<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 31, 1996
Commission File Number 0-16072
DECORA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 68-0003300
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MILL STREET
FORT EDWARD, NY 12828
(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 February 7, 1997 there were 35,469,390 shares of Common Stock of the
registrant outstanding. This document consists of 13 pages.
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DECORA INDUSTRIES, INC.
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1996 3 - 4
Consolidated Statements of Operations for the Nine
Months and Quarters Ended December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 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 9-11
PART II OTHER INFORMATION 12
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SIGNATURES 13
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECORA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 591 $ 188
Accounts receivable, less allowances 5,939 4,151
Inventories (Note 2) 6,165 6,003
Prepaid expenses and other current assets 1,630 922
-------------- --------------
Total current assets 14,325 11,264
Property and equipment, net 7,882 8,944
Notes receivable 1,681 1,758
Deferred income taxes 2,900 2,900
Intangibles, net (Note 3) 11,003 11,291
-------------- --------------
Total Assets $ 37,791 $ 36,157
-------------- --------------
</TABLE>
(Continued)
See accompanying notes to unaudited consolidated financial statements.
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DECORA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Unaudited
December 31, 1996 March 31, 1996
----------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,840 $ 2,127
Accrued liabilities 1,642 1,587
Current portion of long-term debt 2,615 5,810
-------------- --------------
Total current liabilities 7,097 9,524
Long-term debt (Note 4) 17,755 14,489
Other non-current liabilities - 363
-------------- --------------
Total liabilities 24,852 24,376
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Warrants in subsidiary (Note 5) - 1,642
-------------- --------------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000 shares
authorized at December 31, 1996 and March 31, 1996 - -
Common stock, $.01 par value; 45,000 shares authorized;
35,469 and 34,429 shares issued and outstanding at
December 31, 1996 and March 31, 1996, respectively 355 344
Additional paid-in capital 31,862 31,075
Accumulated deficit (19,278) (21,280)
-------------- --------------
Total shareholders' equity 12,939 10,139
-------------- --------------
Total Liabilities and Shareholders' Equity $ 37,791 $ 36,157
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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DECORA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
unaudited
<TABLE>
<CAPTION>
QUARTER ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------- ------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $9,533 $10,247 $32,575 $29,449
Cost of goods sold 7,154 7,187 24,530 21,501
---------- ---------- ---------- ----------
Gross profit 2,379 3,060 8,045 7,948
Marketing, general and
administrative expenses 1,382 1,730 4,111 4,641
---------- ---------- ---------- ----------
Operating income 997 1,330 3,934 3,307
Interest expense 581 734 1,861 2,117
---------- ---------- ---------- ----------
Income from operations
before income taxes 416 596 2,073 1,190
Provision for income taxes 10 16 70 44
---------- ---------- ---------- ----------
Net income $406 $580 $2,003 $1,146
---------- ---------- ---------- ----------
Net income per common share (Note 6) $0.01 $0.02 $0.06 $0.04
---------- ---------- ---------- ----------
Average shares of common stock used in
computation of income per share 35,469 32,382 35,137 31,576
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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DECORA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,003 $ 1,146
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,554 1,258
Amortization of debt discount 118 336
Accretion of put warrants - 310
Net changes in current assets and liabilities (2,175) (4,610)
Increase (decrease) in net assets and
liabilities of discontinued operations 1 (1,018)
---------- ----------
Net cash provided by (used in) operating activities 1,501 (2,578)
---------- ----------
Cash flows from investing activities:
Purchase of fixed assets (204) (2,304)
---------- ----------
Net cash (used in) investing activities (204) (2,304)
---------- ----------
Cash flows from financing activities:
Long-term borrowings 3,086 788
Short-term borrowings - 4,460
Repayment of debt (4,010) (990)
Proceeds from issuance of common stock 30 550
---------- ----------
Net cash provided by (used in) financing activities (894) 4,808
---------- ----------
Net increase (decrease) in cash 403 ( 74)
Cash at beginning of period 188 309
---------- ----------
Cash at end of period $591 $235
---------- ----------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
During the period ended December 31, 1996, 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. During the period ended December 31, 1995,
additional common stock in the amount of $1,378 was issued to satisfy the terms
of an agreement with the former owners of an inactive subsidiary of the Company.
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 7
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 December 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 December 31, 1996 and March 31, 1996 consisted of the following
($000's):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996
------------------ --------------
<S> <C> <C>
Raw Materials $ 4,070 $ 3,838
Work-in-Process 1,220 687
Finished Goods 875 1,478
---------- ----------
$ 6,165 $ 6,003
========== ==========
</TABLE>
NOTE 3 - Intangibles
The recovery of goodwill is evaluated at the operating unit level including an
analysis of operating results and consideration of other significant events or
changes in the business environment. If an operating unit has current
operating losses and, based upon the projections, there is a likelihood that
such operating losses will continue, the Company will evaluate whether
impairment exists on the basis of un-discounted expected future cash flows
from operations for the remaining amortization period.
Intangibles consist of the following ($000s):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996
<S> <C> <C>
Goodwill $ 9,857 $ 9,857
Trademark 2,000 2,000
Organization fees 1,299 1,299
------- -------
13,156 13,156
Less: accumulated amortization (2,153) (1,865)
------- -------
$11,003 $11,291
======= =======
</TABLE>
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<PAGE> 8
NOTE 4 - Long Term Debt
In November 1996, the Company, through its operating subsidiary Decora
Incorporated, borrowed $2,460,000 through the issuance of tax-exempt industrial
development revenue bonds which are credit enhanced by a letter of credit
issued by the Company's principal senior lender, Fleet Bank. In addition to
annual letter of credit fees payable to the bank, such bonds require monthly
interest payments at a floating interest rate which is adjusted weekly based on
the rate required for the remarketing agent to market such bonds at par. The
initial interest rate on the bonds was 3.65% per annum. The bonds also require
annual principal payments of $250,000 beginning on November 1, 1998 until final
maturity on November 1, 2004. The net proceeds of the bonds and operating cash
were utilized to pay in advance $2,800,000 of the amount due on April 15, 1997
to Decora Incorporated's subordinated lender (Note 5).
NOTE 5 - 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 6 - 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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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands except per share data)
GENERAL
The financial statements presented herein include the consolidated financial
position at December 31, 1996 and March 31, 1996 and the consolidated results
of operations for the quarters and nine month periods ended December 31, 1996
and 1995 of Decora Industries, Inc. (the "Company"). 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
NINE MONTHS ENDED DECEMBER 31, 1996 VS. NINE MONTHS ENDED DECEMBER 31, 1995
Revenue of the Company was $32,575 for the nine months ended December 31, 1996
compared to $29,449 for the nine months ended December 31, 1995, an increase
of 11%. This increase was comprised of sales from the Company's new, non-core
decorative business, as well as increased shipping volume to the Company's
principal customer, Rubbermaid, which returned to a more traditional pattern
after having 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
nine months of such operations during the current period. While sales to
Rubbermaid increased $2,116, or 8%, over the prior year period, unit shipment
volumes during the first nine months of fiscal 1997 were the same as in the
prior year period and remained 14% below the prior historical average. The
Company believes that this decline is partially a result of cyclical inventory
reductions at Rubbermaid related to their recent initiation of a pull-system
ordering methodology for the Company's products. Other factors may include
competition from alternative surface covering products in this segment which
Management is working to counteract with Rubbermaid with the introduction of
re-merchandised products targeted for specific consumer needs in new market
segments such as stationery, office supply and crafts.
Revenue from international sales of self-adhesive decorative products was
$3,352, an increase of $1,736 over the prior period. The majority of this
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 nine months ended December 31, 1996 was $478 lower
than in the same period last year as certain redesigned decorative products
were not introduced into the market until January 1997, when the Company
introduced its Decora Tile Art(TM), Decora Wall Art(TM) and Decora Glass
Art(TM) programs at the International Housewares Show in Chicago. The Company
also continues to focus on negotiating long term license agreements with
potential third party licensees for its Wearlon(R) liquid coatings, rather than
on direct distribution of such coatings into the industrial specialty coatings
market.
Gross profit for the nine months ended December 31, 1996 was $8,045 versus
gross profit in the prior period of $7,948, an increase of $97, or 1%. While
revenues increased 11%, gross profit margins decreased from 27.0% to 24.7%.
This decrease reflects increased depreciation and amortization expenses in cost
of goods sold during the recent nine month period related to the manufacturing
expansion completed in September 1995 of
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<PAGE> 10
the prior year and changes in product mix. Marketing, general and
administrative expenses were lower during the nine months ended December 31,
1996 versus the prior year by $530 as a result of lower research and
development costs and cost saving measures implemented during the second half
of fiscal 1996.
Income from operations for the nine months ended December 31, 1996 was $2,073
versus $1,190 for the same period in the prior year. In addition to increased
revenues and lower marketing, general and administrative expenses, pretax
income also benefitted from lower interest expense resulting from reduced
borrowings and reduced borrowing rates on refinanced debt . Such decrease in
interest expense was partially offset by an increased tax provision resulting
in net income of $2,003, or $0.06 per share, for the nine months ended December
31, 1996 versus $1,146, or $0.04 per share, for the nine months ended December
31, 1995.
QUARTER ENDED DECEMBER 31, 1996 VERSUS QUARTER ENDED DECEMBER 31, 1995
Revenue for the quarter ended December 31, 1996 was $9,533 versus $10,247 for
the quarter ended December 31, 1995. Revenues from the Company's most
significant customer, Rubbermaid, were 3.5% lower than in the same quarter in
the prior year, partially reflecting, what the Company believes, is a cyclical
inventory reduction by Rubbermaid related to the initiation of a pull system
ordering methodology, a transition which may continue into the beginning of
Fiscal 1998. As a result, unit volume was 12% lower during the recent period;
however, this volume decline was partially offset by volume related price
adjustments pursuant to the Company's manufacturing agreement with Rubbermaid.
International sales during the quarter were level with respect to the prior
year's third quarter while industrial product sales were lower by $386
primarily as a result of the temporary delay of the thin film products program
pending its reintroduction to the marketplace in January 1997.
Gross profit for the quarter ended December 31, 1996 was $2,379 versus gross
profit of $3,060 for the same quarter in the prior year. Gross profit was
lower as a result of reduced manufacturing volume resulting in unfavorable
overhead absorption variances and lower margins attributable to changes in
product mix. As a result, gross profit as a percentage of revenue decreased
from 29.9% in the prior year's third quarter to 25.0% in the most recent
quarter. Lower gross profit in the most recent quarter was partially offset by
lower marketing, general and administrative expenses, which were $348 lower
than in the prior year's quarter, resulting in operating income for the most
recent quarter of $997 as compared with operating income of $1,330 for the same
period in the prior year. Lower interest expense, which declined $153 (21%),
and a lower tax provision resulted in net income for the quarter ended December
31, 1996 of $406, or $0.01 per share, as compared to net income for the
quarter ended December 31, 1995 of $580, or $0.02 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $5,488 from March 31, 1996 to
December 31, 1996 reflecting a $3,061 increase in current assets combined with
a $2,427 decrease in current liabilities. Cash balances increased $403 as set
forth in the statement of cash flows. Accounts receivable increased by $1,788,
reflecting longer payment terms for increased international shipments and
accrued volume-related price adjustments under the Company's manufacturing
agreement with Rubbermaid. Other current assets increased by $708 as a result
of accruals for payments due from vendors and customers related primarily to
material price adjustments. Such
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<PAGE> 11
increases were partially offset by a seasonal increase of $768 in accounts
payable and accrued liabilities while the current portion of long term debt
decreased by $3,195.
In August 1996, the Company's Decora Incorporated subsidiary renewed its $6,000
revolving line of credit until August 31, 1998. In November 1996, the
Company's Decora Incorporated subsidiary borrowed $2,460 through the issuance
of tax exempt industrial development revenue bonds due in 2004 and utilized the
net proceeds of such borrowings in addition to operating cash flow to pay in
advance $2,800 of the $3,500 due to CIGNA in April 1997. The Company is
currently in discussions with its primary lender to refinance the remaining
$700 due to CIGNA in April and a portion of the additional amounts due to CIGNA
in April 1998.
Capital expenditures for the nine months ended December 31, 1996 were $204,
which was lower than historical levels. While the Company continues to make
capital improvement, several projects which had been scheduled for the current
year will not be completed until the subsequent year partially as a result of
changes in equipment order lead times and changes in new equipment design.
SUMMARY
The Company continues to pursue and execute financing strategies with the goal
of lowering capital costs and improving liquidity. Completion of the recent
industrial development revenue bond financing was a significant step in this
regard, and the Company is now pursuing financing opportunities to repay the
remaining amounts due to CIGNA in April 1997 as well as the amounts due in
April 1998. Outside of such financing requirements, Management believes that
routine short term liquidity needs will be satisfied through its existing line
of credit and through cash flow generated by operations.
-11-
<PAGE> 12
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
Reports on Form 10-Q for its quarters ended June 30, 1996 and September 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.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10) Material Contracts
10.1 Form of Official Statement of Counties of Warren and Washington, New
York, Industrial Development Agency $2,460,000 Tax-exempt Industrial
Development Revenue Bonds (Decora Incorporated Project), Series 1996.
(b) Reports on Form 8-K
None
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<PAGE> 13
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: February 14, 1997
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<PAGE> 1
EXHIBIT 10.1
-----
This Preliminary Official Statement does not constitute an offer to
sell or a solicitation of an offer to buy, nor shall there be any sale of Bonds
in any jurisdiction in which such an offer or solicitation is not authorized or
in which it is unlawful to make such an offer or solicitation. This
Preliminary Official Statement is not to be reproduced or used for any purpose
except in connection with the use by the offeree whose name appears on the
cover page hereof in connection with its consideration of an investment in the
Bonds, nor are any of the contents of this Preliminary Official Statement to be
disclosed to anyone other than the offeree to whom it is submitted, without the
express prior written consent of Decora, Incorporated (the "Company"), Fleet
Bank (the "Bank") and First Albany Corporation (the "Underwriter"). The
recipient hereof agrees to return this Preliminary Official Statement promptly
after such time as it is no longer considering an investment in the Bonds.
This Preliminary Official Statement constitutes an offer only if a name appears
in the appropriate space on the title page of this Preliminary Official
Statement and is an offer only to such named offeree. No dealer, broker,
salesman or other person has been authorized to give any information or to make
any representations not contained in this Preliminary Official Statement, and,
if given or made, such information or representations must not be relied upon
as having been authorized by the Issuer, the Company, the Bank or the
Underwriter.
The information set forth herein has been obtained from the Issuer,
the Company, the Bank and other sources of all of which are believed to be
reliable, but it is not guaranteed as to its accuracy or completeness and
nothing contained in this Preliminary Official Statement is or shall be relied
upon as a promise or representation by the Underwriter. The information and
expressions of opinion set forth herein are made as of the date hereof and are
subject to change without notice, and neither the delivery of this Preliminary
Official Statement nor any sale hereunder shall, in the circumstances, create
any implication that there has been no change in the affairs of the Issuer, the
Company or the Bank or in any other matter since the date hereof. Officials of
the Company and the Bank will be available to provide any additional
information which offerees or their representatives may reasonably require to
verify the accuracy of the information as set forth herein as to the Bonds, or
the affairs of the Company or the Bank.
UPON ISSUANCE, THE BONDS WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAW, AND THE INDENTURE
HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN
RELIANCE UPON THE EXEMPTIONS CONTAINED IN SUCH ACTS. THE BONDS WILL NOT BE
LISTED ON ANY STOCK OR OTHER SECURITIES EXCHANGE AND NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL, STATE OR GOVERNMENTAL
ENTITY OR AGENCY WILL HAVE PASSED UPON THE ACCURACY OR ADEQUACY HEREOF.
THE BONDS ARE NOT BEING OFFERED AND WILL NOT BE SOLD TO NON-CITIZENS
OF THE UNITED STATES.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
INTRODUCTION
THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE LETTER OF CREDIT AND THE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE COMPANY AND THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Information on the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No Obligation of State or of Warren or Washington County . . . . . . . . . . . . . . . . . . . . . . . . .
Default by Bank under Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Status of the Company and the Project Facility . . . . . . . . . . . . . . . . . . . . . . . . .
Mandatory Tender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Default by the Company or the Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Reimbursement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enforceability of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss of Federal Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds Not Secured by Real or Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security for the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specific Details of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selection of Applicable Weekly Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conversion Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Demand Purchase Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mandatory Tender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mandatory Tender Upon Conversion to Applicable Fixed Rate . . . . . . . . . . . . . . . . . . . . . . .
Mandatory Tender Upon Delivery by the Company of an Alternate Letter of Credit . . . . . . . . . . . .
Book Entry System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Disclosure Obligation Upon Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption Prior to Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Extraordinary and Special Mandatory Redemption Without Premium . . . . . . . . . . . . . . . . . . . .
Mandatory Redemption Without Premium Upon Event of Default . . . . . . . . . . . . . . . . . . . . . .
Mandatory Taxability Redemption without Premium in the Event of a Determination of Taxability . . . . .
Mandatory Redemption in the Event of Failure by the Company to Provide Substitute Letter of Credit . .
Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scheduled Mandatory Redemption Without Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partial Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company's Election to Redeem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY OF THE INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restriction on Issuance of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Limited Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivery of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Establishment of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Application of Proceeds of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Project Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Rebate Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Drawing by the Trustee on the Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No Modification of Security: Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covenant Against Arbitrage Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Events of and Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights of Bank to Direct Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Application of Monies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendment of Other Financing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discharge or Assignment of Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY OF THE INSTALLMENT SALE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Representations, Warranties and Covenants of the Issuer . . . . . . . . . . . . . . . . . . . . . . . . .
Representations and Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covenant with Trustee, Bondholders and the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Renovation of Project Facility; Acquisition and Installation of Equipment . . . . . . . . . . . . . . . .
Application of Proceeds of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Completion of the Project Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment Purchase Payments and other Amounts Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Nature of Obligations of Company under the Installment Sale Agreement . . . . . . . . . . . . . . . . . .
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Prepayment of Installment Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Substitute Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance, Modifications, Taxes and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Damage and Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assignment of the Installment Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pledge and Assignment of the Issuer's Interests to the Trustee . . . . . . . . . . . . . . . . . . . . . .
Events and Remedies of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No Recourse: Special Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY OF THE REIMBURSEMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Reimbursement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and Local Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPROVAL OF LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX A
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-
APPENDIX B
FORMS OF APPROVING OPINION OF BOND COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-
APPENDIX C
FINANCIAL STATEMENTS OF THE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-
APPENDIX D
FINANCIAL STATEMENTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-
</TABLE>
iii
<PAGE> 5
THE INFORMATION UNDER THE CAPTIONS "INTRODUCTION," "THE LETTER OF CREDIT AND
THE BANK," "THE COMPANY," "RISK FACTORS," "THE BONDS," SUMMARY OF THE
INDENTURE," "SUMMARY OF THE INSTALLMENT SALE AGREEMENT," "SUMMARY OF THE
REIMBURSEMENT AGREEMENT," "TAX INFORMATION," "APPROVAL OF LEGAL PROCEEDINGS,"
"RATING," "UNDERWRITING" AND "OTHER MATTERS" HAS BEEN FURNISHED BY THE COMPANY,
THE BANK, BOND COUNSEL OR OTHERS, AND NOT BY COUNTIES OF WARREN AND WASHINGTON
INDUSTRIAL DEVELOPMENT AGENCY, WHICH MAKES NO REPRESENTATION OR WARRANTY AS TO
THE ACCURACY OR COMPLETENESS OF ANY INFORMATION IT DID NOT FURNISH.
COUNTIES OF WARREN AND WASHINGTON
INDUSTRIAL DEVELOPMENT AGENCY
Preliminary Official Statement
Relating To
$2,460,000 Tax-Exempt Industrial Development Revenue Bonds
(Decora Incorporated Project), Series 1996
INTRODUCTION
This Preliminary Official Statement, including the cover page and
appendices, sets forth certain information in connection with the issuance and
sale of the Tax-Exempt Industrial Development Revenue Bonds (Decora
Incorporated Project), Series 1996, in the aggregate principal amount of
$2,460,000 (the "Bonds") of the Counties of Warren and Washington Industrial
Development Agency (the "Issuer"), a public benefit corporation of the State of
New York (the "State"). The Bonds are authorized to be issued pursuant to
Title 1 of Article 18-A of the General Municipal Law of the State, as amended
from time to time, together with Chapter 862 of the Laws of 1971 of the State
and Chapter 566 of the Laws of 1972 of the State (collectively hereinafter
referred to as the "Act"), and a resolution of the Issuer adopted on September
19, 1996 (the "Resolution"). The Bonds will be issued under a trust indenture
dated as of November 1, 1996 (the "Indenture") by and between the Issuer and
Mellon Bank, F.S.B., Albany, New York, as trustee (the "Trustee"). The Trustee
is also Bond Registrar and Paying Agent.
The Bonds are being issued by the Issuer to provide for a project (the
"Project") to be undertaken by the Issuer consisting of (A) the acquisition and
installation of certain manufacturing equipment at One Mill Street, Fort
Edward, New York to be used in connection with the contemplated uses (the
"Equipment"); (B) the renovation and completion of portions of the Company's
(hereinafter defined) manufacturing plant to accommodate the installation of
the Equipment (the "Renovation") (C) the payment of design and installation
costs of the Equipment (the "Costs"); and (D) the financing of a part of the
cost of the foregoing by issuing Tax-Exempt Industrial Development Revenue
Bonds (the Equipment, the Renovation and the Costs are hereinafter collectively
called the "Project" or "Project Facility"). The Equipment is to be sold by
the Issuer to Decora, Incorporated, a corporation organized and existing under
the laws of the State of Delaware and authorized to conduct business in New
York as Decora Manufacturing, having an office for the transaction of business
at One Mill Street, Ford Edward, New York 12828 (the "Company"), pursuant to
the provisions of an installment sale agreement dated as of November 1, 1996
(the "Installment Sale Agreement").
<PAGE> 6
The Bonds will be equally and ratably secured by the Indenture. The
Indenture constitutes a first lien on the Trust Revenues (as defined in the
Indenture).
As further security for the Bonds, the Company has entered into a
credit and reimbursement agreement dated as of November 1, 1996 (the
"Reimbursement Agreement") with Fleet Bank, Albany, New York (the "Bank"),
pursuant to which the Bank is to issue in favor of the Trustee an irrevocable,
transferable direct-pay letter of credit (the "Letter of Credit") in an amount
sufficient to pay the aggregate principal amount of, or portion of the Purchase
Price corresponding to the principal of, the Bonds and up to forty-five (45)
days interest on the Bonds calculated at the maximum rate, which is twelve
percent (12%) per annum, or portion of the Purchase Price corresponding to
interest.
Under the Letter of Credit, the Bank is obligated to pay to the
Trustee, upon presentation of a sight draft and required accompanying
documentation, the amount necessary to pay, together with other Non-Preference
Monies held by the Trustee under the Indenture, the principal or Purchase Price
of and interest on the Bonds then due and payable. The Letter of Credit
provides that it will expire on the eighth (8th) anniversary date of its
issuance or earlier upon the occurrence of certain events described herein.
The Indenture provides that the Trustee will make timely drawings under the
Letter of Credit in accordance with the terms thereof (1) to the extent that
Non-Preference Monies are not available therefor, to pay when due (whether by
maturity, redemption, acceleration or otherwise) the principal of, premium, if
any, and interest on the Bonds and (2) to the extent that cash proceeds from
the sale of Tendered Bonds which have been remarketed or other Non-Preference
Monies are not available therefor, to pay when due the Purchase Price of Bonds.
Under certain circumstances, the Letter of Credit may be replaced by a
Substitute Letter of Credit. (See the caption "SUMMARY OF THE INSTALLMENT SALE
AGREEMENT - Substitute Letter of Credit" herein.)
As further security for the payment of the principal or Purchase Price
of and interest on the Bonds, the Issuer will assign to the Trustee and the
Bank the Issuer's rights and remedies under the Installment Sale Agreement
(except the Unassigned Rights), including the right to receive installment
purchase payments pursuant to a pledge and assignment dated as of November 1,
1996 from the Issuer to the Trustee and the Bank (the "Pledge and Assignment").
The Indenture, among other things, provides that the Issuer will
deposit the proceeds of the sale of the Bonds with the Trustee and that the
Trustee will disburse such proceeds to pay the Cost of the Project, but only
upon satisfaction of the requirements set forth in the Indenture, the
Installment Sale Agreement. The Indenture grants the Trustee a security
interest in the proceeds of the sale of the Bonds held by the Trustee prior to
disbursement.
The Bonds are dated and are issuable in the form of fully registered
Bonds without coupons in minimum denominations of $100,000 or $100,000 plus any
integral multiples of $5,000 in excess thereof. The Bonds will be issued
initially under a Book-Entry Only System, registered in the name of Cede & Co.,
as registered owner and nominee for The Depository Trust Company ("DTC"), which
will act as securities depository for the Bonds. Individual purchases of
beneficial interests in the Bonds will be made in book-entry form. Purchasers
of beneficial interests in the Bonds will not receive certificates representing
their interest in the Bonds that they
2
<PAGE> 7
purchase. So long as Cede & Co., as nominee of DTC, is the registered owner of
the Bonds, references herein to the Bondholders or registered owners shall mean
Cede & Co. rather than the beneficial owners of the Bonds.
Principal when due, and premium, if any, are payable at the corporate
trust office of the Trustee, 80 State Street, Albany, New York 12207. Interest
on the Bonds is payable by check mailed, or by wire transfer to certain
Bondholders as described herein, to the persons in whose names such Bonds are
registered at the close of business on the Record Date. So long as DTC or its
nominee is the registered owner of the Bonds, such payments shall be made to
DTC or its nominee. Disbursement of such payments to DTC participants is the
responsibility of DTC and disbursements of such payments to the beneficial
owners is the responsibility of DTC participants and indirect participants.
The Bonds are limited, special obligations of the Issuer payable
solely from payments made by the Company under the Installment Sale Agreement
as assigned to the Trustee, monies and securities held by the Trustee under the
Indenture and the security provided by the Letter of Credit and the Pledge and
Assignment.
THE BONDS DO NOT CONSTITUTE AND SHALL NOT BE A DEBT OF THE STATE OF
NEW YORK OR OF WARREN COUNTY, NEW YORK OR WASHINGTON COUNTY, NEW YORK, AND
NEITHER THE STATE OF NEW YORK NOR WARREN COUNTY, NEW YORK NOR WASHINGTON
COUNTY, NEW YORK, SHALL BE LIABLE THEREON. THE BONDS DO NOT GIVE RISE TO A
PECUNIARY LIABILITY OR CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF
THE STATE OF NEW YORK OR OF WARREN COUNTY, NEW YORK OR WASHINGTON COUNTY, NEW
YORK. THE ISSUER HAS NO TAXING POWER.
No recourse shall be had for the payment of the principal or purchase
price or redemption price of or the interest on any Bond or for any claim based
thereon against any past, present or future member, officer, employee or agent
(except the Company), as such, of the Issuer or of any predecessor or
successor corporation, either directly or through the Issuer or otherwise,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty, or otherwise.
The purchase of the Bonds involves a degree of risk. Prospective
purchasers should carefully consider the material under the caption "RISK
FACTORS" herein.
The following summaries are not comprehensive or definitive. All
references to the Bonds, the Letter of Credit, the Reimbursement Agreement, the
Indenture and the Installment Sale Agreement are qualified in their entirety by
the definitive forms thereof. Copies of the documents will be made available
by the Remarketing Agent to any prospective purchasers upon request.
Capitalized terms used in this Preliminary Official Statement shall
have the meanings specified in Appendix A attached hereto. Terms not otherwise
defined in this Preliminary Official Statement have the meanings provided in
the specific documents.
THE ISSUER
3
<PAGE> 8
The Issuer is a public benefit corporation organized and existing
under the laws of the State of New York. The Issuer was created by and
constitutes an industrial development agency under the Act. The Issuer was
created for the purpose of promoting, developing, encouraging and assisting in
the acquiring, constructing, reconstructing, improving, maintaining, equipping
and furnishing of industrial, manufacturing, warehousing, commercial, research
and recreational facilities, thereby advancing the job opportunities, health,
general prosperity and economic welfare of the people of the State of New York
and improving their recreational opportunities, prosperity and standard of
living.
Under the Act, the Issuer has power to acquire, hold and dispose of
personal property for its corporate purposes; to acquire, use for its corporate
purposes and dispose of real property within the corporate limits of Warren and
Washington Counties, New York; to appoint officers, agents and employees; to
make contracts and leases; to acquire, construct, reconstruct, lease, improve,
maintain, equip or furnish one or more projects; to borrow money and issue
bonds and to provide for the rights of the holders thereof; to grant options to
renew any lease with respect to any project and to grant options to buy any
project at such price as the Issuer may deem desirable; to designate
depositories of its monies; and to do all things necessary or convenient to
carry out its purposes and exercise the powers given in the Act.
The members of the issuer are appointed by the governing body of
Warren and Washington Counties, New York. The Issuer has ten (10) members.
The persons currently serving as members of the Issuer are:
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
C. Powel South Chairman
Bruce A. Ferguson Vice Chairman
William H. Thomas Secretary
Robert S. Banks Treasurer
Nicholas A. Ciamano Member
David J. Capron Member
Charles Caputo Member
Donald A. Cummings Member
Ronald Montesi Member
Peter J. Telisky Member
</TABLE>
The Bonds are limited, special obligations of the Issuer payable
solely from the payments made by the Company under the Installment Sale
Agreement, monies and securities held by the Trustee under the Indenture and
the security provided by the Letter of Credit and the Pledge and Assignment.
Neither the Issuer nor its members or officers are personally liable with
respect to the Bonds. Accordingly, no financial information with respect to
the Issuer or its members or officers has been included in this Preliminary
Official Statement.
4
<PAGE> 9
THE LETTER OF CREDIT AND THE BANK
The Letter of Credit
Upon issuance of and receipt of payment for the Bonds, the Bank will
issue and deliver the Letter of Credit for the account of the Company in favor
of the Trustee. Under the Letter of Credit, the Trustee will be authorized to
draw an amount sufficient to pay the aggregate principal amount of, or portion
of the Purchase Price corresponding to the principal of, the Bonds and up to
forty-five (45) days interest on the Bonds, or portion of the Purchase Price
corresponding to interest (at a maximum rate of twelve percent (12%) per
annum). The Indenture provides that the Trustee will make timely drawings
under the Letter of Credit in accordance with the terms thereof (1) to the
extent that Non-Preference Monies are not available therefor, to pay when due
(whether by maturity, redemption, acceleration or otherwise) the principal of
and interest on the Bonds, and (2) to the extent that cash proceeds from the
sale of Tendered Bonds which have been remarketed or other Non-Preference
Monies are not available therefor, to pay when due the Purchase Price of Bonds.
It is not expected that there will be sufficient Non-Preference Monies in the
Bond Fund to make such payments. Therefore, it is expected that the Trustee
will draw on the Letter of Credit on each Bond Payment Date.
The Letter of Credit will be transferable and assignable to a
successor Trustee appointed in accordance with the Indenture. Amounts payable
under the Letter of Credit will be general obligations of the Bank. Such
amounts will not be guaranteed, in whole or in part, by the United States of
America or any agency or instrumentality thereof.
The Letter of Credit will automatically terminate upon the earliest of
(A) the eighth (8th) anniversary date of its issuance, (B) presentation of the
Letter of Credit to the Bank for cancellation, together with either (1) receipt
by the Bank of a certification from the Trustee that all principal of all Bonds
Outstanding, together with all accrued interest and premium, if any, due on the
Bonds, have been fully paid, or (2) receipt by the Bank of a certificate from
the Trustee stating that the Trustee has accepted a Substitute Letter of
Credit, (C) the date on which there are no longer any Bonds Outstanding under
the Indenture, (D) the date of payment of a drawing under the Letter of Credit
for principal and interest due for payment in full of the then Outstanding
Bonds or (E) the close of business on the date of receipt by the Bank of
written notice from the Trustee stating that the Fixed Rate has become
effective and that the Letter of Credit is being surrendered for cancellation.
Pursuant to the Reimbursement Agreement, the Company has agreed to
repay any amounts drawn on the Letter of Credit, together with interest at a
rate equal to two percent (2.00%) per annum plus the Prime Rate (as defined in
the Reimbursement Agreement), plus reasonable charges incurred by the Bank in
connection with any draws on the Letter of Credit.
The Bank
Fleet Bank (the "Bank") is a banking corporation organized under the
laws of the State of New York and is a wholly-owned subsidiary of Fleet New
York, Inc., a Rhode Island corporation which in turn is wholly-owned by Fleet
Financial Group, Inc., a Boston, Massachusetts based registered bank holding
company incorporated
5
<PAGE> 10
under the laws of the State of Rhode Island ("Fleet").
The Bank is engaged in the general commercial banking and trust
business and provides a wide variety of services related thereto. As of June
30, 1996, total assets were approximately $11,639,894,000, total deposits
(domestic and foreign) were approximately $9,326,669,000, and net loans and
lease financings were approximately $7,284,520,000. The Bank's net profit for
the period commencing January 1, 1995 through and including December 31, 1995
was approximately $118,640,000.
The foregoing summary information is included for convenience purposes
only and such information is qualified in its entirety by the Consolidated
Report of Condition and Income for the Bank for the period ending December 31,
1995 (attached hereto) and for the period ending June 30, 1996 (attached
hereto), for a detailed description of the financial condition of the Bank.
The Bank will provide upon written request copies of such reports to any
purchaser or prospective purchaser of the Bonds.
THE COMPANY AND THE PROJECT
The Company
The Company is in the business of developing, manufacturing and
selling self-adhesive consumer decorative products and specialty industrial
products and is a wholly-owned subsidiary of Decora Industries, Inc. a Delaware
corporation. It develops and manufactures these products utilizing its
proprietary pressure-sensitive adhesive and release systems technologies,
including its technology known as Wearlon(R). On April 18, 1990, the Company
acquired the assets of the Decora Division of United Merchants and
Manufacturers, Inc. (a NYSE company). The Decora Division had 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, the Company entered into an exclusive
five-year manufacturing and distribution agreement (the "Manufacturing
Agreement") with Rubbermaid Incorporated ("Rubbermaid") with has since been
extended to 1999, whereby decorative self-adhesive vinyl and related products
are exclusively manufactured for and distributed by Rubbermaid under their
Con-Tact(R) brand name. The Con-Tact(R) manufacturing and adhesive technology
is owned by the Company and, along with the trademark originally established by
the Company, enabled the company in the 1950's to establish its continued
market leadership position in the industry. The Company 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 that are now being distributed by Rubbermaid and other new strategic
partners.
At the time of the acquisition in 1990, the majority of the Company's
revenues were from sales of its core Con-Tact(R) and related products under a
single exclusive manufacturing agreement with Rubbermaid. Following the
acquisition, management began to seek growth and diversification opportunities
in order to complement the Company's mature core business. During the fiscal
1996, 1995 and 1994, revenues under the Rubbermaid contract have been 90%, 93%
and 94%, respectively, of total revenues. Management's main focus
6
<PAGE> 11
in the development of long-term growth strategies has been:
- To maximize its strategic alliance with Rubbermaid and its
consumer products 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, channels and
geographic areas not served by Rubbermaid; and
- To compliment its consumer products with other applications
and products for the industrial coatings and substrates
markets.
Significant resources have been invested in research and initiating
new product programs arising from the Company's base self-adhesive technology.
The development program has resulted in a new generation of decorative consumer
products including several for its core business that are distributed by
Rubbermaid, as well as others for other new markets and strategic distributors.
Several new consumer products were introduced during the past two fiscal years
and the Company continues to invest in research efforts; however, primary
emphasis is now placed on the commercialization and refinement of new products
and the expansion of marketing relationships and distribution channels.
The Project
During the past 18 months, the Company completed a significant
expansion of its manufacturing operations in order to fulfill the requirements
of the expanded Manufacturing Agreement with its largest customer, Rubbermaid,
which was signed on April 17, 1995. With the new operations, the Company now
performs final consumer packaging steps for Con-Tact(R) decorative products.
These operations had previously taken place at a Rubbermaid facility in North
Carolina and were installed in the Company's facility in order to lower
order-to-shipment cycle times, improve working capital turnover, reduce product
cost and more efficiently utilize manufacturing assets.
The project involved the relocation, installation and start-up of
fourteen finish packaging machines owned by Rubbermaid in the Company's
facility in Fort Edward, New York as well as improvements to existing machinery
and equipment. Such activities required significant modifications of and
additions to the Company's facility including equipment reconfiguration and
upgrade, wiring, air, material handling and storage, roofing, lighting,
flooring and ventilation.
Financial Information on the Company
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Attached hereto as Appendix "D" are Decora Industries, Inc.'s Annual
Report on Form 10-K for the year ended March 31, 1996 as filed with the
Securities and Exchange Commission and Decora Industries, Inc.'s Report on Form
10-Q for the fiscal quarter ending June 30, 1996 as filed with the Securities
and Exchange Commission.
THE ISSUER AND THE UNDERWRITER MAKE NO REPRESENTATION AS TO THE
ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN APPENDIX D.
RISK FACTORS
Purchase of the Bonds involves a degree of risk. In order to identify
risk factors and make an informed investment decision, potential investors
should be thoroughly familiar with this entire Preliminary Official Statement
(including the Appendicies hereto) in order to make a judgment as to whether
the Bonds are an appropriate investment. Certain of the risks associated with
the purchase of the Bonds are described below. The following list of possible
factors, while not setting forth all of the factors which must be considered,
contains some of the factors which should be considered prior to purchasing the
Bonds. This discussion of risk factors is not, and is not intended to be,
comprehensive or exhaustive.
No Obligation of State or of Warren or Washington County
The Bonds are not obligations of the State of New York or of Warren
County, New York or Washington County, New York, and neither the State of New
York nor Warren County, New York nor Washington County, New York has any
liability thereunder. The Bonds are special revenue bonds payable solely from
the sources described in this Preliminary Official Statement and the Indenture.
Default by Bank under Letter of Credit
Fleet Bank (the "Bank") will issue the initial Letter of Credit which
will authorize the Trustee to draw on the Bank, in accordance with the terms
and conditions set forth in the initial Letter of Credit, by drafts,
periodically in an amount equal to the principal of the Bonds (other than
Pledged Bonds) when due, whether at stated maturity or upon redemption or
acceleration of the Bonds (other than Pledged Bonds), the purchase price of
Bonds tendered for purchase pursuant to the Indenture and up to forty-five (45)
days' accrued interest on the Bonds (other than Pledged Bonds). The Letter of
Credit is the Bondowners' primary expected source of payment of principal of
and interest on the Bonds.
The Bank's obligation under the Letter of Credit will be a general
obligation of the Bank, which will not be guaranteed or secured, in whole or in
part, by the United States of America or any agency or instrumentality thereof.
Default by the Bank under the Letter of Credit may result in insufficient
revenues being available to pay the principal of and accrued and unpaid
interest on the Bonds and may require registration of the Bonds under the
Securities Act of 1933, as amended.
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Financial Status of the Company and the Project Facility
Only limited information with respect to the Company and the Project
Facility is included herein. The information was not obtained from an
independent third party. The financial success of the Company and/or the
Project Facility may affect the risk of an acceleration of the Bonds prior to
maturity.
If the Company were to file a petition for relief under Title 11 of
the United States Code (the "Federal Bankruptcy Code"), such filing would
constitute an "Event of Default" under the Indenture permitting, under the
terms set forth in the Indenture, the acceleration of the Bonds. At least one
bankruptcy court, however, has temporarily prohibited an indenture trustee from
declaring a default based solely upon the commencement of a Chapter 11
reorganization case provided that the Company has timely made all debt service
payments both before and after the case and no other events of default exist.
Mandatory Tender
The Bonds are subject to mandatory tender at any time effectively at
the option of the Company. At least thirty (30) days prior to the date the
Bonds are to be tendered, the Trustee shall notify each Bondholder of the
Company's exercise of its option, which will include, among other information,
the right of the owner not to tender its Bonds. See the caption "THE BONDS -
Mandatory Tender" herein.
Default by the Company or the Issuer
No representations or assurances can be given that the Company or the
Issuer will not default in performing their respective obligations under the
Installment Sale Agreement, the Reimbursement Agreement or the Indenture. If
an Event of Default occurs under the Indenture, the Trustee may accelerate the
maturity of the Bonds and interest will cease to accrue on the date of
acceleration, notwithstanding the fact that the Bondholders may not receive
notice of such acceleration until after such date. In addition, no premium
will be received upon an acceleration of the Bonds due to a default.
The Reimbursement Agreement
In the Reimbursement Agreement, the Company makes certain covenants
for the benefit of the Bank, including, without limitation, covenants
concerning the financial performance of the Company and the ability of the
Company to incur additional indebtedness. A failure by the Company to comply
with each of these covenants may result in an Event of Default under the
Reimbursement Agreement. Upon the occurrence of an Event of Default under the
Reimbursement Agreement, the Bank may direct the Trustee to declare the Bonds
immediately due and payable and the Trustee will then draw on the Letter of
Credit to pay the principal, premium, if any, and interest on the Bonds.
The terms of the Reimbursement Agreement may be modified, amended or
supplemented by the Bank and the Company from time to time without giving
notice to or obtaining the consent of the Bondowners. Any amendment,
modification or supplement to the Reimbursement Agreement may contain
amendments or modifications to the covenants of the Company or additional
covenants of the Company and these amended or
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modified covenants may be more or less restrictive than those in effect at the
date of issuance of the Bonds.
Enforceability of Remedies
The remedies available to the Trustee and the Bondowners upon an Event
of Default under the Indenture are in many respects dependent upon judicial
actions which are, in turn, often subject to discretion and delay. Under
existing constitutional and statutory laws and judicial decisions, including
specifically the Federal Bankruptcy Code, a particular remedy specified by the
Indenture may not be readily available or, if available, may be limited or
subject to substantial delay. The various legal opinions to be delivered
concurrently with the issuance and delivery of the Bonds will be qualified as
to the enforceability of the various legal instruments by limitations imposed
by principles of equity and by bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally.
THE BONDS ARE BEING OFFERED SOLELY ON THE BASIS OF THE FINANCIAL
STRENGTH OF THE BANK AND NOT ON THE FINANCIAL STRENGTH OF THE COMPANY OR OTHER
SECURITY. ONLY A BRIEF DESCRIPTION OF THE COMPANY IS INCLUDED HEREIN. THE
OWNERS OF THE BONDS WILL NOT BE ABLE TO ASSESS THE LIKELIHOOD THAT PAYMENT OF
THE BONDS WILL BE ACCELERATED BEFORE THE STATED MATURITY THEREOF BECAUSE OF AN
EVENT OF DEFAULT UNDER THE REIMBURSEMENT AGREEMENT, UPON WHICH ACCELERATION THE
BONDS WOULD CEASE TO ACCRUE INTEREST AND WOULD BE PAYABLE AT PAR.
Loss of Federal Tax Exemption
Under certain circumstances, interest on the Bonds may become subject
to federal income taxation. The Bonds are subject to mandatory redemption in
the event of such an occurrence at a redemption price equal to 100% of the
principal amount of the Bonds Outstanding together with accrued interest to the
date of redemption.
Bonds Not Secured by Real or Personal Property
The Bonds are not secured by a mortgage lien on or security interest
in any real or personal property of the Company.
Conflicts of Interest
Bond Counsel is also acting as counsel to the Issuer and has
represented the Issuer in prior transactions.
THE BONDS
Security for the Bonds
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The Bonds will be secured by (A) the assignment effected by the Pledge
and Assignment (except the Unassigned Rights), including the right to collect
and receive installment purchase payments required to be made thereunder, (B)
all other monies and securities held from time to time by the Trustee for the
Bondholders pursuant to the Indenture, including all proceeds of the Bonds
prior to disbursement and (C) the Letter of Credit.
Specific Details of the Bonds
The Bonds shall be dated the Closing Date and shall mature on
November 1, 2004. The Bonds shall bear interest from the date thereon or from
the most recent Interest Payment Date to which interest has been paid.
Interest on Bonds will be payable monthly commencing December 5, 1996 and
thereafter on the first Thursday of each month until the earlier to occur of
(i) the Conversion Date or (ii) the Maturity Date. Upon the Conversion Date,
interest on the Bonds will thereafter be payable semiannually on the first day
of each May and November until the Maturity Date. Notwithstanding anything
herein to the contrary, the interest rate borne by the Bonds (excluding Pledged
Bonds) shall not exceed twelve percent (12%) per annum.
Selection of Applicable Weekly Rate
Prior to the Fixed Rate Conversion Date, the Bonds (except Pledged
Bonds) shall bear interest at the Applicable Weekly Rate, which rate shall be
determined periodically for each Weekly Rate Period by the Remarketing Agent on
the Wednesday of each calendar week (or if Wednesday should not be a Business
Day, then on the Business Day immediately preceding such Wednesday (the
"Interest Rate Determination Date") as the minimum interest rate necessary to
resell such Bonds, as of the date of determination and under prevailing market
conditions, at 100% of the face amount thereof plus accrued interest thereon.
A Weekly Rate Period will be from a Thursday of one calendar week through the
Wednesday of the immediately following calendar week. Pursuant to Section 1 of
the Remarketing Agreement, the Remarketing Agent shall notify the Trustee on
each Interest Rate Determination Date of the change in the Applicable Weekly
Rate, if any, to take effect on the next succeeding Interest Rate Effective
Date. The Remarketing Agent shall notify the Company in writing of such change
in the Applicable Weekly Rate.
If for any reason the interest rate on the Bonds cannot be established
for any Interest Rate Period as described above or is held invalid or
unenforceable by a court of law, the interest rate on the Bonds during such
Interest Rate Period shall be the Interest Index.
Interest on Pledged Bonds shall bear interest at a rate equal to two
and one-half percent above the Prime Rate and shall be computed on the basis of
a 360 day year, charged on actual days elapsed.
Conversion Option
The interest rate on Bonds shall be converted from the Applicable
Weekly Rate to the Applicable Fixed Rate upon the exercise by the Company of
the Conversion Option. See heading titled "Mandatory Tender Upon Conversion to
Applicable Fixed Rate" set forth below in this Preliminary Official Statement.
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<PAGE> 16
The Applicable Fixed Rate on the Bonds shall be the minimum rate per
annum, determined by the Remarketing Agent not less than two (2) nor more than
fifteen (15) Business Days next preceding the Fixed Rate Conversion Date, that
would be necessary, based on prevailing market conditions and the yields at
which comparable securities are then being sold, to produce a par bid for each
Outstanding Bond. The Applicable Fixed Rate so determined shall remain in
effect until the Maturity Date.
Interest on the Bonds shall be computed on the basis of a 365-day or
366-day year for the actual number of days elapsed, except that from and
including the Conversion Date, interest shall be completed on the basis of a
360-day year.
Principal or Purchase Price of and premium, if any, on the Bonds will
be payable in lawful money of the United States of America.
Installments of interest on any Bond and any Sinking Fund Payment or
principal payment due prior to the Maturity Date which is payable and which is
punctually paid or duly provided for on any Interest Payment Date will be paid
to the Person in whose name such Bond (or one or more Predecessor Bonds) is
registered at the close of business on the Regular Record Date and will be paid
by check or draft of the Trustee and mailed to such registered owner at the
address appearing on the bond register or, at the option of any Holder of Bonds
in an aggregate principal amount of $250,000 or greater, be transmitted by wire
transfer at such owner's written request to the bank account number on file
with the Trustee provided the Trustee has been furnished with
appropriate instructions satisfactory to the Trustee.
Transfer and Exchange
The Trustee is designated and agrees to act as Bond Registrar and
shall cause a bond register to be kept on behalf of the Issuer at the
principal office of the Trustee for the registration and transfer of Bonds.
Any Bond, upon the surrender of such Bond to the Bond Registrar, may be
transferred upon an assignment duly executed by the registered owner or his
legal representative in the form imprinted on the Bond or in such other form as
is satisfactory to the Bond Registrar. Upon any such registration of transfer
the Issuer will execute and the Trustee will authenticate and deliver in
exchange for such Bond a new registered Bond or Bonds, registered in the name
of the transferee or transferees thereof.
No service charge will be made for any transfer or exchange of Bonds.
The Issuer or the Trustee may, however, make a charge sufficient to reimburse
them for any tax, fee or other governmental charge required to be paid with
respect to such transfer or exchange.
The Person in whose name any Bond shall be registered shall be deemed
and regarded as the absolute Owner thereof for all purposes, and payment of or
on account of the principal of, or premium if any or interest on, any such Bond
shall be made only to or upon the order of the registered owner thereof or his
duly authorized legal representative, subject to the terms of the Indenture
which govern the payment of Defaulted Payments.
Demand Purchase Option
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<PAGE> 17
Prior to the Fixed Rate Conversion Date, any Bond (unless it is a
Pledged Bond) shall be purchased, at the option ("Demand Purchase Option") of
the Owner thereof, at a price (the "Purchase Price") equal to one hundred
percent (100%) of the principal amount hereof plus accrued and unpaid interest
hereon to the Repurchase Closing Date (as hereinafter defined), upon:
(1) delivery to, and receipt by, the Trustee on a Business Day of
a written notice from the registered owner of such Bond ("Bondholder's Tender
Notice") which (a) requests the purchase of such Bond by stating the principal
amount of such Bond or portion hereof to be purchased ("Tendered Bond"), which
portion shall be $100,000 or an integral multiple of $5,000 in excess thereof,
and stating the date on which the Tendered Bond shall be purchased, which date
shall be a Business Day at least seven (7) calendar days following the receipt
by the Trustee of the Bondholder's Tender Notice (the "Repurchase Closing
Date"), (b) contains the name and address of the Bondholder, (c) irrevocably
requests such purchase, and (d) contains an undertaking of the Bondholder to
deliver the Bond to the Trustee in accordance with (2) below; and
(2) delivery of the Tendered Bond to the office of the Trustee or
Tender Agent at or prior to 10:00 a.m., New York City time, on the Repurchase
Closing Date with an appropriate endorsement for transfer or accompanied by a
bond power endorsed in blank; provided, however, the Tendered Bond shall only
be deemed properly tendered hereunder if the Tendered Bond delivered to the
Trustee conforms in all respects to the description thereof in the Bondholder's
Tender Notice.
In the event the Tender Agent or the Trustee, as the case may be,
determines that the Bondholder's Tender Notice is defective in any respect
whatsoever, the Tender Agent or the Trustee, as the case may be, shall
immediately notify the Bondholder tendering the Bond.
Bonds which are the subject of a Bondholder's Tender Notice described
in (1) above, but which are not tendered in accordance with (2) above, shall be
deemed tendered and all rights of the holder thereof shall be satisfied from
the deposit with the Trustee or the Tender Agent, as the case may be, of the
Purchase Price thereof, and the Trustee shall hold such Purchase Price in trust
for the benefit of such holder until the Bonds purchased with such monies shall
have been delivered to or for the account of such holder. Holders of Bonds to
be tendered which are not delivered to the Tender Agent or the Trustee by the
Bondholder thereof shall have no further rights with respect to such Bonds
except to receive payment of the Purchase Price therefor upon surrender of such
Bonds to the Tender Agent or the Trustee.
Notwithstanding the foregoing, (1) the holders of the Bonds shall have
no right to exercise a Demand Purchase Option described herein if (a) there
shall have occurred and be continuing an Event of Default under the Indenture,
or (b) the Applicable Fixed Rate is in effect for the Bonds being held by such
Bondholder; and (2) the holder of a Bond has no right to exercise a Demand
Purchase Option with respect to those Bonds for which a notice of redemption
has been mailed by the Trustee.
Mandatory Tender
The Bonds are subject to Mandatory Tender upon the exercise by the
Company of the Conversion Option or the delivery by the Company of an Alternate
Letter of Credit.
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<PAGE> 18
Mandatory Tender Upon Conversion to Applicable Fixed Rate. At the
option of the Company, the Interest Mode for the Bonds shall be converted from
the Weekly Mode to the Fixed Mode and the rate of interest payable on the Bonds
shall be converted from the Applicable Weekly Rate to the Applicable Fixed Rate
to the Maturity Date. In order to exercise its option, the Company shall
deliver a written notice to the Notice Parties directing such conversion. The
notice shall specify (1) the effective date upon which the conversion is to
occur (the "Conversion Date"), which shall be a Business Day not less than
forty-five (45) nor more than sixty (60) days following the receipt of the
conversion notice by such Notice Parties and (2) the date on which the
Remarketing Agent is to establish the Applicable Fixed Rate, which date shall
be not less than two (2) Business Days, nor more than fifteen (15) Business
Days, prior to the Conversion Date. The notice shall be accompanied by the
opinion of Nationally Recognized Bond Counsel as required by the Indenture.
Upon the date stated in the notice for the determination of the Applicable
Fixed Rate, the Remarketing Agent shall determine the Applicable Fixed Rate as
the lowest rate of interest that would, in its opinion, based on prevailing
market conditions and the yields at which comparable securities are then being
sold, be necessary to sell the Bonds in the secondary market at par, plus
accrued interest. Notwithstanding the preceding, the Interest Mode for the
Bonds shall not be converted to the Fixed Rate Period and the Applicable Fixed
Rate shall not be established if:
(1) on or before the Conversion Date, there shall not have
been supplied to the Notice Parties an opinion of Nationally Recognized
Bond Counsel to the effect that the conversion to the Applicable Fixed
Rate is: (a) in accordance with the provisions of this Indenture; (b)
is authorized or permitted by this Indenture and the Act; (c) will not
adversely affect the validity of the Bonds; and (d) affect the
exclusion from gross income of the interest payable on the Bonds; or
(2) on or prior to 3:00 p.m., New York City time, on the
Conversion Date, the Tender Agent does not receive the entire Purchase
Price of the Bonds tendered or deemed tendered for purchase, equal to
at least the principal amount thereof together with accrued interest to
the Conversion Date, from the purchaser(s); or
(3) the Letter of Credit or any Substitute Letter of Credit
shall not be in an amount sufficient to pay the principal amount and
premium, if any, of the Bonds together with two hundred and ten (210)
days' interest (calculated on a three hundred and sixty (360) day year
of twelve (12) thirty (30) day months; or
(4) on or before the Conversion Date, the Trustee and the
Company shall not have executed and delivered a continuing disclosure
agreement in a form acceptable to the Remarketing Agent as required
under the terms of the Indenture.
In determining the Applicable Fixed Rate in accordance with the terms
of the Indenture, the Remarketing Agent shall take into account to the extent
applicable the general, financial and credit market conditions, the remaining
term and redemption provisions of the Bonds, and other factors, including any
credit rating and financial condition of the Bank which, in the judgment of the
Remarketing Agent, may have a bearing on the Applicable Fixed Rate on the
Bonds. The determination by the Remarketing Agent of the Applicable Fixed Rate
to be borne by the Bonds pursuant to the terms of the Indenture shall be
conclusive and binding on the Holders of the Bonds and the other Notice
Parties. On the Conversion Date, the Bonds shall be converted to the
Applicable Fixed Rate and shall be subject to mandatory purchase by the Tender
Agent at the Purchase Price on
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<PAGE> 19
the Conversion Date, other than such Bonds or portions thereof for which the
Holder shall have timely delivered the written executed instrument set forth
below. Notice of the Applicable Fixed Rate so determined shall be given by the
Remarketing Agent by Electronic Notice, promptly confirmed in writing, to the
Trustee (and the Remarketing Agent shall promptly then inform the Notice
Parties of the same).
In the event any of the conditions specified in (1), (2), (3) or (4)
above shall not occur by 4:30 p.m., New York City time, and the Trustee shall
have received written notice from the Remarketing Agent to such effect on the
Conversion Date, the Conversion Date shall be deemed not to have occurred. The
Trustee shall promptly notify all Holders of the Bonds (i) that the Conversion
of the interest rate on the Bonds to the applicable Fixed Rate did not occur;
(ii) that all Bonds (including any Bonds the Holders of which shall have
elected to retain pursuant to the Indenture shall nevertheless be deemed
tendered for purchase on that date as would have been the Conversion Date and
at the Purchase Price; (iii) that such Holders shall not be entitled to any
payment (including any interest to accrue subsequent to the Conversion Date)
other than the Purchase Price for such Bonds; and (iv) that the Bonds will
continue to bear interest at the Applicable Weekly Rate.
Not earlier than sixty (60) days prior to the Conversion Date or later
than thirty (30) days prior to the Conversion Date, the Trustee shall send a
notice (the "Conversion Option Notice") to the owners of all Outstanding Bonds
which have not been called for redemption, in substantially the form of Exhibit
C-1 of the Indenture. Such notice shall describe (1) the terms of the
Mandatory Tender, (2) the right of the owner to elect not to tender, (3) the
Letter of Credit to be in effect following the Mandatory Tender, (4) the right
of the owner of a Bond in an aggregate amount of $200,000 or more to elect not
to tender the total principal amount and to continue to hold a portion of its
Bonds (but in no event in any amount other than $100,000, or any integral
multiple of $5,000 in excess thereof) and (5) that the rating then in effect
with respect to the Bonds, if any, may be withdrawn or lowered.
Notwithstanding the foregoing, each Bondholder may, by delivery to the
Trustee for receipt at least by twenty (20) days immediately preceding the
Conversion Date of an irrevocable election not to tender, elect to continue to
hold its Bonds (or portions thereof) past the Conversion Date at the Applicable
Fixed Rate. Such notice shall be in substantially the form of Exhibit C-2 of
the Indenture.
Mandatory Tender Upon Delivery by the Company of an Alternate Letter
of Credit. The Company shall deliver notice to the Trustee at least sixty (60)
days prior to the expiration of the Letter of Credit or Substitute Letter of
Credit securing such Bonds of its intent to deliver an Alternate Letter of
Credit in substitution for such Letter of Credit or Substitute Letter of
Credit, as a result of which all Bonds secured by such Letter of Credit which
have not been called for redemption shall be subject to Mandatory Tender by the
owner thereof on the Alternate Security Date, provided, however, that the
Company shall not deliver an Alternate Letter of Credit or Substitute Letter of
Credit until the Company pays to the Bank any and all amounts then due or to
become due under the Reimbursement Agreement. Notwithstanding the foregoing,
each Bondholder may, by delivery to the Trustee for receipt at least twenty
(20) days immediately preceding any Alternate Security Date of an irrevocable
election not to tender, elect to continue to hold its Bonds past the respective
Alternate Security Date. Such notice shall be in substantially the form of
Exhibit C-4 of the Indenture.
Not earlier than sixty (60) days prior to the Alternate Security Date
or later than thirty (30) days prior to the Alternate Security Date, the
Trustee shall send a notice to the owners of all Outstanding Bonds which have
not been called for redemption, in substantially the form of Exhibit C-3 of the
Indenture. Such notice shall
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<PAGE> 20
describe (1) the terms of the Mandatory Tender, (2) the right of the owner to
elect not to tender, (3) a brief description of the Alternate Letter of Credit
and the identity of the Substitute Bank issuing the Alternate Letter of Credit,
(4) the right of the owner of a Bond in an aggregate amount of $200,000 or more
to elect not to tender the total principal amount and to continue to hold a
portion of its Bonds (but in no event in any amount other than $100,000, or any
integral multiple of $5,000 in excess thereof) and (5) that the rating then in
effect with respect to the Bonds secured by such Alternate Letter of Credit
will be withdrawn or lowered.
Bondholders who fail to file a notice to retain their Bonds shall be
required to deliver their Bonds to the Trustee for purchase at the Purchase
Price on the Conversion Date or the Alternate Security Date, as the case may
be, with an appropriate endorsement for transfer or accompanied by a bond power
endorsed in blank. Any such Bonds not so delivered on such Conversion Date or
the Alternate Security Date, as the case may be ("Undelivered Bonds"), for
which there has been irrevocably deposited in trust with the Trustee an amount
of moneys sufficient to pay the Purchase Price of the Undelivered Bonds, shall
be deemed to have been purchased.
IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS REQUIRED TO BE TENDERED (OTHER
THAN AN OWNER OF BONDS WHO HAS GIVEN NOTICE OF ITS ELECTION NOT TO TENDER AS
PROVIDED ABOVE) TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE OR THE
ALTERNATE SECURITY DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT
(INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE CONVERSION DATE OR
THE ALTERNATE SECURITY DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED
BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF
THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE
THEREFOR.
Book Entry System
The Bonds shall initially be issued in the form of fully-registered
Bonds, which Bonds shall be registered in the name of Cede & Co., as nominee of
the Depository Trust Company ("DTC"), a limited purpose trust company organized
under the laws of New York. Except as provided below, all of the Bonds shall
be registered in the bond register in the name of Cede & Co., as nominee of
DTC; provided that if DTC shall request that the Bonds be registered in the
name of a different nominee, the Trustee shall exchange all or any portion of
the Bonds for an equal aggregate principal amount of Bonds registered in the
name of such nominee or nominees of DTC. No person other than DTC or its
nominee shall be entitled to receive from the Issuer or the Trustee either a
Bond or any other evidence of ownership of the Bonds, or any right to receive
any payment in respect thereof unless DTC or its nominee shall transfer record
ownership of all or any portion of the Bonds on the bond register in connection
with the discontinuing of the book entry system.
So long as the Bonds or any portion thereof are registered in the name
of DTC or any nominee thereof, all payments of the principal or Purchase Price
of, premium, if any, or interest on such Bonds shall be made to DTC or its
nominee on the dates provided for such payments under the Indenture. Each such
payment to DTC or its nominee shall be valid and effective to fully discharge
all liability of the Issuer, the Trustee, the Bank or the Company with respect
to the principal Purchase Price of, premium, if any, or interest on the Bonds
to the extent of the sum or sums so paid. In the event of the redemption of
less than all of the Bonds Outstanding, the Trustee shall not require surrender
by DTC or its nominee of the Bonds so redeemed, but DTC ( or its nominee) may
retain such Bonds and make an appropriate notation on the Bond certificate as
to the amount of such partial
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<PAGE> 21
redemption; provided that DTC shall deliver to the Trustee, upon request, a
written confirmation of such partial redemption and thereafter the records
maintained by the Trustee shall be conclusive as to the amount of the Bonds
which have been redeemed.
The Issuer and the Trustee may treat DTC (or its nominee) as the sole
and exclusive owner of the Bonds registered in its name for the purpose of
payment of the principal of, premium, if any, or interest on the Bonds,
selecting the Bonds or portions thereof to be redeemed, giving any notice
permitted or required to be given to Owners of Bonds under the Indenture,
registering the transfer of Bonds, obtaining any consent or other action to be
taken by the Owners of Bonds and for all other purposes whatsoever; and neither
the Issuer nor the Trustee shall be affected by any notice to the contrary.
Neither the Issuer, the Company, the Trustee nor the Bank shall have any
responsibility or obligation to any participant in DTC, any person claiming a
beneficial ownership interest in the Bonds under or through DTC or any such
participant, or any other person which is not shown on the bond register as
being an Owner, with respect to either: (1) the Bonds; or (2) the accuracy of
any records maintained by DTC or any such participant; or (3) the payment by
DTC or any such participant of any amount in respect of the principal of,
premium, if any, or interest on the Bonds; or (4) any notice which is
permitted or required to be given to the Owners of the Bonds under the
Indenture; or (5) the selection by DTC or any such participant of any person to
receive payment in the event of a partial redemption of the Bonds; or (6) any
consent given or other action taken by DTC as the Owner of Bonds.
So long as the Bonds or any portion thereof are registered in the name
of DTC or any nominee thereof, all notices required or permitted to be given to
the Owners of Bonds under the Indenture shall be give to DTC.
In connection with any notice or other communication to be provided to
Owners of Bonds pursuant to the Indenture by the Issuer or the Trustee with
respect to any consent or other action to be taken by Owners of Bonds, DTC
shall consider the date of receipt of notice requesting such consent or other
action as the record date for such consent or other action, provided that the
Issuer or the Trustee may establish a special record date for such consent or
other action. The Issuer or the Trustee shall give DTC notice of such special
record date not fewer than 15 calendar days in advance of such special record
date to the extent possible.
The book-entry system for registration of the ownership of the Bonds
in Book-Entry Form may be discontinued at any time if either: (1) after notice
to the Issuer, the Company and the Trustee, DTC determines to resign as
securities depository for the Bonds; or (2)after notice to DTC, the Trustee,
the Issuer, the Company, the Bank and the Remarketing Agent determine that
continuation of the system of book-entry transfers through DTC (or through a
successor securities depository) is not in the best interest of the Company or
the Bondholders. In each of such events (unless the Issuer appoints a
successor securities depository), the Bonds shall be delivered in registered
certificate form to such Persons, and in such principal amounts, as may be
designated by DTC, but without any liability on the part of the Issuer, the
Trustee, the Company or the Bank for the accuracy of such designation.
Whenever DTC requests the Issuer, the Company and the Trustee to do so, the
Issuer and the Trustee shall cooperate with DTC in taking appropriate action
after reasonable notice to arrange for another securities depository to
maintain custody of certificates evidencing the Bonds.
Continuing Disclosure Obligation Upon Conversion
Subsequent to conversion of the Bonds from the Weekly Rate Period to
the Fixed Rate Period, the
17
<PAGE> 22
Trustee shall enter into a written agreement with the Company in a form
acceptable to the Remarketing Agent for the benefit of the Holders of the
Bonds, which shall be executed and delivered solely to assist the Remarketing
Agent in complying with Rule 15c2-12(b)(5) of the Securities Exchange Act of
1934, as in effect on such date.
Redemption Prior to Maturity
Extraordinary and Special Mandatory Redemption Without Premium. The
Bonds are subject to redemption prior to maturity, in part, without premium, in
the event that excess moneys remain in the Project Fund after the Completion
Date. In any such event, the Bonds shall be redeemed, as a whole or in part,
as the case may be, in the manner provided in the Indenture, at such time as
the Trustee determines, at a redemption price equal to the principal amount
thereof, plus accrued interest to the redemption date, without premium.
Mandatory Redemption Without Premium Upon Event of Default. The Bonds
are also subject to redemption prior to maturity upon receipt by the Trustee of
a written notice from the Bank of the occurrence and continuance of a default
by the Company under the Reimbursement Agreement and the Bank's election to
compel redemption of the Bonds. In either such event, the Bonds shall be
redeemed, as a whole, in the manner provided in Article III of the Indenture,
on the earliest date for which the Trustee can give notice of redemption
required by the Indenture, at a redemption price equal to the principal amount
thereof, plus accrued interest to the redemption date, without premium.
Mandatory Taxability Redemption without Premium in the Event of a
Determination of Taxability. The Bonds are subject to redemption prior to
maturity upon the occurrence of a Determination of Taxability. In such event,
the Bonds will be subject to redemption, as a whole, as soon as possible after
the discovery of such event, at a redemption price equal to 100% of the
principal amount to be redeemed plus accrued interest to the date of
redemption, without premium.
Mandatory Redemption in the Event of Failure by the Company to Provide
Substitute Letter of Credit. The Bonds are also subject to redemption prior to
maturity in the event of failure by the Company to provide for delivery to the
Trustee of a Substitute Letter of Credit at least forty-five (45) days prior to
the Interest Payment Date immediately preceding the expiration date of the
Letter of Credit then in effect. In any such event, the Bonds shall be
redeemed, as a whole with Non-Preference Monies, on the Interest Payment Date
immediately preceding the expiration date of the Letter of Credit, at a
redemption price equal to the principal amount to be redeemed, plus accrued
interest to the redemption date, without premium.
Optional Redemption. On or prior to the Fixed Rate Conversion Date,
the Bonds are also subject to redemption prior to maturity, at the option of
the Company by exercise of its right to prepay the installment purchase
payments payable under the Installment Sale Agreement as provided in Section
5.5 thereof, as a whole or in part only from Non-Preference Monies, in the
denomination of $5,000 or any integral multiple thereof, on any Interest
Payment Date at a redemption price equal to the principal amount to be
redeemed, plus accrued interest to the redemption date, without premium, and
after the Fixed Rate Conversion Date on the dates and at the prices (expressed
as percentages of principal amount to be redeemed) set forth in the following
table, plus accrued interest to the redemption date:
Redemption Date Redemption Price
18
<PAGE> 23
<TABLE>
<S> <C>
May 1 and November 1 immediately 104%
following the Conversion Date
second May 1 and November 1 103%
following the Conversion Date
third May 1 and November 1 102%
following the Conversion Date
fourth May 1 and November 1 101%
following the Conversion Date
after the fourth May 1 and 100%
November 1 following the
Conversion Date
</TABLE>
Except to the extent prohibited by procedures of DTC during any period
in which the Bonds are in the Book-Entry Only System, the Remarketing Agent
may, by giving written notice to the Trustee at the time the Company exercises
the Conversion Option, establish such revised optional redemption dates and
premiums as the Remarketing Agent shall, having due regard for prevailing
financial market conditions, deem appropriate. Notwithstanding anything to the
contrary contained herein, no such notice shall be effective unless the Company
shall have delivered to the Trustee at the time of delivery of such notice (1)
an opinion of Bond Counsel to the effect that the establishment of such revised
optional redemption dates and premiums is lawful under the Act and permitted by
the Indenture and does not affect the exclusion of the interest on the Bonds
from gross income for federal income tax purposes, and (2) a resolution of the
Issuer approving such revised optional redemption dates and premiums.
Scheduled Mandatory Redemption Without Premium. The Bonds will also
be subject to scheduled mandatory redemption, in such manner as the Trustee
shall deem fair and appropriate for random selection, prior to maturity,
commencing November 1, 1998 and on each November 1, thereafter, by the
application of Sinking Fund Payments at a redemption price equal to one hundred
percent (100%) of the principal amount thereof, plus accrued interest to the
redemption date, without premium, on November 1 of the years and in the
principal amounts set forth below:
<TABLE>
<CAPTION>
YEAR SINKING FUND PAYMENT
<S> <C>
November 1, 1998 $250,000
November 1, 1999 250,000
November 1, 2000 250,000
</TABLE>
19
<PAGE> 24
<TABLE>
<S> <C>
November 1, 2001 250,000
November 1, 2002 250,000
November 1, 2003 250,000
November 1, 2004 *960,000
</TABLE>
- ---------------
*final maturity
Partial Redemptions. In the event of any partial redemption, the
particular Bonds or portions thereof to be redeemed to be selected by the
Trustee not more than sixty (60) days prior to the redemption date by lot,
within each series of Bonds. The Company shall have the right to elect the
particular series of Bonds to be redeemed in the event of a partial redemption;
provided, however, that Pledged Bonds shall be redeemed before any other Bonds.
Further, the Trustee may provide for the selection for redemption of portions
(equal to $5,000 or any integral multiple of thereof) of Bonds. In no event
shall the principal amount of Bonds subject to any partial redemption be other
than a whole multiple of $5,000.
Company's Election to Redeem
The Company shall give written notice to the Trustee, the Bank and the
Issuer of its election to cause redemption of Bonds prior to maturity, the
particular series of Bonds to be redeemed in the event of a partial redemption,
and of the redemption date.
Notice of Redemption
Notice of the intended redemption of each Bond subject to redemption
will be given by the Trustee one time by first class mail postage prepaid to
the registered owner at the address of such owner shown on the Trustee's bond
register and the Bank. All such redemption notices will be given not less than
thirty (30) days nor more than forty-five (45) days prior to the date fixed for
redemption. Each notice will specify the redemption price, the principal
amount of the Bonds to be redeemed, the number of the Bonds to be redeemed if
less than all of the Bonds are to be redeemed, the redemption date and the
place or places where amounts due upon such redemption will be payable. Such
notice will further state that payment of the applicable redemption price plus
accrued interest to the redemption date will be made upon presentation and
surrender of the Bonds or portions thereof to be redeemed, that upon
presentation and surrender to the Trustee of any Bond being redeemed, in part,
a new Bond in the principal amount of the unredeemed portion of such Bond will
be issued, and that the Bonds or portions thereof so called for redemption will
cease to bear interest on the specified redemption date. The failure to give
any such notice, or any defect therein, will not affect the validity of any
proceeding for the redemption of any Bond with respect to which no such failure
to give notice, or defect therein, has occurred. Notwithstanding anything
herein to the contrary, the Trustee shall not give any notice in the case of an
optional redemption pursuant to the Indenture requiring the payment of a
premium upon such redemption unless the Company shall have provided the Trustee
with Non-Preference Monies in an amount sufficient to pay such premium.
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<PAGE> 25
SUMMARY OF THE INDENTURE
The Bonds will be issued under and secured by the Indenture.
Reference is made to the Indenture for the complete details of the terms
thereof. The following is a brief summary of certain provisions of the
Indenture and should not be considered a full statement thereof.
Restriction on Issuance of Bonds
The total aggregate principal amount of Bonds that may be issued under
the Indenture will be expressly limited to $2,460,000. The Bonds shall be
issued in denominations of $100,000 or any integral multiple of $5,000 in
excess thereof.
Limited Obligations
The Bonds, together with the premium, if any, and interest thereon,
will be limited, special obligations of the Issuer payable, with respect to the
Issuer, solely from Trust Revenues, which Trust Revenues are pledged and
assigned for the equal and ratable payment of all sums due under the Bonds, and
will be used for no other purpose than to pay the principal of, premium, if
any, on and interest on the Bonds, except as may be otherwise expressly
provided in the Indenture.
THE BONDS ARE NOT AND SHALL NOT BE A DEBT OF THE STATE OF NEW YORK OR
OF WARREN COUNTY, NEW YORK OR WASHINGTON COUNTY, NEW YORK AND NEITHER THE STATE
OF NEW YORK NOR WARREN COUNTY, NEW YORK NOR WASHINGTON COUNTY, NEW YORK SHALL
BE LIABLE THEREON. THE BONDS DO NOT GIVE RISE TO A PECUNIARY LIABILITY OR
CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE STATE OF NEW YORK OR
OF WARREN COUNTY, NEW YORK OR WASHINGTON COUNTY, NEW YORK. THE BONDS DO NOT
REPRESENT A GENERAL OBLIGATION OF THE ISSUER. THE ISSUER HAS NO TAXING POWER.
No recourse shall be had for the payment of the principal or Purchase
Price of, premium, if any, on or interest on any Bond or for any claim based
thereon or on the Indenture against any past, present or future member,
officer, employee or agent (other than the Company), as such, of the Issuer or
of any predecessor or successor corporation, either directly or through the
Issuer or otherwise, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty, or otherwise.
Delivery of Bonds
Upon the execution and delivery of the Indenture, the Issuer will
execute and deliver the Bonds (including a reasonable number of additional
Bonds to be retained by the Trustee for authentication and delivery upon
transfer or exchange of any Bond) to the Trustee, and the Trustee will
authenticate and deliver the Bonds to the purchasers thereof upon receipt by
the Trustee of the following:
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<PAGE> 26
(1) Bond proceeds;
(2) Original executed counterparts of the Financing Documents;
(3) The executed original Letter of Credit;
(4) A copy, duly certified by the Secretary of the Issuer, of the
Bond Resolution;
(5) Opinions of counsel to the Issuer, the Company, the Bank and
Bond Counsel conforming to the requirements of the Bond Purchase Agreement;
(6) A request and authorization to the Trustee, signed by an
Authorized Representative of the Issuer, to authenticate and deliver the Bonds
to the purchaser or purchasers therein identified upon the terms specified
therein;
(7) Proof of compliance with the State Environmental Quality
Review Act.
(8) The certificates and policies, if available, of the insurance
required by the Installment Sale Agreement;
(9) An executed copy of the Tax Regulatory Agreement;
(10) evidence that the Issuer has validly made the election under
Section 144(a)(4) of the Code and that a completed, executed Internal Revenue
Service Form 8038 with respect to the Bonds has been mailed to the Internal
Revenue Service; and
(11) Such other documents as the Trustee, the Issuer, the Bank or
Bond Counsel may reasonably require.
Establishment of Funds
The Issuer establishes and creates the following special trust funds
and subaccounts comprising such funds under the Indenture:
(a) Project Fund
(i) Project Fund Non-Preference Monies Subaccount
(b) Bond Fund
(i) Bond Fund Non-Preference Monies Subaccount
22
<PAGE> 27
(ii) Bond Fund Preference Monies Subaccount
(c) Rebate Fund
(i) Rebate Fund Principal Subaccount
(ii) Rebate Fund Earnings Subaccount
Application of Proceeds of Bonds
The Issuer will deposit with the Trustee all of the proceeds from the
sale of the Bonds, including accrued interest payable on the Bonds. The
Trustee will deposit a portion of the proceeds of the Bonds representing
accrued interest on the Bonds into the Bond Fund Non-Preference Monies
Subaccount and the Trustee will deposit the remainder of such proceeds in the
Project Fund.
The Project Fund
In addition to monies deposited in the Project Fund from the proceeds
of the Bonds, there shall be deposited in the Project Fund all other monies
received by the Trustee under or pursuant to the Indenture or the Installment
Sale Agreement which, by the terms thereof, are to be deposited in the Project
Fund Monies on deposit in the Project Fund will be disbursed and applied by the
Trustee to pay the Cost of the Project pursuant to the applicable provisions of
the Indenture and the Installment Sale Agreement. It is expected that there
shall be a single Advance of the proceeds of the Bonds on the Closing Date
Except for any amount retained for the payment of incurred and unpaid
items of the Cost of the Project, after the Completion Date all monies in the
Project Fund, after any transfer to the Rebate Fund required by the Indenture
and the Tax Regulatory Agreement, will be transferred to the Bond Fund and used
to redeem Bonds.
In the event the unpaid principal amount of the Bonds is accelerated
upon the occurrence of an Event of Default, the balance in the Project Fund
will be transferred to the Bond Fund and, to the extent such monies constitute
Non-preference Monies, will be used to pay the principal of, premium, if any,
on and interest on the Bonds.
The Trustee will maintain adequate records pertaining to the Project
Fund and all disbursements therefrom and, upon request and within sixty (60)
days after the Completion Date, file an accounting thereof with the Issuer, the
Company and the Bank.
The Bond Fund
The Trustee will deposit the following monies into the Bond Fund: (1)
after any transfer to the Rebate Fund required by the Tax Regulatory Agreement
and the Indenture, any remaining monies in the Project Fund on the Completion
Date; (2) the balance in the Project Fund in the event of acceleration of the
Bonds upon the occurrence of an Event of Default; (3) all installment purchase
payments received from the Company under the Installment Sale Agreement (except
payments made with respect to the Unassigned Rights); (4) all other monies
23
<PAGE> 28
received by the Trustee under and pursuant to the Indenture or the Installment
Sale Agreement which by the terms of such documents are to be deposited into
the Bond Fund, or are accompanied by directions from the Company or the Issuer
that such monies are to be paid into the Bond Fund. Monies on deposit in the
Bond Fund Non-Preference Monies Subaccount which constitute or become
Non-Preference Monies will be applied by the Trustee to pay the principal of,
premium, if any, on and interest on the Bonds as the same become due.
In no event will the Trustee pay any portion of the principal of,
premium, if any, on or interest on any Bond from other than Non-Preference
Monies.
If at any time monies to be deposited into the Bond Fund are derived
from or drawn from different sources (for example, funds received as a result
of the remarketing of the Bonds or funds drawn under the Letter of Credit), the
Trustee shall not commingle such funds and shall establish and maintain as many
separate accounts or subaccounts within the Bond Funds as are necessary for
each different source of funds.
The Rebate Fund
The Trustee, upon the receipt of a certification of the Rebate Amount
from an Authorized Representative of the Company, will deposit in the Rebate
Fund Principal Account within thirty (30) days after the end of each Bond Year
commencing with the first Bond Year, an amount such that the amount held in the
Rebate Fund Principal Subaccount after such deposit is equal to the Rebate
Amount calculated as of the last day of the prior Bond Year. If there has
been delivered to the Trustee a certification of the Rebate Amount in
conjunction with the completion or restoration of the Equipment pursuant to the
Installment Sale Agreement or the Indenture at any time during a Bond Year, the
Trustee will deposit in the Rebate Fund Principal Subaccount upon receipt of
such certification an amount such that the amount held in the Rebate Fund
Principal Subaccount after such deposit is equal to the Rebate Amount
calculated on the Completion Date or at the time of restoration of the
Equipment.
In the event that on the first day of any Bond Year the amount on
deposit in the Rebate Fund Principal Subaccount exceeds the Rebate Amount, the
Trustee, upon the receipt of written instructions from an Authorized
Representative of the Company, will withdraw such excess amount and deposit it
in the Project Fund prior to the Completion Date, or, after the Completion
Date, transfer such excess to the Bond Fund to be applied to the payment of
principal and interest due on the Bonds on the next following Bond Payment Date
or, to the extent such monies exceed such amount, to redeem the Bonds;
provided, however, that if such excess is derived from funds deposited into the
Rebate Fund by the Company as provided in Section 7.3 of the Tax Regulatory
Agreement, such excess shall be applied as provided in such Section.
The Trustee, upon the receipt of written instructions from an
Authorized Representative of the Company, will pay to the United States, from
amounts on deposit in the Rebate Fund or from other monies supplied by the
Company, (1) not less frequently than once every five years after the date of
original issuance of the Bonds, an amount such that, together with prior
amounts paid to the United States, the total paid to the United States is equal
to ninety percent (90%) of the Rebate Amount with respect to the Bonds as of
the date of such payment plus all amounts then held in the Rebate Fund Earnings
Subaccount, and (2) not later than thirty (30) days after the date on which all
Bonds have been paid in full, one hundred percent (100%) of the Rebate Amount
as of the date of such payment plus all amounts then held in the Rebate Fund
Earnings Subaccount.
24
<PAGE> 29
Drawing by the Trustee on the Letter of Credit
During the term of the Letter of Credit, the Trustee will make timely
drawings under the Letter of Credit in accordance with the terms thereof (1) to
the extent that monies in the Bond Fund Non-Preference Monies Subaccount are
not available therefor, to pay when due (whether by reason of maturity,
redemption, acceleration or otherwise) the principal of, premium, if any, and
interest on the Bonds, and (2) to the extent that cash proceeds from the sale
of Tendered Bonds which have been remarketed or other Non-Preference Monies are
not available therefore, to pay when due the Purchase Price of Bonds.
The Trustee will exercise any and all rights under the Letter of
Credit, regardless of whether the Bank is in default under the Letter of
Credit, in the manner provided therein and in the Indenture, and the Trustee
will bring such actions and proceedings under the Letter of Credit as shall be
required for the enforcement thereof in accordance with its terms and the terms
of the Indenture.
Any obligations of the Issuer under the Indenture and the Bonds or of
the Company under the Installment Sale Agreement which are satisfied from the
exercise of the Trustee's rights under the Letter of Credit and the Indenture
will be deemed to be satisfied, and no claim therefor may be made by the
Bondholders against the Issuer, the Trustee or the Company or by the Issuer,
the Trustee or the Bondholders against the Company in respect of such
obligations; provided, however, that to the extent the Bank has not been
reimbursed for amounts paid under the Letter of Credit or under any other
Financing Document, such obligations will not be deemed satisfied, and the Bank
will be subrogated to the rights of the Issuer under the Installment Sale
Agreement (except the Unassigned Rights) and the rights of the Trustee under
the Indenture and the other Financing Documents (except for the rights of the
Trustee to receive payments for fees, expenses, indemnifications or other
amounts which are payable to the Trustee individually under the Financing
Documents and are not to be subsequently delivered to the Bondholders), and,
further, such subrogation will not release the Company from its obligations
under the Reimbursement Agreement or under the other Financing Documents.
After a drawing on the Letter of Credit described above, all monies
held by the Trustee in (i) the Bond Fund which would have been paid to the
Bondholders but for the fact that such monies are not Non-Preference Monies on
the date of the drawing on the Letter of Credit or (ii) any fund or account
established by the Indenture (other than the Rebate Fund) will be paid on the
same day as such drawing to the Bank to be applied against the Company's
obligations under the Reimbursement Agreement.
The Trustee shall not apply any funds received as a result of a draw
on the Letter of Credit to pay the principal of, premium, if any, and interest
on Pledged Bonds.
No Modification of Security: Limitation on Liens
The Issuer will not, without the prior written consent of the Trustee
and the Bank, alter, modify or cancel the Installment Sale Agreement or any
other Financing Document to which the Issuer is a party, or which has been
assigned to the Issuer, and which relates to or affects the security for the
Bonds. Further, except for the Financing Documents and other Permitted
Encumbrances, the Issuer will not incur or suffer to be incurred, any mortgage,
Lien, charge or encumbrance on or pledge of any of the Trust Revenues prior to
or on a parity with the Lien of
25
<PAGE> 30
the Indenture.
Covenant Against Arbitrage Bonds
So long as any Bonds are Outstanding, the Issuer will not use or
direct or permit the use of the proceeds of the Bonds or any other monies in
its control (including, without limitation, the proceeds of any insurance
settlement with respect to the Project Facility) in such manner as would cause
the Bonds to be "arbitrage bonds" within the meaning of such quoted term in
Section 148 of the Code. Except as provided under the caption "Summary of the
Indenture - The Rebate Fund" neither the Issuer nor the Trustee shall be
responsible for the calculation or payment of any rebate amount required by
Section 148 of the Code.
Events of and Remedies on Default
The Indenture provides that each of the following events will
constitute an Event of Default:
(a) failure by the Issuer to make due and punctual payment of the
interest on any Bond; or
(b) failure by the Issuer to make due and punctual payment of the
principal of or premium, if any, on any Bond, whether at the Stated Maturity
thereof, or upon proceedings for the redemption thereof, or upon the maturity
thereof by declaration; or
(c) the occurrence of an Event of Default specified in Section
10.l(a)(4) of the Installment Sale Agreement relating to the dissolution or
liquidation of, or a filing of a bankruptcy petition with respect to, the
Company; or
(d) receipt by the Trustee of written notice from the Bank that an
"Event of Default" has occurred under the Reimbursement Agreement; or
(e) receipt by the Trustee within ten (10) Business Days of a draw
under the Letter of Credit with respect to interest on the Bonds of written
notice from the Bank that the Bank will not be reinstating the interest
component of the Letter of Credit; or
(f) the occurrence of an Event of Default under any of the other
Financing Documents; or
(g) (l) subject to clause (2), the failure by the Issuer to
observe and perform any covenant, condition or agreement hereunder on its part
to be observed or performed (except obligations referred to in any other
paragraph hereof) for a period of thirty (30) days after written notice,
specifying such failure and requesting that it be remedied, is given to the
Issuer by the Trustee or by the Holders of not less than a majority of the
aggregate principal amount of the Bonds Outstanding;
(2) provided, however, if the covenant, condition, or
agreement which the Issuer has failed
26
<PAGE> 31
to observe or perform is of such a nature that it cannot reasonably be fully
cured with such thirty (30) day period, the Issuer shall not be in default if
it or the Company commences a cure within such thirty (30) day period and
thereafter diligently proceeds (in the sole judgment of the Bank) with all
action required to complete such cure and in any event, completes such cure
within ninety (90) days of such written notice from the Trustee or the Holders
of not less than a majority of the aggregate principal amount of the Bonds
Outstanding, unless the Trustee or the Holders of not less than a majority of
the aggregate principal amount of the Bonds and the Bank shall give their
written consent to a longer period;
(h) a default in the due and punctual payment of the Purchase
Price of any Bond as required by the Indenture;
(i) the failure of the Bank to make any payment required to be
made by the Bank under the Letter of Credit;
(j) a decree or order of a court or agency or Governmental
Authority having jurisdiction in the premises for the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceeding, or for the
winding-up or liquidation of its affairs, shall have been entered against the
Bank;
(k) the Bank shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceeding of or relating to the Bank or of
or relating to all or substantially all of its Property;
(l) the Bank shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations;
(m) default in the performance or observance of any other
covenant, agreement or condition on the part of the Issuer in the Indenture or
in any Bond to be performed or observed and the continuance thereof for a
period of thirty (30) days after written notice thereof is given to the Issuer
and the Company by the Trustee or by the holders of at least twenty-five
percent (25%) in the aggregate principal amount of the Bonds then Outstanding;
or
(n) the Company or its Authorized Representative shall have made,
in any certificate, statement, representation, warranty or financial statement
heretofore or hereafter furnished to the Trustee or the Bank in connection with
the financing of the Project Facility, a material representation which proves
to have been false and misleading as of the time such statement was made, or
any such certificate, statement, representation, warranty or financial
statement shall omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
Upon the occurrence of an Event of Default under (a) through (j)
above, the Trustee shall, by written notice to the Company (with copies to the
Issuer and the Bank), declare all Bonds Outstanding immediately due and
payable. Upon the occurrence of any other Event of Default set forth above,
the Trustee may, and upon the
27
<PAGE> 32
written request of the Holders of not less than a majority of the Outstanding
Bonds or the Bank shall, by written notice delivered to the Company (with
copies to the Issuer and the Bank) declare all Bonds Outstanding immediately
due and payable.
Upon the occurrence and continuance of any Event of Default, the
Trustee shall exercise such of the rights and powers vested in the Trustee by
the Indenture and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. In considering what actions are or are not prudent in the
circumstances, the Trustee shall consider whether or not to take such action as
may be permitted to be taken by the Trustee under any of the Financing
Documents.
Notwithstanding anything to the contrary in the Indenture, so long as
the Letter of Credit is in effect and the Bank is making all required payments
with respect to the Letter of Credit in accordance with the terms of the Letter
of Credit, the Trustee shall not exercise any rights or remedies under Article
VI of the Indenture and shall not, without the prior written consent of the
Bank, take any actions which the Trustee is required or entitled to take under
Article VI of the Indenture unless and until the Trustee shall have accelerated
the Bonds and drawn upon the Letter of Credit and in strict conformity with the
terms of the Letter of Credit, and the Bank shall have defaulted in the
performance of its obligations under the letter of Credit, in which case the
Bank shall have no authority to exercise any further rights hereunder, unless
and until said default shall have been cured by the Bank to the reasonable
satisfaction of the Trustee.
Rights of Bank to Direct Proceedings
Anything in the Indenture to the contrary notwithstanding, so long as
the Letter of Credit is in effect and the Bank is making all required payments
with respect to the Letter of Credit in accordance with the terms of the Letter
of Credit, the Bank shall have the right to direct the time, method and place
of conducting all proceedings to be taken in connection with the enforcement of
the terms and conditions of the Indenture, the Letter of Credit, the
Installment Sale Agreement or the other Financing Documents, or for the
appointment of a receiver or any other proceedings under the Indenture.
Application of Monies
All monies received by the Trustee pursuant to any right given or
action taken under the default and remedy provisions of the Indenture will,
after payment of the costs and expenses of the proceedings resulting in the
collection of such monies and of the fees, expenses, liabilities and advances
incurred or made by the Trustee, be deposited into the Bond Fund; and all
monies in the Bond Fund will be applied, together with the other monies held by
the Trustee under the Indenture (other than monies in the Rebate Fund), as
follows: (1) Unless the principal of all the Bonds has become due or been
declared due and payable, all such monies will be applied:
FIRST - to the payment to the Persons entitled thereto of all
installments of interest then due on the Bonds, in the order of the
maturity of the installments of such interest and, if the amount
available is not sufficient to pay in full any particular installment,
then to the payment ratably, according to the amounts due on such
installment, to the Persons entitled thereto, without any
discrimination or preference;
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SECOND - to the payment to the Persons entitled thereto of the
unpaid principal, Purchase Price or Redemption Price of the Bonds
(other than Bonds called for redemption for the payment of which
monies are held pursuant to the provisions of the Indenture) which
shall have become due, in order of their maturities, with interest
from the date upon which they became due and, if the amount available
is not sufficient to pay in full the principal of and, premium if any,
and interest on the Bonds due on any particular date, then to the
payment ratably, according to amounts due respectively for principal,
interest and premium, if any, to the Persons entitled thereto, without
any discrimination or preference;
THIRD - to the payment to the Persons entitled thereto of the
principal, Purchase Price or Redemption Price of, premium, if any, on,
or interest due on the Bonds which may thereafter become due and
payable, and, if the amount available shall not be sufficient to pay
in full Bonds due on any particular date, together with interest and
premium, if any, then due and owing thereon, payment shall be made
ratably according to the amount of interest, principal and premium, if
any, due on such date to the Persons entitled thereto, without any
discrimination or preference; and
FOURTH - to the Bank.
(2) If the principal of all of the Bonds has become due or been
declared due and payable, all such monies will be applied to the payment of the
principal or Purchase Price of, premium, if any, and interest then due and
unpaid upon the Bonds, without preference or priority of principal and premium
over interest or of interest over principal and premium, or of any installment
of interest over any other installment of interest, or of any Bonds over any
other Bonds, ratably, according to the amounts due respectively for principal,
premium, if any, and interest, to the Persons entitled thereto without any
discrimination or preference.
(3) If the principal of all the Bonds shall have been declared due
and payable, and if such declaration shall thereafter have been rescinded and
annulled under the provisions of the Indenture then, subject to the provisions
of paragraph (2) hereof in the event that the principal of all the Bonds shall
later become due by declaration or otherwise, the monies shall be applied in
accordance with the provisions of paragraph (1) hereof.
Whenever monies are to be applied in the above manner, such monies
will be applied at such times, and from time to time, as the Trustee shall
determine. Whenever the Trustee applies such monies, it will fix the date
(which will be an Interest Payment Date unless it deems another date more
suitable) upon which such application is to be made, and upon such date
interest on the amounts of principal to be paid on such date will cease to
accrue. The Trustee will give such notice as it may deem appropriate of the
deposit with it of any such monies and of the fixing of any such date, and will
not be required to make payment to the holder of any Bond until such Bond is
presented to the Trustee and a new Bond is issued or the Bond is canceled if
fully paid.
Supplemental Indentures
The Issuer and the Trustee, without the consent of or notice to any of
the Bondholders but with the prior written consent of the Bank, may enter into
supplemental indentures which are not inconsistent with the
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Indenture or materially adverse to the Bondholders or to the Bank for one or
more of the following purposes:
(1) to cure any ambiguity or formal defect or omission in the
Indenture;
(2) to grant to or confer upon the Trustee for the benefit of the
Bondholders any additional rights, remedies, powers or authority that may
lawfully be granted to or conferred upon the Bondholders or the Trustee or
either of them;
(3) to subject additional rights and revenues to the Lien of the
Indenture, or to identify more precisely the Trust Revenues;
(4) to obtain or maintain a rating on the Bonds from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group;
(5) to modify, amend or supplement the Indenture or any indenture
supplemental to the Indenture in such manner as to permit qualification thereof
under the Trust Indenture Act of 1939 or any similar Federal statute hereafter
in effect and under any state Blue Sky Law; or
(6) to amend the Indenture in connection with compliance with
provisions of the Code.
Other supplemental indentures modifying the Indenture may be approved
by the holders of two-thirds of the Bonds Outstanding and the Bank, provided
that no supplemental indenture is permitted which would cause (1) without the
consent of the holder of such Bond, (a) a reduction in the rate, or extension
of the time of payment, of interest on any Bond, (b) a reduction of any premium
payable on the redemption of, any Bond, or an extension of time for such
payment, (c) a reduction in the principal amount payable on any Bond, or an
extension of time in which the principal amount of any Bond is payable, whether
at the stated or declared maturity or redemption thereof, or (d) a reduction in
the Purchase Price of a Tendered Bond or an extension of a Repurchase Closing
Date or the Fixed Rate Conversion Date for a Tendered Bond, (2) the creation of
a Lien prior to or on a parity with the Lien of the Indenture, (3) a reduction
in the aggregate principal amount of Bonds, the holders of which are required
to consent to any such supplemental indenture, without the consent of all the
holders of all the Bonds which would be affected thereby, (4) the modification
of the rights, duties and immunities of the Trustee, without the written
consent of the Trustee, or (5) a privilege or priority of any Bond or Bonds
over any other Bond or Bonds.
Notwithstanding anything contained in the Indenture to the contrary,
no supplemental indenture which affects any rights or liabilities of the
Company shall become effective unless or until the Company shall have consented
in writing to the execution and delivery of such supplemental indenture. In
this regard, the Trustee shall cause notice of the proposed execution and
delivery of any such supplemental indenture to be mailed by certified or
registered mail to the Company at least fifteen (15) days prior to the proposed
date of execution and delivery of any supplemental indenture. The Company
shall be deemed to have consented to the execution and delivery of any
supplemental indenture if the Trustee has not received a letter of protest or
objection signed by the Company within fifteen (15) days after the mailing of
said notice and a copy of the supplemental indenture. The Trustee may rely
upon the opinion of Independent Counsel whether or not a supplement indenture
affects
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any rights or liabilities of the Company within the meaning of the Indenture.
Amendment of Other Financing Documents
The Issuer, the Company and the Trustee may, without the consent of or
notice to the Bondholders but subject to receipt of the prior written consent
of the Bank, consent to any amendment, change or modification of the
Installment Sale Agreement or any other Financing Document (other than the
Indenture) (A) as may be required (1) by the provisions of any Financing
Document, (2) for the purpose of curing any ambiguity or formal defect or
omission therein, (3) so as to identify more precisely the Project Facility
described in the Installment Sale Agreement, (4) in connection with any
supplemental indenture entered into pursuant to the Indenture, (5) to obtain or
maintain a rating on the Bonds from Moody's or Standard & Poor's, (6) to comply
with the provisions of the Code necessary to maintain the exclusion of interest
on the Bonds from gross income for federal income tax purposes or (7) in
connection with any other supplemental indenture, but only if any such
amendment, change or modification, in the judgment of the Trustee, if not to be
prejudicial to the Trustee or the Bondholders, or (B) as may be requested by
the Bank pursuant to the terms of the Indenture.
The Trustee may rely upon an opinion of Independent Counsel as
conclusive evidence that the execution and delivery of any amendment, change or
modification to the Installment Sale Agreement or any other Financing Document
has been effected in compliance with the provisions of the Indenture.
Discharge or Assignment of Lien
If the Issuer (1) shall pay or cause to be paid, from sources other
than the proceeds of a draw under the Letter of Credit, but in all events in
either Non-Preference Monies or Government Obligations, to the holders and
owners of the Bonds, the principal of the Bonds and premium, if any, thereon,
at the times and in the manner stipulated therein and in the Indenture, (2)
shall pay or cause to be paid from any source, but in all events in
Non-Preference Monies, to the holders and owners of Bonds, the interest to
become due on the Bonds, at the times and in the manner stipulated therein and
in the Indenture, (3) shall have paid all fees, costs and expenses including,
but not limited to, reasonable attorney's fees of the Trustee and each paying
agent (4) shall pay or cause to be paid the entire Rebate Amount to the United
States, and (5) shall pay or cause to be paid to the Bank any and all sums due
and to become due under the Reimbursement Agreement, then the trust and rights
granted by the Indenture will cease, determine and be void, and the Trustee
shall (a) cancel and discharge the Lien of the Indenture upon the Trust
Revenues, (b) reconvey to the Issuer the Installment Sale Agreement, (c) assign
and deliver to the Company any interest in Property at the time subject to the
Lien of the Indenture which may then be in its possession, except amounts held
by the Trustee for the payment of principal of, interest and premium, if any,
on the Bonds, and (d) deliver to the Bank the Letter of Credit for
cancellation.
If the Trustee draws on the Letter of Credit for the payment of the
entire principal of, premium, if any, and interest on the Bonds Outstanding,
then, upon receipt by the Trustee of confirmation from a member bank of the
Federal Reserve wire system that same day funds in the amount of the Trustee's
draw on the Letter of Credit have been transmitted for the account of the
Trustee, the Trustee shall be deemed automatically and without further action
to have sold, transferred, assigned and conveyed to the Bank without recourse
the Lien of the Indenture and the rights of the Trustee under the other
Financing Documents, and the amount paid by the Bank under the Letter of Credit
together with any additional sums due and to become due the Bank pursuant to
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the Reimbursement Agreement shall thereafter constitute the debt secured by the
Indenture. The Trustee shall deliver to the Bank immediately an instrument or
instruments in form for recording evidencing such sale, transfer, assignment
and conveyance.
All Outstanding Bonds shall, prior to the maturity or redemption date
thereof, be deemed to have been paid if, under circumstances which do not
adversely affect the exclusion of interest on the Bonds from gross income for
federal income tax purposes, the following conditions have been fulfilled: (1)
in case any of the Bonds are to be redeemed prior to their maturity, the
requirements of the Indenture with regard to redemption shall have been
satisfied, (2) the Issuer will provide Moody's with certification from a
nationally recognized accounting firm that at the time of defeasance, the money
or securities when deposited are an amount sufficient to pay the principal,
interest and Purchase Price on the Bonds when due, and an opinion from a
nationally recognized law firm that the Bonds will be defeased with
preference-proof monies, and (3) there shall be on deposit with the Trustee
Non-Preference Monies, which shall be either cash or obligations described in
paragraph (A) of the definition of Authorized Investments, in an amount
sufficient, without the need for further investment or reinvestment, but
including any scheduled interest on or increment to such obligations, to pay
when due the principal and interest due and to become due on the Bonds on and
prior to the redemption date or maturity date thereof, as the case may be, and
to pay the Purchase Price on any Bonds whose owners have exercised the Demand
Purchase Option, and to pay the Trustee for its Ordinary Services and Ordinary
Expenses and for its Extraordinary Services and Extraordinary Expenses. The
Trustee may rely upon an opinion of an Accountant as to the sufficiency of the
cash or such Authorized Investments on deposit. Bondholders shall retain their
right to tender Bonds under the Indenture after the Company has provided notice
of its intention to defease the Bonds required under the Indenture; provided,
however, that such Tendered Bonds may not be remarketed. Amounts paid to the
Trustee to defease the Bonds shall be held in trust for the Bondholders.
SUMMARY OF THE INSTALLMENT SALE AGREEMENT
The Project Facility is to be sold to the Company pursuant to the
Installment Sale Agreement. Reference is made to the Installment Sale Agreement
for complete details of the terms thereof. The following is a brief outline of
certain provisions of the Installment Sale Agreement and should not be
considered a full statement thereof.
Representations, Warranties and Covenants of the Issuer
The Issuer will make the following representations, warranties and
covenants, among others:
(1) The Issuer is duly established under the provisions of the Act
and has the power to enter into the Installment Sale Agreement and to carry out
its obligations thereunder. By proper official action, the Issuer has been
duly authorized to execute, deliver and perform the Installment Sale Agreement
and the other Financing Documents to which it is a party.
(2) The Issuer will cause the Project Facility to be renovated and
equipped and will sell the Project Facility to the Company pursuant to the
Installment Sale Agreement, all for the purpose of promoting the industry,
health, welfare, convenience and prosperity of the inhabitants of the State and
improving their standard
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of living.
(3) To assist in financing the Cost of the Project, the Issuer
will issue the Bonds.
Representations and Covenants of the Company
The Company makes the following representations and covenants, among
others:
(1) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, is authorized to
conduct business within the State of New York, has the power to enter into the
Installment Sale Agreement and the other Financing Documents to which the
Company is a party and carry out its obligations thereunder and by proper
corporate action has been duly authorized to execute, deliver and perform the
Installment Sale Agreement.
(2) So long as any Bond is Outstanding, the Project will continue
to be a "project," as such quoted term is defined in the Act, and the Company
will not take any action (or omit to take any action , which action (or
omission) would (a) cause the Project not to constitute a "project," as such
quoted term is defined in the Act, or (b) cause the proceeds of the Bonds to be
applied in a manner contrary to that provided in the Financing Documents.
(3) The Project and the operation thereof will comply with all
applicable building, zoning, environmental, planning and subdivision laws,
ordinances, rules and regulations of Governmental Authorities having
jurisdiction over the Project (the applicability of such being determined both
as if the Issuer were the owner of the Project and as if the Company and not
the Issuer were the owner of the Project).
Covenant with Trustee, Bondholders and the Bank
The Issuer and the Company will agree that the Installment Sale
Agreement is executed in part to induce the purchase of the Bonds and to induce
the Bank to issue the Letter of Credit. Accordingly, all covenants and
agreements on the part of the Issuer and the Company set forth in the
Installment Sale Agreement are declared to be for the benefit of the Trustee,
the holders from time to time of the Bonds and the Bank.
Renovation of Project Facility; Acquisition and Installation of Equipment
The Company shall, on behalf of the Issuer, promptly acquire, renovate
and install the Project Facility or cause the Project Facility to be acquired,
renovated and installed.
Application of Proceeds of the Bonds
The proceeds of the sale of the Bonds will be deposited by the Issuer
with the Trustee as provided in the Indenture and, upon submission to the
Trustee of a Request for Disbursement certified by an Authorized
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Representative of the Company and approved in writing by the Bank complying
with the requirements of the Indenture and the Reimbursement Agreement, will be
applied to pay the costs and expenses in connection with the acquisition,
renovation and installation of the Project Facility and the financing of the
same.
Completion of the Project Facility
The Company will proceed with due diligence to acquire, renovate and
install the Project Facility.
In the event that the proceeds of the Bonds are not sufficient to pay
in full all costs of acquiring, renovating and installing the Project Facility,
the Company agrees to complete such acquisition, renovation and installation
and to pay all such sums as may be in excess of monies available therefor in
the Project Fund.
Installment Purchase Payments and other Amounts Payable
On or before each Bond Payment Date, the Company will pay installment
purchase payments for the Project Facility to the Trustee, for deposit into the
Bond Fund Preference Monies Subaccount, the amount set forth in the Indenture
for such Bond Payment Date; provided, however, that the obligation of the
Company to make any payment hereunder shall be deemed satisfied and discharged
to the extent of the corresponding payment made by the Bank to the Trustee
under the Letter of Credit, provided further, however, that any payment by the
Bank to the Trustee under the Letter of Credit will not relieve the Company of
any of its obligations under the Reimbursement Agreement.
In addition to such installment purchase payments, on or before every
Bond Payment Date, the Company shall deliver to the Trustee a certificate of no
bankruptcy stating that there has been no filing by or against the Company as
debtor under Title 11 of the United States Code or any other federal or state
bankruptcy statute, and that no such filing is anticipated.
The Company shall pay as additional installment payments and the
following:
(1) Within thirty (30) days after receipt of a demand therefor
from the Trustee or the Bank, the Company shall pay to the Trustee or the Bank,
as the case may be, the following amounts:
(a) the reasonable fees and expenses of the Trustee for
performing those obligations under the Indenture;
(b) the sum of the expenses of the Trustee reasonably
incurred in performing or enforcing the obligations of (i) the Company
under the Installment Sale Agreement, the Security Agreement, or any of
the other Financing Documents, or (ii) the Issuer under the Bonds, the
Indenture or the Installment Sale Agreement or any of the other
Financing Documents;
(c) the Trustee's reasonable attorneys' fees incurred in
connection with the foregoing; and
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(d) any other fees or expenses that the Bank is entitled to
under the Financing Documents.
(2) Within thirty (30) days after receipt of a demand therefor
from the Issuer, the Company shall pay to the Issuer the sum of the reasonable
expenses of the Issuer and the officers, members, agents and employees thereof
incurred by reason of the Issuer's financing of the Project Facility or in
connection with the carrying out of the Issuer's duties and obligations under
the Installment Sale Agreement, the Indenture or any of the other Financing
Documents, and any other fee or expense of the Issuer with respect to the
Project Facility, the Bonds, the Indenture or any of the other Financing
Documents, the payment of which is not otherwise provided for under the
Installment Sale Agreement.
Nature of Obligations of Company under the Installment Sale Agreement
The obligations of the Company under the Installment Sale Agreement
shall be general obligations of the Company and shall be absolute and
unconditional irrespective of any defense or any rights of set-off, recoupment
or counterclaim the Company may otherwise have against the Issuer, the Trustee
or the Bank. The Company agrees it will not suspend, discontinue or abate any
payment required by, or fail to observe any of its other covenants contained
in, the Installment Sale Agreement, or terminate the Installment Sale Agreement
for any cause whatsoever.
Prepayment of Installment Purchase Payments
So long as no Event of Default has occurred and is continuing, at any
time that the Bonds are subject to redemption, the Company may, at its option,
prepay, in whole or in part, the installment purchase payments payable under
the Installment Sale Agreement by delivering to the Trustee the amount of such
prepayment (in Non-Preference Monies) on or before the date such payments are
to be applied pursuant to the provisions of the Indenture. In no event will
prepayment be permitted unless the Company gives to the Trustee the notice
required by the Indenture.
Substitute Letter of Credit
(A) The Company may provide for the delivery to the Trustee of a
Substitute Letter of Credit. Any Substitute Letter of Credit shall (1) be
delivered to the Trustee at least sixty (60) days prior to the expiration of
the Letter of Credit or Substitute Letter of Credit it is being issued to
replace, (2) be dated as of a date on or prior to the expiration date of the
Letter of Credit or the Substitute Letter of Credit it is being issued to
replace, (3) expire not earlier than one (1) year from its effective date and
(4) contain substantially identical terms and conditions to drawing as the then
existing Letter of Credit or Substitute Letter of Credit; provided, however,
that, on or before the date of such delivery of a Substitute letter of Credit
to the Trustee, the Company shall furnish to the Trustee written evidence from
(a) each rating agency by which the Bonds are then rated to the effect that
such rating agency has reviewed the proposed Substitute Letter of Credit and
that the substitution of the proposed Substitute Letter of Credit will not, by
itself, result in the reduction or withdrawal of the then applicable rating(s)
of the Bonds and (b) the Bank that all of the Company's obligations under the
Reimbursement Agreement have been fulfilled. If the Bonds have received a
"split" rating from a rating agency as to (c) principal and interest payments
and (d) Purchase Price payments, then, upon the substitution of a Substitute
Letter of Credit, each
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component of such rating must satisfy the preceding requirement for such
requirements to be deemed satisfied.
(B) With respect to each Substitute Letter of Credit to be
provided, the Company shall at the time it furnishes the Substitute Letter of
Credit also furnish to the Trustee and the Issuer an opinion of Independent
Counsel satisfactory to the Trustee and the Issuer stating that (1) the
Substitute Letter of Credit is an exempt security under the Securities Act of
1933, as amended, (2) neither the registration of the Bonds nor any security
for the Bonds under the Securities Act of 1933, as amended, nor the
qualification of an indenture in respect thereof under the Trust Indenture Act
of 1939, as amended, will be required in connection with the issuance and
delivery of the Substitute Letter of Credit or the remarketing of the Bonds
with the benefit thereof, (3) payment of principal or Purchase Price of,
premium, if any, and interest on the Bonds from moneys which are drawn by the
Trustee on the Substitute Letter of Credit will not constitute voidable
preferences under Title 11 of the United States Code in a case commenced
thereunder by or against the Company or the Issuer, and (4) the delivery of the
Substitute Letter of Credit to the Trustee is authorized under the Installment
Sale Agreement and complies with the terms hereof and of the Indenture.
Maintenance, Modifications, Taxes and Insurance
So long as any of the Bonds are Outstanding, the Company will maintain
the Project Facility in good repair. Certain structural modifications may be
made by the Company only with the prior written consent of the Bank. The
Company will pay all taxes, payments in lieu of tax, assessments, utility
charges and rents associated with the Project Facility. The Company is
required to maintain insurance to protect the interests of the Issuer, the
Trustee and the Bank.
Damage and Destruction
In the case of damage to or the destruction of the Equipment, the
Company, but not the Issuer, will have an option to restore the Equipment,
using insurance proceeds for this purpose to the extent available. In
addition, if an Event of Default has occurred and is continuing (or if an event
exists which with notice or passage of time both would become an Event of
Default) or in the event the loss through destruction exceeds fifty percent
(50%) of the value of the Project Facility, the Bank will have the option to
cause redemption of the Bonds.
Assignment of the Installment Sale Agreement
The Installment Sale Agreement may not be assigned by the Company, in
whole or in part, without the prior written consent of the Issuer and the Bank,
which consents will not be unreasonably withheld or delayed.
Pledge and Assignment of the Issuer's Interests to the Trustee
The Issuer will, pursuant to the Pledge and Assignment, assign certain
of its rights and interests under the Installment Sale Agreement to the Trustee
as security for the payment of the principal of, premium, if any, and interest
on the Bonds and as security for the Company's obligations under the
Reimbursement Agreement. The Company will acknowledge and consent to such
assignment by the Issuer to the Trustee and will agree to perform for the
benefit of the Trustee all of its duties and undertakings under the Installment
Sale Agreement and
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under the Pledge and Assignment (except duties undertaken with respect to the
Unassigned Rights).
Events and Remedies of Default
Under the Installment Sale Agreement, one or more of the following
events will constitute an "Event of Default":
(1) A default by the Company in the due and punctual
payment of installment purchase payments;
(2) The failure by the Company to observe and perform any
covenant contained in Sections 8.2, 8.13 and 8.15 of the Installment
Sale Agreement relating to the obligation of the Company to indemnify,
defend and hold the Issuer and the Trustee harmless;
(3) (A) Subject to clause (B), the failure by the
Company to observe and perform any covenant, condition or agreement
hereunder on its part to be observed or performed (except obligations
referred to in Sections (1) and (2) above) for a period of thirty (30)
days after written notice, specifying such failure and requesting that
it be remedied, is given to the Company by the Issuer, the Trustee or
the Bank;
(B) Provided, however, if the covenant,
condition, or agreement which the Company has failed to observe or
perform is of such a nature that it cannot reasonably be fully cured
with such thirty (30) day period, the Company shall not be in default
if it commences a cure within such thirty (30) day period and
thereafter diligently (in the sole judgment of the Bank) proceeds with
all action required to complete such cure and, in any event, completes
such cure within sixty (60) days of such written notice from the
Issuer, the Trustee or the Bank, unless the Issuer, the Trustee and
the Bank shall give their written consent to a longer period;
(4) The occurrence of an "Event of Default" under the
Indenture or under any of the other Financing Documents which is not
timely cured as provided therein;
(5) The Company or its Authorized Representative shall
have made, in any certificate, statement, representation, warranty or
financial statement heretofore or hereafter furnished to the Issuer,
the Trustee or the Bank in connection with the financing of the
Project Facility, a material representation which proves to have been
false and misleading as of the time such statement was made, or any
such certificate, statement, representation, warranty or financial
statement shall omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(6) The receipt by the Trustee of written notification
from the Bank of the occurrence of an "Event of Default" under the
Reimbursement Agreement;
(7) (a) The dissolution or liquidation of the Company
(except as permitted in the
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Installment Sale Agreement); (b) the filing by the Company (as debtor)
of a voluntary petition under Title 11 of the United States Code or
any other federal or state bankruptcy statute; (c) the failure by the
Company within sixty (60) days to lift any execution, garnishment or
attachment of such consequence as will impair the Company's ability to
carry out its obligations under the Installment Sale Agreement; (d)
the commencement of a case under Title 11 of the United States Code
against the Company as the debtor or commencement under any other
federal or state bankruptcy statute of a case, action or
proceeding against the Company and continuation of such case,
action or proceeding without dismissal for a period of sixty (60)
days; (e) the entry of an order for relief by a court of competent
jurisdiction under Title 11 of the United States Code or any other
federal or state bankruptcy statute with respect to the debts of the
Company; or (f) in connection with any insolvency or bankruptcy
proceeding, appointment by final order, judgment or decree of a court
of competent jurisdiction of a receiver or trustee of the whole or a
substantial portion of the Property of the Company, unless such order,
judgment or decree is vacated, dismissed or dissolved within sixty
(60) days of such appointment;
(8) Any representation or warranty made by the Company
herein or in any other Financing Document proves to have been
materially false or materially untrue at the time it was made;
(9) The Company shall conceal, remove or permit to be
concealed or removed any part of its Property, with intent to hinder,
delay or defraud its creditors, or any one of them, or shall make or
suffer a transfer of any of its Property which is fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or shall make any
transfer of its Property to or for the benefit of a creditor at a time
when other creditors similarly situated have not been paid; or shall
suffer or permit, while insolvent, any creditor to obtain a Lien upon
any of its Property through legal proceedings or distraint which is
not vacated within thirty (30) days from the date thereof; and
(10) Final judgment for the payment of money in excess of
$25,000 shall be rendered against the Company and the Company shall
not discharge the same or cause it to be bonded or discharged within
thirty (30) days from the entry thereof, or shall not appeal therefrom
or from the order, decree or process upon which or pursuant to which
said judgment was granted, based or entered and secure a stay of
execution pending such appeal.
Remedies on Default
Whenever any Event of Default shall have occurred, the Issuer, the
Trustee or the Bank may, to the extent permitted by law, take any one or more
of the following remedial steps:
(1) Declare, by written notice to the Company to be immediately
due and payable all unpaid installment purchase payments payable pursuant to
the Installment Sale Agreement and all other payments due under the Installment
Sale Agreement or any of the other Financing Documents;
(2) Terminate the disbursement of any monies in the Project Fund
in accordance with Section 4.3 of the Installment Sale Agreement and apply such
monies to the payment of any amounts due or thereafter to become due under the
Installment Sale Agreement;
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(3) Take possession of the Equipment, together with the books,
papers and accounts of the Company pertaining thereto, and lease or sell the
Project Facility or any part thereof in the name and for the account of the
Company, collect, receive and sequester the rents, revenues, earning, income,
products and profits therefrom, and pay out of the same and any monies received
for the payment of, all proper costs and expenses of taking, holding, leasing
and selling the Equipment, including any taxes and other charges prior to the
security interest hereof or of the Indenture and all expenses of such repairs
and improvements; and
(4) Take any other action at law or in equity which may appear
necessary or desirable to collect any amounts then due or thereafter to become
due under the Installment Sale Agreement and to enforce the obligations,
agreements or covenants of the Company under the Installment Sale Agreement or
any of the other Financing Documents.
Notwithstanding anything to the contrary contained in the Installment
Sale Agreement, so long as the Letter of Credit is in effect and the Bank is
making all required payments with respect to the Letter of Credit in accordance
with the terms of the Letter of Credit, the right of the Trustee under the
Installment Sale Agreement to grant consents, grant waivers send notices and
otherwise exercise any rights or remedies under Article X of the Installment
Sale Agreement may be exercised by the Bank acting alone and the Trustee will
execute any documents and take or refrain from taking all actions which the
Trustee is required or entitled to execute or take or refrain from taking
hereunder in accordance with the request and instructions of the Bank.
Upon the occurrence of an Event of Default and upon the filing of a
suit or other commencement of judicial proceedings to enforce the rights of the
Trustee and of the Holders under the Indenture, the Trustee shall be entitled,
as a matter of right under the Installment Sale Agreement, to the appointment
of a receiver or receivers for the Project Facility and for the revenues and
receipts thereof pending such proceedings, with such powers as the court making
such appointment shall confer; and
No Recourse: Special Obligation
The obligations and agreements of the Issuer contained in the
Installment Sale Agreement and in the other Financing Documents and any other
instrument or document executed in connection therewith, and any other
instrument or document supplemental thereto, shall be deemed the obligations
and agreements of the Issuer, and not of any member, officer, agent (other than
the Company) or employee of the Issuer in his individual capacity, and the
members, officers, agents (other than the Company) and employees of the Issuer
shall not be liable personally on the Installment Sale Agreement or such other
documents or be subject to any personal liability or accountability based upon
or in respect of the Installment Sale Agreement or such other documents or of
any transaction contemplated by the Installment Sale Agreement or such other
documents. The obligations and agreements of the Issuer contained in the
Installment Sale Agreement or such other documents shall not constitute or give
rise to an obligation of the State of New York or of Warren or Washington
County, New York, and neither the State of New York nor Warren nor Washington
County, New York shall be liable hereon or thereon, and, further, such
obligations and agreements shall not constitute or give rise to a general
obligation of the Issuer, but rather shall constitute limited, special
obligations of the Issuer payable solely from the revenues of the Issuer
derived and to be derived from the sale or other disposition of the Project
Facility (except for revenues derived by the Issuer with respect to the
Unassigned Rights).
39
<PAGE> 44
No order or decree of specific performance with respect to any of the
obligations of the Issuer hereunder shall be sought or enforced against the
Issuer unless (1) the party seeking such order or decree shall first have
requested the Issuer in writing to take the action sought in such order or
decree of specific performance, and ten (10) days shall have elapsed from the
date of receipt of such request, and the Issuer shall have refused to comply
with such request (or, if compliance therewith would reasonably be expected to
take longer than ten [10] days, shall have failed to institute and diligently
pursue action to cause compliance with such request) or failed to respond
within such notice period, (2) if the Issuer refuses to comply with such
request and the Issuer's refusal to comply is based on its reasonable
expectation that it will incur fees and expenses, the party seeking such order
or decree shall have placed in an account with the Issuer an amount or
undertaking sufficient to cover such reasonable fees and expenses, and (3) if
the Issuer refuses to comply with such request and the Issuer's refusal to
comply is based on its reasonable expectation that it or any of its members,
officers, agents (other than the Company) or employees shall be subject to
potential liability, the party seeking such order or decree shall (a) agree to
indemnify and hold harmless the Issuer and its members, officers, agents (other
than the Company) and employees against any liability incurred as a result of
its compliance with such demand, and (b) if requested by the Issuer, furnish to
the Issuer satisfactory security to protect the Issuer and its members,
officers, agents other than the Company and employees against all liability
expected to be incurred as a result of compliance with such request. Any
failure to provide such indemnity shall not affect the full force and effect of
an Event of Default.
SUMMARY OF THE REIMBURSEMENT AGREEMENT
The following is a summary of certain provisions of the Reimbursement
Agreement to which reference is made for the complete provisions thereof. All
terms used herein under the caption "The Reimbursement Agreement" and not
defined herein have the meanings ascribed to such terms in the Reimbursement
Agreement or the Indenture.
The Reimbursement Agreement
Pursuant to the Reimbursement Agreement, the Company agrees to
reimburse the Bank for all amounts drawn under the Letter of Credit. In
addition, the Company agrees to pay the Bank (i) unreimbursed charges,
correspondent and transfer fees with respect to the Letter of Credit, (ii) the
costs and expenses of the Bank relative to the Letter of Credit and the
Reimbursement Agreement, (iii) interest on tender advances made by the Bank,
(iv) a commitment fee payable on the date of issuance of the Letter of Credit
and annual fee thereafter calculated as a percentage of the Stated Amount; (v)
compensation for certain increased costs or reduced return to the Bank, (vi)
interest on any overdue amounts.
Covenants. The Company has agreed to certain covenants in the
Reimbursement Agreement with respect to certain matters including (but not
limited to): (i) delivering financial statements and other information, (ii)
maintaining its existence and its properties, (iii) complying with laws and
obtaining necessary government authorizations, licenses and qualifications,
(iv) proper use of Bond proceeds, (v) limitations on debt, liens and sales of
assets, (vi) restrictions on disposition of assets and (vii) maintenance of
sufficient levels of insurance.
Events of Default. The following shall be Events of Default under the
Reimbursement Agreement:
40
<PAGE> 45
(1) The Company shall fail to pay any amount of principal
of any LC Loan on demand, or shall fail to pay any interest on any LC Loan or
any other amount payable hereunder when the same becomes due; or
(2) Any representation or warranty made by the Company
under or in connection with any Loan Document shall prove to have been false in
any material respect when made; or
(3) The Company or the Guarantor shall fail to perform or
observe any other terms, covenant or agreement contained in the Reimbursement
Agreement or in any other Loan Document on its part to be performed or observed
and any such failure shall remain un-remedied for thirty (30) days after
written notice thereof shall have been given to the Company by the Bank; or
(4) The Company or the Guarantor shall fail to pay any
Indebtedness, other than any LC Loan or any other amount payable under the
Reimbursement Agreement, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness, if the effect of such default or
event is to accelerate, or to permit the acceleration of, the maturity of such
Indebtedness; or any such Indebtedness shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or
(5) The Company or the Guarantor shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Company or
the Guarantor seeking to adjudicate it bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for any
substantial part of its property (provided that with respect to any proceeding
instituted against the Company, the Company shall have sixty (60) days in which
to obtain a dismissal of such proceeding); or the Company shall take any action
to authorize any of the actions set forth above in this paragraph (5); or
(6) A final judgment or order for the payment of $25,000
or more shall be rendered against the Company and/or the Guarantor and either
(1) enforcement proceedings shall have been commenced against the Company or
the Guarantor, as the case may be, by any creditor upon such judgment or order,
or (2) a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect for any period of thirty-one (31)
consecutive days; or
(7) If any Event of Default occurs under the Security
Agreement, the Installment Sale Agreement or any other Financing Document; or
(8) The Company shall fail duly and punctually to perform
and observe all the terms, covenants and conditions contained in the Indenture
or the Installment Sale Agreement on its part to be performed or observed and
said failure shall result in a drawing on the Letter of Credit or there shall
occur and be continuing
41
<PAGE> 46
any Event of Default or nonperformance under any of the foregoing documents; or
(9) A material adverse change in the financial condition
or operations of the Company or the Guarantor shall have occurred; or
(10) The Security Agreement, after delivery thereof
pursuant to the terms of the Reimbursement Agreement, shall for any reason,
except to the extent permitted by the terms thereof, cease to create a valid
and perfected security interest and Lien of the priority as set forth in the
Reimbursement Agreement in any of the collateral purported to be covered
thereby; or
(11) Any provision of any Loan Documents shall for any
reason, at any time after delivery thereof pursuant to the terms of the
Reimbursement Agreement, cease to be valid and binding on the Company or the
Guarantor, or the Company or the Guarantor shall so state in writing; or
(12) There shall be a default under any other credit
facility between the Company, the Guarantor or either of them and the Bank.
TAX INFORMATION
Federal Income Taxes
In the opinion of FitzGerald Morris Baker Firth, P.C., Glens Falls,
New York, Bond Counsel, under existing law as of the date of delivery of the
Bonds, interest on the Bonds is excludable from gross income for Federal income
tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"),
provided, however, that no opinion is expressed as to the exclusion from gross
income of interest on the Bonds for any period during which such Bonds are held
by a person who, within the meaning of Section 147 of the Code, is a
"substantial user" of a facility or facilities for which the proceeds of the
Bonds were used or a "related person." Interest on the Bonds is included in
calculating the tax base which is subject to the individual alternative minimum
tax and the corporate alternative minimum tax imposed by the Code.
The Code establishes certain conditions which must be met subsequent
to the issuance and delivery of the Bonds in order that interest on the Bonds
be and remain excludable from gross income for Federal income tax purposes
under the provisions thereof. Pursuant to the Tax Regulatory Agreement, the
Company has agreed to take such actions necessary to maintain the exclusion
from gross income for Federal income tax purposes of interest on the Bonds.
Non-compliance with such requirements may cause interest on the Bonds to become
includable in gross income for Federal income tax purposes, retroactive to
their date of issue, irrespective of the date on which such non-compliance is
ascertained. Compliance with certain of such requirements may call for acts or
omissions of Persons not within the control of the Issuer or the Company. In
rendering its opinion that the interest on the Bonds is, as of the date of
initial issuance of the Bonds, excludable from gross income for Federal income
tax purposes, Bond Counsel has assumed that such conditions subsequent in fact
will be met.
In addition to the matters referred to in the preceding paragraphs,
prospective purchasers of the Bonds
42
<PAGE> 47
should be aware that the accrual or receipt of interest on the Bonds may
otherwise affect the federal income tax liability of the recipient. The extent
of these other tax consequences may depend upon the recipient's particular tax
status or other items of income or deduction. Bond Counsel expresses no
opinion regarding any such consequences. Examples of such other federal income
tax consequences of acquiring the Bonds include, without limitation, that (i)
with respect to certain insurance companies, the Code reduces the deduction for
loss reserves by a portion of the sum of certain items, including interest on
the Bonds, (ii) interest on the Bonds earned by some corporations may be
subject to an environmental tax imposed by the Code, (iii) interest on the
Bonds earned by certain foreign corporations doing business in the United
States may be subject to a branch profits tax imposed by the Code, (iv) passive
investment income, including interest on the Bonds, may be subject to federal
income taxation under the Code for certain S corporations that have certain
earnings and profits, and (v) the Code requires recipients of certain Social
Security and certain other federal retirement benefits to take into account, in
determining gross income, receipts or accruals of interest on the Bonds. In
addition, the Code denies the interest deduction for indebtedness incurred or
continued by banks, thrift institutions and certain other financial
institutions to purchase or carry tax-exempt obligations, such as the Bonds.
All quotations from and summaries and explanations of provisions of
laws do not purport to be complete and reference is made to such laws for full
and complete statements of their provisions.
ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS TO ANY
POSSIBLE TAX CONSEQUENCES OF PURCHASING OR HOLDING THE BONDS.
State and Local Income Taxes
In the opinion of Bond Counsel, interest on the Bonds is also exempt
from personal income taxes imposed by the State of New York and The City of New
York, under existing statutes, regulations, and court decisions.
Attached to this Preliminary Official Statement as Appendix B and made
a part hereof are the forms of approving opinions of Bond Counsel.
THE PRECEDING INFORMATION UNDER THE HEADING "TAX INFORMATION" WAS NOT
FURNISHED BY THE ISSUER, AND THE ISSUER MAKES NO REPRESENTATION AS TO THE
ACCURACY OR COMPLETENESS THEREOF.
APPROVAL OF LEGAL PROCEEDINGS
Legal matters incident to the authorization, issuance and sale of the
Bonds are subject to the approving opinion of FitzGerald Morris Baker Firth,
P.C., Glens Falls, New York. Copies of such opinion will be available at the
time of delivery of the Bonds. Certain legal matters will be passed upon for
the Issuer by its counsel, FitzGerald Morris Baker Firth, P.C., Glens Falls,
New York, for the Company by its counsel, Segel, Goldman & Mazzotta, P.C.,
Albany, New York and for the Bank by its counsel, McNamee, Lochner, Titus &
Williams, P.C., Albany, New York.
43
<PAGE> 48
RATING
Standard & Poor's, a division of the McGraw-Hill Companies, Inc. has
given the Bonds a rating of "_________". Such rating reflects only the views of
Standard & Poor's, and any desired explanation of the significance of such
rating should be obtained from Standard & Poor's. Generally, a rating agency
bases its ratings on the information and materials furnished it and on
investigations, studies and assumptions by the rating agency. There is no
assurance that a particular rating will apply for any given period of time or
that it will not be lowered or withdrawn entirely if, in the judgment of the
agency originally establishing the rating, circumstances so warrant. The
Underwriter has undertaken no responsibility either to bring to the attention
of the holders of the Bonds any proposed revision or withdrawal of the rating
of the Bonds or to oppose any such proposed revision or withdrawal. Any
downward revision or withdrawal of such rating, or either of them, could have
an adverse effect on the market price of the Bonds. Such rating should not be
taken as a recommendation to buy or hold the Bonds.
UNDERWRITING
First Albany Corporation (the "Underwriter") will agree to purchase
the Bonds from the Issuer pursuant to a bond purchase agreement dated the
Closing Date by and among the Issuer, the Company, the Bank and the
Underwriter, at a price equal to the principal amount thereof plus accrued
interest less an underwriting discount equal to $__________. The Underwriter
will purchase all Bonds if any are purchased. The Underwriter initially
intends to offer the Bonds to the public at the prices shown on the cover page.
The Company has agreed to indemnify the Underwriter and the Issuer
with respect to certain information contained in the Preliminary Official
Statement.
OTHER MATTERS
The foregoing summaries and explanations do not purport to be
comprehensive and are expressly made subject to the exact provisions of
documents referred to herein. So far as any statements are made in this
Preliminary Official Statement involving matters of opinion, whether or not
expressly so stated, they are intended merely as such and not as
representations of fact.
The agreement of the Issuer with the holders of the Bonds is fully set
forth in the Indenture, and this Preliminary Official Statement is not to be
construed as constituting an agreement with the purchasers of the Bonds.
44
<PAGE> 49
The distribution of this Official Statement has been duly authorized
by the Issuer and the Company.
COUNTIES OF WARREN AND WASHINGTON
INDUSTRIAL DEVELOPMENT AGENCY
By:_______________________________
Bruce A. Ferguson, Vice Chairman
DECORA, INCORPORATED D/B/A DECORA
MANUFACTURING
By:_______________________________
Timothy N. Burditt, Vice President,
Administration and Finance
45
<PAGE> 50
APPENDIX A
DEFINITIONS
B-46
46
<PAGE> 51
APPENDIX B
FORMS OF APPROVING OPINION OF BOND COUNSEL
C-47
47
<PAGE> 52
APPENDIX C
FINANCIAL STATEMENTS OF THE BANK
D-48
48
<PAGE> 53
APPENDIX D
FINANCIAL STATEMENTS OF THE COMPANY
D-49
49
<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 NINE MONTHS ENDED DECEMBER 31, 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> DEC-30-1996
<EXCHANGE-RATE> 1
<CASH> 591
<SECURITIES> 0
<RECEIVABLES> 5,939
<ALLOWANCES> 0
<INVENTORY> 6,165
<CURRENT-ASSETS> 14,325
<PP&E> 7,882
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,791
<CURRENT-LIABILITIES> 7,097
<BONDS> 17,755
0
0
<COMMON> 355
<OTHER-SE> 12,584
<TOTAL-LIABILITY-AND-EQUITY> 37,791
<SALES> 32,575
<TOTAL-REVENUES> 32,575
<CGS> 24,530
<TOTAL-COSTS> 24,530
<OTHER-EXPENSES> 4,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,861
<INCOME-PRETAX> 2,073
<INCOME-TAX> 70
<INCOME-CONTINUING> 2,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,003
<EPS-PRIMARY> $0.06
<EPS-DILUTED> $0.06
</TABLE>
