available to ComTel, and ComTel
shall make available to ComTel Systems, (i) such records as any such party may
require for the preparation of any Tax Returns required to be filed by ComTel
or ComTel Systems and (ii) such records as ComTel or ComTel Systems may require
for the defense of any audit, examination, administrative appeal, or litigation
of any Tax Return in which ComTel was included.
13.15 Arbitration. Disputes arising from the enforcement of
ComTel Systems' obligations under the Promissory Notes referred to in Sections
2.2(b) and (c), or from the enforcement of the obligations under the Guaranty,
at ComTel's discretion can be resolved in a court in New York, New York with
the prevailing party entitled to attorneys fees. Any other disputes hereunder
shall be submitted to arbitration to be held in Florida. Arbitration will be
conducted in accordance with the rules of the American Arbitration Association,
and judgment upon award rendered by the arbitrator(s) may be entered in any
court having jurisdiction. The parties shall agree to submit the dispute to an
arbitrator. If the parties are unable to agree upon an arbitrator, then the
arbitrator shall be chosen impartially by the American Arbitration Association.
If the dispute is submitted to one arbitrator, the parties shall share equally
the expenses of that arbitrator and all other arbitration expenses.
Attorney's fees and witness fees are not arbitration expenses and must be paid
by the party incurring them. The written determination of the arbitrator(s)
shall be final and binding on all parties.
13.16 Other Instruments. Upon the reasonable request of ComTel
Systems, ComTel will on and after the Closing Date execute and deliver to
ComTel Systems such other documents, releases, assignments and other
instruments as may be required to effectuate completely the transfer and
assignment to ComTel Systems of, and to vest fully in ComTel Systems title to,
each of the Acquired Assets and Assumed Obligations.
13.17 Risk of Loss. ComTel shall bear the risk of loss with respect
to the Acquired Assets on and before the Closing Date.
29
<PAGE> 30
13.18 Releases. Following the Closing Date, ComTel Systems shall
proceed in good faith to obtain the full release of ComTel of the obligations
listed in Schedule 13.18 within thirty (30) days of the Closing Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered on the date first-above written.
COMTEL SYSTEMS CORPORATION
By:_______________________________
R. Michael Grimes, President
ATTESTED:
By:_______________________
Title:_________________
[seal]
COMTEL INDUSTRIES, INC.
By:_______________________________
Title:________________________
ATTESTED:
By:_______________________
Title:_________________
[seal]
30
<PAGE> 1
EXHIBIT 10.73
SECURED PROMISSORY NOTE I
$850,000 Lake Wales, Florida
March 31, 1995
FOR VALUE RECEIVED, the undersigned, ComTel Systems Corporation
("Debtor"), promises to pay to the order of ComTel Industries, Inc. ("Lender")
at 1 Mill Street, Fort Edward, New York 12828, or at such other place as the
holder of this Note may from time to time designate, the principal sum of Eight
Hundred Fifty Thousand Dollars ($850,000), with interest from the date hereof,
on unpaid principal at the rate of seven percent (7%) per annum payable
interest only monthly on the first day of each month commencing on the date
hereof, and continuing thereafter for thirty (30) months. Thereafter,
principal and interest shall be payable in equal monthly installments of
$18,395.34, or more, on the first day of each month for the following
fifty-four (54) months, when the unpaid principal balance of this Note, then
outstanding, and all accrued but unpaid interest shall be due and payable.
Should interest not be paid when due, it shall thereafter bear like
interest as to principal, but such unpaid interest so compounded shall not
exceed an amount equal to simple interest on the unpaid principal at the
maximum rate permitted by the laws of the State of Florida.
At the option of the holder hereof, this Note shall be immediately due
and payable, without notice or demand, upon the occurrence at any time of any
of the following events of default:
1. Payment Default. Any default in the payment of principal or
interest when due hereunder which default is not cured within ten (10) calendar
days;
2. Inability to Pay Debts. The admission by Debtor of its
inability to pay its debts as they mature, or an assignment for the benefit of
the creditors of any of the foregoing parties;
3. Certain Transfers. Any transfer of property by a party liable
thereon, whether as maker, endorser, guarantor, surety or otherwise, under
circumstances which would entitle a trustee in bankruptcy or similar fiduciary
to avoid such transfer under the Federal Bankruptcy Code, as amended, or under
any other laws, whether state or federal, for the relief of debtors, now or
hereafter existing.
<PAGE> 2
4. Bankruptcy. The commencement of proceedings in bankruptcy, or
for the reorganization of any party liable hereon, whether as maker, endorser,
guarantor, surety or otherwise, or for the readjustment of any of the debts of
any of the foregoing parties, under the Federal Bankruptcy Code, as amended, or
any part thereof, or under any other laws, whether state or federal, for the
relief of debtors, now or hereafter existing, by any of the foregoing parties,
or against any of the foregoing parties, which shall not be discharged within
thirty (30) days of their commencement;
5. Appointment of Receiver. The appointment of a receiver,
trustee or custodian for any party liable hereon, whether as maker, endorser,
guarantor, surety or otherwise, or for any substantial part of the assets of
any of the foregoing parties, or the institution of proceedings for the
dissolution or the full or partial liquidation of any of the foregoing parties,
and such receiver or trustee shall not be discharged within thirty (30) days of
his or its appointment, or such proceedings shall not be discharged within
thirty (30) days of their commencement, or the discontinuance of the business
or the material change in the nature of the business of any of the foregoing
parties;
6. Adverse Judgments. The rendering of a final judgment or
judgments for payment of money aggregating in excess of $10,000 against any
party liable hereon, whether as maker, endorser, guarantor, surety or
otherwise, and the same is not discharged within a period of thirty (30) days
unless, pending further proceedings, execution has not been commenced or if
commenced has been effectively stayed;
7. Dissolution. The dissolution of the Debtor.
8. Other Agreement. Any default or failure of performance by
Debtor or the breach of any material representation, warranty or covenant
(including without limitation payment of Assumed Liabilities as defined in the
Asset Purchase Agreement) of Debtor, which default is not cured within any
grace period granted with respect to such default or, if no specific grace
period is granted with respect to such default, where such default is not cured
within ten (10) business days after written notice thereof from the holder
hereof, or the occurrence of any other event of default, under any of the
following agreements:
(a) The Asset Purchase Agreement of even date herewith;
(b) Note II (as defined in the Asset Purchase Agreement)
of even date herewith, executed by Debtor in favor of Lender;
(c) That certain Security Agreement of even date
herewith, executed by Debtor in favor of Lender; and
-2-
<PAGE> 3
(d) Subcontractor Master Agreement by and between Debtor
and Lender.
(e) Any other document or instrument executed or
delivered pursuant to any of the foregoing.
All payments shall be made hereunder by Debtor without reduction or
offset for any reason.
If this Note is not paid when due, whether at maturity or by
acceleration, the undersigned promises to pay all costs of collection
including, but not limited to, reasonable attorneys' fees and court costs
incurred by the holder hereof on account of such collection, whether or not
suit is filed hereon.
The undersigned may, at any time and from time to time, without
penalty, make prepayments which will be applied to the final payment of
principal under this Note, or the principal components of the remaining
payments under this Note in the order or inverse order of maturity, all as the
holder hereof may determine.
Presentment, demand and protest, and notices of protest, dishonor, and
non-payment of this Note and all notices of every kind, are hereby waived.
No single or partial exercise of any power hereunder shall preclude
the other or further exercise thereof or the exercise of any other power. No
delay or omission on the part of the holder hereof in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note.
This Note shall be governed and controlled by the laws of the State of
Florida.
This Note and all rights hereunder may be assigned by Lender without
written notice to Debtor, but may not be assigned by Debtor without prior
written consent of Lender.
The obligations of Debtor hereunder are secured by the security
interests granted to Lender in the Security Agreement.
COMTEL SYSTEMS CORPORATION
By:__________________________
Its:_________________________
-3-
<PAGE> 1
EXHIBIT 10.74
SECURED PROMISSORY NOTE II
$710,000 Lake Wales, Florida
March 31, 1995
FOR VALUE RECEIVED, the undersigned, ComTel Systems Corporation
("Debtor"), promises to pay to the order of ComTel Industries, Inc. ("Lender")
at 1 Mill Street, Fort Edward, New York 12828, or at such other place as the
holder of this Note may from time to time designate, the principal sum of Seven
Hundred Ten Thousand Dollars ($710,000), with interest from the date hereof, on
unpaid principal and accrued interest at the rate of seven percent (7%) per
annum. Principal and interest shall be payable in equal monthly installments
of $18,188.71, or more, beginning thirty (30) months from the date hereof and
continuing for the following fifty-four (54) months, when the unpaid principal
balance of this Note, then outstanding, and all accrued but unpaid interest
shall be due and payable.
Should interest not be paid when due, it shall thereafter bear like
interest as to principal, but such unpaid interest so compounded shall not
exceed an amount equal to simple interest on the unpaid principal at the
maximum rate permitted by the laws of the State of Florida.
At the option of the holder hereof, this Note shall be immediately due
and payable, without notice or demand, upon the occurrence at any time of any
of the following events of default:
1. Payment Default. Any default in the payment of principal or
interest when due hereunder which default is not cured within ten (10) calendar
days;
2. Inability to Pay Debts. The admission by Debtor of its
inability to pay its debts as they mature, or an assignment for the benefit of
the creditors of any of the foregoing parties;
3. Certain Transfers. Any transfer of property by a party liable
thereon, whether as maker, endorser, guarantor, surety or otherwise, under
circumstances which would entitle a trustee in bankruptcy or similar fiduciary
to avoid such transfer under the Federal Bankruptcy Code, as amended, or under
any other laws, whether state or federal, for the relief of debtors, now or
hereafter existing.
4. Bankruptcy. The commencement of proceedings in bankruptcy, or
for the reorganization of any party liable hereon, whether as maker, endorser,
guarantor, surety or otherwise, or for the readjustment of any of the debts of
any of the foregoing parties, under the Federal Bankruptcy Code, as amended, or
any part thereof, or under any other laws, whether state or federal, for the
relief of debtors, now or hereafter existing, by any of the foregoing parties,
or against any of the foregoing parties, which
<PAGE> 2
shall not be discharged within thirty (30) days of their commencement;
5. Appointment of Receiver. The appointment of a receiver,
trustee or custodian for any party liable hereon, whether as maker, endorser,
guarantor, surety or otherwise, or for any substantial part of the assets of
any of the foregoing parties, or the institution of proceedings for the
dissolution or the full or partial liquidation of any of the foregoing parties,
and such receiver or trustee shall not be discharged within thirty (30) days of
his or its appointment, or such proceedings shall not be discharged within
thirty (30) days of their commencement, or the discontinuance of the business
or the material change in the nature of the business of any of the foregoing
parties;
6. Adverse Judgments. The rendering of a final judgment or
judgments for payment of money aggregating in excess of $10,000 against any
party liable hereon, whether as maker, endorser, guarantor, surety or
otherwise, and the same is not discharged within a period of thirty (30) days
unless, pending further proceedings, execution has not been commenced or if
commenced has been effectively stayed;
7. Dissolution. The dissolution of the Debtor.
8. Other Agreement. Any default or failure of performance by
Debtor or the breach of any material representation, warranty or covenant
(including without limitation payment of Assumed Liabilities as defined in the
Asset Purchase Agreement) of Debtor, which default is not cured within any
grace period granted with respect to such default or, if no specific grace
period is granted with respect to such default, where such default is not cured
within ten (10) business days after written notice thereof from the holder
hereof, or the occurrence of any other event of default, under any of the
following agreements:
(a) The Asset Purchase Agreement of even date herewith;
(b) Note II (as defined in the Purchase Agreement) of
even date herewith, executed by debtor in favor of Lender;
(c) That certain Security Agreement of even date
herewith, executed by Debtor in favor of Lender; and
(d) Subcontractor Master Agreement by and between Debtor
and Lender
(e) Any other document or instrument executed or
delivered pursuant to any of the foregoing.
The only offset or reduction shall be in accordance with Section 12 of
the Asset Purchase Agreement.
If this Note is not paid when due, whether at maturity or by
acceleration, the undersigned promises to pay all costs of
- 2 -
<PAGE> 3
collection including, but not limited to, reasonable attorneys' fees and court
costs incurred by the holder hereof on account of such collection, whether or
not suit is filed hereon.
The undersigned may, at any time and from time to time, without
penalty, make prepayments which will be applied to the final payment of
principal under this Note, or the principal components of the remaining
payments under this Note in the order or inverse order of maturity, all as the
holder hereof may determine.
Presentment, demand and protest, and notices of protest, dishonor, and
non-payment of this Note and all notices of every kind, are hereby waived.
No single or partial exercise of any power hereunder shall preclude
the other or further exercise thereof or the exercise of any other power. No
delay or omission on the part of the holder hereof in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note.
This Note shall be governed and controlled by the laws of the State of
Florida.
This Note and all rights hereunder may be assigned by Lender without
written notice to Debtor, but may not be assigned by Debtor without prior
written consent of Lender.
The obligations of Debtor hereunder are secured by the security
interests granted to Lender in the Security Agreement.
COMTEL SYSTEMS CORPORATION
By:__________________________
Its:_________________________
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<PAGE> 1
EXHIBIT 10.75
AMENDMENT
TO SECURITIES PURCHASE AGREEMENT
This AMENDMENT TO SECURITIES PURCHASE AGREEMENT (the "Amendments"), dated as of
April 1, 1995, is made by and between Decora, Incorporated, a Delaware
corporation (the "Company"), and each of the Noteholders (as defined below)
signatory to this document.
BACKGROUND
A. Pursuant to the securities Purchase Agreement dated as of April 15,
1990, between the Company, Utilitech, Incorporated, a California corporation
(and including its successor by merger, Decora Industries, Inc., a Delaware
corporation, the "Guarantor"), and CIGNA Mezzanine Partners IT, L. P., CIGNA
Property and Casualty Insurance Company, and Insurance Company of North America
(collectively, the "Purchasers"), as amended (the "Securities Purchase
Agreement"), the Company issued and the Purchasers purchased $7,000,000 in
aggregate principal amount of the Company's 14% Senior Subordinated Notes due
1998 (the "Notes"), guaranteed by the Guarantor, and Warrants to Purchase 250
Shares of Common Stock of the Company (the "Warrants").
B. The entities listed in Schedule I to this Amendment (the "Noteholders
and Warrantholders") hold the Notes and Warrants.
C. The Company has requested that the Noteholders amend certain of the
Company's obligations under the Securities Purchase Agreement.
D. The Company and the Noteholders desire to enter into this Amendment to
effectuate the above-mentioned amendments.
NOW THEREFORE, in order to induce the Noteholders to grant the amendments
specified below, and in consideration of other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged) the Company and
the Noteholders agree as follows:
1. Definitions.
All capitalized terms used, but not specifically defined, in this Amendment
have the respective meanings assigned to them in the Securities Purchase
Agreement.
2. Effective Date.
The provisions of Section 4 shall take effect on the first date on which all of
the following conditions precedent have been and remain satisfied:
a. Consenting Parties - Noteholders holding not less than one
hundred percent (100%) in aggregate principal amount of the Notes then
outstanding (exclusive of Notes than owned by any one or more of the Company,
the Guarantor, any Subsidiaries and any affiliates) and the Company shall have
duly authorized, executed and delivered this Amendment.
b. No Defaults - No Default or Event of Default exists after
giving effect to the amendments set forth in Section 4; and
<PAGE> 2
c. Acknowledgment and Consent of Guarantor - The Guarantor shall
have duly authorized, executed and delivered the Acknowledgment and Consent
attached to this Amendment.
3. Termination of Amendments.
The amendments set forth in Section 4 shall terminate and shall be null and
void and of no force and effect if any written materials furnished in
connection with this Amendment shall have been false or misleading in any
material respect when made.
4. Amendments.
The table contained in Section 7.1 of the Securities Purchase Agreement is
hereby amended by deleting the existing table and replacing it with the
following;
<TABLE>
<CAPTION>
Principal Amount
Prepayment Date to be Prepaid
--------------- ----------------
<S> <C>
April 15, 1996 $4,000,000
April 15, 1997 $1,500,000
April 15, 1998 $1,500,000
</TABLE>
5. Effect of Agreement.
Except as expressly provided in this Amendment, the Securities Purchase
Agreement and all documents and instruments executed in connection with, or
contemplated by, the Securities Purchase Agreement shall remain in full force
and effect, without modification or amendment. This Amendment shall be binding
upon, and shall inure to the benefit of the successors and assigns of the
parties hereto and the holder from time to time of the Notes.
6. Duplicate Originals; Execution in Counterpart.
Two or more duplicate originals of this Amendment and the attached
Acknowledgment and Consent may be signed by the parties, each of which shall be
an original, but all of which together, shall constitute one and the same
instrument. This Amendment and the attached Acknowledgment and Consent may be
executed in one or more counterparts and shall be effective when at least one
counterpart shall have been executed by each party to this Amendment and the
attached Acknowledgment and Consent, and each set of counterparts which,
collectively, show execution by each such party to this Amendment and the
attached Acknowledgment and Consent shall constitute one duplicate original.
7. Governing Law.
This Amendment shall be governed by, and construed and enforced in accordance
with the law of the State of New York.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have each caused this Amendment to
Securities Purchase Agreement to be duly executed and delivered by their
respective, duly authorized officer as of the date first above written.
COMPANY
DECORA, INCORPORATED
By____________________________________
Name:
Title:
NOTEHOLDERS
CIGNA MEZZANINE PARTNERS II, L.P.
By CIGNA Investments, Inc.
By____________________________________
Name:
Title:
CIGNA PROPERTY AND CASUALTY INSURANCE
COMPANY
By CIGNA Investments, Inc.
By____________________________________
Name:
Title:
INSURANCE COMPANY OF NORTH AMERICA
By CIGNA Investments, Inc.
By____________________________________
Name:
Title:
-3-
<PAGE> 4
Schedule 1
NOTEHOLDERS AND WARRANTHOLDERS
CIGNA Mezzanine Partners II, L.P.
CIGNA Property and Casualty Insurance Company
Insurance Company of North America
-4-
<PAGE> 5
ACKNOWLEDGMENT AND CONSENT
Reference is hereby made to Sections 13.1 through 13.7 of the Securities
Purchase Agreement dated as of April 15, 1990 between Decora, Incorporated, a
Delaware corporation, Utilitech Incorporated, a California corporation (and
including its successor by merger, Decora Industries, Inc., a Delaware
corporation, the "Guarantor"), and CIGNA Mezzanine Partners II, CIGNA Property
and Casualty Insurance Company, and Insurance Company of North America
(collectively, the "Purchasers") as amended (the "Securities Purchase
Agreement"). The Guarantor hereby (a) acknowledges and consents to the
execution and delivery of the Amendment to Securities Purchase Agreement (the
"Amendment") and (b) declares and confirms that its obligations under the
Securities Purchase Agreement, the Notes, and the Warrants to any Noteholder
and Warrantholder, regardless of whether the Noteholder and Warrantholder is a
signatory to the Amendment, shall not be affected in any way due to the
execution and delivery of the Amendment.
Dated as of April 1, 1995.
GUARANTOR
DECORA INDUSTRIES, INC.
By______________________________________
Name:
Title:
-5-
<PAGE> 1
EXHIBIT 10.77
AGREEMENT OF PURCHASE AND SALE OF ASSETS
This Agreement made this 13th day of June, 1995, between DMX
Integration, Inc., a Florida Corporation having its principal office at 4501
Parkway Commerce Boulevard, Orlando, Florida 32808 (hereinafter called
"Purchaser"), and ComTel Metals, Inc., a Florida Corporation, having its
principal office and place of business at 1770 E. Lake Mary Boulevard (fka 500
Silver Lake Drive), Sanford, Florida 32773, (hereinafter called "Seller").
WHEREAS, Purchaser desires to purchase from Seller and Seller desires
to sell, transfer and assign to Purchaser certain assets owned or held by
Seller for the purchase price and upon the terms and conditions hereinafter set
forth,
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
I. PURCHASE AND SALES OF ASSETS.
A. ASSETS TRANSFERRED. Subject to and upon the terms and
conditions set forth in this Agreement, Seller will sell, transfer,
convey, assign and deliver to Purchaser, and Purchaser will purchase
or acquire from Seller at the Closing all right, title and interest
of Seller in and to the following (which shall be hereinafter
referred to collectively as the "Assets"):
1. the properties, assets and rights listed on Schedule
1 hereto, and
2. the following assets primarily relating to or used or
held for use in connection with the operation of Seller's manufacturing
business at the address for Seller set forth above:
(a) all designs, plans, trade secrets,
inventions, processes, procedures, research records,
manufacturing know-how and manufacturing formulae,
wherever located (collectively, the "Know-How");
(b) all books, records, manuals and
other materials including, without limitation,
purchasing materials and records and procedures,
inventory records, personnel records, OSHA records
and reports, quality control records and procedures,
blueprints, research and development files,
accounting records, sales order files and litigation
files;
(c) all inventory including material,
work-in-process and finished goods as of the Closing
Date, and all consumables including spare parts,
office supplies, packaging materials and other
consumables; and
<PAGE> 2
(d) to the extent their transfer is
permitted by law, all governmental licenses, permits,
approvals, license applications and license amendment
applications (collectively, the "Licenses").
The Assets shall be conveyed to Purchaser by Seller free and
clear of all liabilities, obligations, liens, claims and encumbrances.
B. EXCLUDED ASSETS. Purchaser will not purchase
or acquire any assets (collectively, the "Excluded Assets") other than
those listed on Schedule 1 hereto or described in paragraphs A.2.(a),
A.2.(b), A.2.(c) and A.2.(d) above. Without limitation, the following
items are specifically excluded from the Assets under this Agreement:
1. the names "ComTel" and "ComTel Metals";
2. any computer equipment and/or software leased
or licensed by Seller from IBM or MARCAM
Corporations;
3. any tooling which is owned by customers of
Seller; and
4. Accounts receivable, deposits, pre-paid
expenses, petty cash.
II. CLOSING; PURCHASE PRICE.
A. TIME AND PLACE OF CLOSING. The closing of the
sale of the Assets (the "Closing") shall take place at 2:30 p.m.
local time, on June 13, 1995 (the "Closing Date") at the offices of
Purchaser or such other time and place as the parties may agree upon.
B. PURCHASE PRICE AND PAYMENT.
1. On the terms and subject to the conditions
set forth in this Agreement, the purchase
price for the Assets shall be the sum of
$1,100,000 plus an amount to be determined in
accordance with Paragraph B.2.(c) below (the
"Purchase Price").*
2. Purchaser agrees to pay or cause to be paid
the Purchase Price as follows:
(a) $993,102.64 by wire transfer,
payable to Seller** at Closing;
(b) $16,897.36 by check or wire
transfer payable to the lien-holders in
accordance with Paragraph XV.G.4. below;
* In addition to the purchase price, Purchaser shall pay $50,000
of accounts receivable as directed by Seller at closing.
** Or as directed by Seller.
<PAGE> 3
(bb) $90,000 by check or wire
transfer to Silver Lake Realty Company,
Seller's lessor, in full payment and
settlement of Seller's past due obligations
under the lease referred to in Schedule 1;
and
(c) for the inventory described
in I.A.2.(c) above, Purchaser and Seller
shall conduct a complete physical audit
prior to the Closing to verify the existence
and to determine the "actual cost" value
of the inventory. Such inventory shall be
listed and valued on a written schedule
which shall become Schedule 2 to this
Agreement. At Closing, Purchaser shall
deliver to Seller a secured Promissory Note
in the form attached hereto as Exhibit D,
in the amount of seventy percent (70%) of the
total "actual cost" of all inventory listed
in the completed Schedule 2 which note
shall bear interest at Prime + one percent
(1%) with semi-annual interest-only
payments. The amount of the note shall
be secured by the non-raw stock inventory
identified during the audit as described
in the Security Agreement attached hereto as
Exhibit E. Purchaser shall make quarterly
principal payments on the Note equal to
seventy percent (70%) of the "actual cost"
of so much of the inventory as is used by
Purchaser during the preceding quarter in
accordance with the guidelines set forth in
Attachment 1 to this Agreement entitled
"Inventory Tracking and Usage". If any
balance of the note remains unpaid after six
(6) months from the date thereof and after
all adjustments pursuant to Attachment 1
have been made, then such remaining
note balance will continue to bear interest
and such balance together with accrued
interest will become due and payable in
full in one (1) lump sum three (3) years
from the Closing Date or may be prepaid at
any time without penalty.
C. EXCLUDED LIABILITIES. Except as set forth in
Sub-Paragraph D. below, Purchaser is not assuming any liabilities,
obligations or commitments of Seller including, but not limited to
1. any liabilities, obligations or
commitments made or incurred by Seller either before
or after the Closing;
2. liabilities arising out of any
product liability claim(s) pertaining to products
manufactured or sold by Seller prior to the Closing;
3. liabilities arising out of product
warranty claims pertaining to products manufactured
or sold by Seller prior to the Closing;
4. amounts owed to employees, officers
or directors of Seller including accrued salaries,
compensation, vacation pay, bonuses, or severance
compensation and benefits, except as otherwise
specifically set forth in Paragraph VII. below;
<PAGE> 4
5. expenses incurred by Seller directly
relating to this transaction;
6. liabilities arising out of
environmental or pollution claims, if any, asserted
against Seller or resulting from or relating to
events, acts or occurrences prior to the Closing;
7. liabilities arising out of
Occupational Safety and Health Act of 1970 claims,
Equal Employment Opportunity Commission claims, or
other types of employment-related claims against
Seller;
8. liabilities arising out of
violations of law by Seller;
9. liabilities arising out of Seller
Welfare Plans; and
10. liabilities relating to taxes due or
payable by Seller, including any interest and/or
penalties thereon.
<PAGE> 5
D. ASSUMED LIABILITIES. Purchaser shall assume the
following liabilities of Seller:
1. Obligations of Seller as lessee
under the Lease Agreement dated September 19, 1991,
between Cobia Boat Company, Lessor, and Seller,
Lessee, covering the premises known as Building
Number 3 and Building Number 4 and surrounding area
at 500 Silver Lake Drive, Sanford, Florida, limited
to obligations which arise from and after the Closing
Date;
2. Customer purchase orders for which
Seller provides to Purchaser at Closing a signed
customer consent to assignment and to use by
Purchaser of any necessary customer-owned tooling
excluding any liabilities, commitments or obligations
created or incurred by Seller under such orders prior
to Closing; and
3. Up to $75,000.00 of specified costs
as described in Paragraph VII below.
III. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Purchaser as follows:
A. EXECUTION, DELIVERY AND PERFORMANCE OF AGREEMENTS;
AUTHORITY.
1. Neither the execution, delivery nor
performance of this Agreement by Seller will, with or
without the giving of notice or the passage of time,
or both, conflict with, result in a default, right to
accelerate or loss of rights under, or result in the
creation of any lien, charge or encumbrance against
the Assets pursuant to any provision of Seller's
Articles of Incorporation or by-laws or any
franchise, mortgage, deed of trust, lease, license,
agreement, understanding, law, rule or regulation or
any order, judgement or decree to which Seller is a
party or by which Seller may be bound or affected.
Seller has the full power and authority to enter into
this Agreement and to carry out the transactions
contemplated herein.
2. This Agreement has been duly
executed and delivered by Seller and constitutes the
legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its
terms, except as enforceability may be limited in the
discretion of the equity court or by laws governing
bankruptcy, insolvency, or reorganization or laws
affecting creditors' rights generally.
3. No consent, approval, order or
authorization of, notice to, or registration,
declaration or filing with, any governmental
authority or entity, domestic or foreign (the
"Governmental Approval"), is or has been required on
the part of Seller in connection with the execution
and delivery of this Agreement or the consummation of
the transactions contemplated thereby.
<PAGE> 6
B. ABSENCE OF CHANGES OR EVENTS.
Seller has not:
1. sold, transferred, leased to others
or otherwise disposed of any of the Assets;
2. transferred or granted any rights
under, or entered into any settlement, relating to
the Assets, regarding the breach or infringement of
any United States or foreign license, patent,
copyright, trademark, trade name, invention or
similar rights, or been notified of any existing
rights with respect thereto;
3. entered into any agreement or made
any commitment to take any of the types of action
described in paragraphs 1. and 2. above.
C. LITIGATION. Except as described in Schedule 3
hereto, there is no claim, legal action, suit, arbitration, governmental
investigation or other legal or administrative proceeding, nor any
order, decree or judgement in progress, pending or in effect, or to the
knowledge of Seller threatened, against or relating to the Assets or
against or relating to the transactions contemplated by this Agreement,
and Seller does not know or have reason to be aware of any basis for the
same. No citations, fines or penalties have been asserted against
Seller relating to the Assets, under any foreign, federal, state or
local law relating to air or water pollution or other environmental
protection matters, or relating to occupational health and safety.
D. PROPERTIES.
1. All of the Assets are, or on the
Closing Date will be, located at Seller's principal
place of business at the address for Seller first set
forth above, and Seller has good title to all the
personal property and vehicle(s) listed in Schedule 1
in each case free and clear of any liens, claims or
encumbrances except as otherwise specifically set
forth in Paragraph XV.G.4. below.
2. Seller has delivered to Purchaser
complete and correct copies of all leases of real and
personal property listed onSchedule 1.
E. BROKERS, FINDERS, ETC. All negotiations relating
to this Agreement and the transactions contemplated hereby have been
carried on without the intervention of any Person acting on behalf of
Seller in such manner as to give rise to any claim against Purchaser
for any brokerage or finder's commission, fee or similar compensation.
F. PATENTS, ETC.
1. The Know-How relating to the Assets
is owned by Seller and is owned free and clear of any
material license, sub-license, agreement, right,
<PAGE> 7
understanding, judgement, order, decree, stipulation,
lien, charge agreement, charge or encumbrance grante
or created by Seller. None of the Know-How or any of
the technology covered thereby has been
misappropriated by Seller from any Person. To the
knowledge of Seller, with respect to the Assets,
Seller is not infringing upon or otherwise acting
adversely to any intellectual property owned by any
other Person, and there is no claim or action by any
Person pending, or to the knowledge of Seller
threatened, with respect thereto.
2. To the knowledge of Seller there are
no licenses, sub-licenses or agreements relating to:
(a) the use by third parties of the Know-How, or
(b) the use thereof by Seller pursuant to a
license or sub-license agreement with a third party.
G. DISCLOSURE. No representation or warranty by
Seller contained in this Agreement nor any statement or certificate
furnished or to be furnished by Seller in connection herewith or
pursuant hereto contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact
required to make the statements herein or therein contained not
misleading.
H. AS IS SALE. Notwithstanding anything to the
contrary herein, the Assets are sold to Purchaser on an "AS IS, WHERE
IS" basis. No warranty is made as to the condition or marketability
of the assets or the profitability or prospects of the business
conducted by the Seller.
IV. REPRESENTATIONS AND WARRANTIES BY PURCHASER. Purchaser represents
and warrants to Seller as follows:
A. EXECUTION, DELIVERY AND PERFORMANCE OF AGREEMENTS;
AUTHORITY.
1. Neither the execution, delivery nor
performance of this Agreement by Purchaser will, with
or without the giving of notice or the passage of
time, or both, conflict with, result in a default,
right to accelerate or loss of rights under, or
result in the creation of any lien, charge or
encumbrance against the Assets pursuant to any
provision of Purchaser's Articles of Incorporation or
by-laws or any franchise, mortgage, deed of trust,
lease, license, agreement, understanding, law, rule
or regulation or any order, judgement or decree to
which Purchaser is a party or by which Purchaser may
be bound or affected. Purchaser has the full power
and authority to enter into this Agreement and to
carry out the transactions contemplated herein.
2. This Agreement has been duly
executed and delivered by Purchaser and constitutes
the legal, valid and binding obligation of
<PAGE> 8
Purchaser, enforceable against Purchaser in
accordance with its terms, except as enforceability
may be limited in the discretion of the equity court
or by laws governing bankruptcy, insolvency, or
reorganization or laws affecting creditors' rights
generally.
3. No consent, approval, order or
authorization of, notice to, or registration,
declaration or filing with, any governmental
authority or entity, domestic or foreign (the
"Governmental Approval"), is or has been required on
the part of Purchaser in connection with the
execution and delivery of this Agreement or the
consummation of the transactions contemplated
thereby.
V. CHANGES IN INFORMATION. Seller shall give Purchaser prompt written
notice of any change which occurs prior to the Closing in any of the
information contained in the representations and warranties made in
this Agreement or the schedules or exhibits referred to herein
(the "Information").
VI. ACCESS TO INFORMATION AND RECORDS; EMPLOYEES. Following the
Closing, Purchaser shall provide to Seller unlimited access to the
information and records to the extent Purchaser receives the
originals thereof for the following purposes:
A. preparing Tax Returns,
B. monitoring and defending claims and suits asserted or
pending against it following the Closing Date, and
C. other matters related to its business or assets prior
to the Closing Date.
VII. EMPLOYEES OF SELLER. Seller understands that Purchaser may offer
employment to certain of Seller's employees. Seller will use
reasonable efforts to cause such employees who are offered employment
by Purchaser to make available their employment services to Purchaser.
Seller will not, and will not permit any of its employees or
affiliates or the employees of its affiliates to, offer employment
within one (1) year of the Closing to any of Seller's employees to
whom Purchaser offers employment unless such employee has declined
Purchaser's offer or is not at the time employed by the Purchaser.
With respect to Seller's employees, including but not limited to any
such employee(s) who accept Purchaser's offer of employment and
commence employment with Purchaser (the "Transferred Employees"),
Purchaser shall assume responsibility for up to $75,000.00 of
aggregate cost for accrued vacation, accrued holiday, accrued payroll
and accrued, current payroll taxes as of the Closing Date.
VIII. AUTHORIZATIONS. Seller and Purchaser shall use commercially
reasonable efforts to take, or cause to be taken, all actions
necessary, proper or advisable in order for it to fulfill its
obligations hereunder and to carry out the intentions of the parties
expressed herein. Seller and Purchaser will
<PAGE> 9
coordinate and cooperate with one another in exchanging such
information and supplying such reasonable assistance as may be
reasonably requested by each in connection with the foregoing.
IX. EMPLOYEE BENEFIT PLANS.
A. Coverage for Seller's employees, including the
Transferred Employees, under all welfare and fringe benefit plans
maintained by Seller, including but not limited to life insurance,
severance pay, medical and dental benefits plans (the "Welfare
Plans"), shall continue until the Closing Date and shall be the
responsibility of Seller until such date. Coverage under the Welfare
Plans for any employee who is retired or terminated from Seller on or
before the Closing Date, or who is on disability leave before the
Closing Date, shall remain the responsibility of Seller. Seller shall
not be responsible for providing coverage to the Transferred Employees
under the Welfare Plans after the Closing Date, except as provided in
Paragraph B.1. below. Seller shall in all events be responsible for
the payment of benefits under the Welfare Plans based on occurrences
prior to the Closing Date, and Seller shall not be responsible for the
payment of future retiree medical benefits, if any, under its medical
plan to any Transferred Employee except to the extent that such
medical benefits are payable with respect to occurrences prior to the
Closing Date.
B. 1. Notwithstanding any other provisions of this
Agreement, Seller agrees to indemnify and hold Purchaser harmless from
and against any liabilities or obligations, including attorney's fees
and disbursements, resulting from
(a) any and all claims for life
insurance, disability and medical benefits based on
occurrences before the Closing Date (including claims
for continuing treatment with respect to any accident
or illness for which coverage was so provided),
whether such claims are asserted before, on or after
the Closing Date;
(b) any and all other welfare and fringe
benefits claims based on occurrences before the
Closing Date, whether such claims are asserted
before, on or after the Closing Date;
(c) any and all life insurance,
disability, severance (including severance claims
based upon the transactions contemplated hereunder),
medical or other welfare and fringe benefits claims
of any individual (or his covered dependents) who
retired from Seller on or before the Closing Date or
who died before the Closing Date and who had been
employed at any time by Seller, regardless of whether
such claim is asserted before, on, or after the
Closing Date;
(d) any and all claims (including third
party claims) under or with respect to any pension or
retirement plan or any other plan of deferred
compensation, and
<PAGE> 10
(e) any and all worker's compensation
claims based on occurrences before the Closing Date.
2. Notwithstanding any other provisions of this
Agreement, Purchaser agrees to indemnify and hold Seller
harmless from and against any cost, liabilities or
obligations, including attorney's fees and disbursements,
resulting from
(a) any and all life insurance,
disability or medical benefits claims based on
coverage provided to Transferred Employees under any
plan maintained or sponsored by Purchaser after the
Closing Date;
(b) any and all other welfare and fringe
benefits claims based on coverage provided to
Transferred Employees under any plan maintained or
sponsored by Purchaser after the Closing date; and
(c) any and all claims under or with
respect to any pension or retirement plan or any plan
of deferred compensation which Purchaser, or
Purchaser's sponsor, contributes to or otherwise
participates in on or after the Closing Date.
X. FURTHER ASSURANCES. After the Closing, Seller shall
A. perform all acts (including, without limitation, the
use of Seller's commercially reasonable efforts to enable Purchaser to
accomplish transfer of registration, licenses, permits, approvals and
the like as contemplated by this Agreement provided, however that
Purchaser shall pay any taxes, charges or similar fees relating to
such transfers) and
B. execute, acknowledge and deliver such assignments,
transfers, consents and other documents and instruments as Purchaser
or its counsel may reasonably request, in each case, to vest in
Purchaser and protect Purchaser's right, title and interest in, and
enjoyment of, the Assets.
XI. PARAGRAPH XI INTENTIONALLY OMITTED.
XII. ACQUISITION PROPOSALS. From the date hereof, Seller shall not,
directly or indirectly, through any officer, director, agent,
representative (including, without limitation, investment bankers,
attorneys and accountants) or otherwise,
A. solicit, initiate or encourage submission of
inquiries, proposals or offers from any person, corporation,
partnership or other entity or group other than Purchaser (a "Third
Party"), relating to any acquisition or purchase of any of the Assets,
or
<PAGE> 11
B. participate in any discussions or negotiations
regarding, or furnish to any Third Party any information with respect
to, or otherwise cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any Third Party
in the acquisition or purchase of any of the Assets.
XIII. CONFIDENTIAL INFORMATION. Each party to this Agreement shall
ensure that any confidential information which such party may possess
or may hereafter create or obtain relating to the other party, any
affiliate of such other party, or any customer or supplier of such
other party or any such affiliate shall not be published, disclosed or
made accessible by any of them, in each case without the prior written
consent of the other party; provided, however, that the restriction of
this sentence shall not apply
A. as may otherwise be required by law;
B. as may be necessary or appropriate in connection with
the enforcement of this Agreement;
C. to the extent such information shall have otherwise
become publicly available; or
D. as to the Purchaser, to disclosure by or on its behalf
to lenders, investors, or prospective lenders or investors or others
whose agreement or consent may be required or desirable in connection
with obtaining the financing or consents which are required or desired
to consummate this Agreement. If this Agreement is terminated, each
party shall, and shall cause all of such other persons and entities
who receive confidential data from it to, deliver to the other party
all copies and other tangible evidence of such confidential
information to which the restrictions of this section apply.
XIV. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
to Seller and Purchaser to consummate the transactions contemplated by
this Agreement are subject to the condition that there shall be no
action or proceeding by any foreign or United States federal or state
governmental agency or authority, to restrain, enjoin, or otherwise
prevent the consummation of the transactions contemplated hereby or to
recover any damages or obtain other relief as a result thereof.
XV. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. All obligations of
Purchaser hereunder are subject, at the option of Purchaser, to the
fulfillment of each of the following conditions as of the Closing, and
Seller shall exert its reasonable commercial efforts to cause each
such condition to be so fulfilled:
A. All representations and warranties of Seller contained
herein or in any document delivered pursuant hereto shall be true and
correct in all material respects when made and shall be deemed to have
been made again at and as of the Closing Date, and shall then be true
and correct in all material respects except for changes in the ordinary
course of business after the date hereof in conformity with the
covenants and agreements contained herein.
<PAGE> 12
B. All covenants, agreements and obligations required by
the terms of this Agreement to be performed by Seller at or before the
Closing shall have been duly and properly performed in all material
respects.
C. Sub-Paragraph C. intentionally omitted.
D. Prior to the Closing Date Seller shall have removed
from the leasehold premises any and all hazardous waste which is
stored or otherwise situated in, on or about the premises.
E. Purchaser shall have received an opinion of Seller's
counsel, dated as of the Closing Date, substantially in accordance
with Exhibit A annexed hereto.
F. Purchaser shall have received the agreement of the
lessor to the assignment of lease by Seller as described in Paragraph
G.3. below.
G. Seller shall have delivered to Purchaser at the
Closing all documents, certificates and agreements necessary to
transfer to Purchaser good and marketable title to the Assets, free
and clear of any and all liens, claims or encumbrances thereon except
as otherwise specifically set forth in G.4. below, including without
limitation:
1. a bill of sale, in form and substance
satisfactory to Purchaser and substantially in accordance with
Exhibit B annexed hereto, dated as of the Closing Date
sufficient to transfer to Purchaser good and marketable title
to all tangible and intangible Assets, free and clear of all
liens, claims and encumbrances;
2. certificates of title to all motor vehicles
to be transferred to Purchaser hereunder, duly endorsed for
transfer to Purchaser as of the Closing Date;
3. an assignment Seller's leasehold interest in
the real property described in Schedule 1, substantially in
accordance with Exhibit C annexed hereto;
4. Schedule 4 hereto lists certain identified
holders of liens against the Assets. With respect to each
such lien and each additional lien, if any, which may exist as
of Closing, Seller shall deliver to Purchaser either:
(a) an executed UCC Termination
Statement or, if no UCC Financing Statement is
involved, other document(s) signed by a duly
authorized representative of the lien-holder
indicating full payment by Seller of the subject
indebtedness; or, if such lien has not been fully
satisfied by Seller prior to Closing, then
(b) a written statement signed by a duly
authorized representative of the lien-holder on the
lien- holder's letterhead:
(i) consenting to the transfer of
the secured assets to Purchaser,
<PAGE> 13
(ii) certifying the amount required
to satisfy the lien and to exercise the
purchase-option for the leased or financed
property, if such is the case; and
(iii) further certifying that upon
such lien-holder's receipt from Purchaser of
such amount, then the lien-holder will
deliver to Purchaser an executed UCC
Termination Statement or other document
required to satisfy and remove-of-record the
lien against the Assets and a bill of sale or
other document required to transfer good
title to the subject property to Purchaser.
With respect to all liens against the Assets
referred to in G.4.(b) above, Purchaser shall, in Purchaser's
sole judgement and at Purchaser's sole option, pay or cause to
be paid to the lien holder or other party in interest, the
required amount as described therein and all such amounts so
paid by Purchaser shall be included as a part of the Purchase
Price for the Assets as described in Paragraph II.B. above,
and
5. To the extent permitted by law, executed
documents of transfer of the Licenses.
XVI. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. All obligations of
Seller at the Closing are subject, at the option of Seller, to the
fulfillment of each of the following conditions at or prior to the
Closing, and Purchaser shall exert its reasonable commercial efforts
to cause each such condition to be so fulfilled:
A. All representations and warranties of Purchaser
contained herein or in any document delivered pursuant hereto shall
be true and correct in all material respects except for changes in the
ordinary course of business after the date hereof in conformity with
the covenants and agreements contained herein.
B. All covenants, agreements and obligations required by
the terms of this Agreement to be performed by Purchaser at or before
the Closing shall have been duly and properly performed in all material
respects.
C. Purchaser shall have delivered to Seller at the
Closing all documents, certificates and agreements required by this
Agreement to be delivered by Purchaser, including without limitation:
1. funds in the manner and amount described in
Paragraph II.B.2.(a) above;
2. a Promissory Note as described in Paragraph
II.B.2.(c) above in accordance with Exhibit D annexed hereto;
and
<PAGE> 14
3. a Security Agreement as referred to in
Paragraph II.B.2.(c) above in accordance with Exhibit E
annexed hereto.
XVII. INDEMNIFICATION.
A. Seller hereby indemnifies and agrees to hold Purchaser
harmless from, against and in respect of, and shall on demand
reimburse Purchaser for:
1. any and all Losses suffered or incurred by
Purchaser by reason of any untrue representation or
breach of warranty by Seller contained herein or in any
certificate, document or instrument, delivered to Purchaser
hereunder;
2. any and all Losses suffered or incurred by
Purchaser in respect of or in connection with any
Excluded Liabilities, Excluded Assets or any liabilities or
obligations of Seller not assumed by Purchaser pursuant to
this Agreement;
3. any and all Losses in respect of or in
connection with any tax obligation or liability of
Seller except as specifically agreed by Purchaser in Paragraph
VII above;
4. any and all Losses suffered or incurred by
Purchaser by reason of the breach of any agreement or
covenant by Seller contained herein; and
5. any and all Losses incident to any of the
foregoing or incurred in investigating or attempting to
avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
B. Purchaser hereby agrees to indemnify and hold Seller
harmless from, against and in respect of and shall on demand
reimburse Seller for:
1. any and all Losses suffered or incurred
by Seller by reason of any untrue representation or
breach of warranty by Purchaser contained herein or in any
certificate, document or instrument delivered to Seller
hereunder;
2. any and all liabilities or obligations
of Seller specifically assumed by Purchaser at Closing
pursuant to this Agreement;
3. any and all Losses suffered or incurred by
Seller by reason of the breach of any agreement or
covenant by the Purchaser contained herein; and
4. any and all Losses incident to any of the
foregoing or incurred in investigating or attempting to
avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
<PAGE> 15
C. NOTICE; ASSUMPTION OF DEFENSE. The indemnified
party shall give prompt notice to the indemnifying party, in
accordance with the terms of Section XIX, of the assertion of
any claim, for which indemnity may be sought hereunder and of
any Losses which the indemnified party deems to be within the
ambit of this section, specifying with reasonable
particularity the basis therefor and shall give the
indemnifying party such information with respect thereto as
the indemnifying party may reasonably request. The
indemnifying party shall assume the defense, and the
indemnified party shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at
its own expense, separate from the counsel employed by the
indemnifying party. All of the parties hereto shall cooperate
in the defense or prosecution thereof. "Losses" shall mean
all liabilities, losses, damages and penalties, as well as
out-of-pocket costs and expenses paid or incurred to third
parties (including, without limitation, reasonable attorneys'
fees and expenses and costs of investigation and litigation).
D. LIMITS ON INDEMNIFICATION.
1. Notwithstanding the foregoing, neither
party shall be required to compensate the other for
any Losses unless such Loss exceeds $1,000.00.
2. Purchaser shall not be able to offset
Losses against the Note.
<PAGE> 16
XVIII. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Sections III.A.1.and
III.B.2. shall survive the Closing for a period of four (4) years from
the Closing Date. Except for fraudulent misrepresentation, all other
representations and warranties, made by each of the parties hereto
shall survive the Closing for a period of eighteen (18) months from
the Closing Date. Any action or actions based on fraudulent
misrepresentation must be commenced within five (5) years from the
Closing Date. The commencement of any action based on breach of
representation or warranty shall toll the survival of such
representation and warranty only with respect to the claim which is
the subject of such action until such action is terminated.
XIX. NOTICES. Any and all notices or other communications required
or permitted to be given under any of the provisions of this Agreement
shall be in writing and shall be deemed to have been duly given when
personally delivered or mailed by first-class registered mail, return
receipt requested, or by overnight courier delivery service, addressed
to the parties at the addresses set forth above (or at such other
address as any party may specific by notice to all other parties given
as aforesaid).
XX. COSTS IN EVENT OF DEFAULT.
A. In the event that any party defaults in his or its
obligations under this Agreement (the "Defaulting Party") and,
as a result thereof, the other party (the "Non-Defaulting
Party") seeks to legally enforce his or its rights hereunder
against the Defaulting Party, then, in the event such default
is judicially determined in a proceeding on the merits, in
addition to all damages and other remedies to which the
Non-Defaulting Party is entitled by reason of such default,
the Defaulting Party shall promptly pay to the Non-Defaulting
Party an amount equal to all costs and expenses (including
reasonable attorneys' fees) paid or incurred by the
Non-Defaulting Party in connection with such enforcement.
B. In the event that the Non-Defaulting Party is
entitled to receive payment pursuant to the foregoing
paragraph, then in addition to such payment, the Defaulting
Party shall promptly pay to the Non-Defaulting Party a sum
equal to interest on such payment accruing at the rate of one
percent (1%) per month (but if such rate is not permitted
under the applicable laws, then at the highest rate which is
permitted to be paid under the applicable laws) during the
period between the date such payment should have been made
hereunder and the date of the actual payment thereof.
XXI. TERMINATION AND ABANDONMENT.
A. REASONS FOR TERMINATION. Anything herein or elsewhere
to the contrary notwithstanding, this Agreement may be
terminated and abandoned at any time after the date of this
Agreement but not later than the Closing:
1. by Purchaser at any time if there has been a
material adverse change in the Assets since the date of
Purchaser's last inspection thereof; or
<PAGE> 17
2. by Purchaser, if in the Purchaser's sole
opinion, Purchaser cannot obtain financing for the Purchase
Price upon terms and conditions satisfactory to it; or
3. by Purchaser, if Seller fails or is unable to
deliver to Purchaser at the Closing all or any of the
documents, certificates or agreements required to be delivered
by Seller under Paragraph XV.G. above; or
4. by Purchaser or by Seller at any time, if
there has been a material breach of any representation or
warranty made by the other party herein or in any certificate
or other document delivered pursuant hereto or if there has
been any failure or in any certificate or other document
delivered pursuant hereto or if there has been any failure by
the other party to perform in all material respects all
obligations or to comply with all covenants on its part to be
performed hereunder; or
5. by Purchaser or by Seller if there shall have
been any statute, rule or regulation enacted or promulgated or
deemed applicable to the transactions contemplated by this
Agreement by any government or governmental agency in the
United States that, in the reasonable judgement of Purchaser
or Seller might
(a) result in a significant delay in the
ability of the parties to consummate the transactions
contemplated hereby;
(b) render the parties unable to
consummate the transactions contemplated hereby;
(c) make such consummation illegal; or
(d) otherwise materially adversely
effect the Purchase.
B. PROCEDURE UPON AND EFFECT OF TERMINATION. In the
event of any termination and abandonment pursuant to Section
XXI.A. of this Agreement, written notice thereof shall
forthwith be given to the other party and the transactions,
without further action by the Purchaser or the Seller, and
there shall be no liability on the part of the Seller or
Purchaser or their respective officers, directors or
shareholders except for the material breach of any
representation, warranty or covenant contained herein that is
within control of the party in breach.
XXIII. NONDISCLOSURE. The parties hereby agree that none of them will make
any public disclosure of this transaction or the purchase price,
except
A. as necessary to their affiliates, officers, directors and
advisors,
B. to the extent required by law, or
C. with the prior written approval of the other parties.
<PAGE> 18
XXIV. MISCELLANEOUS.
A. This writing, including all Schedules, Attachments and
Exhibits hereto, constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not
be modified, amended or terminated except by a written
agreement specifically referring to this Agreement signed
by all of the parties hereto.
B. No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party
giving such waiver, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same
or similar nature.
C. This Agreement shall be binding upon and inure to the
benefit of each party hereto, its successors and assigns.
Purchaser shall not have the right to assign its
obligations under this Agreement.
D. The paragraph headings contained herein are for the
purposes of convenience only and are not intended to define or
limit the contents of said paragraphs.
E. Each party hereto shall cooperate and shall take such
further action and shall execute and deliver such further
documents as may be reasonably requested by any other party in
order to carry out the provisions and purposes of this
Agreement.
F. This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one
original.
G. Subject to the terms of Section XVIII. hereof,
Purchaser shall bear the expenses, costs and fees incurred by
it, and Seller shall bear the expenses, costs and fees
incurred by it, in connection with the transaction
contemplated hereby, whether or not the transactions
contemplated hereby or thereby shall be consummated.
H. If any provision of this Agreement shall be held or
deemed to be or shall, in fact, be inoperative or
unenforceable as applied in any particular case, such
circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any
other case or circumstance, or of rendering any other
provision or provisions herein contained invalid, inoperative,
or unenforceable to any extent whatsoever. The invalidity of
any one or more phrases, sentences, clauses, sections, or
subsections or this Agreement shall not affect the
remaining portions thereof.
I. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Florida applicable to
contracts made and to be performed therein without regard to
any conflict of law provisions.
J. The risk of any loss, damage, impairment, confiscation
or condemnation of the Assets, or any part thereof shall be
upon Seller at all times prior to the Closing Date. In any
<PAGE> 19
such event, the proceeds of, or any claim for any loss payable
under, Seller's insurance policy judgement or award with
respect thereto shall be payable to Seller, which shall either
1. repair, replace or restore any such property
as soon as possible after its loss, impairment, confiscation
condemnation, or,
2. if insurance proceeds are sufficient to
repair, replace or restore the property, pay such proceeds to
Purchaser at the time of Closing, provided that in the event
of substantial or loss damage to a material part of the
Assets, either party may terminate this Agreement with no
penalty or liability to the other.
XXV. RIGHT TO LIMITED SETOFF. Notwithstanding anything to the
contrary herein, the Purchaser shall have the right to setoff
against any amounts owed on the Note, provided the amount of any claim
for setoff is first determined by agreement or binding arbitration
pursuant to the rules of the American Arbitration Association with the
arbitration to be held in Orlando, Florida before a single arbitrator.
The prevailing party(s) in any such arbitration proceeding shall be
entitled to an award of reasonable attorney's fees and costs and the
non-prevailing party shall bear all of the costs of the arbitration.
Such setoff shall apply to the next monies due under the Note. Such
setoff right shall be limited to an aggregate maximum of $50,000.00.
This provision shall not preclude the Purchaser from bringing an
action or actions for any claims it may have in a court of competent
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
<TABLE>
<S> <C>
COMTEL METALS, INC. DMX INTEGRATION, INC.
By: __________________________________ By: ______________________________
President President
</TABLE>
<PAGE> 1
EXHIBIT 10.78
SECURED PROMISSORY NOTE
$270,808.90 Lake Mary, Florida
June 13, 1995
FOR VALUE RECEIVED, the undersigned, DMX Integration, Inc. ("Debtor"),
promises to pay to the order of ComTel Metals, Inc. ("Lender") at 1 Mill
Street, Fort Edward, New York 12828, or at such other place as the holder of
this Note may from time to time designate, the principal sum of Two Hundred
Seventy Thousand Eight Hundred Eight Dollars and Ninety Cents ($270,808.90)
(which amount shall be 70% of the actual cost of the Inventory listed on
Schedule 2 to the Agreement of Purchase and Sale of Assets of even date
herewith between Debtor and Lender (the "Purchase Agreement")), with interest
from the date hereof, on unpaid principal at the prime rate as published in the
Wall Street Journal on the date hereof plus 1%, payable interest only
semianually with the first such payment due six (6) months from the date
hereof. Such payment shall be made in cash, unless payment in kind is permitted
pursuant to Section IIB(2)(c) and Attachment 1 of the Purchase Agreement.
Principal shall be payable quarterly, on September 12, 1995 and December 12,
1995, in an amount(s) determined under the terms of the Purchase Agreement,
until six months from the date hereof. Any remaining balance at the end of such
six month period, after any and all credits and adjustments permitted by the
Purchase Agreement have been made, shall continue to accrue interest until
three (3) years from the date hereof when such remaining balance and all
accrued but unpaid interest, shall be due and payable.
Should interest not be paid when due, it shall thereafter bear like
interest as to principal, but such unpaid interest so compounded shall not
exceed an amount equal to simple interest on the unpaid principal at the
maximum rate permitted by the laws of the State of Florida.
At the option of the holder hereof, this Note shall be immediately due
and payable, without notice or demand, upon the occurrence at any time of any
of the following events of default:
1. Payment Default. Any default in the payment of principal or
interest when due hereunder which default is not cured within ten (10) calendar
days;
2. Inability to Pay Debts. The admission by Debtor of its
inability to pay its debts as they mature, or an assignment for the benefit of
the creditors of Debtor;
3. Bankruptcy. The commencement of proceedings in bankruptcy, or
for the reorganization of Debtor, or for the readjustment of any of the debts
of Debtor under the Federal
<PAGE> 2
Bankruptcy Code, as amended, or any part thereof, or under any other laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
by Debtor or against Debtor, which shall not be discharged within thirty (30)
days of their commencement;
4. Appointment of Receiver. The appointment of a receiver,
trustee or custodian for Debtor, or for any substantial part of the assets of
Debtor, or the institution of proceedings for the dissolution or the full or
partial liquidation of Debtor, and such receiver or trustee shall not be
discharged within thirty (30) days of his or its appointment, or such
proceedings shall not be discharged within thirty (30) days of their
commencement, or the discontinuance of the business or the material change in
the nature of the business of Debtor;
5. Dissolution. The dissolution of the Debtor.
All payments shall be made hereunder by Debtor without reduction or
offset for any reason.
If this Note is not paid when due, whether at maturity or by
acceleration, the undersigned promises to pay all costs of collection
including, but not limited to, reasonable attorneys' fees and court costs
incurred by the holder hereof on account of such collection, whether or not
suit is filed hereon.
The undersigned may, at any time and from time to time, without
penalty, make prepayments in whole or in part which will be applied to the
final payment of principal under this Note, or the principal components of the
remaining payments under this Note in the order or inverse order of maturity,
all as the holder hereof may determine.
Presentment, demand and protest, and notices of protest, dishonor, and
non-payment of this Note and all notices of every kind, are hereby waived.
No single or partial exercise of any power hereunder shall preclude the
other or further exercise thereof or the exercise of any other power. No delay
or omission on the part of the holder hereof in exercising any right hereunder
shall operate as a waiver of such right or of any other right under this Note.
This Note shall be governed and controlled by the laws of the State of
Florida.
This Note and all rights hereunder may be assigned by Lender without
written notice to Debtor, but may not be assigned by Debtor without prior
written consent of Lender.
- 2-
<PAGE> 3
The obligations of Debtor hereunder are secured by the security
interests granted to Lender in the Security Agreement.
DMX INTEGRATION, INC.
By: _______________________________
Its: _______________________________
- 3 -
<PAGE> 1
EXHIBIT 10.79
GUARANTY
To induce ComTel Metals, Inc. ("ComTel") to enter into that certain
Agreement for Purchase and Sale of Assets with DMX Integration, Inc. ("DMX")
dated June __, 1995, (the "Asset Purchase Agreement") and for other good and
valuable consideration, the receipt and sufficiency for which is hereby
acknowledged, Datamax Corporation ("Datamax") hereby unconditionally guarantees
to ComTel the prompt payment and performance according to their terms of all of
DMX's Obligations (as herein defined) to ComTel, and does agree that if the
Obligations, or any of them, are not so paid or performed to ComTel, Datamax
will immediately do so. All capitalized terms not defined herein shall have
the meanings assigned to them in the Asset Purchase Agreement.
The term "Obligations" as used herein means all(i) obligations of DMX
to ComTel under the Note or Security Agreement, and (ii) renewals, extensions
or modification, in whole or in part, of any of the foregoing. Datamax hereby
agrees that its obligations under this Guaranty shall be unconditional,
irrespective of the validity, regularity or enforceability of the Asset
Purchase Agreement with respect to DMX.
The following shall be events of default causing all of the
Obligations as between DMX and ComTel to be immediately due and payable,
without notice or demand of any kind:
(a) in the event any proceeding is instituted by or against DMX
under the Federal Bankruptcy Code or any other bankruptcy, insolvency, or
moratorium law; and
(b) dissolution of Datamax.
Failure by ComTel to give the undersigned (I) notice of the creation
of any of the Obligations, (ii) notice of non-payment or default by DMX under
any of the Obligations, (iii) notice of presentment, (iv) demand, (v) notice of
dishonor, (vi) protest, (vii) notice of acceptance of this Guaranty or of the
creation or extension or renewal of any Obligation, or (vii) any other notice
whatsoever shall not affect or impair, or release Datamax from its liability
under this Guaranty.
In the event any claim hereunder is referred to an attorney at law for
collection, Datamax shall be liable to ComTel for all costs of collection
including reasonable attorneys' fees.
The liability of DMX hereunder is primary, and if the Obligations, or
any of them, are not promptly paid or performed by DMX when due, ComTel may
proceed against DMX hereunder without first proceeding against Datamax or any
collateral securing any of the Obligations.
This Guaranty is subject to all the terms, conditions, agreements, and
stipulations contained in any agreements, notes,
<PAGE> 2
instruments, or other documents evidencing the Obligations, and DMX agrees that
the terms, conditions, and provisions of such agreements, notes, instruments,
or other documents shall, simultaneously with their execution, become a part of
this Guaranty.
This Guaranty is binding upon the successors and assigns of DMX.
This Guaranty shall be governed by and construed and in force
according to the laws of the State of Florida.
SIGNED, SEALED AND DELIVERED this ____ day of June, 1995.
DATAMAX CORPORATION
By: ________________________________
Its authorized representative
2
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 29, 1994 relating to
the financial statements of Decora Industries, Inc. which appears in such
Prospectus. We also consent to the references to us under the headings
"Selected Financial Data" and "Experts" appearing on pages 4 and 9 in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Syracuse, New York
June 28, 1995
