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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-Q
___________________
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1996
Commission File Number 0-16072
DECORA INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 68-0003300
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MILL STREET
FORT EDWARD, NY 12828
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(address of principal executive office) (Zip code)
Registrant's telephone number (518) 747-6255
(including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 30 days.
Yes [X] No [ ]
At November 1, 1996 there were 35,469,390 shares of Common Stock of the
registrant outstanding. This document consists of 13 pages.
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FORM 10-Q
DECORA INDUSTRIES, INC.
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
as of September 30, 1996 and March 31, 1996 3 - 4
Unaudited Consolidated Statements of
Operations for the Six Months and Quarters
Ended September 30, 1996 and 1995 5
Unaudited Consolidated Statements of
Cash Flows for the Six Months Ended
September 30, 1996 and 1995 6
Notes to Unaudited Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II OTHER INFORMATION 11-12
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SIGNATURES 13
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FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 MARCH 31, 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 520 $ 188
Accounts receivable, less allowances 4,986 4,151
Inventories (Note 2) 6,276 6,003
Prepaid expenses and other current assets 1,331 642
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Total current assets 13,113 10,984
Property and equipment, net 8,183 8,944
Notes receivable 1,776 1,758
Deferred income taxes 2,900 2,900
Intangibles, net, and other assets 11,303 11,571
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Total Assets $ 37,275 $ 36,157
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
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<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,556 $ 2,127
Accrued liabilities 1,798 1,587
Current portion of long-term debt 5,260 5,810
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Total current liabilities 10,613 9,524
Long-term debt 14,130 14,489
Other non-current liabilities - 363
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Total liabilities 24,743 24,376
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Warrants in subsidiary (Note 3) - 1,642
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Shareholders' equity:
Preferred stock, $0.01 par value; 5,000 shares
authorized at September 30, 1996 and March 31, 1996 - -
Common stock, $.01 par value; 45,000 shares authorized;
35,469 and 34,429 shares issued and outstanding at
September 30, 1996 and March 31, 1996, respectively 355 344
Additional paid-in capital 31,862 31,075
Accumulated deficit (19,685) (21,280)
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Total shareholders' equity 12,532 10,139
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Total Liabilities and Shareholders' Equity $ 37,275 $ 36,157
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues $12,904 $9,500 $23,042 $19,202
Cost of goods sold 9,682 7,260 17,376 14,314
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Gross profit 3,222 2,240 5,666 4,888
Marketing, general and
administrative expense 1,467 1,378 2,729 2,911
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Operating income 1,755 862 2,937 1,977
Interest expense 648 682 1,280 1,383
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Income from operations
before taxes 1,107 180 1,657 594
Provision for taxes 29 15 60 28
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Net income $1,078 $165 $1,597 $565
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Net income per common share (Note 4): $0.03 $0.01 $0.05 $0.02
======= ====== ======= =======
Average shares of common stock used in
computation of income per share 35,469 31,620 34,969 31,171
======= ====== ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
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1996 1995
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Cash flows from operating activities:
Net income $ 1,597 $ 565
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,106 1,024
Amortization of debt discount 76 65
Accretion of put warrants - 225
Net changes in current assets and liabilities (661) (2,543)
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Net cash (used) provided by operating activities 2,118 (664)
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Cash flows from investing activities:
Purchase of fixed assets (77) (1,843)
Increase (decrease) in net assets and
liabilities of discontinued operations 123 (2,405)
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Net cash provided (used) by investing activities 46 (4,248)
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Cash flows from financing activities:
Long-term borrowings - 3,874
Repayment of debt (1,862) (458)
Common stock issued in satisfaction of debt - 1,378
Proceeds from issuance of common stock 30 -
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Net cash provided by (used in) financing activities (1,832) 4,794
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Net increase (decrease) in cash 332 (118)
Cash at beginning of period 188 309
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Cash at end of period $520 $191
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</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Additional common stock in the amount of $656 and notes payable in the
amount of $874 were issued upon the conversion of $1,642 of warrants in
subsidiary.
See accompanying notes to unaudited consolidated financial statements.
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FORM 10-Q
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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, 1996,
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 September
30, 1996 and March 31, 1996, 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 the current year's presentation.
NOTE 2 - Inventories
Inventories at September 30, 1996 and March 31, 1996 consisted of the
following:
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<CAPTION>
SEPTEMBER 30, 1996 MARCH 31, 1996
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(In thousands)
<S> <C> <C>
Raw Materials $ 3,809 $ 3,838
Work-in-Process 1,093 687
Finished Goods 1,374 1,478
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$ 6,276 $ 6,003
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</TABLE>
NOTE 3 - Warrants in Subsidiary
In connection with the acquisition of the Decora division of United Merchants
and Manufacturers by the Company in April 1990, Decora issued $7,000,000
principal amount of subordinated notes to a lender (CIGNA). These notes were
issued with warrants to purchase 20% of the common stock of the Company's new
Decora Incorporated subsidiary which included certain put features which may
have been payable in May 1997. The present value of such put obligation was
accrued for and carried as a liability on the Company's balance sheet. The
balance of such accrued liability was $1,642,000 as of March 31, 1996.
Effective June 28, 1996, the Company and CIGNA exchanged such warrants for a
non-interest bearing two-year note in the amount of $1,000,000 and 1,000,000
shares of the Company's common stock. If the note is not repaid prior to April
15, 1997, then the amount due will increase by 20% and if the shares of common
stock do not have a market value of at least $3.00 per share as of April 15,
1998, then the Company will issue additional shares to make up any deficiency.
This transaction was closed on June 28, 1996 at which time the note and stock
were issued in exchange for the warrants.
NOTE 4 - Net Income 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 period and, if dilutive, common stock
options, warrants and convertible securities which are common stock
equivalents.
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FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands except per share data)
GENERAL
The Company's financial statements include the consolidated financial position
at September 30, 1996 and March 31, 1996 and the consolidated results of
operations for the quarters and six month periods ended September 30, 1996 and
1995 of Decora Industries, Inc. (the "Company") and its subsidiaries. The
Company operates through its wholly-owned subsidiary, Decora, Incorporated,
which is the Company's only operating subsidiary.
RESULTS OF CONTINUING OPERATIONS AND FORWARD LOOKING INFORMATION
SIX MONTHS ENDED SEPTEMBER 30, 1996 VS. SIX MONTHS ENDED SEPTEMBER 30, 1995
Revenue of the Company was $23,042 for the six months ended September 30, 1996
compared to $19,202 for the six months ended September 30, 1995, an increase
of 20%. Such increase was comprised of the Company's new, non-core decorative
business, in addition to increased shipping volume to the Company's principal
customer, Rubbermaid, which had been negatively impacted in the prior year's
period by inventory consolidation and shipment delays related to the
acquisition and installation of finish packaging operations in the Company's
Fort Edward facility. The prior year period also reflected lower per unit
revenue during the first quarter prior to the start-up of such new operations
in comparison to the full six months of such operations during the recent six
months. While sales to Rubbermaid increased $2,415, or 13% over the prior year
period, unit shipment volumes during the first six months of fiscal 1997
remained 11% below historical averages reflecting a shift of decorative
covering products to other segments of the market which Rubbermaid is
addressing today with the assistance of the Company in areas such as
stationery, office supply and crafts.
Revenue from international sales of self-adhesive decorative products was
$2,028, an increase of $1,761 over the levels experienced in the prior year
period. The majority of such increase was derived from the export of products
for sale in the European market although the volume of products sold to other
international markets also increased. Revenue from proprietary wall covering,
thin film and industrial products for the six months ended September 30 was
approximately $164 lower than in the same period last year as certain
decorative products are now being redesigned for introduction through
alternative distribution channels to Norwall Group. As the Company has shifted
from direct sales of products to licensing arrangements of its Wearlon(R)
technology, the emphasis has been on expanding the applications for the
technology and exposing it to a wider range of potential licensees. Its direct
sales and marketing has been de-emphasized which is reflected in the lower
sales of liquid coatings during the period. However, it is anticipated that
the establishment of long term relationships for Wearlon(R) technology with
potential licensees with whom discussions are ongoing will be reflected in
future quarters.
Advances in international expansion continue to be more meaningful in the
Company's recent performance. While the gains in sales to Rubbermaid were also
positive, the traditional sales cycle of Con-Tact(R) products remains seasonal
with the third and fourth quarters typically having lower shipment levels.
Gross profit for the six months ended September 30, 1996 was $5,666 versus
gross profit in the prior year's period of $4,888, an increase of $778, or 16%.
Such increase reflects the impact of higher volume passed
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FORM 10-Q
through the Company's manufacturing facility, thereby absorbing more overhead
which was partially offset by a 0.9% decrease in gross profit margin. The
decrease in gross profit margin reflects the changes in product mix and certain
timing differences in the recognition of changes in raw material prices.
Marketing, general and administrative expenses were lower during the six months
ended September 30, 1996 versus the prior year by $182 which resulted from the
Company's shift from pure technical development to more market, marketing and
sales development.
Income from operations for the six months ended September 30, 1996 was $1,657
versus $594 for the same period in the prior year. In addition to increased
revenues and lower marketing, general and administrative expense, pretax income
also benefited from lower interest expense resulting from lower borrowings.
Such decrease in interest expense was partially offset by an increased tax
provision resulting in net income of $1,597, or $0.05 per share, for the six
months ended September 30, 1996 versus $565, or $0.02 per share, for the six
months ended September 30, 1995.
QUARTER ENDED SEPTEMBER 30, 1996 VERSUS QUARTER ENDED SEPTEMBER 30, 1995
Revenue for the quarter ended September 30, 1996 was $12,904 versus $9,500 for
the quarter ended September 30, 1995. Revenues from the Company's most
significant customer, Rubbermaid, were 27.9% higher than in the same quarter in
the prior year reflecting a recovery from shipment levels which had been
depressed in the prior year period as a result of the installation of finish
packaging operations noted above. International sales during the quarter
increased $841 over minimal revenue in the prior year's second quarter while
industrial product sales showed a small increase over prior year levels.
Gross profit for the quarter ended September 30, 1996 was $3,222 versus gross
profit of $2,240 for the same quarter in the prior year. Gross profit was
higher as a result of increased manufacturing volume resulting in favorable
fixed overhead absorption variances and favorable product mix. As a result,
gross profit as a percentage of revenue increased from 23.6% in the prior
year's second quarter to 25.0% in the most recent quarter. Higher gross profit
in the most recent quarter was partially offset by increased marketing, general
and administrative expenses which were $89 higher than in the prior year's
quarter resulting in operating income for the most recent quarter of $1,755 as
compared with operating income of $862 for the same period in the prior year.
Lower interest expense was partially offset by an increased provision for taxes
resulting in net income for the quarter ended September 30, 1996 of $1,078, or
$0.03 per share, as compared to net income for the quarter ended September 30,
1995 of $165, or $0.01 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $1,040 from March 31, 1996 to
September 30, 1996. Accounts receivable and inventories together increased by
$1,108 reflecting increased billings during the second quarter and increased
inventories required to support anticipated shipments in October. Other
current assets increased by $690 as a result of accruals for payments due from
vendors and customers related primarily to volume price adjustments. Such
increases were partially offset by a seasonal increase of $1,518 in accounts
payable and accrued liabilities while current portion of long term debt
decreased by $550.
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FORM 10-Q
The reduction in the current portion of long term debt reflects the
reclassification of the Company's revolving line of credit to long term debt
net of the reclassification of the principal payment of $3,500 due to Cigna in
April 1997 as short term debt. In August 1996 the Company's Decora
Incorporated subsidiary renewed its $6,000 revolving line of credit until
August 31, 1998. With regard to the $3,500 payment due to Cigna in April 1997,
the Company is in the process of executing a $2,460 industrial development bond
financing which will provide the majority of capital required to make such
payment. The balance of the $3,500 payment as well as an additional $1,000
note due to Cigna is anticipated to be paid in April 1997 from a combination of
cash from either operations, debt or equity funding sources.
While capital expenditures for the six months ended September 30, 1996 were
lower than historical levels ( $77 for the period), the Company is in the
process of executing several capital improvement projects and its plans for the
remainder of the fiscal year are likely to result in expenditures for the full
year near historical levels of approximately $800.
SUMMARY
Management believes that short term liquidity needs will be satisfied through
its existing line of credit, through cash flow generated by operations and
through completion of the pending long term industrial development bond
financing. Additionally, the Company is evaluating alternative financing
sources which may be required to pay a portion of the amounts due Cigna in
April 1997. Other routine requirements of the Company are likely to be met in
the future through operations and existing credit facilities.
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FORM 10-Q
DECORA INDUSTRIES, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A description of the Company's legal proceedings is included in the Company's
Annual Report on Form 10-K for the year ended March 31, 1996 and its Quarterly
Report on Form 10-Q for its quarter ended June 30, 1996. There have been no new
material developments in the Company's existing litigation.
The Company and its subsidiaries are defendants in 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.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
Not Applicable.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS.
On October 15, 1996, an annual shareholders meeting was held.
1. The following five persons were elected to the Board of Directors as
follows:
<TABLE>
<S> <C> <C>
Nathan Hevrony: In Favor: 25,091,752
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Against: 186,839
Roger Grafftey-Smith In Favor: 25,092,752
--------------------
Against: 185,839
Gabriel Thomas In Favor: 25,092,752
--------------
Against: 185,839
Stephen Verchick In Favor: 25,092,752
----------------
Against: 185,839
Ronald Artzer In Favor: 25,091,752
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Against: 186,839
</TABLE>
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FORM 10-Q
2. Price Waterhouse LLP was ratified as the Company's independent
auditors for fiscal year 1997 as follows:
In Favor: 25,128,543
Against: 62,521
Abstaining: 77,527
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10) Material Contracts
10.1 Form of Loan and Security Agreement amendment no. 2, dated August 13,
1996, by and among Decora Incorporated, as Borrower, the Company, as
Corporate Guarantor and Fleet Bank as Lender.
10.2 Form of Restated Promissory Note dated August 13, 1996 by and between
Decora Incorporated and Fleet Bank.
(11) Statement regarding computation of per share earnings.
11.1 Statement regarding computation of per share earnings. (See Note 4 of
Notes to Unaudited Consolidated Financial Statements contained in Part 1
hereof).
(b) Reports on Form 8-K
None
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FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DECORA INDUSTRIES, INC.
(REGISTRANT)
BY /s/ Timothy N. Burditt
---------------------------
TIMOTHY N. BURDITT
EVP ADMINISTRATION & FINANCE
DATED: November 12, 1996
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(i) During the term of this Agreement, the Borrower must
maintain a minimum current ratio of 1.20 to 1.00
during fiscal year 1997; 1.30 to 1.00 during fiscal
year 1998; and 2.00 to 1.00 during fiscal year 1999
and thereafter. For the purposes of this
subparagraph, current ratio shall be defined as the
ratio of Borrower's current assets (including the
unused formula loan availability under the Grid Note,
as hereinafter defined) to Borrower's current
liabilities (excluding Borrower's liability to the
Lender under the Grid Note) as would be shown on each
fiscal quarter end and fiscal year end balance sheet
of the Borrower prepared in accordance with GAAP;
(ii) During the term of this Agreement, the Borrower must
maintain minimum working capital of Three Million
Five Hundred Thousand and no/100 Dollars
($3,500,000.00) as at June 30, 1996 through December
31, 1996 and Four Million and no/100 Dollars
($4,000,000.00) as at March 31, 1997 through December
31, 1997 and Five Million Five Hundred Thousand and
no/100 Dollars ($5,500,000.00) as at March 31, 1998.
During fiscal year 1999 and thereafter, the Borrower
must maintain a minimum working capital of Seven
Million and no/100 Dollars ($7,000,000.00), all as
would be shown on the fiscal quarter end and fiscal
year end balance sheets of the Borrower prepared in
accordance with GAAP. For the purposes of
determining working capital, the Borrower's liability
to the Bank pursuant to the Grid Note will be
excluded, and the Borrower's current assets shall be
increased by the Borrower's unused formula loan
availability under the Grid Note.
(iii) During the term of this Agreement, the Borrower must
maintain a total debt to tangible net worth ratio
during the first quarter of fiscal year 1997 through
the third quarter of fiscal year 1998 of 4.0 to 1.0;
at fiscal year end 1998 of 2.75 to 1.0; during the
first quarter of fiscal year 1999 through the third
quarter of fiscal year 1999 of 4.0 to 1.0; at fiscal
year end 1999 and thereafter of 2.75 to 1.00. For
the purposes of this Agreement, debt to tangible net
worth ratio shall be defined as the ratio of
Borrower's total liabilities (less subordinated debt)
divided by the sum of Borrower's tangible net worth
plus subordinated debt less the amount of the
outstanding principal balance of the notes receivable
from the Corporate Guarantor, as would
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be shown on the fiscal quarter end and fiscal year
end balance sheets of the Borrower prepared in
accordance with GAAP.
(iv) During the term of this Agreement, the Borrower must
maintain a minimum debt service coverage ratio during
fiscal year 1997 and thereafter of 1.20 to 1.00. For
the purposes of this Agreement, debt service coverage
ratio will be calculated using the trailing four
quarters of Borrower's earnings before interest,
taxes, depreciation and amortization minus the
Borrower's cash capital expenditures (net of financed
capital expenditures) divided by the sum of
Borrower's trailing four quarters debt service
payments (principal and interest) less funds raised
by the Borrower to finance the repayment of
indebtedness of the Borrower to CIGNA (in the form of
either debt or equity), as would be shown on the
fiscal quarter end and fiscal year end balance sheets
of the Borrower prepared in accordance with GAAP; and
(v) During the term of this Agreement, the Borrower shall
be limited to making capital expenditures in the
maximum amount of One Million Five Hundred Thousand
and no/100 Dollars ($1,500,000.00) during any fiscal
year. If required by the terms of the manufacturing
agreement between the Borrower and Rubbermaid, for
each year during the term of this Agreement, the
Borrower must provide evidence, satisfactory to the
Bank, that the Borrower has received the consent of
Rubbermaid to make capital expenditures exceeding One
Million and no/100 Dollars ($1,000,000.00) in said
year."
2. Paragraph 3(g) of the Loan Agreement, as previously amended by
Amendment No. 1, is hereby amended to read in its entirety as follows:
"(g) The Borrower and its Corporate Guarantor will at all times
keep proper books of record and account in accordance with
GAAP, and the Borrower shall furnish to the Lender:
(1) Within one hundred twenty (120) days after the close
of each fiscal year, a consolidated and consolidating
balance sheet (which must contain a consolidating
statement schedule) truly presenting the financial
condition of the Corporate Guarantor, the Borrower,
and any other subsidiary of the Corporate Guarantor,
as of the close of each fiscal
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year and consolidated and consolidating statements of
profit and loss and surplus truly presenting the
results of operations of the Corporate Guarantor, the
Borrower, and any other subsidiary of the Corporate
Guarantor, for such fiscal year, and a statement of
changes in financial position, all prepared in
accordance with generally accepted accounting
principles consistently applied and audited as
certified statements by nationally recognized
independent certified public accountants acceptable
to the Lender;
(2) Within one hundred twenty (120) days after the close
of each fiscal year, copies of the Borrower's 10K
reports as required by SEC;
(3) Within sixty (60) days after the close of each fiscal
quarter, copies of the 10Q reports of the Corporate
Guarantor, as required by SEC;
(4) Within thirty (30) days after the close of each
calendar month, a compiled statement of financial
position truly presenting the financial condition of
the Borrower as of the close of said calendar month
and compiled statements of operations and retained
earnings truly presenting activities of the Borrower
for said calendar month, prepared by the Borrower
and/or the Corporate Guarantor (but certified by the
chief financial officer of the Corporate Guarantor)
in accordance with generally accepted accounting
principles consistently applied;
(5) Simultaneously with each delivery to the Lender of
the annual audited reports referenced to subparagraph
(1) above, a certificate of the independent certified
public accountants who certified said annual reports
stating that in making the examination necessary to
said certification of the annual reports, that they
have obtained no knowledge of any default by the
Borrower or the Corporate Guarantor in the
performance of any of the covenants, conditions,
agreements or warranties under this Agreement, the
Note, any Instrument of Collateral Security delivered
in connection herewith, the $6,000,000.00 Restated
Promissory Note (Revolving Line of Credit) of the
Borrower to the Lender dated August 13, 1996 (the
"Grid Note"), the Secured Revolving Line of Credit
Agreement dated April 18, 1990 between the Borrower
and the Lender, as amended (the "Line of Credit
Agreement"), a $1,000,000.00 Promissory Note
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<PAGE> 4
of the Borrower to the Lender dated July 19, 1994
(the "$1,000,000.00 Note"), the Loan and Security
Agreement dated July 19, 1994 between the Borrower
and the Lender concerning the $1,000,000.00 Note (the
"Loan and Security Agreement") and/or any other note
or loan document from the Borrower to the Lender, or
any amendments, modifications, extensions or renewals
of any of the foregoing; or if they shall have
obtained knowledge of any such default, the nature
thereof;
(6) With reasonable promptness upon the written request
of the Lender, such further information regarding the
business affairs and financial condition of the
Borrower and its Corporate Guarantor as the Lender
may reasonably request;
(7) Simultaneously at the time they are so furnished, a
copy of all statements and reports furnished to
stockholders of the Borrower and its Corporate
Guarantor;
(8) Within sixty (60) days of the after the close of each
fiscal quarter, a certificate signed by the Chief
Financial Officer of the Borrower and the Corporate
Guarantor stating that to the best of their knowledge
and belief, the Borrower and the Corporate Guarantor
have fulfilled all of their obligations under this
Agreement and the Instruments of Collateral Security
identified herein, the Line of Credit Agreement, the
Loan and Security Agreement, the Note, the
$1,000,000.00 Note and the Grid Note, and that
neither the Borrower nor the Corporate Guarantor,
upon the date of such certificate or at any time
since the date of the last certificate, is in default
under any provision of this Agreement or the
Instruments of Collateral Security identified herein,
the Line of Credit Agreement, the Loan and Security
Agreement, the Note, the $1,000,000.00 Note or the
Grid Note; and that said Chief Financial Officer has
no knowledge of any condition or event that, except
for notice or the passage of time or both, would
constitute an event of default under any provision of
this Agreement or the Instruments of Collateral
Security identified herein, the Line of Credit
Agreement, the Loan Agreement, the Note, the
$1,000,000.00 Note or the Grid Note (a "Default
Condition") - or if they shall have knowledge of such
default or default condition, the nature and
specifics thereof;
-5-
<PAGE> 5
(9) Within thirty (30) days after the close of each
calendar month, account receivable aging reports
concerning the Borrower, in form acceptable to the
Lender;
(10) Within sixty (60) days after the close of each fiscal
quarter, a compliance letter acknowledged by the
Chief Financial Officers of both the Borrower and its
Corporate Guarantor concerning those financial
covenants referenced in paragraph 3(d) hereof, in
form acceptable to the Lender; and
(11) The Borrower certifies that as of the date of this
Agreement, the Borrower currently owns 423 print
cylinders currently in use in connection with the
production of product for Rubbermaid Incorporated and
214 print cylinders which are not currently used in
production. In addition, the Borrower is currently
using in production 190 additional print cylinders
owned by Rubbermaid Incorporated. A detailed list of
the aforementioned cylinders is attached hereto as
Exhibit "A" and made a part hereof. Within
forty-five (45) days after the close of each fiscal
year, the Borrower shall submit to the Bank a
detailed summary of all print cylinders owned by the
Borrower and used in production, owned by the
Borrower and not used in production and owned by
Rubbermaid Incorporated and used in production."
3. The Borrower and the Corporate Guarantor hereby warrant and
covenant to the Lender that as of the date of this Agreement there are no
disputes, offsets, claims or counterclaims of any kind or nature whatsoever
under the Note, the Grid Note, the $1,000,000.00 Note, the Loan Agreement, as
previously amended by Amendment No. 1, any Instrument of Collateral Security,
the Environmental Agreement, the Line of Credit Agreement or the Loan and
Security Agreement or any of the documents executed in connection herewith or
therewith or the obligations represented or evidenced hereby or thereby.
4. Except as expressly modified hereunder, all the remaining
terms and conditions of the Loan Agreement, as previously modified by Amendment
No. 1, shall remain in full force and effect.
-6-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereby have caused this instrument to
be duly executed as of the day and year first above written.
DECORA, INCORPORATED d/b/a
DECORA MANUFACTURING
By: ________________________
Name: ______________________
Title: ______________________
DECORA INDUSTRIES, INC.
By: ________________________
Name: ______________________
Title: ______________________
FLEET BANK
By: _________________________
James M. Marini
Vice President
-7-
<PAGE> 1
EXHIBIT____
RESTATED PROMISSORY NOTE
(Revolving Line of Credit)
$6,000,000.00 August 13, 1996
Albany, New York
This RESTATED PROMISSORY NOTE is made and executed this 13th day of
August, 1996 by DECORA, INCORPORATED, a Delaware corporation authorized to do
business in the State of New York as DECORA MANUFACTURING and having an office
at 1 Mill Street, Fort Edward, New York 12828 (the "Borrower") to and in favor
of FLEET BANK, a bank organized under the laws of the State of New York and
having a principal place of business at 69 State Street, Albany, New York 12201
(the "Bank").
WHEREAS, the Bank is also the holder of a $6,000,000.00 Consolidated
and Restated Promissory Note (Revolving Line of Credit) executed by the
Borrower in favor of the Bank on July 19, 1994 (the "Prior Note"); and
WHEREAS, the Borrower agrees and confirms that the aggregate principal
amount outstanding pursuant to the terms of the Prior Note is $4,635,283.42,
all interest having been paid to date, and that there are no offsets, claims,
setoffs, defenses or counterclaims against payment of said amounts; and
WHEREAS, the Borrower and the Bank desire to modify and restate in
full the terms of the Prior Note as hereinafter set forth; and
NOW, THEREFORE, the Borrower and the Bank agree that the Prior Note is
hereby modified and restated in full in the principal amount of $6,000,000.00,
with interest payable as hereinafter set forth. Said modified and restated
note is hereinafter called the "Note" and provides as follows:
FOR VALUE RECEIVED, the undersigned, Decora, Incorporated, a Delaware
corporation duly authorized to do business in the State of New York as Decora
Manufacturing, with its principal place of business at 1 Mill Street, Fort
Edward, New York 12828 (herein called the "Borrower"), hereby promises to pay
to the order of Fleet Bank (herein called the "Payee" or the "Bank"), at such
Payee's main office at 69 State Street, Albany, New York 12207, or such other
location as the Payee shall designate in writing from time to time, the
principal sum of Six Million and no/100 Dollars ($6,000,000.00) together with
interest on the disbursed, unpaid principal, or, if less, the aggregate unpaid
principal amount due hereunder as shown on records of the Payee, together
<PAGE> 2
with interest at the rate specified below until paid in full. The records of
the Payee maintained in the ordinary course of business shall be prima facie
evidence of the existence and amounts of the Borrower's obligations recorded
therein. Interest shall be computed on a 360-day year basis, but chargeable
on actual days.
As used herein, the following terms shall have the following meanings:
Cost of Funds Fixed Rate - A rate fixed at the Fleet Bank Cost of Funds Rate
plus two percent (2.00%).
Default Rate - The Fleet Bank Prime Rate, plus three (3.00%) percent.
Election Notice - The Loan Portion and Interest Rate Election Notice to be
delivered by the Borrower to the Bank from time to time in the form of Exhibit
A attached hereto, in which the Borrower shall indicate a Loan Portion, an
Interest Rate Election, and an Interest Rate Election Period.
Event of Default - Any of those events defined as an Event of Default under
this Note, that certain Secured Revolving Line of Credit Agreement dated April
18, 1990 given by the Borrower to the Bank, as amended or any other instruments
or documents executed in connection with the Loans.
Fleet Bank Cost of Funds Rate - For any Loan Portion which is to accrue
interest at the Cost of Funds Fixed Rate, a rate per annum equal to the rate
(rounded up or to the nearest one hundredth of one percent) adjusted for
reserves, FDIC assessments, and the like, determined by the Bank in accordance
with its general lending practices to be the rate of interest the Bank is
required to pay (or is offering to pay) (including fees assessed by the Bank's
Investment Division) for a liability in the approximate principal amount of the
Loan having a maturity equal to the Interest Rate Election Period. The Fleet
Bank Cost of Funds Rate shall be determined as of the first day of any Interest
Rate Election Period during which interest is to accrue at the Cost of Funds
Fixed Rate.
Fleet Bank Prime Rate - That rate announced from time to time by the Bank as a
reference point for determining interest rates charged on certain loans and is
not necessarily the lowest rate at which the Bank lends. Any change in this
interest rate shall be effective on the date the change in such rate occurs,
whether or not notice has been given to the Borrower.
Floating Rate - The Fleet Bank Prime Rate, plus one (1.00%).
<PAGE> 3
Interest Rate Election - An election on the part of the Borrower to choose the
Cost of Funds Fixed Rate or the Floating Rate to be charged on each Loan
Portion.
Interest Rate Election Period - The time period selected by the Borrower during
which interest is to accrue on a Loan Portion at the Cost of Funds Fixed Rate
or the Floating Rate as elected by the Borrower. An Interest Rate Election
Period during which interest is to accrue at the Cost of Funds Fixed Rate shall
be for a term of 30 to 180 days. In no event shall any Interest Rate Election
Period extend beyond the Maturity Date of this Loan.
Liability - Any liability which the Bank could incur for an obligation (or
obligations) in an amount equal to the unpaid principal amount of the Loan
Portion and upon which the Fleet Bank Cost of Funds Rate can be based. It is
understood that the choice of which liabilities to use in determining the Fleet
Bank Cost of Funds Rate shall be made by the Bank in its sole discretion in
accordance with its general lending practices and that the Bank is not
obligated to incur any particular liability on which the Fleet Bank Cost of
Funds Rate is based, but may do so in its sole discretion.
Loan - The loan of $6,000,000.00 by the Bank to the Borrower.
Loan Portion - Each advance of Loan proceeds by the Bank to the Borrower, each
of which advances will be treated separately for purposes of computing interest.
Each such advance shall accrue interest at the Cost of Funds Fixed Rate or the
Floating Rate, as selected by the Borrower.
Maturity Date - August 31, 1998.
When requesting each advance of Loan proceeds from the Bank, the
Borrower shall deliver to the Bank an Election Notice setting forth the Loan
Portion, and indicating an Interest Rate Election and an Interest Rate Election
Period for such Loan Portion. The Interest Rate Election for each Loan Portion
shall remain in effect until expiration of the Interest Rate Election Period
chosen by the Borrower for that Loan Portion. Prior to the end of a selected
Interest Rate Election Period, the Borrower shall deliver to the Bank a new
Election Notice designating the new Interest Rate Election Period and the
Interest Rate Election to apply to the Loan Portion during such Interest Rate
Election Period. In the event the Borrower fails to deliver an Election Notice
to the Bank prior to the expiration of any Interest Rate Election Period,
interest shall accrue on that Loan Portion at the Floating Rate until the
Borrower again makes an Interest Rate Election. Once chosen, the Loan Portion
and the Interest Rate Election shall remain in effect until the expiration of
the Interest Rate Election Period.
<PAGE> 4
The Borrower agrees to pay principal and interest to the Bank on
demand. In the absence of prior demand, the Borrower agrees to pay principal
and interest to the Bank as follows:
Interest shall be payable monthly in arrears commencing September 1,
1996, and continuing on the first day of each and every month thereafter until
and including August 1, 1998. The entire unpaid balance of principal, plus
accrued interest, on all Loan Portions shall be due and payable in any event on
the Maturity Date. If the Borrower elects to make principal payments during
the term of this Loan, said principal payments shall be applied to reduce those
Loan Portions having Interest Rate Election Periods which are next to expire,
in chronological order. Advances under this Note shall be reflected on the
records of the Bank. In absence of prior demand by Payee or default by the
Borrower, as the Borrower makes repayments of principal, it shall be permitted
to reborrow hereunder until the Expiration Date.
All payments made hereunder shall be applied first to accrued
interest, next to the payments of any fees and expenses of the Bank, then to
principal and finally to any unpaid "late charges" as hereinafter defined.
In the event the Borrower prepays any Loan Portion carrying interest
at the Floating Rate, there shall be no prepayment premium. In the event the
Borrower prepays any Loan Portion carrying a Cost of Funds Fixed Rate, the
Borrower shall pay a prepayment premium computed as follows:
During any Interest Rate Election Period in which the
Cost of Funds Fixed Rate is being charged, the principal
balance of the Loan Portion outstanding may be repaid at
any time and the Borrower shall pay to the Bank a
prepayment penalty in an amount computed as follows: The
latest published rate preceding the date of prepayment
for United States Treasury Notes or Bills (Bills on a
discounted basis shall be converted to a bond equivalent)
as published weekly in the Federal Reserve Statistical
Release with a maturity date closest to the last day of
the Interest Rate Election Period during which the Cost
of Funds Fixed Rate is being charged shall be subtracted
from the Cost of Funds Fixed Rate in effect at the time
of prepayment. If the result is zero or a negative
number, there shall be no prepayment penalty. If the
result is a positive number, then the resulting percentage
shall be multiplied by the amount of the principal balance
being prepaid. The resulting
<PAGE> 5
amount will be divided by 360 and multiplied by the number
of days remaining in the Interest Rate Election Period
during which the Cost of Funds Fixed Rate is being charged.
Said amount shall be reduced to present value calculated by
using the number of days remaining in the designated
Interest Rate Election Period and using the above referenced
United States Treasury Note or Bill rate and the number of
days remaining in said Interest Rate Election Period as of
the date of the prepayment. The resulting amount shall be
the prepayment premium due to the Bank upon the prepayment
of the Loan Portion. If by reason of an Event of Default
(as hereinafter defined) hereunder, the Bank elects to
declare this Note to be immediately due and payable, then
any prepayment premium with respect to this Note shall
become due and payable in the same manner as if the Borrower
had voluntarily exercised such right of prepayment.
The Borrower acknowledges that this Note is subject to the provisions
of that certain Secured Revolving Line of Credit Agreement dated April 18, 1990
given by the Borrower to the Payee and the Instruments of Collateral Security
identified therein, which Secured Revolving Line of Credit Agreement was
amended by an Amendment to Secured Revolving Line of Credit Agreement effective
and dated as at July 31, 1992 by and between the Borrower and the Payee, a
Second Amendment to Secured Revolving Line of Credit Agreement effective and
dated as at the 29th day of July, 1993 by and between the Borrower and the
Payee, a Third Amendment to Secured Revolving Line of Credit Agreement
effective and dated as at the 19th day of July, 1994 by and between the
Borrower and the Payee and a Fourth Amendment to Secured Revolving Line of
Credit Agreement effective and dated as at even date herewith by and between
the Borrower and the Payee (the Secured Revolving Line of Credit Agreement as
amended by the First Amendment to Secured Revolving Line of Credit Agreement,
the Second Amendment to Secured Revolving Line of Credit Agreement, the Third
Amendment to Secured Revolving Line of Credit Agreement and the Fourth
Amendment to Secured Revolving Line of Credit Agreement is hereinafter
collectively called the "Loan Agreement") and all such terms, covenants and
conditions of such Loan Agreement and the Instruments of Collateral Security
identified therein are all hereby incorporated in this Note as though said
terms, covenants and conditions were fully set forth herein.
In the event that any payment shall become overdue for a period in
excess of ten (10) days, a "Late Charge" of five cents ($0.05) for each dollar
($1.00) so overdue will be charged by the
<PAGE> 6
Bank for the purpose of defraying the expense incident to handling such
delinquent payment.
Upon the occurrence of one or more events of default as provided
below, the entire disbursed and unpaid principal, and the interest on this Note
shall, upon written demand of the Bank, become immediately due and payable
without presentment or protest or other notice or demand, all of which are
expressly waived by the Borrower. Any one or more of the following shall
constitute an event of default ("Event of Default"):
(a) Upon the failure of the Borrower to pay any part of the interest
or principal on this Note when due and payable and continuance of such failure
for ten (10) days;
(b) Any event of default pursuant to the terms and conditions of the
Loan Agreement;
(c) Any default pursuant to the terms and conditions of any other
loan or credit accommodation by the Bank to the Borrower after notice and the
expiration of any grace period, if applicable;
(d) Dissolution, cessation of business and/or transfer of a
material part of the assets of the Borrower; and/or
(e) Institution of Bankruptcy proceedings or other proceedings of any
kind for the relief of or collection of debts by or against Borrower,
including, without limitation, assignments for the benefit of creditors,
appointment of trustees, receivers or custodians for a material part of the
Borrower's assets, levies upon or attachment of assets, or filing of judgments
not fully insured, bonded or removed within thirty days or a filing of tax
liens.
If an Event of Default has occurred and is continuing, the Borrower
shall not be permitted to make any Interest Rate Elections unless and until the
Event of Default is cured, and interest shall accrue at the Default Rate until
the earlier of (i) the Event of Default is cured, or (ii) this Note is paid in
full.
The powers and remedies given hereby and by the Loan Agreement shall
not be exclusive of any other powers and remedies available to the Bank. No
course of dealings between the Borrower and the Bank and no delay on the part
of the Bank in exercising any rights with respect to any default shall operate
as a waiver of any rights of the Bank. Failure on the part of the Bank to
exercise any rights with respect to any default shall not operate as a waiver
of any rights with respect to any other default. The Borrower agrees to pay
all costs and expenses
<PAGE> 7
incurred by the Bank in enforcing this Note, including, without limitation,
reasonable attorneys' fees and legal expenses.
Interest after maturity (whether by acceleration or otherwise) shall
be payable at the Default Rate until this Note is paid in full. If any
provisions of this Note or the application of it to any person or circumstance,
shall be invalid or unenforceable, the remainder of this Note or the
application of those provisions to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected and every
other provision of this Note shall be valid and fully enforceable.
This Note may not be waived, changed, modified or discharged orally,
but only by agreement in writing signed by the party against whom any
enforcement of any waiver, change, modification or discharge is sought.
This Note and all rights of the Bank hereunder, may be assigned by the
Bank, but this Note may not be assigned by the Borrower.
The purchaser, assignee, transferee, or pledgee of this Note shall be
entitled to all rights of the Bank hereunder as if said purchaser, assignee,
transferee, or pledgee were originally named in this Note.
Notwithstanding anything to the contrary contained herein, the funds
available under this Note will be inclusive of letters of credit extended by
the Payee to the Borrower, which letters of credit shall not exceed in the
aggregate a maximum of Two Hundred Thousand and no/100 Dollars ($200,000.00)
outstanding at any one time. No letters of credit issued by the Payee at the
request of the Borrower pursuant to the terms of the Loan Agreement shall have
maturity dates later than December 31, 1998.
IN WITNESS WHEREOF, the Borrower has duly executed this Note the day
and year first above written.
Decora, Incorporated d/b/a
Decora Manufacturing
By: __________________________
Name: _______________________
Title: ______________________
<PAGE> 8
EXHIBIT A
ELECTION NOTICE
TO: Fleet Bank (Lender)
DATE:
Pursuant to a $6,000,000.00 Amended and Restated Promissory Note
(Revolving Line of Credit) dated August 13, 1996 executed by Decora,
Incorporated d/b/a Decora Manufacturing ("Borrower") to the order of Lender,
Borrower hereby authorizes, requests and elects to have an advance in the
amount of $_______________ funded in the manner selected herein.
__ FLOATING RATE
__ COST OF FUNDS RATE
Interest Rate Election Period (must be 30 to
180 days) ________________
In connection with and in order to induce Lender to advance the Loan as
requested above, Borrower hereby represents, warrants and stipulates as
follows:
1. The representations and warranties of the Borrower contained
in the Secured Revolving Line of Credit Agreement dated April 18, 1990, as
amended (the "Loan Agreement"), are true and correct as of the date of this
Election Notice.
2. There exists no Event of Default pursuant to the terms of the
Loan Agreement.
Capitalized terms used herein which are not otherwise defined shall
have the meanings ascribed to them in the Loan Agreement.
BORROWER:
Decora, Incorporated d/b/a
Decora Manufacturing
By: ______________________________
Name: ____________________________
Title: ___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 520
<SECURITIES> 0
<RECEIVABLES> 4,986
<ALLOWANCES> 0
<INVENTORY> 6,276
<CURRENT-ASSETS> 13,113
<PP&E> 8,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,275
<CURRENT-LIABILITIES> 10,613
<BONDS> 14,130
0
0
<COMMON> 355
<OTHER-SE> 12,177
<TOTAL-LIABILITY-AND-EQUITY> 37,275
<SALES> 23,042
<TOTAL-REVENUES> 23,042
<CGS> 17,376
<TOTAL-COSTS> 17,376
<OTHER-EXPENSES> 2,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,280
<INCOME-PRETAX> 1,657
<INCOME-TAX> 60
<INCOME-CONTINUING> 1,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,597
<EPS-PRIMARY> $0.05
<EPS-DILUTED> $0.05
</TABLE>
