<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1998
REGISTRATION NO 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
DECORA INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3089 68-0003300
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1 MILL STREET
FORT EDWARD, NEW YORK 12828
(518) 747-6255
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ADDITIONAL REGISTRANT
<TABLE>
<CAPTION>
PRIMARY
STANDARD
INDUSTRIAL IRS EMPLOYER
NAME OF JURISDICTION OF CLASSIFICATION IDENTIFICATION
REGISTRANT INCORPORATION CODE NUMBER NUMBER ADDRESS AND TELEPHONE NUMBER
- ------------ --------------- -------------- -------------- ------------------------------
<S> <C> <C> <C> <C>
DECORA, DELAWARE 3089 93-1028300 1 MILL STREET, FORT EDWARD,
INCORPORATED NEW YORK 12828, (518) 747-6255
</TABLE>
TIMOTHY N. BURDITT
1 MILL STREET
FORT EDWARD, NEW YORK 12828
(518) 747-6255
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
--------------------
COPIES OF COMMUNICATIONS TO:
J. BRAD WIGGINS, ESQ.
CHRISTINA LYCOYANNIS, ESQ.
MILLER & HOLGUIN
1801 CENTURY PARK EAST, SEVENTH FLOOR
LOS ANGELES, CALIFORNIA 90067
(310) 556-1990
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
AND ALL OTHER CONDITIONS TO THE EXCHANGE OFFER PURSUANT TO THE REGISTRATION
RIGHTS AGREEMENT DESCRIBED IN THE ENCLOSED PROSPECTUS HAVE BEEN SATISFIED OR
WAIVED.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GENERAL INSTRUCTION G, PLEASE CHECK THE FOLLOWING BOX. [ ]
<PAGE> 2
<TABLE>
<CAPTION>
=========================================================================================================================
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE PER NOTE AGGREGATE OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11% SENIOR SECURED $112,750,000 100%(1) $112,750,000(1) $33,261.25
NOTES DUE 2005, SERIES B
GUARANTEES OF THE $112,750,000(2)
11% SENIOR SECURED
NOTES DUE 2005, SERIES B
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) ESTIMATED SOLELY FOR PURPOSES OF CALCULATING THE REGISTRATION FEE IN
ACCORDANCE WITH RULE 457(f)(2)
(2) PURSUANT TO RULE 457(n) UNDER THE SECURITIES ACT OF 1933, NO SEPARATE
REGISTRATION FEE IS PAYABLE FOR THE GUARANTEES
--------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 3
SUBJECT TO COMPLETION, DATED JULY 13, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PROSPECTUS
DECORA INDUSTRIES, INC.
This Prospectus describes an offer (the "Exchange Offer") to exchange up to
$112,750,000 of 11% Senior Secured Notes due 2005, Series B (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, for
$112,750,000 of outstanding 11% Senior Secured Notes due 2005 (the "Old Notes").
The notes to be so exchanged will be fully and unconditionally guaranteed,
jointly and severally, on a senior unsecured basis (the "Guarantees"), by
Decora, Incorporated ("Decora") and any of the future domestic Restricted
Subsidiaries of Decora Industries, Inc. ("DII"). In this Prospectus, the term
"Notes" shall refer to both Old Notes and Exchange Notes.
The Expiration Date of the Exchange Offer is at 5:00 P.M., New York City
time, on _______________, 1998, unless extended.
-----------------
The Exchange Notes will evidence the same indebtedness as the Old Notes for
which they may be exchanged pursuant to this offer. The terms of the Exchange
Notes will be identical in all material respects (including principal amount,
interest rate and maturity) to the terms of the Old Notes for which they may be
exchanged, except that the Exchange Notes will be freely transferable by Holders
thereof (other than as provided below) and will be issued without rights for any
further registered exchange offer.
Interest on the Exchange Notes will be payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1998. The Exchange Notes will
mature on May 1, 2005.
The Exchange Notes will be unconditionally guaranteed, on a senior
unsecured basis, jointly and severally, by Decora, the wholly-owned subsidiary
of DII, and by DII's future domestic Restricted Subsidiaries (the "Subsidiary
Guarantors," and, together with Decora, the "Guarantors").
The Exchange Notes will be secured by a pledge of all of the capital stock
of Decora and each other future Guarantor (the "Guarantor Collateral") and 65.0%
of the capital stock of Decora Industries Deutschland GmbH ("DI Deutschland"), a
wholly-owned subsidiary of DII (the "German Collateral"; and, collectively with
the Guarantor Collateral, the "Collateral").
The Exchange Notes will rank (i) senior in right of payment to any future
indebtedness of DII that is expressly subordinated to the Exchange Notes and
(ii) effectively senior to any future senior unsecured indebtedness of DII to
the extent of the value of the Collateral. The Exchange Notes will be
effectively subordinated to (x) all obligations under the Decora Credit
Facility, the Intercompany Note and any other secured obligations of Decora, to
the extent of the value of the assets securing such obligations, and (y) all
obligations (including trade payables and accrued liabilities) of the DII
foreign subsidiaries and its Unrestricted Subsidiaries. Each Guarantee will be
effectively subordinated to secured obligations of the Guarantor thereof, to the
extent of the value of the assets securing such obligations.
i
<PAGE> 4
The Exchange Notes will be redeemable, in whole or in part, at the option
of DII, at any time on or after May 1, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, prior to May 1, 2001, DII may redeem up to $39.46 million aggregate
principal amount at maturity of the Notes at a redemption price equal to 111.50%
of the principal amount at maturity thereof, plus accrued and unpaid interest,
if any, to the date of redemption, with the net cash proceeds of one or more
Public Equity Offerings; provided that at least $73.29 million aggregate
principal amount at maturity of the Notes remains outstanding immediately after
each such redemption (other than any Notes owned by DII or any of its
Subsidiaries) and such redemption shall be effected not more than 120 days after
the consummation of any such Public Equity Offering. Upon a Change of Control,
DII will be required to make an offer to purchase the Notes at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest and, with
respect to Old Notes, Liquidated Damages, if any, to the date of purchase. See
"Description of Exchange Notes -- Change of Control."
The Old Notes were issued and sold on April 29, 1998 in transactions not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Old Notes may not be re-offered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Notes are being offered hereunder in order to satisfy
certain of the obligations of DII and Decora under a registration rights
agreement relating to the Old Notes. See "The Exchange Offer -- Purpose of the
Exchange Offer." DII is making the Exchange Offer in reliance upon an
interpretation by the staff of the Securities and Exchange Commission set forth
in a series of no-action letters issued to third parties. See Exxon Capital
Holdings Corp. (available April 13, 1989), Morgan Stanley & Co. Incorporated
(available July 5, 1991) and Shearman & Sterling (available June 2, 1993). Based
on such interpretation, DII believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any Holder thereof (other than any such Holder that is
an "affiliate" of DII within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such Holder's business, such Holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and such Holder is not an affiliate of DII, as such terms are
interpreted by the Securities and Exchange Commission. However, DII has not
sought, and does not intend to seek, its own no-action letter, and there can be
no assurance that the staff of the Securities and Exchange Commission would make
a similar determination with respect to the Exchange Offer. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal relating to the Exchange Offer
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Notes where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. Any broker-dealer that received Old Notes from DII in the offering
of the Old Notes and not as a result of market-making or other trading
activities cannot participate in the Exchange Offer. See "Plan of Distribution."
Each broker-dealer that received Old Notes from DII in the offering of the Old
Notes and not as a result of market-making or other trading activities, in the
absence of an exemption, must comply with the registration requirements of the
Securities Act. DII will, for a period ending on the earlier of the first
anniversary of the consummation of the Exchange Offer and the date on which the
Initial Purchaser and all broker-dealers electing to exchange Old Notes
previously acquired by such broker-dealers for their own accounts have sold all
Exchange Notes held by them, make copies of this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. The Exchange Notes
will not be designated for trading on the PORTAL market and constitute
securities for which there is no established trading market. Any Old Notes not
tendered and accepted in the Exchange Offer will remain outstanding. To the
extent that any Old Notes are tendered and accepted in the Exchange Offer, a
ii
<PAGE> 5
Holder's ability to sell untendered Old Notes could be adversely affected. No
assurance can be given as to the liquidity of the trading market for either the
Old Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The date of acceptance and
exchange of the Old Notes (the "Exchange Date") will be the first business day
following the Expiration Date. Old Notes tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date. DII will pay all
expenses incident to the Exchange Offer. DII will not receive any proceeds from
the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
___________, 1998
AVAILABLE INFORMATION
DII and Decora have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Exchange Notes being
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. For further information with respect to DII, the Guarantors and the
Exchange Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. Copies of the Registration Statement may be examined without
charge at the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and the Commission's Regional Offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any portion of the Registration Statement can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain fees prescribed by the
Commission. The Registration Statement has been and will be filed through the
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system. Electronic
registration statements filed through the EDGAR system are publicly available
through the Commission Web Site (http://www.sec.gov).
DII is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will
file periodic reports and other information with the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of any material so filed can be
obtained from the Public Reference Section of the Commission, upon payment of
certain fees prescribed by the Commission.
iii
<PAGE> 6
The Indenture governing the Notes provides that DII will deliver to United
States Trust Company of New York (the "Trustee") within 15 days after the filing
of the same with the Commission, copies of the quarterly and annual reports and
of the information, documents and other reports, if any, which DII is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
The Indenture further provides that, notwithstanding that DII may not be subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, DII
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act within the time
periods specified therein. DII will also comply with the other provisions of
Section 314(a) of the Trust Indenture Act. In addition, for so long as any Notes
remain outstanding, DII will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Notes, if not obtainable from the Commission, information
of the type that would be filed with the Commission pursuant to the foregoing
provisions, upon the request of any such Holder.
UNTIL ___________, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this Prospectus
including, without limitation, the statements under "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and located elsewhere herein regarding the industry
prospects and financial position of DII and the Guarantors are forward-looking
statements. Although management believes that the expectations reflected in such
forward-looking statements are reasonable, no assurances can be given that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from management's expectations ("Cautionary
Statements") are disclosed in the Prospectus including, without limitation, in
conjunction with the forward-looking statements included in this Prospectus and
under "Risk Factors." All subsequent written and oral forward-looking statements
attributable to DII or the Guarantors, or persons acting on their behalf, are
expressly qualified in their entirety by the Cautionary Statements.
-----------------
TRADEMARKS
Con-Tact(R), Cobra(R) and Wearlon(R) are registered trademarks of Decora.
d-c-fix(R), ceramo-fix(R), skai(R) and sol-pal(R) are registered trademarks of
Hornschuch. Rubbermaid(R) is a registered trademark of Rubbermaid, Incorporated
("Rubbermaid").
-----------------
PRESENTATION OF FINANCIAL INFORMATION
In this Prospectus, references to "DM" are to "Deutsche Marks," and
references to "dollars" or "$" are to U.S. dollars.
Merely for the convenience of the reader, this Prospectus presents
translations into dollars of certain DM amounts. The following table sets forth,
for the periods indicated, certain information regarding the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate"), which
on July 2, 1998 was DM1.8229 per dollar. No representation is made that DM
amounts
iv
<PAGE> 7
have been or could be converted into dollars at the above exchange rate or any
other rate. Such rates may differ from the actual rates used in the preparation
of the financial statements and other historical, pro forma and adjusted pro
forma financial information of the Company appearing herein.
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
FOR THE FISCAL YEAR ENDED MARCH 31, MONTHS ENDED MONTHS ENDED FROM APRIL 1
-------------------------------------- SEPTEMBER 30, MARCH 31, TO JULY 2,
1996 1997 1998 1997 1998 1998
------ ------ ------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
End of period 1.4766 1.6678 1.8500 1.7260 1.8500 1.8229
Average 1.4305 1.5508 1.7741 1.7606 1.7881 1.7951
High 1.4930 1.7190 1.8810 1.8810 1.8500 1.8542
Low 1.3565 1.4725 1.6693 1.6693 1.7080 1.7590
</TABLE>
v
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
The Exchange Offer....................................................... 17
Capitalization........................................................... 25
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 27
Business................................................................. 33
Management............................................................... 42
Security Ownership of Certain Beneficial Owners and Management........... 46
Certain Relationships and Related Transactions........................... 48
Description of Exchange Notes............................................ 49
Description of Other Indebtedness........................................ 80
Certain U.S. Federal Income Tax Consequences............................. 83
Plan of Distribution..................................................... 88
Legal Matters............................................................ 89
Experts.................................................................. 89
Index of Defined Terms................................................... 90
Index to Financial Statements............................................ F-1
</TABLE>
vi
<PAGE> 9
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The actual results of DII and its subsidiaries could
differ materially from those anticipated in such forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
DII is a leading, worldwide manufacturer and marketer of self-adhesive
consumer decorative products. DII, a holding company, is a Delaware corporation
operating through its wholly owned subsidiaries, Decora and DI Deutschland. DI
Deutschland owns approximately 76% of the voting stock of Konrad Hornschuch AG
("Hornschuch"). The main emphasis of DII and its subsidiaries (the "Company") is
the world-wide development, manufacture and sale of self-adhesive consumer
decorative products and of specialty industrial and commercial products,
utilizing proprietary adhesive systems and coating technologies.
On October 1, 1997, the Company acquired 73.2% of the voting stock of
Hornschuch through its newly formed subsidiary, DI Deutschland (the "Hornschuch
Acquisition"), which has since increased its ownership to approximately 76%.
Hornschuch is the manufacturer and marketer of d-c-fix, one of the most popular
consumer self-adhesive and surface covering brands outside of North America and
is celebrating its 100th year of operation. Hornschuch also manufactures
decorative and functional films for use by original equipment manufacturers
("OEM's") in the automotive, building, furniture, handbag, shoe and interior
decoration markets. DI Deutschland is required to make a tender offer for the
outstanding balance of Hornschuch shares (the "Hornschuch Minority Tender
Offer") no later than March 1999. See "Business -- Hornschuch Minority Tender
Offer and Possible Reorganization."
On April 29, 1998, the Company acquired from Rubbermaid the assets which
constituted Rubbermaid's decorative coverings group (the "Decorative Coverings
Group"), including trademarks, shelf space and manufacturing equipment (the
"Rubbermaid Acquisition"). The assets purchased included the rights to three
product lines: (i) the Con-Tact self-adhesive line, which is manufactured by
Decora, (ii) the Shelf Liner light-adhesive line, which currently is
manufactured by Rubbermaid, and (iii) the Grip Liner non-adhesive covering line,
which is manufactured by a third party pursuant to the terms of an exclusive
manufacturing agreement. The Rubbermaid Acquisition will enable Decora, which
previously had been primarily only a manufacturer of Con-Tact, to integrate the
marketing, sales and distribution of the Con-Tact product line and to capture
the full manufacturer-to-retailer gross margin, although Decora will also
significantly increase its selling, marketing and administrative expenses. In
conjunction with the acquisition of Hornschuch, the Rubbermaid Acquisition has
established the Company as the largest independent manufacturer and marketer of
decorative self-adhesive consumer products worldwide.
The principal executive offices of DII and Decora are located at 1 Mill
Street, Fort Edward, New York 12828, and their telephone number is (518)
747-6255.
INDUSTRY OVERVIEW
The Company operates in the plastics conversion and distribution industry
with product offerings ranging from consumer self-adhesive, decorative and
surface protection products to industrial laminates and textured films. The
consumer, self-adhesive, decorative and surface protection products include
versatile self-adhesive and non-adhesive products for use in a wide range of
applications including shelf lining, do-it-yourself furniture and door repair
and refurbishment, arts and crafts, window decoration, book covering, wall
covering and general surface protection.
<PAGE> 10
Consumers purchase these products based upon their ease of application, design,
durability and price. The products are sold in a wide variety of retail stores,
ranging from mass-merchants like Wal-Mart to individual, independently owned
food, drug and hardware stores. Within these stores, the products have been
positioned primarily in the housewares segment in the United States and the
do-it-yourself segment in Europe.
Industrial printed, coated and textured films are sold to users and OEM's
in diversified markets with a majority of such sales made within Germany.
Hornschuch supplies films for use in the manufacture of cabinets, furniture,
automobiles, luggage and shoes. Customers require high quality products with
exact design specifications and consistency as most products are intended to
simulate the appearance and texture of natural materials such as wood, stone and
leather.
BUSINESS STRATEGY
The completion of the Hornschuch Acquisition and the Rubbermaid Acquisition
represents two significant achievements for the Company and creates significant
opportunities for strengthening the Company's market position and increasing
sales world-wide. During fiscal 1999, the Company intends to focus its efforts
on areas which are key to achieving its operational and financial goals,
including the following:
- Enhance the North American brands acquired from Rubbermaid and defend
market share.
- Complete the development of its North American sales and distribution
infrastructure.
- Expand international sales.
- Implement manufacturing and product synergies between North American and
German operations.
GUARANTEES AND SECURITY
The Exchange Notes will be fully and unconditionally guaranteed, jointly
and severally, on a senior unsecured basis, by Decora and the other Guarantors.
The Exchange Notes will be secured by a first priority pledge of the Collateral.
The footnotes to the Consolidated Financial Statements of DII included in
this Prospectus provide condensed consolidating financial information for DII,
its Guarantor subsidiaries (currently including only Decora) and its
non-Guarantor subsidiaries for the same periods as are presented in the DII
Consolidated Financial Statements. Separate audited financial statements of
Decora are also included in this Prospectus for the same periods.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer DII is offering to exchange pursuant to the Exchange Offer up to $112,750,000 aggregate principal amount
of Exchange Notes for $112,750,000 aggregate principal amount of its outstanding Old Notes. The Old Notes
were issued and sold on April 29, 1998, in transactions not registered under the Securities Act, to
Lazard Freres & Co. LLC (the "Initial Purchaser"), in reliance upon the exemption provided in Section
4(2) of the Securities Act, and the Initial Purchaser subsequently resold the Old Notes in exempt
transactions. The terms of the Exchange Notes are identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the Exchange Notes are freely transferable by Holders thereof
(other than as provided herein) and will be issued without rights for any further registered exchange
offer. See "The Exchange Offer-- Terms of the Exchange" and "Description of Exchange Notes."
Interest Payments Interest on the Exchange Notes shall accrue from the most recent date to which interest has been paid
(May 1 or November 1) on the Old Notes so surrendered or, if no interest has been paid on such Old
Notes, from April 29, 1998.
</TABLE>
2
<PAGE> 11
<TABLE>
<S> <C>
Minimum Condition The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Old Notes being
tendered for exchange.
Expiration Date The Exchange Offer will expire at 5:00 p.m., New York City time, on ________, 1998, unless extended.
Any Old Note not accepted for exchange for any reason will be returned without expense to the tendering
Holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer.
Exchange Date The date of acceptance for exchange of the Old Notes will be the first business day following the
Expiration Date.
Conditions of the
Exchange Offer DII's obligation to consummate the Exchange Offer will be subject to certain conditions. See "The
Exchange Offer -- Conditions to the Exchange Offer." DII reserves the right to terminate or amend the
Exchange Offer at any time prior to the Expiration Date upon the occurrence of any such condition.
Withdrawal Rights The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date.
Procedures for
Tendering Notes See "The Exchange Offer -- Tender Procedure."
Federal Income Tax
Consequences The exchange of Old Notes for Exchange Notes will not be a taxable exchange for federal income tax
purposes. See "Certain U.S. Federal Income Tax Consequences."
Effect on Holders
of Notes As a result of the making of, and upon acceptance or exchange of all validly tendered Old Notes pursuant
to the terms of, this Exchange Offer, DII and Decora will have fulfilled a covenant contained in the
Registration Rights Agreement (the "Registration Rights Agreement") dated as of April 29, 1998 among DII,
Decora and the Initial Purchaser and, accordingly, there will be no Liquidated Damages as provided for in
the terms of the Registration Rights Agreement, and the Holders of the Old Notes will have no further
registration or other rights under the Registration Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will continue to hold such Old Notes and will be entitled to
all the rights and subject to all the limitations applicable thereto (including the restrictions on
transfer thereof) under the Indenture, dated as of April 29, 1998, among DII, Decora, any future
Guarantors that become parties thereto and the Trustee, relating to the Old Notes and the Exchange Notes
(the "Indenture"), except for any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of, and the acceptance for
exchange of all validly tendered Old Notes pursuant to, the Exchange Offer. Except for the restrictions
on registrations and transfers, all untendered Old Notes and the Exchange Notes will be treated as one
class of securities for purposes of the covenants and the other terms contained in the Indenture.
Use of Proceeds There will be no cash proceeds to DII from the issuance of the Exchange Notes pursuant to the Exchange
Offer.
</TABLE>
3
<PAGE> 12
<TABLE>
<S> <C>
Exchange Agent United States Trust Company of New York is serving as Exchange Agent in connection with the Exchange
Offer.
</TABLE>
TERMS OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
Issuer Decora Industries, Inc.
Notes Offered $112,750,000 principal amount of 11% Senior Secured Notes due 2005, Series B
Maturity Date May 1, 2005
Interest Payment
Dates May 1 and November 1 of each year, commencing November 1, 1998
Ranking;
Guarantees; Security The Exchange Notes will represent senior obligations of DII, secured by a first priority lien on all
capital stock of Decora and a first priority lien on 65.0% of the capital stock of DI Deutschland. The
Exchange Notes will be fully and unconditionally guaranteed, on a senior unsecured basis, by Decora and
any of DII's future domestic Restricted Subsidiaries. The Exchange Notes will rank (i) senior in right of
payment to any future indebtedness of DII that is expressly subordinated to the Exchange Notes and (ii)
effectively senior to any future senior unsecured indebtedness of DII to the extent of the value of the
Collateral. The Exchange Notes will be effectively subordinated to (x) all obligations under the Decora
Credit Facility, the Intercompany Note and any other secured obligations of Decora to the extent of the
value of the assets securing such obligations and (y) all obligations (including trade payables and
accrued liabilities) of DII's foreign subsidiaries and its Unrestricted Subsidiaries. Each Guarantee will
be effectively subordinated to secured obligations of the Guarantor thereof, to the extent of the value
of the assets securing such obligations. As of March 31, 1998, on an adjusted pro forma basis, (i) Decora
would have had approximately $12.4 million of indebtedness (including the Intercompany Note) which would
have ranked effectively senior to the Notes with respect to the assets of Decora which secure such
indebtedness, (ii) DII would have had no indebtedness except for the Notes and (iii) DII's foreign
subsidiaries would have had $40.5 million of indebtedness (which includes approximately $9.7 million of
borrowings of Hornschuch which was loaned to Decora pursuant to the Intercompany Note) and $34.0 million
of other liabilities reflected on the Company's balance sheet, which would have ranked effectively senior
to the Notes. See "Capitalization" and "Description of Exchange Notes-- Security and Ranking of Notes."
Optional Redemption The Exchange Notes will not be redeemable at DII's option prior to May 1, 2002, except under the
circumstances set forth below. On and after such date, the Exchange Notes will be subject to redemption
at any time at the option of DII, in whole or in part, at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to May 1,
2001, DII may on any one or more occasions redeem up to $39.46 million aggregate principal amount at
maturity of the Notes at a redemption price equal to 111.50% of the principal amount at maturity thereof,
plus accrued and unpaid interest and, with respect to Old Notes, Liquidated Damages, if any, to the date
of redemption, with the net cash proceeds of one or more Public Equity Offerings; provided that at least
$73.29 million aggregate principal amount at maturity of the Notes remains outstanding immediately after
each such redemption (other than any Note owned by DII or any of its Subsidiaries) and such
</TABLE>
4
<PAGE> 13
<TABLE>
<S> <C>
redemption shall be effected not more than 120 days after the consummation of any such Public Equity
Offering. See "Description of Exchange Notes -- Redemption -- Optional Redemption Upon Public Equity
Offerings."
Change of Control Upon the occurrence of a Change of Control, DII will be required to make an offer to purchase the
Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest
to the date of purchase. See "Description of Exchange Notes -- Change of Control."
Restrictive Covenants The Indenture pursuant to which the Old Notes were and the Exchange Notes will be issued contains certain
covenants that limit the ability of DII and its Restricted Subsidiaries to, among other things: (i) incur
additional indebtedness, (ii) make restricted payments and investments, (iii) permit restrictions on
distributions from Restricted Subsidiaries, (iv) sell assets, (v) incur liens, (vi) enter into sale and
leaseback transactions, (vii) issue and sell capital stock of Restricted Subsidiaries, (viii) enter into
transactions with affiliates, (ix) make capital expenditures and (x) effect mergers, consolidations and
sales of all or substantially all of DII's assets. These covenants, however, are subject to a number of
important limitations and qualifications. See "Description of Exchange Notes-- Certain Covenants."
Absence of a
Public Market
for the Exchange Notes The Exchange Notes are new securities, and there is currently no established market for the Exchange
Notes. The Exchange Notes will generally be freely transferable (subject to the restrictions discussed
elsewhere herein) but will be new securities for which there will not initially be a market. Accordingly,
there can be no assurance as to the development or liquidity of any market for the Exchange Notes. The
Initial Purchaser has advised DII that it currently intends to make a market in the Exchange Notes.
However, the Initial Purchaser is not obligated to do so, and any market making with respect to the
Exchange Notes may be discontinued at any time without notice. DII has not applied, and does not intend
to apply, to have the Exchange Notes listed for trading on a securities exchange or quoted for trading
through an automated quotation system.
</TABLE>
5
<PAGE> 14
SELECTED FINANCIAL DATA
The following selected consolidated statement of income data of DII for
each of the five fiscal years ended March 31, 1998 and selected consolidated
balance sheet data of DII as of March 31 for each of such years are derived from
the consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP as to all years. The financial statements for the
three years ended March 31, 1998 are included elsewhere herein.
The following table should be read in conjunction with DII's historical
consolidated financial statements and the notes thereto. Unless otherwise
indicated, none of the information in the table includes discontinued operations
of the Company. See "Business -- Development of Business." See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(In thousands except per share data)
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------
Statement of Income Data: 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 98,407 $ 41,082 $ 38,828 $ 40,414 $ 39,955
Operating income 11,049 4,726 4,108 3,895 4,192
Income from continuing operations 2,730 3,566 2,919 2,408 1,629
Loss from discontinued operations -- -- -- (1,297) (1,481)
-------- -------- -------- -------- --------
Net income $ 2,730 $ 3,566 $ 2,919 $ 1,111 $ 148
======== ======== ======== ======== ========
Basic income (loss) per share(2):
Continuing operations $ 0.38 $ 0.51 $ 0.45 $ 0.40 $ 0.27
Discontinued operations -- -- -- (0.22) (0.25)
-------- -------- -------- -------- --------
Net income(2) $ 0.38 $ 0.51 $ 0.45 $ 0.18 $ 0.02
======== ======== ======== ======== ========
Diluted income (loss) per share(2):
Continuing operations $ 0.35 $ 0.46 $ 0.44 $ 0.40 $ 0.27
Discontinued operations -- -- -- (0.22) (0.25)
-------- -------- -------- -------- --------
Net income(2) $ 0.35 $ 0.46 $ 0.44 $ 0.18 $ 0.02
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
--------------------------------------------------------
Balance Sheet Data:(4) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets $131,216 $ 37,189 $ 36,157 $ 31,021 $ 30,023
Working capital $ 16,133 $ 6,631 $ 1,460 $ 238 $ 515
Long-term obligations $ 74,540 $ 18,817 $ 20,299 $ 18,163 $ 18,473
Shareholders' equity $ 18,089 $ 14,503 $ 10,139 $ 4,396 $ 2,577
Cash dividends per common share(3) -- -- -- -- --
Ratio of earnings to fixed charges 2.86x 2.03x 1.53x 1.46x 1.71x
</TABLE>
- ----------
(1) The selected historical operating data for the twelve months ended
March 31, 1998 reflect the results of Hornschuch since the acquisition date
of October 1, 1997. The Hornschuch Acquisition materially impacts the
comparability of the information reflected in the selected financial data
for fiscal 1998 to that of prior years (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations"). Additionally,
the selected financial data does not reflect the Rubbermaid Acquisition
which was completed on April 29, 1998.
(2) Per share amounts have been restated to retroactively reflect a
one-for-five reverse stock split which became effective on December 29,
1997.
(3) The Company has not paid dividends during the five years ended March 31,
1998 and does not anticipate paying cash dividends in the foreseeable
future.
(4) Historical balance sheet data has not been restated for discontinued
operations in years prior to the year in which the relevant measurement
date occurred.
6
<PAGE> 15
RISK FACTORS
In addition to the other information in this Prospectus, Holders of Old
Notes should consider carefully the following factors before tendering their Old
Notes for Exchange Notes offered hereby. Most of the risk factors set forth
below are applicable to both the Old Notes and the Exchange Notes.
FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements based upon the
Company's beliefs, by which the Company attempts to measure activity in, and to
analyze the factors affecting, the markets for its products. There can be no
assurance that (i) the Company has correctly measured or identified all of the
factors affecting these markets or the extent of their likely impact, (ii) the
publicly available information with respect to these factors on which the
Company's analysis is based is complete or accurate, (iii) the Company's
analysis is correct or (iv) the Company's strategy, which is based in part on
this analysis, will be successful. Factors that could cause actual results to
differ from those reflected in the Company's forward-looking statements include
those factors described herein, as well as adverse changes in prices of raw
materials, regional economic and political instability, adverse currency
fluctuations and other factors not within the Company's ability to predict or
control.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES FOR EXCHANGE NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. DII does not currently anticipate that it will
register the Old Notes under the Securities Act. Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by Holders thereof (other than any such Holder
which is an "affiliate" of DII or any guarantor within the meaning of Rule 405
under the Securities Act and other than any broker-dealer who purchased Old
Notes directly from DII for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such Holders' business and such Holders have no arrangement with any
person to participate in the distribution of such Old Notes. Each broker-dealer
that acquired Old Notes for its own account as a result of market making or
other trading activities and that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented form time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. DII has agreed that it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale for a period ending on the earlier of the first anniversary of the
consummation of the Exchange Offer and the date on which the Initial Purchaser
and all broker-dealers electing to exchange Old Notes previously acquired by
such broker-dealers for their own account have sold all Exchange Notes held by
them. See "Plan of Distribution." However, to comply with the securities laws of
certain jurisdictions, if applicable, the Exchange Notes may not be offered or
sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes will be adversely affected.
7
<PAGE> 16
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to (i) the
liquidity of any such market that may develop, (ii) the ability of Holders of
the Exchange Notes to sell their Exchange Notes or (iii) the price at which the
Holders of the Exchange Notes would be able to sell their Exchange Notes. If
such a market were to exist, the Exchange Notes could trade at prices that may
be higher or lower than their principal amount or purchase price, depending on
many factors, including prevailing interest rates, the market for similar notes
and the financial performance of the Company. The Company has been advised by
the Initial Purchaser that, after consummation of the Exchange Offer, it intends
to make a market in the Exchange Notes. However, the Initial Purchaser is not
obligated to do so, and any market making activity with respect to the Exchange
Notes may be discontinued at any time without notice. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Exchange Act. DII has not applied, and does not intend to apply, to have the
Exchange Notes listed for trading on a securities exchange or quoted for trading
through an automated quotation system. There can be no assurance that, even
following registration of the Exchange Notes, an active trading market will
exist for the Exchange Notes, or that any such trading market will be liquid.
SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS
The Company has indebtedness that is substantial in relation to its
shareholders' equity, as well as interest and other debt service requirements
that are significant compared to its cash flow from operations. As of March 31,
1998, on an adjusted pro forma basis, the Company would have had consolidated
outstanding indebtedness of approximately $153.3 million (including the Notes),
which represented 90.5% of total capitalization. The Indenture permits DII and
its subsidiaries, subject to certain limitations, to incur additional
indebtedness.
The high level of the Company's indebtedness has important consequences to
Holders of the Exchange Notes, including, without limitation, (i) a substantial
portion of the Company's cashflow from operations is committed to the payment of
debt service and will not be available to the Company for other purposes; (ii)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions and general corporate purposes will
be limited; (iii) a substantial decrease in operating cash flow or an increase
in expenses could make it difficult for the Company to meet its debt service
requirements and force it to modify its operations; (iv) the Company's highly
leveraged position may make it more vulnerable to economic downturns; and (v)
the indebtedness under the Decora Credit Facility, the Intercompany Note, the DI
Deutschland Credit Facility, the Hornschuch Credit Facilities and the IRB Credit
Facility are at variable rates of interest, which will, to the extent not
hedged, cause the Company to be vulnerable to increases in interest rates. All
of the indebtedness outstanding under the Decora Credit Facility is secured by
the accounts receivable, inventory and real property of Decora and will become
due prior to the time the principal on the Exchange Notes will become due; all
of the indebtedness outstanding under the Intercompany Note is secured by the
machinery and equipment of Decora and will become due prior to the time the
principal on the Exchange Notes will become due; all of the indebtedness
outstanding under the HUD Credit Facility is secured by a second lien on certain
of Decora's property and equipment and will become due prior to the time the
principal on the Exchange Notes will become due; and all of the outstanding
indebtedness under the IRB Credit Facility will become due and payable prior to
the time the principal on the Exchange Notes will become due.
The agreements governing indebtedness of DII or any of its subsidiaries,
including the Indenture, the Decora Credit Facility, the DI Deutschland Credit
Facility and the IRB Credit Facility, impose significant operating and financial
restrictions. Such restrictions may significantly limit, among other things, the
ability of the Company to incur additional indebtedness, make prepayments of
certain indebtedness, make investments, grant liens, merge with or acquire any
other entity, dispose of assets, change its business and engage in certain other
corporate activities. In addition, the Company may be required to comply with
specific financial ratios, including loan to collateral value ratios. In the
event that these requirements are not met, lenders may be entitled to declare
indebtedness immediately due and payable. In addition, these financial
restrictions could limit the ability of the Company to respond to market
conditions or meet unanticipated capital
8
<PAGE> 17
needs or could otherwise restrict corporate activities. There can be no
assurance that such restrictions will not adversely affect the ability of the
Company to finance its future operations or capital needs.
The ability of DII and the Guarantors to pay interest on the Exchange Notes
and to satisfy their other obligations will depend upon the Company's future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond the
Company's control. There can be no assurance that the Company's operating
results will be sufficient for DII and the Guarantors to meet their obligations.
DII and the Guarantors may be required to refinance the Exchange Notes at
maturity. No assurance can be given that, if required, DII and the Guarantors
will be able to refinance the Exchange Notes on terms acceptable to them, if at
all. If the Company is unable to service its indebtedness, it will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures or the expansion of the Company, selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital. There can be no assurance that any of these strategies could be
effected on terms acceptable to the Company, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
HOLDING COMPANY STRUCTURE; LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES;
STRUCTURAL SUBORDINATION
DII is a holding company. As a result, Holders of the Exchange Notes are
structurally junior to all other existing and future creditors of DII's
subsidiaries (other than unsecured creditors of the Guarantors), except to the
extent that DII is itself recognized as a creditor of any such subsidiary, in
which case the claims of DII would still be subordinate to any security in the
assets of such subsidiary and any indebtedness of such subsidiary senior to that
held by DII. In the event of insolvency, liquidation, reorganization,
dissolution or other winding-up of DII's subsidiaries, DII will not receive any
funds used to pay creditors of the subsidiaries. As of March 31, 1998, on an
adjusted pro forma basis, (i) DII and Decora, initially DII's only domestic
subsidiary and, therefore, initially the only Guarantor, would have had
approximately $12.4 million of indebtedness (including the Intercompany Note),
all of which would have been secured, and (ii) the Company's foreign
subsidiaries would have had approximately $40.5 million of indebtedness (which
includes DM18.0 million (approximately $9.7 million) of borrowings of Hornschuch
which was loaned to Decora pursuant to the Intercompany Note) and $38.9 million
of other obligations reflected on the Company's balance sheet, which would have
ranked effectively senior to the Notes. See "-- Substantial Leverage;
Restrictive Covenants."
DI Deutschland currently owns approximately 76% of the outstanding shares
of Hornschuch, and, therefore, under its current legal structure, DI Deutschland
is entitled only to approximately 76% of any dividends. The remaining dividends
would be distributed to minority shareholders. Under German law, Hornschuch can
only make an annual dividend distribution based upon retained earnings (except
for mandatory reserves) and annual surplus as determined under German statutory
accounting rules and German generally accepted accounting principles, as
confirmed by Hornschuch's auditors. Under German law, however, Hornschuch is
required to book 5% of the annual surplus, decreased by any loss carryforward,
into a mandatory reserve until such reserve amounts to 10% of the stated
capital. In addition, Hornschuch's Management Board (the "Management Board") and
Hornschuch's Supervisory Board (the "Supervisory Board") can decide to book up
to 50% (and under certain circumstances even up to 75%) of the annual surplus as
capital reserve and thereby exclude such portion of the surplus from any
dividend distribution. The Supervisory Board, upon the recommendation of the
Management Board, must approve the distribution of a dividend and call a meeting
for shareholders to approve the dividend. Final approval of any distribution
must be made by a vote of a majority of shares in attendance at the meeting. The
Company intends to use up to approximately $9.3 million of the net proceeds from
the original offering of the Old Notes for DI Deutschland to purchase shares of
Hornschuch in the Hornschuch Minority Tender Offer. To the extent the Company
increases its holdings in Hornschuch, through the Hornschuch Minority Tender
Offer or otherwise, its rights to dividends would increase proportionately. See
"Business -- Hornschuch Minority Tender Offer and Possible Reorganization."
Further, the DI Deutschland Credit Facility limits the ability of DI Deutschland
to issue a dividend while such loan is outstanding. See "Description of Other
Indebtedness -- DI Deutschland Credit Facility."
9
<PAGE> 18
Under current German tax law, (i) corporate withholding taxes at a rate of
26.375% (including solidarity tax) and (ii) corporate income tax at a rate of
31.65% (including solidarity tax) will be required to be withheld from any
dividends distributed by Hornschuch to DI Deutschland. Income of DI Deutschland
is subject to 47.475% corporate income tax (including solidarity tax), if it is
not distributed to DII, and 31.65% corporate income tax (including solidarity
tax), if it is distributed to DII as dividends. DI Deutschland will receive a
credit or refund in the full amount of the withholding tax made by and corporate
income tax paid by Hornschuch with respect to dividends made to DI Deutschland
and any refund due will be issued within approximately 12 months after the
payment of such dividends. With respect to dividends made from DI Deutschland to
DII, such dividends are subject to a 5% withholding tax in Germany under the Tax
Treaty between Germany and the United States (as in effect as of the date
hereof); DII, however, will not be able to receive a credit in Germany for the
31.65% corporate income tax and the 5% withholding tax paid by DI Deutschland
with respect to such dividends.
EFFECTIVE SUBORDINATION OF GUARANTEES TO SECURED OBLIGATIONS
The Indenture permits the Guarantors to incur certain secured indebtedness.
Each Guarantee will be effectively subordinated to any secured indebtedness of
the Guarantor thereof, to the extent of the value of the assets securing such
indebtedness. Accordingly, if an event of default occurs under any secured
indebtedness of a Guarantor permitted under the Indenture, the lenders will have
a prior right to certain assets of such Guarantor and may foreclose upon such
collateral to the exclusion of the Holders of the Exchange Notes,
notwithstanding the existence of an event of default with respect to the
Exchange Notes. In such event, such assets would first be used to repay in full
amounts outstanding under such secured indebtedness, resulting in a portion of
such Guarantor's assets being unavailable to satisfy the claims of the Holders
of the Exchange Notes. At March 31, 1998, on an adjusted pro forma basis, Decora
would have had approximately $12.4 million of secured indebtedness.
SECURITY FOR THE EXCHANGE NOTES
Pursuant to the Indenture, DII has granted to the Trustee for the benefit
of the Holders of the Exchange Notes a first priority lien on the Guarantor
Collateral and a first priority lien on the German Collateral to secure the
performance of DII's obligations under the Indenture and the Exchange Notes. The
value of the Collateral is dependent on the business, earnings and ability to
transfer assets of the corresponding subsidiary and there is no established
market for the Collateral. There can be no assurance that a transfer of the
Collateral would not affect the value of such Collateral or that the proceeds of
any sale of the Collateral following an acceleration of the Exchange Notes after
an event of default with respect to the Exchange Notes would be sufficient to
satisfy payments due thereon. No assurance can be given that the value of the
Collateral will on a given date equal or exceed the principal amount of the
Exchange Notes plus accrued and unpaid interest thereon. By its nature, some or
all of the Collateral will be illiquid and may have no readily ascertainable
market value.
Even if the Decora Credit Facility, other secured debt of Decora and debt
of DI Deutschland and Hornschuch were permanently retired, the right of the
Trustee under the Indenture to foreclose upon and sell the Collateral upon the
occurrence of an event of default with respect to the Exchange Notes is likely
to be significantly impaired by applicable bankruptcy law if a bankruptcy or
reorganization case were to be commenced by or against DII and one or more of
its domestic subsidiaries. Under applicable U.S. bankruptcy law, secured
creditors such as the Holders of the Exchange Notes are prohibited from
foreclosing upon or disposing of a debtor's property without prior bankruptcy
court approval. Moreover, applicable U.S. bankruptcy law permits the debtor to
continue to retain and to use collateral even though the debtor is in default
under the applicable debt instruments, provided that the secured creditor is
given "adequate protection." The meaning of the term "adequate protection" may
vary according to circumstances, but it is intended in general to protect the
value of the secured creditor's interest in the collateral. In view of the lack
of a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the Exchange Notes could be delayed following commencement of a
bankruptcy case, whether or when the Trustee could obtain or dispose of the
Collateral or whether or to what extent Holders of the Exchange Notes
10
<PAGE> 19
would be compensated for any delay in payment or loss of value of the Collateral
through the requirements of "adequate protection." If a U.S. bankruptcy court
were to determine that the value of the Collateral, after giving effect to the
repayment of all amounts owing to the secured creditors of Decora and creditors
of DI Deutschland and Hornschuch, was insufficient to repay all amounts due in
respect of the Exchange Notes, the Holders of the Exchange Notes would become
Holders of "undersecured claims" and, as such, would be unable to receive
payments of accrued interest and costs during the debtor's bankruptcy
proceeding.
Under German law, the Trustee may be restricted to the right to cause the
pledged shares of DI Deutschland to be sold at a public auction, unless DI
Deutschland, after the occurrence or during the continuance of any Event of
Default, accepts the sale or realization of the pledged shares in any other way
and (i) all rights of DII to exercise voting or other consensual rights and (ii)
all rights of DII to receive cash dividends and other payments made upon or with
respect to the pledged shares of DI Deutschland may not cease before such sale
or realization of the pledged shares.
ORIGINAL ISSUE DISCOUNT
The Old Notes are considered to have been issued with original issue
discount for U.S. federal income tax purposes. Accordingly, certain Holders of
the Exchange Notes will be required to include original issue discount in gross
income for U.S. federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable. See "Certain U.S. Federal Income
Tax Consequences."
In addition, if a bankruptcy case is commenced by or against the Company
under the United States Bankruptcy Code, the claim of a Holder of Exchange Notes
may be limited to an amount equal to the sum of (i) the price at which the Old
Notes were originally issued and (ii) that portion of the original issue
discount which is not deemed to constitute "unmatured interest" for purposes of
the United States Bankruptcy Code. Any original issue discount that was not
accreted as of the date of any such bankruptcy filing would constitute
"unmatured interest."
CHANGE OF CONTROL
In the event of a Change of Control of the Company, each Holder will have
the right to require DII, subject to certain conditions, to purchase all or a
portion of such Holder's Notes at a price equal to 101% of the principal amount
thereof, plus accrued but unpaid interest and, with respect to Old Notes,
Liquidated Damages, if any, to the date of purchase. DII's failure to purchase
the Notes would result in a default under the Indenture. See "Description of
Exchange Notes -- Change of Control." Certain future credit or other borrowing
agreements of DII may also contain similar restrictions. DII would therefore be
required to repay such facilities concurrently with its repurchase of the Notes.
If a Change of Control were to occur, it is unlikely that DII would be able
to both repurchase all of the Notes and repay its obligations under any other
indebtedness that could become payable upon the occurrence of the Change of
Control, unless it could obtain alternative financing. There can be no assurance
that DII would be able to obtain any such financing on commercially reasonable
terms or at all, and, consequently, no assurance can be given that DII would be
able to repurchase any of the Notes tendered to it following a Change of
Control.
FRAUDULENT TRANSFER CONSIDERATIONS
The Guarantors' Guarantees of the obligations of DII under the Exchange
Notes may be subject to review under relevant federal and state fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit by or on behalf of unpaid creditors of the
Guarantors. If a court were to find under relevant fraudulent conveyance
statutes that, at the time the Exchange Notes were guaranteed, (a) a Guarantor
guaranteed the Exchange Notes with the intent of hindering, delaying or
defrauding current or future creditors or (b)(i) a Guarantor received less than
reasonably equivalent value or fair consideration for guaranteeing the Exchange
Notes and (ii)(A) was insolvent or was rendered insolvent by reason of such
Guarantee, (B) was engaged, or about to engage, in a business or
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transaction for which its assets constituted unreasonably small capital or (C)
intended to incur, or believed that it would incur, obligations beyond its
ability to pay as such obligations matured (as all of the foregoing terms are
defined in or interpreted under such fraudulent conveyance statutes), then such
court could avoid or subordinate the Guarantee of such Guarantor to other
indebtedness of such Guarantor and take other action detrimental to the Holders
of the Notes, including, under certain circumstances, invalidating such
Guarantee. See "Description of Exchange Notes -- Guarantees."
ENFORCEABILITY OF JUDGMENTS
A substantial portion of the assets of the Company (including all of the
assets of Hornschuch) are located outside the United States. As a result, it may
be necessary for investors to comply with foreign laws in order to enforce
judgments obtained in a U.S. court (including those with respect to federal
securities law claims) against the assets of Hornschuch, including foreclosure
upon such assets, and there can be no assurance that any U.S. judgments would be
enforced under any such foreign laws.
NEED TO DEVELOP NORTH AMERICAN DISTRIBUTION INFRASTRUCTURE
Decora did not acquire the distribution or sales and marketing operations
from Rubbermaid as part of the Rubbermaid Acquisition, and Decora does not
currently have operations which can fulfill such distribution and sales and
marketing requirements. In addition, Rubbermaid has been unable to provide
detailed information with respect to its costs of marketing, sales and
distribution with respect to its Decorative Coverings Group from which the
Company could accurately assess the costs of operating a comparable distribution
and sales and marketing infrastructure. Until January 29, 1999, Rubbermaid is
continuing to provide warehousing, shipping, order entry, customer service,
billing and collection functions for Decora on a contractual basis, while
marketing and sales activities have been transferred to Decora. During this
transition period, Decora is designing and implementing a complete North
American distribution, sales and marketing system, including the installation of
systems and infrastructure, the hiring of personnel and the transition of
customer interface. Decora has retained Mercer Management Consulting, Inc. to
recommend and oversee the implementation of an optimal distribution and
information systems strategy with the goal of helping Decora complete the
transition within the nine-month period. There can be no assurance that such
transition will occur smoothly or be within management's cost estimates. The
inability to complete the transition as planned could result in increased
investment requirements, increased operating costs, loss of sales, loss of
customers and reduction in operating cash flow available to service required
debt payments.
RELOCATION OF MANUFACTURING OPERATIONS
As part of the Rubbermaid Acquisition, Decora acquired the assets utilized
in manufacturing Rubbermaid's Shelf Liner product line and will be required to
relocate these manufacturing operations prior to the end of the nine-month
transition period. Decora plans to relocate these operations to its existing
manufacturing facility in Fort Edward, New York and will use approximately $2.5
million of the net proceeds from the offering of the Old Notes to fund the
relocation, installation and start-up costs. While Decora is experienced in the
installation and operation of production machinery, there are risks associated
with the removal, transportation, installation and start-up of such machinery
which may increase the estimated costs and result in an interruption of product
supply. Additionally, no assurance can be given that Decora's manufacturing
costs following the relocation will be the same or less than those experienced
by Rubbermaid.
UNCERTAINTIES CONCERNING FUTURE OPERATING REQUIREMENTS AND COSTS
In connection with the Rubbermaid Acquisition, Decora acquired assets which
constituted Rubbermaid's Decorative Coverings Group. Because the Decorative
Coverings Group was operated under Rubbermaid's centralized sales, operations
and cash management system, it was not practicable to determine the nature and
magnitude of indirect costs for certain functions and services that had been
performed by centralized Rubbermaid departments outside the defined scope of the
Decorative Coverings Group (including all advertising and other distribution,
selling, general and
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administrative expenses), or to reasonably estimate what such costs would have
been had Rubbermaid operated the Decorative Coverings Group on a stand-alone
basis. Decora's ability to estimate such costs accurately going forward is
limited by, among other factors, the absence of such information from
Rubbermaid. The failure to estimate such costs accurately could have a material
adverse effect on Decora's ability to successfully implement its business
strategy following the Rubbermaid Acquisition and on the Company's business,
financial condition or results of operations.
SALES DECLINE IN DECORATIVE COVERINGS GROUP PRODUCTS
Rubbermaid's sales of Decorative Coverings Group products declined by
approximately 16% during the Company's March 31, 1998 fiscal year versus fiscal
year 1997, and Decora's fiscal year unit volume shipments of Con-Tact products
to Rubbermaid declined at an annual rate (measured as the annual percentage
decrease from March 31, 1995 to March 31, 1998) of 12% since March 31, 1995.
Some of the decline may have been attributable to reduction in inventory levels
by retail customers. The Company will attempt to reverse the declining trend in
sales not caused by inventory reductions through its new selling, marketing and
merchandising strategies, which will include introduction of new products and
new applications of existing products both to existing retail customers and to
new channels of distribution which had not been utilized by Rubbermaid. However,
there can be no assurance that such decline can be reversed. Although the
purchase price for the Rubbermaid Acquisition will be decreased by up to $2.5
million if calendar year 1998 net sales of Decorative Coverings Group products
are below a certain level (although not on a dollar-for-dollar basis), further
declines could severely impact the Company's ability to fund its operations,
maintain its competitive position and pay its debt obligations, including those
under the Notes.
COMPETITION
Competition is intense in the Company's consumer decorative covering and
OEM product industries, and some of the Company's competitors have substantially
more capital and other resources available to them and have greater experience
in marketing and distribution than the Company. There can be no assurance that
the Company will be able to maintain or increase its market share or that
competition will not have a material adverse effect on the Company's business,
financial condition or results of operations.
DEPENDENCE ON SUPPLIERS
The primary raw materials used by the Company are paper, polyvinyl chloride
("PVC"), adhesives, inks, silicone and other chemicals. While each of the raw
materials used in the products of Decora and Hornschuch are available from at
least two independent suppliers, the partial or complete loss of certain of
those sources could have at least a temporary material adverse effect on the
Company's results of operations and damage customer relationships. The prices of
the Company's raw materials are subject to fluctuations based on changes in
industry and general economic conditions. In the event raw material costs
increase and the Company is not able to pass the cost of such increases on to
its customers due to extremely competitive market conditions, the Company's
business, financial condition or results of operations could be materially
adversely affected. See "Business -- Manufacturing."
DEPENDENCE ON LARGE CUSTOMERS
Currently, the most significant customers of the Company consist of
Laverna, Mercedes Benz and Metro through Hornschuch and Kmart, Target and
Wal-Mart through Decora. The loss of any one of these customers could have a
material adverse effect on the Company's business, financial condition or
results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company's foreign operations are conducted primarily through
Hornschuch. The Company's European operations, representing approximately 79% of
the Company's net sales for the six months ended March 31, 1998, are
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subject to special risks inherent in doing business outside the United States,
including governmental instability, war and other international conflicts, civil
and labor disturbances, requirements of local ownership, partial or total
expropriation, nationalization, currency devaluation, foreign exchange controls
and foreign laws and policies, each of which may limit the movement of assets or
funds or result in the deprivation of contract rights or the taking of property
without fair compensation.
The Company reports its net sales and expenses in U.S. dollars. Upon
acquiring 73.2% of Hornschuch on October 1, 1997, the Company's consolidated
operations and cash flow became significantly exposed to changes in exchange
rates between the U.S. dollar and the Deutsche Mark, as well as, to a limited
extent, other foreign currencies. To date, the Company has engaged in limited
hedging transactions to protect against fluctuations in exchange rates. Although
the Company plans to utilize limited hedging strategies in the future as the
need arises, its profitability will continue to be affected by fluctuations in
foreign exchange rates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, customer
support, finance and manufacturing personnel, certain of whom would be difficult
to replace. The Company does not maintain and does not intend to obtain key man
life insurance for any of its key employees. The loss of the services of certain
of these individuals could have a material adverse effect on the Company and on
its ability to effectively integrate its acquired businesses and pursue planned
strategies for growth. There can be no assurance that the services of such
personnel will continue to be available to the Company. The Company believes
that its success depends on its ability to attract and retain additional
qualified employees and that the failure to recruit such other skilled personnel
could have a material adverse effect on the Company. See "Management."
RELATIONSHIP WITH HORNSCHUCH MANAGEMENT BOARD
Hornschuch represents a significant part of the Company's total operations
and, on an adjusted basis, represented 63% of the Company's net sales for the
twelve months ended March 31, 1998. Hornschuch is governed by actions taken at a
stockholders meeting (the "Stockholders Meeting") and by the Supervisory Board
and the Management Board. The Stockholders Meeting's functions are basically
limited to passing resolutions concerning Hornschuch's legal and financial
structure, electing and recalling stockholder-elected members of the Supervisory
Board. Generally, a majority of all votes cast is required to pass a resolution;
in certain cases, however, higher majorities may be required. In the
Stockholders Meeting, each stockholder has the right to demand certain
information from the Management Board. Hornschuch's Supervisory Board is
comprised of nine members, six of whom are elected by the Stockholders Meeting
(with DI Deutschland as controlling stockholder) and the remaining three of whom
are elected by Hornschuch's employees according to applicable German
co-determination law. The Supervisory Board supervises the Management Board, in
particular, with respect to financial, economic, legal and personnel matters. In
addition, it elects and, under certain circumstances, may remove members of the
Management Board and, due to a recent change of the law, also Hornschuch's
auditors. The Supervisory Board has comprehensive information rights vis-a-vis
the Management Board and reviews quarterly reports of the Management Board, but
it does not control the Management Board. Although the Supervisory Board cannot
issue binding instructions to the Management Board, statutory provisions or the
Supervisory Board itself may subject certain transactions and measures to the
Supervisory Board's consent. The Management Board manages the day-to-day affairs
of Hornschuch and legally represents the Company. With respect to third parties
such power of representation is unrestricted and may not be restricted. The
foregoing limitations upon the powers of the Supervisory Board may effectively
limit the ability of the Company to cause Hornschuch to comply with restrictive
covenants under the Indenture at such time, if any, as Hornschuch becomes a
Restricted Subsidiary. See "Description of Exchange Notes -- Certain Covenants
- -- Designation of Unrestricted Subsidiaries." The Management Board currently
consists of two persons: Hans-Georg Stahmer and Bernard Muller, whose terms
extend until September 30, 2000 and December 31, 2002, respectively. See
"Management -- Executive Officers and Directors of DII and Certain Officers of
Subsidiaries."
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Despite limitations on its ability to control the day-to-day management of
Hornschuch, the Supervisory Board is entitled to (i) add its own nominees to the
existing Management Board or (ii) remove the existing members of the Management
Board either for "cause" or upon a shareholder vote of lack of confidence which
has not been made arbitrarily. The Supervisory Board also oversees capital
expenditures and personnel and reviews quarterly reports of operations. The
Company will continue to evaluate various options concerning Hornschuch's
structure. See "Business -- Hornschuch Minority Tender Offer and Possible
Reorganization."
LABOR RELATIONS
At March 31, 1998, 113 of Decora's employees were represented by Local #13
United Paperworkers International Union (AFL-CIO) under a contract which was
renegotiated and renewed in April 1996 and expires in March 1999. As of the same
date, 670 of Hornschuch's employees were represented by the Textile and Clothing
trade union in Germany, which merged into the Metal trade union effective April
1, 1998. The most recent collective bargaining agreement for Hornschuch's
employees (including both hourly and salaried employees below management level)
was signed in February 1997 and expires in May 1999. Although the Company
considers its employee relations generally to be good, a prolonged work stoppage
or strike at any facility could have a material adverse effect on the business,
financial condition or results of operations of the Company. In addition, there
can be no assurance that upon the expiration of existing collective bargaining
agreements, new agreements will be reached without union action or that any such
new agreements will be on terms satisfactory to the Company. See "Business --
Employees."
SEASONALITY
Historically, Decora has generally experienced higher sales and earnings in
its first two fiscal quarters as a result of increased seasonal demand for
Con-Tact products in late spring and summer. This seasonal pattern is expected
to continue now that the Rubbermaid Acquisition has been completed. The effect
of this seasonality on the Company's consolidated operations has been moderated
somewhat by the Hornschuch Acquisition, since Hornschuch's product sales do not
tend to be seasonal to the same degree as Decora's and Hornschuch's sales and
profitability are typically strongest in the fourth fiscal quarter. See
"Business -- Seasonality."
PATENTS, TRADEMARKS AND TRADE SECRETS
Management believes that certain patents, trade names and trade secrets
which the Company currently owns and the rights to the Con-Tact and d-c-fix
names are important to the business of the Company. See "Business -- Proprietary
Rights." The Company's ability to compete effectively with other companies will
depend in part on its ability to maintain the proprietary nature of its patents,
trade names and trade secrets. Although the Company seeks to protect its
proprietary information by obtaining patents, registering trade names and
entering into trade secret and confidentiality agreements, there is no guarantee
that competitors will not misappropriate proprietary information or develop
similar products that are outside the protection of the Company's patents, trade
secrets and other proprietary rights. The protections afforded by patents, trade
names and confidentiality agreements are sometimes limited in scope and time and
are difficult to enforce. There is no assurance that patents will provide
substantial protection or be of commercial benefit to the Company. Third parties
could also file claims for injunctive relief, damages or other relief against
the Company asserting that the technologies used by the Company infringe on such
parties' patent or other proprietary rights. The cost of enforcing the Company's
patent and other proprietary rights in lawsuits brought by the Company against
infringers or of defending itself against infringement charges by other patent
holders may be high and could interfere with the Company's operations.
ENVIRONMENTAL MATTERS
The Company's U.S. operations and properties are subject to numerous
federal, state and local environmental laws and regulations relating to the
emission, discharge, storage, treatment, handling, generation, transportation,
release,
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disposal, investigation and remediation of certain materials, substances and
wastes used in or resulting from its operations, and providing for private,
public and criminal liability. Liability for investigation and remediation is
strict and may be joint and several. The Company's U.S. operations are also
governed by laws and regulations relating to workplace safety and worker health
which, among other things, regulate employee exposure to hazardous chemicals in
the workplace. The Company believes, however, that its U.S. operations are in
substantial compliance with the applicable environmental laws.
The Company's German operations and properties and the two properties
indirectly owned by Hornschuch which are leased to third parties as described in
"Risk Factors -- Hornschuch Unconsolidated Real Estate" are subject to numerous
German federal, state and local laws and regulations imposing limitations on the
discharge of pollutants into the air, soil and water, establishing standards for
the treatment, storage and disposal of solid and hazardous wastes, requiring
remediation in certain circumstances and providing for private, public and
criminal liability. Effective January 1, 1991, Germany enacted the Environmental
Liability Act (the "ELA"), which imposes strict liability for certain
environmental matters vis-a-vis third party claims; however, strict liability
does not apply to minor property damages caused during normal operations
conducted in accordance with law or to damages that occurred prior to January 1,
1991 or were caused by force majeure. The ELA provides for other limitations on
liability under certain circumstances. Public and private environmental
liability may also arise under other federal, state and local environmental laws
and regulations. Such liability is not subject to the limitations on liability
provided by the ELA and may include certain other damages not available under
the ELA. Recently, Germany enacted the Soil Protection Act (the "SPA"), which
will become effective March 1, 1999. Among other things, the SPA includes
requirements concerning both the avoidance of soil pollution and the remediation
of such pollution even if the pollution occurred before March 1, 1999.
Compliance with regulatory matters has increased costs and is expected to lead
to higher costs in the future, particularly for insurance.
As with other companies engaged in like businesses, the Company's
operations expose it to the risk of liabilities or claims with respect to
environmental matters, including those relating to the disposal and release of
hazardous substances, and there can be no assurance that material costs will not
be incurred in connection with such liabilities or claims. The Company believes,
however, that its operations are in substantial compliance with applicable
environmental laws.
Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws and regulations and
liability for known environmental conditions will not have a material adverse
effect on the Company's business, financial condition or results of operations.
However, the Company cannot predict what environmental or health and safety
legislation or regulations will be enacted in the future or how existing or
future laws or regulations will be enforced, administered or interpreted, nor
can it predict the amount of future expenditures which may be required in order
to comply with such environmental or health and safety laws or regulations or to
respond to new environmental claims. See "Business -- Environmental Matters."
YEAR 2000 RISKS
The Company is seeking to ensure that its electronic data processing
systems will recognize the year 2000 and will not treat any date after December
31, 1999 as a date during the twentieth century. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." However, no assurances can be given that the Company will be
able to avoid all year 2000 problems, especially those that could originate with
third parties with whom the Company engages in electronic transactions or
otherwise does business. If the Company or any third party with whom the Company
does business were to have a year 2000 problem, the Company's business could be
seriously disrupted and the Company's financial condition and results of
operations could be materially adversely affected.
HORNSCHUCH UNCONSOLIDATED REAL ESTATE
Certain indirect subsidiaries of Hornschuch own two commercial real estate
properties which are unrelated to its operating business and which collateralize
separate loans from Deutsche Bank and Baden Wurttembergische Bank issued to a
subsidiary of Hornschuch. Hornschuch is an effective guarantor of such loans
because Hornschuch is a party to a
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"Profit and Loss Transfer Agreement" with the borrower subsidiary. The balance
of the loans was DM26.8 million as of March 31, 1998. Due to a decrease in the
appraised value of one of the properties, at March 31, 1998, Deutsche Bank
required a mandatory prepayment; the balance of the DM4.7 million remaining
prepayment must be repaid in annual installments of DM0.8 million commencing
March 31, 1999 on the loan and other costs, although no assurance can be given
that this will continue to be true in the future. Currently, the properties are
producing rental income sufficient to cover interest payments. These loans are
not included in the Hornschuch Credit Facilities. Since the operation of these
properties has detracted from Hornschuch's ability to focus on its principal
businesses, management is attempting to sell the properties and has engaged a
professional property manager to manage the properties pending their sale. There
is no assurance that the properties could be sold in the near term, or at all,
at a price which would be sufficient to repay the loan in full. If not,
Hornschuch could be required to pay amounts due under the loan, which could have
a material adverse effect on Hornschuch's business and financial condition.
RISK OF FOREIGN EXCHANGE RATE FLUCTUATIONS; INTRODUCTION OF THE EURO CURRENCY
The results of operations and the financial position of Hornschuch are
reported in DM and then translated into dollars at the applicable foreign
currency exchange rate for inclusion in the Company's consolidated financial
statements. As exchange rates between these foreign currencies fluctuate, the
translation effect of such fluctuations may have a material effect on the
Company's consolidated results of operations and financial position as reported
in dollars.
Stage III of the European Economic and Monetary Union ("Stage III") is
presently anticipated to commence on January 1, 1999 for those member states of
the European Union that satisfy the convergence criteria set forth in the Treaty
on European Union. Part of Stage III is the introduction of a single currency
(the "Euro") which will be legal tender in such member states. It is anticipated
that such member states will adopt legislation providing specific rules for the
introduction of the Euro. If the Euro is adopted by Germany, it will replace the
Deutsche Mark as legal tender in Germany and the Company will remain exposed to
a risk of fluctuations in exchange rates relative to the new currency.
USE OF PROCEEDS
DII will not receive any cash proceeds from the issuance of the Exchange
Notes pursuant to the Exchange Offer.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were originally issued and sold on April 29, 1998. The offer
and sale of the Old Notes was not required to be registered under the Securities
Act in reliance upon the exemption provided by Section 4(2) of the Securities
Act. In connection with the sale of the Old Notes, DII and Decora agreed to use
their best efforts to cause to be filed with the Commission a registration
statement relating to an exchange offer pursuant to which Exchange Notes of DII
covered by such registration statement and containing terms identical in all
material respects to the terms of the Old Notes would be offered in exchange for
Old Notes tendered at the option of the Holders thereof. DII and Decora further
agreed that, if applicable interpretations of the staff of the Commission do not
permit DII to effect such an Exchange Offer, or if for any other reason the
Exchange Offer is not consummated within 180 days of the Issue Date, or if the
Initial Purchaser so requests with respect to Old Notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer, or if any Holder of Notes is
not eligible to participate in the Exchange Offer or (for Holders other than
affiliates) does not receive freely tradeable Exchange Notes in the Exchange
Offer, DII would file a shelf registration statement covering resales of the Old
Notes (the "Shelf Registration Statement") and use its best efforts to have such
Shelf Registration Statement become effective under the Securities Act and to
keep effective the Shelf Registration Statement until the earlier of (i) the
time when the Old Notes covered by the Shelf Registration Statement are eligible
for resale pursuant to Rule 144(k) under the Securities Act, (ii) the time when
all of the Old Notes covered by the Shelf Registration Statement have been
resold
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pursuant thereto in accordance with the intended methods of distribution by the
Holders thereof and (iii) two years after April 29, 1998.
The purpose of the Exchange Offer is to fulfill certain of DII's and
Decora's obligations under the Registration Rights Agreement. Except as
otherwise expressly set forth herein, this Prospectus may not be used by any
Holder of the Old Notes or any Holder of the Exchange Notes to satisfy the
registration and prospectus delivery requirements under the Securities Act that
may apply in connection with any resale of such Old Notes or Exchange Notes. See
"The Exchange Offer -- Terms of the Exchange."
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution." Broker-dealers who did not so
acquire Old Notes are not eligible to participate in the Exchange Offer.
TERMS OF THE EXCHANGE
Holdings hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of Old
Notes. The terms of the Exchange Notes are identical in all material respects to
the terms of the Old Notes for which they may be exchanged pursuant to this
Exchange Offer, except that the Exchange Notes will generally be freely
transferable by Holders thereof and will not be subject to any covenant
regarding registration. The Exchange Notes will evidence the same indebtedness
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes." The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes being tendered for exchange.
DII has not requested, and does not intend to request, an interpretation by
the staff of the Commission with respect to whether the Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Old Notes may be offered for
sale, resold or otherwise transferred by any Holder without compliance with the
registration and prospectus delivery provisions of the Securities Act. Instead,
based on an interpretation by the staff of the Commission set forth in a series
of no-action letters issued to third parties (see Exxon Capital Holdings Corp.
(available April 13, 1989), Morgan Stanley & Co. Incorporated (available June 5,
1991) and Shearman & Sterling (available July 2, 1993)), DII believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by any Holder of
such Exchange Notes (other than any such Holder that is an "affiliate" of DII
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and neither
such Holder nor any other such person is engaging in or intends to engage in the
distribution of such Exchange Notes. Since the Commission has not considered the
Exchange Offer in the context of a no-action letter, there can be no assurance
that the staff of the Commission would make a similar determination with respect
to the Exchange Offer. Any Holder who is an affiliate of DII or who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each Holder must
acknowledge that it has no arrangement or understanding with any person to
participate in the distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "The
Exchange Offer -- Terms and Conditions of the Letter of Transmittal" and "Plan
of Distribution." Broker-dealers who did not so acquire Old Notes are not
eligible to participate in the Exchange Offer.
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Interest on the Exchange Notes shall accrue from the most recent date to
which interest has been paid on the Old Notes so surrendered or, if no interest
has been paid on such Old Notes, from April 29, 1998.
Tendering Holders of the Old Notes shall not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer shall expire on the Expiration Date. The term
"Expiration Date" means 5:00 p.m., New York City time, on ___________, 1998,
unless DII in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date on which the Exchange Offer, as so extended by DII, shall expire.
DII reserves the right to extend the Exchange Offer at any time and from time to
time by giving oral or written notice to United States Trust Company of New York
(the "Exchange Agent") and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. During any extension of the Exchange Offer, all Old
Notes previously tendered and not withdrawn pursuant to the Exchange Offer will
remain subject to the Exchange Offer.
The Exchange Date is the first business day following the Expiration Date.
DII expressly reserves the right to (i) terminate the Exchange Offer and not
accept for exchange any Old Notes if any of the events set forth below under
"Conditions to the Exchange Offer" shall have occurred and shall not have been
waived by DII and (ii) amend the terms of the Exchange Offer in any manner
which, in its good faith judgment, is advantageous to the Holders of the Old
Notes, whether before or after any tender of the Old Notes. Unless DII
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, DII will exchange the Exchange Notes for the Old Notes on the
Exchange Date.
TENDER PROCEDURE
The tender to DII of Old Notes by a Holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by DII will constitute a
binding agreement between such Holder and DII in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
This Prospectus, together with the Letter of Transmittal, will first be sent out
on or about ___________, 1998, to all Holders of Old Notes known to DII and the
Exchange Agent.
A Holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other documents required by the Letter of Transmittal, to the Exchange
Agent at its address set forth on the Letter of Transmittal on or prior to the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any indentured Old Notes are to be reissued) in the name
of the registered Holder (which term, for the purposes described herein, shall
include any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to DII and duly executed by the
registered Holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office, branch, agency or correspondent in the United States, or by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. (any of the foregoing
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<PAGE> 28
hereinafter referred to as an "Eligible Institution"). If the Exchange Notes
and/or Old Notes not exchanged are to be delivered to an address other than that
of the registered Holder appearing on the note register for the Old Notes, the
signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
THE METHOD OF DELIVERY OF NOTES AND ALL OTHER DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE OBTAINED, AND THE MAILING BE
MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE
EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR
NOTES SHOULD BE SENT TO DII.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Old Notes at the book-entry
transfer facility for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the book-entry transfer facility system may make book-entry
delivery of Old Notes by causing such book-entry transfer facility to transfer
such Old Notes into the Exchange Agent's account with respect to the Old Notes
in accordance with the book-entry transfer facility's procedures for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's accounts at the book-entry transfer facility,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth on the Letter of
Transmittal on or prior to the Expiration Date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures.
If a Holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its office listed on the Letter of Transmittal on or prior to the Expiration
Date a letter, telegram or facsimile transmission (receipt confirmed by
telephone and an original delivered by guaranteed overnight courier) from an
Eligible Institution setting forth the name and address of the tendering Holder,
the names in which the Old Notes are registered and, if possible, the
certificate numbers of the Old Notes to be tendered, and stating that the tender
is being made thereby and guaranteeing that three New York Stock Exchange
trading days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, the Old Notes, in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the book-entry facility), will be delivered by such
Eligible Institution together with a properly completed and duly executed Letter
of Transmittal (and any other required documents). Unless Old Notes being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), DII may, at
its option, reject the tender. Copies of a notice of Guaranteed Delivery which
may be used by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by DII, whose determination will be final and binding. DII reserves
the absolute right to reject any Old Notes not properly tendered or the
acceptance for exchange of which may, in the opinion of DII's counsel,
20
<PAGE> 29
be unlawful. DII also reserves the absolute right to waive any of the conditions
of the Exchange Offer or any defect or irregularity in the tender of any Old
Notes. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such reasonable period of time as
DII shall determine. None of DII, the Exchange Agent or any other person will be
under any duty to give notification of any defects or irregularities in tenders
or incur any liability for failure to give any such notification.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution." Broker-dealers who did not so
acquire Old Notes are not eligible to participate in the Exchange Offer.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to DII and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Old Notes, and that, when the same
are accepted for exchange, DII will acquire good and unencumbered title to the
tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or DII to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes or transfer ownership of
such Old Notes on the account books maintained by a book-entry transfer
facility. The Transferor further agrees that acceptance of any tendered Old
Notes by DII and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by DII of certain of its obligations under the
Registration Rights Agreement. All authority conferred by the Transferor will
survive the death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.
By tendering, each Holder of Old Notes will represent to DII that, among
other things, (i) such Holder is not an "affiliate" of DII within the meaning of
Rule 405 under the Securities Act, or if it is such an affiliate, it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable, (ii) Exchange Notes to be acquired by such Holder of
Old Notes in connection with the Exchange Offer are being acquired by such
Holder in the ordinary course of business of such Holder, (iii) such Holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in,
directly or indirectly, the distribution of the Exchange Notes. If the Holder is
a broker-dealer that will receive Exchange Notes for such Holder's own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, such Holder will be required to
acknowledge in the Letter of Transmittal that such Holder will deliver a
prospectus in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, such Holder will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act. See
"Plan of Distribution." This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. DII will, for a period of 365 days after the Expiration
Date, make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale. Other broker-dealers are not eligible to
participate in the Exchange Offer.
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<PAGE> 30
WITHDRAWAL RIGHTS
Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the Letter of Transmittal, and with respect to a facsimile
transmission, must be confirmed by telephone and an original delivered by
guaranteed overnight delivery. Any such notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered Old Notes to be
withdrawn, the certificate numbers of Old Notes to be withdrawn, the principal
amount of Old Notes to be withdrawn, a statement that such Holder is withdrawing
his election to have such Old Notes exchanged, and the name of the registered
Holder of such Old Notes, and must be signed by the Holder in the same manner as
the original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to DII that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Old Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Old Notes promptly following receipt of notice of withdrawal. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Old Notes or otherwise
comply with the book-entry transfer procedure. All questions as to the validity
of notices of withdrawals, including time of receipt, will be determined by DII
and such determination will be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such
book-entry transfer facility specified by the Holder) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "The Exchange Offer -- Tender Procedure" at any time
on or prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the satisfaction or waiver, prior to the Expiration Date, of all the
terms and conditions of the Exchange Offer, the acceptance for exchange of Old
Notes validly tendered and not withdrawn and issuance of the Exchange Notes will
be made on the Exchange Date. For the purposes of the Exchange Offer, DII shall
be deemed to have accepted for exchange validly tendered Old Notes when, as and
if DII has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering Holders of Old Notes
for the purposes of receiving Exchange Notes from DII and causing the Old Notes
to be assigned, transferred and exchanged. Upon the terms and subject to the
conditions of the Exchange Offer, delivery of Exchange Notes to be issued in
exchange for accepted Old Notes will be made by the Exchange Agent promptly
after acceptance of the tendered Old Notes. Tendered Old Notes not accepted for
exchange by DII will be returned without expense to the tendering Holders
promptly following the Expiration Date or, if DII terminated the Exchange Offer
prior to the Expiration Date, promptly after the Exchange Offer is so
terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, DII will not be required to issue Exchange Notes in
respect of any properly tendered Old Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News
Service), or, at its option, modify or otherwise amend the Exchange Offer, if
any of the following events occur:
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<PAGE> 31
(a) any law, rule or regulation or applicable interpretations of the staff
of the Commission which, in the good faith determination of DII, do not permit
DII to effect the Exchange Offer; or
(b) there shall occur a change in the current interpretation by the staff
of the Commission which permits the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes to be offered for resale, resold and
otherwise transferred by Holders thereof (other than any such Holder that is an
"affiliate" of DII within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such Holders' business and such Holders have no arrangements
with any person to participate in the distribution of such Exchange Notes; or
(c) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national securities
exchange or in the over-the-counter market, (ii) any limitation by any
governmental agency or authority which may adversely affect the ability of DII
to complete the transactions contemplated by the Exchange Offer, (iii) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States or any limitation by any governmental agency or
authority which adversely affects the extension of credit or (iv) a commencement
of a war, armed hostilities or other similar international calamity directly or
indirectly involving the United States, or, in the case of any of the foregoing
existing at the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof; or
(d) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets, liabilities,
financial condition, operations, results of operations or prospects of DII that
is or may be adverse to DII, or DII shall have become aware of facts that have
or may have adverse significance with respect to the value of the Old Notes or
the Exchange Notes; which, in the reasonable judgment of DII in any case, and
regardless of the circumstances (including any action by DII) giving rise to any
such condition, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
DII expressly reserves the right to terminate the Exchange Offer and not
accept for exchange any Old Notes upon the occurrence of any of the foregoing
conditions (which represent all of the material conditions to the acceptance by
DII of properly tendered Old Notes). In addition, DII may amend the Exchange
Offer at any time prior to the Expiration Date if any of the conditions set
forth above occur. Moreover, regardless of whether any of such conditions has
occurred, DII may amend the Exchange Offer in any manner which, in its good
faith judgment, is advantageous to Holders of the Old Notes.
The foregoing conditions are for the sole benefit of DII and may be waived
by DII, in whole or in part, in the reasonable judgment of DII. Any
determination made by DII concerning an event, development or circumstance
described or referred to above will be final and binding on all parties.
DII is not aware of the existence of any of the foregoing events.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth on the Letter of Transmittal. United
States Trust Company of New York also acts as Trustee and Registrar (the
"Registrar") under the Indenture.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
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<PAGE> 32
SOLICITATION OF TENDERS; EXPENSES
DII has not retained any dealer-manager or similar agent in connection with
the Exchange Offer and will not make any payments to brokers, dealers or others
for soliciting acceptances of the Exchange Offer. DII will, however, pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for reasonable out-of-pocket expenses in connection therewith. DII will also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
and related documents to the beneficial owners of the Old Notes and in handling
or forwarding tenders for their customers.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by DII. Neither the delivery of
this Prospectus nor any exchange made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of DII since
the respective dates as of which information is given herein. The Exchange Offer
is not being made to (nor will tenders be accepted from or on behalf of) Holders
of Old Notes in any jurisdiction in which the making of the Exchange Offer or
the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, DII may, at its discretion, take such action as it may
deem necessary to make the Exchange Offer in any such jurisdiction and extend
the Exchange Offer to Holders of Old Notes in such jurisdiction. In any
jurisdiction in which the securities laws or blue sky laws of which require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer is
being made on behalf of DII by one or more registered brokers or dealers which
are licensed under the laws of such jurisdiction.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that Holders who instruct
DII to register Exchange Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering Holder will be responsible for the payment of any
applicable transfer tax thereon.
EFFECTS OF TENDERING ON HOLDERS OF OLD NOTES
Participation in the Exchange Offer is voluntary, and Holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decisions
on which action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, DII
and Decora will have fulfilled certain covenants contained in the Registration
Rights Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and limitations applicable thereto, under the Indenture, except for
such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. See "Description of Exchange Notes."
DII may in the future seek to acquire untendered Old Notes in open market
or privately negotiated transactions, through subsequent exchange offers or
otherwise. DII has no present plan to acquire any Old Notes which are not
tendered in the Exchange Offer.
CONSEQUENCE OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to an exemption from,
or in a transaction not subject to, the registration
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<PAGE> 33
requirements of the Securities Act and applicable state securities laws. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exception from, or in a transaction not
subject to, the Securities Act and applicable states securities laws. DII does
not currently anticipate that it will register the Old Notes under the
Securities Act. See "Risk Factors -- Consequences of Failure to Exchange."
CAPITALIZATION
The following table sets forth cash and cash equivalents and the
consolidated total capitalization of the Company as of March 31, 1998, as
adjusted to give effect to the offering of the Old Notes, other borrowing,
repayment and refinancing of debt, the Intercompany Note, the acquisition of the
Decorative Coverings Group assets, relocation of manufacturing operations of the
Decorative Coverings Group assets and completion of the Hornschuch Minority
Tender Offer, and as further adjusted to give effect to the Exchange Offer (in
thousands):
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
------- ----------- ----------
<S> <C> <C> <C>
Cash and cash equivalents ......................... $ 1,682(a) $ 8,215(a) $ 8,215(a)
======= ======== ========
Long-term debt (including current portion):
Decora Term Loans ........................... $ 6,712 $ -- $ --
Decora Revolving Credit Facility ............ 2,500 -- --
Decora IRB Credit Facility .................. 2,460 2,460 2,460
Decora HUD Credit Facility .................. 198 198 198
Decora Senior Subordinated Note ............. 17,230 -- --
DI Deutschland Credit Facility .............. 20,203 20,203 20,203
Hornschuch Term Loans ....................... 2,780 2,780 2,780
Hornschuch Lines of Credit .................. 7,783 17,530 17,530
DII Convertible Note ........................ 1,250 -- --
DII Old Notes ............................... -- 110,086(b) --
DII Exchange Notes .......................... -- -- 110,086
------- -------- --------
Total long-term debt (including
current portion) ..................... 61,116 153,257 153,257
Total shareholders' equity ........................ 18,089 16,089(c) 16,089(c)
------- -------- --------
Total capitalization(d) ........................... $79,205 $169,346 $169,346
======= ======== ========
</TABLE>
(a) Cash and cash equivalents, as adjusted and as further adjusted, were
determined as follows:
<TABLE>
<S> <C>
Cash and cash equivalents-- actual $1,682
DII Notes (Old Notes, as adjusted, and Exchange
</TABLE>
25
<PAGE> 34
<TABLE>
<S> <C>
Notes, as further adjusted) 110,086
Intercompany Note 9,747
Rubbermaid Acquisition(1) (62,500)
Relocation of manufacturing operations of
Rubbermaid's Decorative Coverings Group (2,500)
Refinancings(2) (32,100)
Hornschuch Minority Tender Offer(3) (9,300)
Fees and expenses (6,900)
---------
$ 8,215
=========
</TABLE>
(1) Includes payments totaling $5.0 million to be paid over nine months
relative to additional purchase price and for transition services,
and $2.5 million which will be held in escrow pending calendar year
1998 net sales, but excludes up to an additional $2.5 million which
could be payable to Rubbermaid depending on calendar year 1998 net
sales. The purchase price is subject to certain other adjustments
based on the actual date of closing and inventory levels at such date.
(2) Includes $3.6 million of accrued interest and prepayment premium in
connection with the repayment of an $18.0 million subordinated loan.
(3) Assumes that all of the outstanding minority voting shares of
Hornschuch are purchased. See "Business -- Hornschuch Minority Tender
Offer and Possible Reorganization." The Company intends to use any
unused portion of the $9.3 million allocated to the Hornschuch
Minority Tender Offer to make periodic required payments under the DI
Deutschland Credit Facility, and any amount in excess of $9.3 million
needed in connection with the Hornschuch Minority Tender Offer will
come out of general corporate funds.
(b) Reflected net of original issue discount of $2,664.
(c) Reflects an expected extraordinary charge in the first quarter of fiscal
1999, net of income tax effect, of approximately $2,000 for prepayment
premium and the write-off of certain unamortized financing costs relating
to the debt being refinanced.
(d) Total capitalization does not include an approximate $7,000 minority
interest in Hornschuch.
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<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's efforts during fiscal 1998 were focused on transforming
itself from a contract manufacturer for a customer representing approximately
90% of its business to a worldwide leader in the self-adhesive consumer
decorative products category through two significant acquisitions. On October 1,
1997, the Company completed the Hornschuch Acquisition, acquiring 73.2% of the
outstanding voting shares of Hornschuch. Management believes that Hornschuch is
the largest, independent, vertically integrated manufacturer and marketer of
consumer self-adhesive decorative and surface coverings in Europe. Hornschuch is
best known for d-c-fix, which is one of the largest brands of consumer
self-adhesive decorative coverings in Europe and a popular brand in emerging
markets outside Western Europe and North America. Hornschuch also has a
significant industrial product line which includes sales of various film
products to manufacturers of furniture, luggage and automobiles.
On March 30, 1998, the Company signed a definitive purchase agreement
for the acquisition of the assets of the Decorative Products Group from
Rubbermaid for $62.5 million, subject to adjustment. The Rubbermaid Acquisition
closed on April 29, 1998 and included assets related to: (i) the Con-Tact
self-adhesive line, which is currently manufactured by Decora, (ii) the Shelf
Liner light-adhesive line, which is currently manufactured by Rubbermaid, and
(iii) the Grip Liner non-adhesive covering line, which is currently manufactured
by a third party pursuant to the terms of an exclusive manufacturing agreement.
The Rubbermaid Acquisition will enable Decora, which previously had been
primarily only a manufacturer of Con-Tact, to integrate the marketing, sales and
distribution of the Con-Tact product line, as well as the other two product
lines, with its manufacturing abilities. In conjunction with the financing of
the Rubbermaid Acquisition, the Company refinanced a substantial portion of its
outstanding debt and is in the process of making material investments which are
required to integrate the acquired assets into the Company's business (see
"Liquidity and Capital Resources" below).
As a result of these two acquisitions, the Company has established
itself as the world-wide market leader in the self-adhesive consumer product
category with significant competitive strengths including strong brand
recognition, strong product placement with retailers, vertically integrated
manufacturing operations, proprietary technologies, broad product lines and
cross-selling opportunities. The Company's strategy is to integrate the recent
acquisitions and to utilize its competitive strengths in order to maintain its
leadership position and to increase shareholder value. An important initial
focus for the Company is the enhancement of the Con-Tact brand in North America
and the reversal of a declining sales trend of the Decorative Products Group.
While Management believes that some of the decline is attributable to reduction
in inventories by retail customers, the Company will attempt to reverse the
declining trend in sales not caused by inventory reductions through its selling,
marketing and merchandising strategies, although no assurances can be given that
such trend can be reversed (see "Outlook" below).
The results of operations of the Company for the twelve months ended
March 31, 1998 reflect the results of Hornschuch since the acquisition date of
October 1, 1997, thus affecting the comparability of results for such period to
those of prior periods. Additionally, the results of operations for all periods
presented do not reflect the Rubbermaid Acquisition, which was completed during
the first quarter of fiscal 1999.
RESULTS OF OPERATIONS
Year Ended March 31, 1998 vs. Year Ended March 31, 1997
The Company's consolidated financial statements for the year ended
March 31, 1998 are the first fiscal year to include post-acquisition results of
Hornschuch and DI Deutschland (unless otherwise noted, in this section financial
information regarding DI Deutschland represents the consolidated results and
financial position of DI Deutschland and
27
<PAGE> 36
Hornschuch), which are so included for the final six months of such fiscal year.
Net sales for the year ended March 31, 1998 were $98,407,000 as compared with
net sales of $41,082,000 for the year ended March 31, 1997. The increase of
$57,325,000 resulted principally from the inclusion of DI Deutschland net sales
of $62,150,000 offset by a $5,856,000 decrease in Decora's net sales to its
principal U.S. customer, Rubbermaid. DI Deutschland's net sales for the fourth
quarter were 17% above third quarter sales reflecting both the seasonally peak
selling period for decorative products and unusually strong sales from certain
decorative product customers. The decrease in net sales in the United States
resulted primarily from inventory reductions initiated by Rubbermaid in an
effort to implement a just-in-time replenishment of inventory levels, as well as
inventory reductions by certain retailers. Export net sales from U.S. operations
were $5,020,000 for the year ended March 31, 1998, reflecting an increase of
$858,000 as compared with $4,162,000 in the year ended March 31, 1997. Net sales
of U.S.-based, non-core and industrial products were $749,000 during the year
ended March 31, 1998 as compared with $527,000 in the year ended March 31, 1997.
Gross profit was $30,187,000, or 30.7% of net sales, for the year ended
March 31, 1998 as compared with $10,579,000, or 25.8% of net sales, for the year
ended March 31, 1997. The increase of $19,608,000 was a result of the addition
of DI Deutschland's gross profit of $20,897,000 reflected in the year ended
March 31, 1998, offset by a decrease of $1,289,000 in gross profit at the U.S.
operations. The decrease in gross profit in the United States was principally
due to the decreased net sales discussed above. Gross profit margin increased by
4.9 percentage points primarily because of the higher gross profit margin
contributed by DI Deutschland's operations in the year ended March 31, 1998. DI
Deutschland's higher gross profit margin reflects its different product mix and
its greater degree of vertical integration than the U.S. operations. DI
Deutschland's gross profit margin was also favorably impacted by changes in
product mix in the fourth quarter due to increased sales of more profitable
decorative products and overall favorable volume variances during the seasonally
strong quarter.
Selling, general and administrative expenses were $17,677,000, or 18.0%
of net sales, for the year ended March 31, 1998 as compared with $5,853,000, or
14.2% of net sales, in the year ended March 31, 1997. The increase of
$11,824,000 was a result of the addition of DI Deutschland's selling, general
and administrative expenses of $12,764,000 reflected in the year ended March 31,
1998, offset by a decrease of $889,000 at the U.S. operations. The decrease in
selling, general and administrative expenses in the United States was primarily
a result of cost-saving measures implemented in fiscal year 1997 and workforce
reductions implemented in the 1998 fiscal year. The 3.8 percentage point
increase in selling, general and administrative expenses as a percentage of net
sales was primarily attributable to the inclusion of the results of DI
Deutschland in the current year, since DI Deutschland's selling, general and
administrative expenses comprised a higher percentage of its net sales than
those of the U.S. operations due to its greater level of integrated sales and
marketing operations.
Non-recurring charges of $1,461,000 were recorded in the year ended
March 31, 1998. Of these charges, $531,000 was recorded relative to severance
costs for U.S. workforce reductions implemented in anticipation of operating
synergies with Hornschuch and $141,000 was recorded relative to print tooling
redundancies between the two operations. An additional $789,000 was recorded to
reserve against certain notes receivable which the Company obtained in fiscal
years 1996 and 1995 in conjunction with the sale of previously discontinued
non-core operations.
Interest expense was $3,829,000 for the year ended March 31, 1998 as
compared with $2,319,000 in the year ended March 31, 1997. The increase of
$1,510,000 is principally due to interest expense of $563,000 on Hornschuch's
operating loans and the additional interest expense of approximately $1,826,000
associated with the Hornschuch Acquisition debt, offset by a decrease in
interest expense at the U.S. operations of approximately $879,000 which resulted
from lower borrowings and lower overall interest rates on outstanding debt.
The Company recognized income before taxes and minority interest of
$7,220,000 in the year ended March 31, 1998, as compared with $2,407,000 in the
year ended March 31, 1997. This increase is principally a result of earnings of
DI Deutschland since the acquisition and decreases in U.S.-based selling,
general and administrative and interest
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expenses partially offset by the non-recurring charge of $1,461,000, as well as
increased interest expense associated with the Hornschuch Acquisition.
Net income of $2,730,000 for the year ended March 31, 1998 was $836,000
lower than the year ended March 31, 1997 as a result of the above noted changes,
a $4,437,000 increase in the provision for income taxes and a $1,212,000
deduction for the minority interest in earnings of Hornschuch.
Year Ended March 31, 1997 vs. Year Ended March 31, 1996
Net sales were $41,082,000 for the year ended March 31, 1997 compared to
$38,828,000 for the year ended March 31, 1996, an increase of 6%. This increase
resulted from significant growth in net sales of decorative products to
international customers, as well as increased net sales to the Company's
principal customer, Rubbermaid. In the prior year, net sales to Rubbermaid had
been negatively impacted 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 also reflected lower per unit net
sales during the first quarter, prior to the start-up of such new operations, in
comparison to the full year of such operations during fiscal 1997. While net
sales to Rubbermaid increased $1,407,000, or 4%, over the prior year amount,
unit shipment volumes during fiscal 1997 decreased by 1% and remained below
historical averages. The Company believes that this decline was partially a
result of lower sales by Rubbermaid to its customers and additional inventory
reductions at Rubbermaid.
International net sales of self-adhesive decorative products were
$4,465,000, an increase of $2,204,000 over the prior year. The majority of this
increase was derived from the export of products for sale in the European market
in addition to increased volume of products sold to other international markets.
Net sales from proprietary non-core decorative products such as thin film and
industrial products for the year ended March 31, 1997 were $1,166,000 lower than
in fiscal 1996 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.
Gross profit for fiscal 1997 was $10,579,000, or $5,000 lower than the
prior year's gross profit of $10,584,000. The Company's gross profit margin was
25.8% during fiscal 1997, or 1.5% lower than the prior year's margin of 27.3%,
reflecting the full year's impact of increased depreciation and amortization
expenses in cost of goods sold related to the manufacturing expansion completed
in September of the prior year as well as changes in product mix. The gross
profit margin was also impacted by the ramp-up of a new international program
whereby shorter production runs and related inefficiencies were required to
support product shipments. Other contributing factors to the change in gross
margin were changes in production volume and product mix.
Selling, general and administrative expenses were $5,853,000 during
fiscal 1997, or $623,000 lower than the prior year's expenses of $6,476,000.
This reduction reflects the impact of cost saving measures which were
implemented during the last four months of fiscal 1996, including an early
retirement program which resulted in a one-time charge of $282,000 to the prior
year's expense. Lower expenditures also resulted from reduced research and
development expense as the Company continued to shift its emphasis from pure
development to the sale of commercialized products. As a result of the above
changes, operating income for the year ended March 31, 1997 increased to
$4,726,000 from $4,108,000 during the prior year.
Net income for the year ended March 31, 1997 was $3,566,000, an increase
of $647,000 over the prior year's net income of $2,919,000. Interest expense was
$2,319,000 for the year ended March 31, 1997 versus $2,675,000 in the prior
year, a decrease of $356,000. Such decrease resulted from reduced borrowings and
reduced interest rates on new borrowings which were used to refinance
pre-existing, higher cost obligations. Income from continuing operations was
also impacted favorably by a tax benefit of $1,159,000 resulting from net
operating loss carry forwards which had
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previously been partially reserved for. The continued profitability of the
Company resulted in the recognition of the remaining benefit under accounting
principles applicable to the Company's net operating loss carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash flow are cash from operations and
borrowings under its credit facilities. The Company's primary capital
requirements include debt service, capital expenditures, working capital needs
and financing of acquisitions.
The Company's net working capital increased from $6,631,000 at March 31,
1997 to $16,133,000 at March 31, 1998, an increase of $9,502,000. The increase
is due to the addition of the net working capital of DI Deutschland of
$9,075,000 at March 31, 1998.
Consolidated cash balances as of March 31, 1998 were $1,807,000 which
are limited by certain security agreements, minority interests and debt
covenants as to use. During recent fiscal periods, DII's subsidiaries generated
cash from operations which was utilized primarily to fund working capital
requirements and repay debt, and DII was funded with management fees, proceeds
of notes receivable and proceeds from the private placement of equity
securities.
Net cash flow from operating activities for the year ended March 31,
1998 was $14,840,000 versus cash flow from operating activities of $3,082,000
for the year ended March 31, 1997. The decrease in net income was offset
primarily by increased depreciation and amortization and the increase in net
working capital noted above.
Capital expenditures for the year ended March 31, 1998 were $1,778,000
versus $489,000 for the year ended March 31, 1997. The recent period includes
expenditures of $993,000 at DI Deutschland subsequent to the Hornschuch
Acquisition. Expenditures of Decora's U.S. operations are consistent with
historical averages. The Company anticipates increasing spending on capital
projects to $10,500,000 in the fiscal year ending March 31, 1999. As a result of
the April 1998 acquisition of Rubbermaid's Decorative Coverings Group, Decora
anticipates spending approximately $2,500,000 to move Rubbermaid's Shelf Liner
equipment from Ohio and install it at Decora's Fort Edward, New York facility
and approximately $2,000,000 to install systems and pay related expenses
necessary to establish Decora's new sales, distribution and customer service
functions.
In October 1997, the Company purchased 73.2% of the voting shares of
Hornschuch for approximately $38.4 million, which was funded with the proceeds
of loans from senior and subordinated lenders and the proceeds from a private
placement of common stock. The Company currently owns approximately 76% of the
outstanding shares of Hornschuch. As a result of the Hornschuch Acquisition, the
Company's consolidated operations and cash flow became significantly exposed to
changes in exchange rates between the U.S. dollar and the Deutsche Mark, as well
as, to a limited extent, other foreign currencies. To date, the Company has
engaged in limited hedging transactions to protect against fluctuations in
exchange rates relative to the payment of interest on the senior loans utilized
to fund the Hornschuch Acquisition. Although the Company plans to utilize
limited hedging strategies in the future as the need arises, its profitability
will continue to be affected by fluctuations in foreign exchange rates. The
Company enters into both foreign currency hedges and interest rate swaps to
protect operations and not for trading purposes. At March 31, 1998, there were
no foreign currency hedges open and the interest rate swap was approximately a
$50,000 liability.
Concurrent with the April 1998 acquisition of the Decorative Coverings
Group, DII issued $112.75 million of Old Notes. The Old Notes were issued with
an original issue discount of $2,664,000 resulting in gross cash proceeds of
$110,086,000. The interest rate on the Old Notes is 11%, which is paid
semi-annually, and no principal payments are required prior to maturity on May
1, 2005. In addition, (i) Hornschuch borrowed DM 18.0 million (approximately
$10.0 million) under its secured credit facilities; (ii) Hornschuch loaned
Decora such $10.0 million pursuant to a secured intercompany note, the proceeds
of which were used by Decora to partially finance the acquisition of the
Decorative Coverings Group; and (iii) Decora entered into a three year, $15.0
million secured revolving line of credit facility (the
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"Decora Credit Facility") which, as of July 6, 1998, has not been utilized.
Availability under the Decora Credit Facility is based on a factor of the amount
of accounts receivable and inventory held by Decora. In addition to financing
the acquisition of the Decorative Coverings Group, these borrowings refinanced
approximately $32.1 million of debt of DII and Decora, will finance the
Hornschuch Minority Tender Offer and will be used for general corporate purposes
including working capital requirements and the relocation of manufacturing
assets noted above. See "Description of Other Indebtedness."
OUTLOOK
The completion of the Hornschuch Acquisition and the Rubbermaid
Acquisition represents two significant achievements for the Company and creates
significant opportunities for strengthening the Company's market position and
increasing sales world-wide. During fiscal 1999, the Company intends to focus
its efforts on areas which are key to achieving its operational and financial
goals, including the following:
- Enhance the North American brands acquired from Rubbermaid and defend
market share.
- Complete the development of its North American sales and distribution
infrastructure.
- Expand international sales.
- Implement manufacturing and product synergies between North American
and German operations.
As a result of financing associated with the Rubbermaid Acquisition and the
Hornschuch Acquisition, the Company has substantial debt in relation to its
shareholders' equity, as well as substantial debt service requirements that are
significant compared to its cash flow from operations. As of March 31, 1998, on
an adjusted pro forma basis (after giving effect to an extraordinary charge, net
of income tax effect of approximately $2,000,000 for pre-payment premium and the
write-off of certain unamortized financing costs relating the debt being
refinanced), the Company would have had consolidated outstanding indebtedness of
approximately $153.3 million, which would have represented 90.5% of total
capitalization. The Company's ability to service its debt will depend upon the
Company's future operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, many of which are
beyond the Company's control. If the Company is unable to service its
indebtedness, it may be required to alter its business plans, restructure or
refinance its indebtedness or seek additional equity capital. There can be no
assurance that the Company will be able to accomplish these objectives on terms
acceptable to it, if at all. See "Risk Factors -- Substantial Leverage;
Restrictive Covenants."
The Company did not acquire the distribution or sales and marketing
operations from Rubbermaid as part of the Rubbermaid Acquisition, and the
Company does not currently have operations which can fulfill such distribution
and sales and marketing requirements. Additionally, Rubbermaid will continue to
manufacture the Shelf Liner product line until such operations can be relocated
to Decora's facility in Fort Edward, New York. For a nine-month transition
period which ends in January 1999, Rubbermaid will continue to provide
manufacturing, warehousing, shipping, order entry, customer service, billing and
collection functions for Decora on a contractual basis, until such activities
have been transferred to Decora. Decora has initiated implementation of a
complete distribution and sales system, including the installation of systems
and infrastructure, the hiring of personnel and the transition of customer
interface. Plans for the relocation of the manufacturing operations are also in
process. While Decora plans to complete the transition prior to January 1999,
the inability to complete the transition as planned could result in increased
investment requirements, increased operating costs, loss of sales, loss of
customers and reduction in operating cash flow available to service required
debt payments. See "Risk Factors -- Need to Develop North American Distribution
Infrastructure" and "-- Relocation of Manufacturing Operations."
Because the Decorative Coverings Group was operated under Rubbermaid's
centralized management system, the Company was not able to determine the cost of
certain services and functions required for operation of the Decorative
Coverings Group which were provided by Rubbermaid's centralized system
(including all advertising, distribution and selling, general and administrative
expenses). The failure to estimate such costs accurately going forward could
have a
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material adverse effect on the Company's business, financial condition or
results of operations. See "Risk Factors -- Uncertainties Concerning Future
Operating Requirements and Costs."
The Company's foreign operations are conducted primarily through
Hornschuch. The Company's European operations, representing approximately 79% of
the Company's net sales for the six months ended March 31, 1998, are subject to
special risks inherent in doing business outside the United States, including
governmental instability, war and other international conflicts, civil and labor
disturbances, requirements of local ownership, partial or total expropriation,
nationalization, currency devaluation, foreign exchange controls and foreign
laws and policies, each of which may limit the movement of assets or funds or
result in the deprivation of contract rights or the taking of property without
fair compensation. "Risk Factors -- Risks Associated with International
Operations" and "-- Risk of Foreign Exchange Rate Fluctuations; Introduction of
the Euro Currency."
Certain indirect subsidiaries of Hornschuch own two commercial real estate
properties in Germany which are unrelated to its operating business and which
collateralize bank loans totaling approximately DM30.1 million (approximately
$16.3 million at March 31, 1998). Currently, the properties are producing rental
income sufficient to cover interest payments. Management is attempting to sell
the properties; however, there is no assurance that the properties can be sold
in the near term, or at all, at a price which will be sufficient to repay the
loans in full. If not, Hornschuch could be required to pay amounts due under the
loans, which could have a material adverse effect on Hornschuch's business and
financial condition. See "Risk Factors -- Hornschuch Unconsolidated Real
Estate."
YEAR 2000 RISKS
The Company has conducted a review of its electronic data processing
systems to assess what changes might be needed for those systems to recognize
the year 2000 and not to treat any date after December 31, 1999 as a date during
the twentieth century. In conjunction with the Rubbermaid Acquisition, during
fiscal 1999 Decora is purchasing and installing new electronic data processing
systems which will replace its existing systems and will be fully year 2000
compliant. Management believes that all such changes can be implemented in an
orderly and timely manner. Costs to modify existing systems are not anticipated
to be material, while the cost for the new systems described above is
anticipated to total approximately $1,000,000. The Company plans to try to
coordinate its response to these issues with those third parties with whom the
Company engages in electronic transactions, both domestically and
internationally, including suppliers, customers, creditors and financial service
organizations, although the Company cannot effectively ensure against all
potential year 2000 problems that might originate with third parties. If the
Company or any third party with whom the Company does business were to have a
year 2000 problem, the Company's business could be seriously disrupted and the
Company's financial condition and results of operations could be materially
adversely affected. See "Risk Factors -- Year 2000 Risks."
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BUSINESS
The Company is a manufacturer and marketer of self-adhesive decorative and
surface covering consumer products and of specialty industrial and commercial
products. The Company markets its consumer products primarily under the Con-Tact
and d-c-fix brands. These two consumer brands are considered to be two of the
most recognized brands of such products in the world, especially in the United
States and Europe. In the United States, the primary market for the Con-Tact
brand, products are distributed to leading retailers such as K-mart, Target, The
Home Depot and Wal-Mart where the products occupy prominent shelf space.
Similarly, in Germany, Italy and the Czech Republic, d-c-fix products are sold
directly to major retail chains such as Brico, Metro and Stinnes. In the
remainder of Western Europe, Eastern Europe, South America, Africa, the Middle
East and the Far East, products under both brands are sold and distributed
through a network of approximately 65 wholesalers, independent distributors and
agents.
Decora and Hornschuch utilize similar manufacturing processes to produce a
wide variety of consumer and industrial products. Each finished product is
assembled from a range of basic components such as film and adhesive using a
wide variety of surface treatments and designs. Final performance attributes of
these products are determined by the specific product application and consumer
taste. The consumer products are used as (i) decorative coverings for household
surfaces like shelving and cabinetry, (ii) arts and crafts project materials and
(iii) decorative and surface protection coverings for do-it-yourself home repair
and improvement projects.
The commercial and industrial products also use a broad range of film,
release and coating technologies. These products are sold to OEM's for use in
(i) furniture, automotive, handbag and shoe products, (ii) pressure-sensitive
hazardous marking tape products and (iii) coatings for industrial applications,
such as those utilizing the Company's proprietary release technology sold under
the brand name Wearlon.
INDUSTRY OVERVIEW
The Company operates in the plastics conversion and distribution industry
with product offerings ranging from consumer self-adhesive, decorative and
surface protection products to industrial laminates and textured films. The
consumer, self-adhesive, decorative and surface protection products include
versatile self-adhesive and non-adhesive products for use in a wide range of
applications including shelf lining, do-it-yourself furniture and door repair
and refurbishment, arts and crafts, window decoration, book covering, wall
covering and general surface protection. Consumers purchase these products based
upon their ease of application, design, durability and price. The products are
sold in a wide variety of retail stores, ranging from mass-merchants like
Wal-Mart to individual, independently owned food, drug and hardware stores.
Within these stores, the products have been positioned primarily in the
housewares segment in the United States and the do-it-yourself segment in
Europe.
Industrial printed, coated and textured films are sold to users and OEM's
in diversified markets with a majority of such sales made within Germany.
Hornschuch supplies films for use in the manufacture of cabinets, furniture,
automobiles, luggage and shoes. Customers require high quality products with
exact design specifications and consistency as most products are intended to
simulate the appearance and texture of natural materials such as wood, stone and
leather.
DEVELOPMENT OF BUSINESS
The Company's primary domestic line of business, self-adhesive decorative
products, was formerly known as the Decora Division of United Merchants and
Manufacturers, Inc. ("UM&M"). In the 1950's, this division developed and was the
exclusive manufacturer of the Con-Tact brand of products in the United States,
and from 1981 through April 29, 1998 these products were distributed through an
exclusive manufacturing and distribution arrangement with Rubbermaid, which
purchased the Con-Tact trademark from UM&M in 1983. The Company acquired the
manufacturing assets from UM&M in April 1990 and maintained the relationship
with Rubbermaid. At the time of the 1990 acquisition, the Company was a holding
company for numerous disparate industrial and telecommunication services
businesses. In the
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early 1990's, the decision was made to rationalize these disparate businesses to
focus on the Company's core decorative products business. Consequently, the
Company underwent a significant divestiture program (which was completed in
1995) and in 1992 changed its name to "Decora Industries, Inc." to better
reflect its core business. Subsequent to the completion of this divestiture
program, the Company focused on broadening its product lines and customer base
by developing a number of products based upon adhesive technologies to the
extent possible within the constraints of the exclusive manufacturing and
distribution agreement with Rubbermaid. Furthermore, the Company sought
opportunities to enhance manufacturing capacity utilization, reduce customer
concentration and broaden its distribution channels.
On October 1, 1997, the Company completed the Hornschuch Acquisition by
acquiring 73.2% of the voting stock of Hornschuch through DII's newly formed
subsidiary, DI Deutschland, which has since increased its ownership to
approximately 76%. Hornschuch is the manufacturer and marketer of d-c-fix, one
of the most popular consumer self-adhesive and surface covering brands outside
of North America and is celebrating its 100th year of operation. Hornschuch also
manufactures decorative and functional films for use by OEM's in the automotive,
building, furniture, handbag, shoe and interior decoration markets. DI
Deutschland is required to make a tender offer for the outstanding balance of
Hornschuch shares no later than March 1999. See "-- Hornschuch Minority Tender
Offer and Possible Reorganization."
On April 29, 1998, the Company completed the Rubbermaid Acquisition by
acquiring from Rubbermaid the assets which constituted Rubbermaid's Decorative
Coverings Group, including trademarks, shelf space and manufacturing equipment.
The assets purchased included the rights to three product lines: (i) the
Con-Tact self-adhesive line, which is manufactured by Decora, (ii) the Shelf
Liner light-adhesive line, which currently is manufactured by Rubbermaid, and
(iii) the Grip Liner non-adhesive covering line, which is manufactured by a
third party pursuant to the terms of an exclusive manufacturing agreement. The
Rubbermaid Acquisition will enable Decora, which previously had been primarily
only a manufacturer of Con-Tact, to integrate the marketing, sales and
distribution of the Con-Tact product line and to capture the full
manufacturer-to-retailer gross margin, although Decora will also significantly
increase its selling, marketing and administrative expenses. In conjunction with
the acquisition of Hornschuch, the Rubbermaid Acquisition has established the
Company as the largest independent manufacturer and marketer of decorative
self-adhesive consumer products worldwide.
HORNSCHUCH MINORITY TENDER OFFER AND POSSIBLE REORGANIZATION
DI Deutschland currently owns approximately 76% of the outstanding shares
of Hornschuch. The remaining shares of Hornschuch are publicly-traded and are
owned by approximately 1,250 beneficial holders. DI Deutschland intends to
acquire as much of the remaining minority interest as possible through an offer
to purchase all of the minority-owned shares pursuant to the terms of the German
Takeover Codex. Participation in the Hornschuch Minority Tender Offer will be
voluntary; no shareholder can be forced to sell his or her shares. Under the
German Takeover Codex, the price offered per share must be (i) in a reasonable
relation to the highest market price within three months prior to the Hornschuch
Acquisition and (ii) at least the weighted average of the purchase price paid by
DI Deutschland since the Hornschuch Acquisition. The Hornschuch Minority Tender
Offer must remain open for 28 to 60 days and can be extended if DI Deutschland
wishes to improve its offer to increase participation. All minority holders must
be treated equally; therefore, any additional purchase price offered by DI
Deutschland must be paid to all selling holders. The Company will use up to
approximately $9.3 million to purchase shares from tendering shareholders. DI
Deutschland is obligated to initiate the Hornschuch Minority Tender Offer no
later than March 1999 under the DI Deutschland Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Management is also evaluating other strategies with respect to Hornschuch
in an effort to achieve greater management flexibility (including Hornschuch's
compliance with restrictive covenants under the Indenture at such time, if any,
as Hornschuch becomes a Restricted Subsidiary (see "Description of Exchange
Notes -- Certain Covenants -- Designation of Unrestricted Subsidiaries")),
realize potential tax benefits and maximize potential upstream cash flows
through shareholder loans and/or otherwise. Currently, management is considering
the possibility of converting
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Hornschuch to a limited partnership at the time when its net operating loss
carryforwards have been fully utilized or alternatively to a limited liability
company (GmbH) which would not impact the use of net operating loss
carryforwards. Any conversion of Hornschuch to a new entity would require a
separate mandatory purchase offer to remaining minority shareholders under
applicable statutory law. Based upon current projections, such a conversion
would not take place until 2000. Until such time, management will continue to
evaluate other potential strategies.
CUSTOMERS
Decora sells Con-Tact products primarily to large retailers such as K-mart,
Target, The Home Depot and Wal-Mart as well as to wholesalers who sell to
smaller retailers and food, drug and hardware stores. Sales of decorative
coverings products are concentrated. In calendar year 1997, prior to the
Rubbermaid Acquisition, the Decorative Coverings Group's top three customers
collectively represented 48% of the Decorative Coverings Group's net sales. The
loss of any one or more of these customers could have a material adverse effect
on Decora's business and financial condition. During fiscal 1998, prior to the
Rubbermaid Acquisition, 31% of the Company's net sales were to Rubbermaid.
Decora also has a German customer which purchases and distributes specially
produced decorative coverings products in Germany and certain Eastern European
countries and has industrial customers in the U.S. which purchase its tape and
coating products.
Hornschuch has diverse consumer and industrial product lines utilizing
similar adhesive or film technology. Its consumer decorative coverings products
known as d-c-fix are sold worldwide to large and small retailers in Germany and
to independent distributors outside of Germany. The top five customers for
Hornschuch's decorative products in calendar year 1997 and for the post
acquisition six month period ended March 31, 1998 represented 30% and 34% of its
net sales, respectively. The loss of any one or more of these customers could
have a material adverse effect on Hornschuch's business and financial condition.
For calendar year 1997 and for the six months ended March 31, 1998,
approximately 35% and 31%, respectively, of Hornschuch's net sales of decorative
products were made in Germany and the remainder primarily in other parts of
Europe, the Far East and the Middle East. In calendar year 1997 and for the six
months ended March 31, 1998, a single distributor in Russia constituted 16% and
19% of Hornschuch's total decorative products net sales, respectively.
Hornschuch's remaining divisions sell to the OEM market and each has diversified
customers, except for the automotive division which sells primarily to four or
five automotive manufacturers.
PRODUCTS AND MARKETS
The Company is a world leader in consumer, self-adhesive, decorative and
surface covering products and owns what management believes to be two of the
most popular consumer brand names in its markets, Con-Tact and d-c-fix. The
Company also manufactures films and other products for industrial and OEM
applications. In fiscal 1998, sales of consumer and industrial products
represented 70% and 30% of total revenues, respectively; however, this
composition reflects only six months of results from Hornschuch which has a
higher percentage of industrial sales as discussed below.
Decora
Decora's primary consumer product is Con-Tact, a repositionable,
self-adhesive, vinyl decorative covering material which is used for
do-it-yourself shelf decorations, surface protection, arts and crafts and other
applications. Con-Tact is the market leader in the U.S. consumer self-adhesive
decorative market and is sold primarily in the housewares departments of mass
merchandisers in the United States. Con-Tact is manufactured by Decora utilizing
a proprietary and patented repositionable adhesive technology and is sold in
roll form with a wide range of finishes, including printed patterns, solid
colors and clear vinyl. As a part of the Rubbermaid Acquisition, the Company
also acquired Rubbermaid's Shelf Liner and Grip Liner product lines. Shelf Liner
and Grip Liner are, like Con-Tact, decorative and functional covering materials.
Shelf Liner is a light-adhesive covering material which is used primarily as a
removable shelf liner. Grip Liner is a cushioned, non-adhesive surface covering
with non-slip qualities also used primarily for shelving applications. Decora
intends to expand into and penetrate additional consumer product segments with
both existing and new products.
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Decora is also seeking to expand the sales which it derives from its
industrial products, which are currently not material to Decora's overall
business. Decora has developed an industrial coatings business which markets a
range of proprietary coatings under the Wearlon brand name. These non-stick, yet
abrasion-resistant, coatings are water-based and cure at room temperature,
providing the industrial market with an environmentally friendly coating system
for a range of specialized applications. Decora also markets various other
industrial products, including commercial laminating, coating and printing
services and a line of high quality hazardous marking tapes sold under Decora's
Cobra trade name.
Hornschuch
Hornschuch's net sales for the six months ended March 31, 1998 were
comprised 54% from consumer products and 46% from industrial products. For the
twelve months ended December 31, 1997, sales from consumer and industrial
products were 53% and 47%, respectively. Hornschuch's consumer products, in
addition to d-c-fix self adhesive products, include table cloths and place mats.
Hornschuch's consumer products have historically been sold through the
hardware/do-it-yourself ("D-I-Y") market, in contrast to those of Decora which
typically have been marketed as a housewares application. As a result,
Hornschuch's products differ somewhat from Decora's Con-Tact products in range
of design, grade of materials and utility. Through Hornschuch, management
expects to introduce Decora's housewares market-oriented products into Europe.
Similarly, management expects to introduce products that currently target the
D-I-Y market segment in Europe into the United States to address product line
gaps in the Company's D-I-Y market offerings.
In addition to its consumer decorative products, Hornschuch has four
industrial film (i.e., covering) product lines: technical films, fashion films,
automotive films and laminates which accounted for approximately 7%, 19%, 10%
and 11%, respectively, of Hornschuch's net sales in calendar year 1997. The
technical films line includes products such as moisture barriers for ponds and
pools while the fashion films line includes synthetic leathers and other
materials which are sold for use in the manufacture of shoes, upholsteries and
handbags. Hornschuch's automotive line primarily consists of artificial leather
for use in automobile interiors, and its laminates line consists of films which
are laminated to wood, metal and injection molded products during the
manufacturing of furniture and cabinetry.
MARKETING AND DISTRIBUTION
Prior to the Hornschuch Acquisition and the Rubbermaid Acquisition, the
Company, as primarily a contract manufacturer, did not incur traditional sales
and marketing expenses. In the past, Rubbermaid had sold and distributed
Decora's Con-Tact products and Decora conducted its international sales
primarily through a limited number of distributors. As a result of the
acquisitions, the Company now performs full sales and marketing activities to
support its integrated manufacturing operations and sells directly to retailers.
During a nine month transition period following the Rubbermaid Acquisition,
Decora will continue to utilize the distribution services of Rubbermaid in an
attempt to provide a smooth transition, and simultaneously is building its own
marketing and sales team and establishing its own distribution system. There can
be no assurances that the transition will occur smoothly or that it will be
completed within management's cost estimates; however, Decora has engaged
leading industry consultants to conduct and evaluate various marketing and
distribution studies and is in the process of selecting and implementing the
optimum marketing, sales and distribution strategies. Decora is also entitled to
use the Rubbermaid name on products of the Decorative Coverings Group for a
two-year period following the acquisition. See "Risk Factors -- Need to Develop
North American Distribution Infrastructure."
Hornschuch has complete marketing and distribution operations which handle
sales in Germany. In addition, approximately 64 independent distributors and
sales representatives marketing products in 160 countries worldwide purchase
product directly from Hornschuch and resell to customers. In the Czech Republic
and Italy, subsidiaries of Hornschuch also make direct sales. Industrial
products are marketed to OEM's through a small group of technically-oriented
sales persons.
36
<PAGE> 45
COMPETITION
Consumer Decorative Coverings
The Con-Tact product line has long held the leading market position in the
United States. The competition is divided among several smaller companies which
have slightly increased their market share in the last several years in certain
product categories. The Shelf Liner product line has dominated the light
adhesive market with a leading market share for a significant period, while the
Grip Liner product line is a significant player in a larger field of
approximately four competitors, only one of which the Company believes has a
market share in this category which is greater than Decora's. Although each
product has a solid competitive position, availability of retail shelf space in
the competitive retail market can be impacted both by products of direct
competitors and by products serving different functions than Decora's products.
Hornschuch's decorative coverings products have been in the market since
1957. In Germany, Hornschuch has one significant competitor who is the market
leader and, outside of Germany, Hornschuch competes with approximately ten
smaller competitors based in various countries around the world.
The Company's decorative products compete effectively on the basis of brand
name recognition, selection, price, service and quality of products, as well as
retail shelf space and location. See "Risk Factors -- Competition."
Other Products
The Company sells industrial products in a variety of market segments
including automotive, clothing, textile and furniture manufacturing. The Company
does not hold a significant market share in any of these markets and competes
with many larger and smaller competitors on the basis of quality, performance,
customer service and price. See "Risk Factors -- Competition."
MANUFACTURING
Decora
The majority of the products sold by Decora are produced at its facility in
Fort Edward, New York. Management believes that the plant currently has
available capacity for use in connection with (i) a proposed expansion of
existing and new decorative self-adhesive products and commercial and industrial
products, (ii) the Rubbermaid Acquisition and (iii) the Hornschuch Acquisition.
Decora also utilizes outside suppliers when required for certain specific
printing, coating and finishing purposes for which it does not currently have
sufficient industrial capabilities, as well as for temporary warehousing
requirements. Decora purchases its Grip Liner product from a third party
supplier pursuant to an exclusive supply agreement which expires in August 1999.
As part of the Rubbermaid Acquisition, during fiscal 1999 Decora will relocate
and integrate into its Fort Edward, New York facility certain equipment used to
manufacture Shelf Liner product at a cost of approximately $2.5 million prior to
which time Rubbermaid will continue to manufacture Shelf Liner for Decora. See
"Risk Factors -- Relocation of Manufacturing Operations." Management also
anticipates making capital expenditures in amounts similar to current annual
levels in order to maintain operating efficiencies and add additional capacity
as warranted by product demand and mix. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The primary raw materials used in Decora's products are paper, PVC,
adhesives, inks, silicone and other chemicals. Decora uses two primary suppliers
for its PVC, and relations with such suppliers are good. Decora believes that it
has alternative sources of supply for all of its significant and primary raw
materials. Decora expects to purchase a portion of its sheet PVC from Hornschuch
in the future. See "Risk Factors -- Dependence on Suppliers."
37
<PAGE> 46
Hornschuch
The majority of the products sold by Hornschuch are produced at its
facility in Weissbach, Germany. Management believes that additional machinery
will be required in order to make available capacity for the proposed expansion
of its commercial and industrial products and to provide additional products to
Decora. Historically, Hornschuch has entered into arrangements with various
suppliers for certain specific printing purposes. In the future, Hornschuch
expects to use fewer outside suppliers as additional manufacturing capacity is
made available to it at Decora's Fort Edward, New York facility and through
additional capital investment. Management of Hornschuch expects to increase its
capital expenditures over the next three years to add further capacity including
the acquisition of a printing machine to produce its laminate products.
As with Decora, the primary raw materials used in Hornschuch's products are
paper, PVC, adhesives, inks, silicone and other chemicals. Hornschuch uses at
least two primary suppliers for each of its raw materials, and relations with
such suppliers are good. Management believes that Hornschuch has alternative
sources for its significant and primary raw materials. See "Risk Factors --
Dependence on Suppliers."
SEASONALITY
Historically, Decora has generally experienced higher sales and earnings in
its first two fiscal quarters as a result of increased seasonal demand for
Con-Tact products in late spring and summer. This seasonal pattern is expected
to continue now that the Rubbermaid Acquisition has been completed. The effect
of this seasonality on the Company's consolidated operations has been moderated
somewhat by the Hornschuch Acquisition, since Hornschuch's product sales do not
tend to be seasonal to the same degree as Decora's and Hornschuch's sales and
profitability are typically strongest in the fourth fiscal quarter. As the
Company continues to emphasize its consumer product lines, it is anticipated
that Hornschuch sales will continue to reach higher levels during the fourth
quarter. Seasonality also has not generally been a material factor with respect
to the Company's other products. See "Risk Factors -- Seasonality."
RESEARCH AND DEVELOPMENT
Decora
Decora has reduced its research and development function and currently
maintains a small internal research group, led by the inventor of the Company's
adhesive and Wearlon technologies. The majority of recent efforts have been
placed on the refinement and enhancement of existing products; however, that
group also continues to pursue new consumer and industrial products and
applications periodically. As a result of these research and development
efforts, the Company has refined a high-end liquid coating product for certain
industrial applications sold under the name Wearlon. Wearlon includes a
water-based polymer which management believes is a breakthrough in coatings
requiring non-stick and slip-lubricity properties. Decora owns a patent on a
portion of this technology and the Boeing Company and certain other purchasers
have recently started to use Wearlon industrial maintenance coating systems
within their production lines for mold release and non-stick applications.
Hornschuch
The majority of Hornschuch's recent efforts have been placed on the
refinement and enhancement of products already developed; however, a limited
amount of research and development is devoted to the pursuit of new industrial
products and applications. Recent research and development has de-emphasized
automotive and fashion products and focused primarily on the development of
laminated film products for desktops, tabletops and bookcases and new films for
use in decorative product manufacturing.
38
<PAGE> 47
Through collaboration on research and development efforts between Decora
and Hornschuch, management believes that savings will result from the
elimination of duplicate efforts as each of the firms currently markets products
that the other was planning to develop. Management further believes that
collaboration on research and development will also result in a quicker response
to new product development through the sharing of technical expertise, although
no assurance can be given that this will prove to be the case. In particular,
management expects to benefit from the combined significant expertise in
adhesive technology developed by Decora and significant expertise in film
technology developed by Hornschuch.
PROPRIETARY RIGHTS
Decora
Decora owns the rights to the pressure sensitive adhesive technology used
in the manufacturing of its self-adhesive Con-Tact products and owns the
worldwide rights to the Con-Tact trade name. Con-Tact is a registered trademark
in over 50 countries worldwide; however, sales of Con-Tact products outside of
North America have been minimal. In connection with the Rubbermaid Acquisition,
Decora also acquired 20 unregistered trade names. In addition, Decora owns the
Cobra, Wearlon and Decora trade names. Decora is not aware of any circumstances
that would negatively impact its trademarks. Decora has also applied for trade
name and patent protection for certain of its other new products, including its
protective and decorative thin film products and certain of its Wearlon liquid
coatings and coating additives.
Decora believes that its commercial position is enhanced by the patents it
owns as well as the know-how and trade secrets it has developed. Decora has also
applied for foreign protection for certain of its technologies and trademarks.
To further the development of certain products and establishment of a
distribution network, certain of the Company's technologies have been licensed
to third parties. Decora has executed trade secret and confidentiality
agreements with its licensees and others to protect its proprietary rights as
part of its intellectual property protection program.
Hornschuch
Hornschuch does not currently own any patents; rather, Hornschuch's
management believes that Hornschuch's products are protected under the laws of
Germany and elsewhere with respect to proprietary information. Hornschuch owns
22 German trademark registrations, four United States trademark registrations
and 149 trademark registrations in all countries combined, where Hornschuch is
active. Hornschuch's trademarks include d-c-fix, ceramo-fix, furnit, howesol,
laif, noblessa, select, skai and sol-pal.
Management considers seven of Hornschuch's trademarks, including the
original d-c-fix, skai, laif, furnit, select, howesol and sol-pal, to be
important to Hornschuch's business. Hornschuch is not aware of any circumstances
that would negatively impact its trademarks.
Although the Company seeks to protect its proprietary information by
obtaining patents, registering trade names and entering into trade secret and
confidentiality agreements, there is no guaranty that competitors will not
misappropriate proprietary information or develop similar products that are
outside the protection of the Company's patents, trade secrets and other
proprietary rights. See "Risk Factors -- Patents, Trademarks and Trade Secrets."
GOVERNMENTAL REGULATION
The operations of Decora and Hornschuch are subject to regulation by
various federal, state and local authorities regarding the manufacturing of
their products. The Company's manufacturing facilities and products are subject
to periodic inspection by federal, state and local authorities. The Company
believes that it is currently in substantial compliance with all material
governmental laws and regulations and maintains all material permits and
licenses relating to its operations. Nevertheless, there can be no assurance
that the Company is in full compliance with all such laws and
39
<PAGE> 48
regulations or that it will be able to comply with any future laws and
regulations in a cost-effective manner. Failure by the Company to comply with
applicable laws and regulations could subject it to civil remedies, including
fines, injunctions, recalls or seizures, as well as potential criminal
sanctions, which could have a material adverse effect on the Company's business,
financial condition or results of operations.
ENVIRONMENTAL MATTERS
Decora and Hornschuch's operations and properties are subject to numerous
U.S. and German federal, state and local environmental laws and regulations
relating to the emission, discharge, storage, treatment, handling, generation,
transportation, release, disposal, investigation and remediation of certain
materials, substances and wastes used in or resulting from its operations. As
with other companies engaged in similar businesses, the nature of the Company's
operations exposes it to the risk of liabilities or claims with respect to
environmental matters, including those relating to the disposal and release of
hazardous substances.
Decora has not made any material expenditures during the last three fiscal
years in order to comply with environmental laws or regulations. Based on
Decora's experience to date, Decora believes that the future cost of compliance
with existing environmental laws and regulations and liability for known
environmental conditions will not have a material adverse effect on the
Company's business, financial condition or results of operations.
Hornschuch's manufacturing facility is located on property which has been
used for manufacturing purposes for the last 100 years. The current facilities
include water treatment and wastewater treatment facilities and an energy
production facility. Management of Hornschuch reports that certain environmental
issues may exist with respect to both Hornschuch-owned and third party waste
disposal sites, wastewater discharges and dust and hot air emissions. Hornschuch
has set aside reserves that management believes are adequate to cover the
estimated costs of remediation associated with these issues, if such remediation
is required. However, the Company cannot predict what environmental or health
and safety legislation or regulations will be enacted in the future or how
existing or future laws or regulations will be enforced, administered or
interpreted, nor can it predict the amount of future expenditures which may be
required in order to comply with such environmental or health and safety laws or
regulations or to respond to new environmental claims. See "Risk Factors --
Environmental Matters."
EMPLOYEES
At March 31, 1998, DII employed four people in its corporate office, Decora
employed approximately 164 people and Hornschuch employed approximately 717
people.
As of the same date, 113 of Decora's employees were represented by Local
#13 United Paper Workers International Union (AFL-CIO) under a contract which
was renegotiated and renewed in April 1996 and expires in March 1999.
As of the same date, 670 of Hornschuch's employees were represented by a
labor union. Almost all of the union members belong to the Textile and Clothing
trade union, which merged into the Metal trade union effective April 1, 1998.
The most recent collective bargaining agreement for Hornschuch's employees
(including both hourly and salaried employees below management level) was signed
in February 1997 and expires in May 1999.
Neither Decora nor Hornschuch has experienced any work stoppage in recent
years, and management believes that relations with the Company's labor force are
good.
PROPERTIES
Decora owns its 220,000 square foot facility located on approximately 12
acres in Fort Edward, New York. The Company's corporate headquarters are located
within this facility. Hornschuch owns its approximately 1.0 million square
40
<PAGE> 49
foot facility located on approximately 48 acres in Weissbach, Germany. Decora
also has leased 10,000 square feet of office space in Cleveland, Ohio which will
house Decora's North American sales and marketing headquarters and which is
anticipated to be occupied in August 1998.
Through a subsidiary corporation, Hornschuch also owns two commercial real
estate properties which are unrelated to its operating business and which are
being offered for sale. Although these properties are currently generating
rental income sufficient to cover related expenses, no assurance can be given
that this will continue to be true in the future. See "Risk Factors --
Hornschuch Unconsolidated Real Estate" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Outlook."
LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings.
Although the Company is subject to certain legal proceedings, the ultimate
outcome of each proceeding will not, in the opinion of management, have a
material adverse effect on the Company's financial position or results of
operations.
41
<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF DII AND CERTAIN OFFICERS OF SUBSIDIARIES
The following sets forth each of the executive officers and directors of
DII and key officers of DII's subsidiaries as of July 6, 1998, including the age
and present occupation and business experience of each for the past five years:
<TABLE>
<CAPTION>
NAME Age Position
---- --- --------
<S> <C> <C>
Nathan Hevrony............. 46 Director, Chairman, Chief Executive Officer
Timothy N. Burditt........ 43 Executive Vice President, Administration and Finance; Secretary
Earl A. Wearsch............ 52 Executive Vice President; President and General Manager of Decora
Hans-Georg Stahmer......... 51 Executive Vice President; President and Member of Hornschuch
Management Board
Bernhard Muller............ 40 Executive Vice President; Member of Hornschuch Management Board
Richard A. DeCoste......... 59 Executive Vice President; Vice President of Operations of Decora
Frank J. Nolfi, Jr......... 65 Vice President-- Finance of Decora
Roger Grafftey-Smith....... 67 Director
Gabriel Thomas............. 57 Director
Stephen Verchick........... 57 Director
Ronald Artzer.............. 54 Director
</TABLE>
Nathan Hevrony. Mr. Hevrony has served as a director of DII since August
1988 and as Chief Executive Officer and Chairman of the Board of DII since
October 1989.
Timothy N. Burditt. Mr. Burditt was named Executive Vice President,
Administration and Finance of DII in April 1993 and was named Secretary in
August 1993.
Earl A. Wearsch. Mr. Wearsch was named Executive Vice President of DII and
President and General Manager of Decora in January 1998. From 1983 to 1997, Mr.
Wearsch served in various senior management and sales/marketing positions with
Glidden, a manufacturer of paint and coatings.
Hans-Georg Stahmer. Mr. Stahmer was named Executive Vice President of DII
in February 1998. Since 1995, Mr. Stahmer has served as the President and a
member of the Management Board of Hornschuch. His term of office with Hornschuch
expires on September 30, 2000. From 1987 to 1995, Mr. Stahmer held various
management positions with Black & Decker GmbH, most recently as Managing
Director.
Bernhard Muller. Dr. Muller was named Executive Vice President of DII in
February 1998. Since April 1997, Dr. Muller has been one of two members of the
Management Board of Hornschuch. His term of office with Hornschuch expires on
December 31, 2002. From June 1993 to March 1997, Dr. Muller was employed by
Fresenius Ltd., a company which produces disposable materials for the medical
industry.
Richard A. DeCoste. Mr. DeCoste joined Decora in January 1993. In February
1994, Mr. DeCoste became President of its Consumer Decorative Products Group. In
November 1994, he became Executive Vice President of DII. In June 1997, he
became Vice President of Operations of Decora.
42
<PAGE> 51
Frank J. Nolfi, Jr. Mr. Nolfi has served as Vice-President Finance of
Decora since its acquisition by DII in April 1990. He served in the same
position for the Uniglass Industries division of the prior owner, United
Merchants and Manufacturers, Inc.
Roger Grafftey-Smith. Mr. Grafftey-Smith has served as a director of DII
since August 1988 and has been a managing partner of Grafftey-Smith &
Associates, an international financial consulting firm, since 1981. Mr.
Grafftey-Smith also serves as a director of Americanino Capital Corporation, a
publicly-traded corporation.
Gabriel Thomas. Mr. Thomas has served as a director of DII since June 1991.
He has served as President and Director of Unilab Corporation, a clinical
laboratory services company, since December 1989.
Stephen H. Verchick. Mr. Verchick has served as a director of DII since
October 1993. He has been engaged in the private practice of law as President of
Stephen H. Verchick & Associates, Professional Corporation, in Beverly Hills,
California, for the past 24 years. Mr. Verchick is also President of Warner
Capital Associates, a Los Angeles-based venture capital firm.
Ronald A. Artzer. Mr. Artzer has served as a director of DII since May
1994. Since August 1997, he has been a self-employed management consultant.
From March 1994 to August 1997, Mr. Artzer served as President and Chief
Executive Officer of SoPakCo Foods, a food processing and packaging company.
From 1991 to 1993, Mr. Artzer served as President and Chief Executive Officer of
Design Foods, a Division of Sara Lee Corporation.
Officers of DII are elected by the Board of Directors and hold office until
their successors are chosen and qualified, until their death or until they
resign or have been removed from office. All corporate officers serve at the
discretion of the Board of Directors. There are no family relationships between
any director or executive officer of DII and any other director or executive
officer of DII.
Directors of DII hold office until the next annual meeting of shareholders,
until successors are elected and qualified or until their earlier resignation or
removal.
EXECUTIVE COMPENSATION
The tables and discussion below set forth information about the
compensation awarded to, earned by or paid to DII's Chief Executive Officer and
its three other most highly compensated executive officers during the fiscal
years ended March 31, 1998, 1997 and 1996.
43
<PAGE> 52
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SHARES
Fiscal ------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1)
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Nathan Hevrony....................... 1998 $217,644(2) $400,000 300,000
Chief Executive Officer 1997 $185,000(2) $ 40,000 --
1996 $185,000(2) -- --
Timothy N. Burditt................... 1998 $141,592 $275,000 60,000
Executive Vice President, 1997 $120,000 $ 15,000 --
Administration and Finance 1996 $120,000 $ 20,000 5,000
Hans-Georg Stahmer(3)................ 1998 $108,132 $ 39,714 60,000(3)
President & Member of Hornschuch 1997 -- -- --
Management Board 1996 -- -- --
Richard A. DeCoste................... 1998 $140,000 $ -- 50,000
Director of Operations, 1997 $125,000 $ 5,000 --
Decora, Incorporated 1996 $125,000 -- --
</TABLE>
- ------------------------
(1) The option share totals reflect the one-for-five reverse stock split which
was effective December 29, 1997.
(2) DII also paid the premium of $17,665 for term life insurance for the
benefit of Mr. Hevrony.
(3) Vesting of the options is contingent on achieving certain performance
criteria during fiscal 1999, 2000 and 2001.
EMPLOYMENT AGREEMENTS
DII has an employment agreement with Mr. Hevrony, its Chief Executive
Officer, until May 31, 2000. The agreement was amended in February 1998 to
provide for an annual salary of $325,000 and additional compensation for any
additional acquisitions calculated pursuant to the acquisition incentive plan of
DII which provides for an amount equal to the product of (i) the ratio of EBITDA
of an acquired company during the twelve month period prior to acquisition of
such company to the EBITDA of DII (derived from all net sales of DII other than
the net sales of the acquired company) during fiscal year 1998, and (ii) one
half of his annualized base salary, exclusive of bonus payments, relocation
payments or allowances and other benefit payments, but including any payments
for unused and accrued vacation and holiday time (the "Acquisition Incentive
Bonus"). In August 1997, a bonus of $50,000 was paid to Mr. Hevrony based upon
DII's performance during fiscal year 1997; the amount was based upon the
favorable restructuring of DII's outstanding loans and his role in developing
new technologies. Mr. Hevrony also has been awarded a bonus of $350,000 for his
role in the Hornschuch Acquisition in lieu of an Acquisition Incentive Bonus;
$87,500 of such amount was paid in fiscal 1998. Mr. Hevrony's employment
agreement shall terminate upon breach of a material term of the agreement or
upon the permanent disability of Mr. Hevrony. In the event of termination
without cause (as defined in such agreement), Mr. Hevrony is entitled to receive
compensation for the remainder of the term of the agreement (through May 31,
2000) and an additional 24-month period.
DII has an employment agreement with Mr. Burditt until June 30, 2001, which
agreement was amended in February 1998 to provide minimum annual compensation in
the amount of $185,000 and additional compensation calculated as an Acquisition
Incentive Bonus. A bonus of $25,000 was paid to Mr. Burditt in August 1997 based
upon DII's performance during fiscal 1997. Mr. Burditt has also been awarded a
bonus of $250,000 for his role in the Hornschuch Acquisition in lieu of an
Acquisition Incentive Bonus; $62,500 of such amount was paid in fiscal 1998.
Upon termination without cause, Mr. Burditt is entitled to receive any earned
but unpaid bonuses on a pro-rata basis, plus compensation for the greater of
twelve months from the date of termination or the remainder of the term.
44
<PAGE> 53
DII has a three-year employment agreement with Richard DeCoste, Decora's
Vice President of Operations, until May 30, 2000 which provides for annual
compensation of $140,000. Upon termination without cause, Mr. DeCoste is
entitled to receive compensation for the lesser of 12 months or to the end of
the term. As part of his recent employment agreement, Mr. DeCoste was granted an
option to purchase 20,000 shares of DII common stock at $5.00 per share. All of
such options are currently vested.
Hornschuch has an employment agreement with Mr. Stahmer until September 30,
2000, which agreement was amended in March 1998. Pursuant to the agreement, Mr.
Stahmer is an Executive Vice President of DII. The agreement provides for base
compensation in the amount of DM400,000, with an annual bonus consisting of a
cash component of up to DM250,000 in 1998 and DM300,000 in 1999 and 2000.
Additional compensation is payable if other performance targets are met.
Hornschuch has an employment agreement with Dr. Bernhard Muller until
December 31, 2000 which was amended on February 20, 1998. Pursuant to the
agreement, Dr. Muller is an Executive Vice President of DII. The agreement
provides for base compensation of DM335,000 with an annual bonus consisting of a
cash component of up to DM250,000 in 1998 and DM200,000 in 1999 and 2000 and
incentive stock options subject to performance. Additional compensation is
payable if other performance compensation targets are met.
As of January 8, 1998, Decora entered into a three-year employment
agreement with Earl A. Wearsch, its President and General Manager, which
provides for annual compensation of $170,000, $185,000 and $200,000,
respectively, for the first, second and third year of the term. As part of the
employment agreement, Mr. Wearsch was awarded an option to purchase 60,000
shares of DII common stock at $4.75 per share. Upon termination without cause,
Mr. Wearsch is entitled to receive compensation for 12 months from the date of
termination. Upon the occurrence of certain "change of control" events, Mr.
Wearsch shall be entitled to resign his position and receive compensation for 12
months following the resignation.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
- -------------------------------------------------------------------------------- ------------------------------------
% of Total
Number of Options
Shares Granted to
Underlying Employees
Options in the Fiscal Exercise Expiration
Name Granted(1) Year Price Date 0% 5% 10%
- ------------------- ----------- ------------- -------- ----------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Nathan Hevrony 300,000(2) 44.8% $ 5.50 2-18-2003 $ -0- $120,000 $585,000
Timothy N. Burditt 60,000(2) 9.0% $ 5.50 2-18-2003 $ -0- $ 24,000 $117,000
Richard A. DeCoste 30,000(2) 4.5% $ 6.00 2-18-2003 $ -0- $ -0- $ 43,500
20,000(3) 3.0% $ 5.00 5-31-2000 $ -0- $ -0- $ 30,800
Hans-Georg Stahmer 60,000(4) 9.0% $ 5.00 6-30-2004 $ -0- $ -0- $ 92,400
</TABLE>
- ----------
(1) Option share totals reflect the one-for-five reverse stock split that was
effective December 29, 1997.
(2) The options vest as follows: one third on the date of grant, one third on
February 19, 1999 and one third on February 19, 2000.
(3) The options vested on the date of grant.
(4) The options vest over a thee year period contingent on achieving certain
performance criteria.
45
<PAGE> 54
AGGREGATED MARCH 31, 1998 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(1) AT FISCAL YEAR END(2)
------------------------------ -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Nathan Hevrony 250,000 280,000 $32,000 $37,600
Timothy N. Burditt 45,000 40,000 $ 5,200 $ 7,520
Richard A. Decoste 45,000 20,000 $13,760 $ 0
Hans-Georg Stahmer 0 60,000 $ 0 $ 0
</TABLE>
- -------
(1) Option share totals reflect the one-for-five reverse stock split which was
effective December 29, 1997.
(2) Value of unexercised in-the-money options was calculated using the closing
sales price for DII's stock on March 31, 1998.
During the year ended March 31, 1998, none of the executive officers
exercised any outstanding stock options. The only unexercised options held by
such executive officers as of March 31, 1998 are shown in the table above.
COMPENSATION OF DIRECTORS
Directors are paid $10,000 per year and $500 for each committee meeting
which they attend. Directors may also be granted stock options for the purchase
of DII common stock. DII reimburses directors for reasonable expenses incurred
in connection with their attendance at meetings and other Company related
functions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of July 6, 1998, certain information
with respect to the common stock of DII which may be deemed to be beneficially
owned by each stockholder who is known by DII to own more than 5% of the
outstanding common stock, by each director and executive officer of DII and by
all directors and executive officers of DII as a group. The share totals reflect
a one-for-five reverse stock split which was effective December 29, 1997.
46
<PAGE> 55
<TABLE>
<CAPTION>
NAME AND PERCENT
ADDRESS OF COMMON OTHER OF
BENEFICIAL OWNER(1) STOCK SECURITIES(2) TOTAL CLASS
- --------------------------- ---------- -------------- --------- --------
<S> <C> <C> <C> <C>
State Street Bank & Trust ............. 0 1,818,447 1,818,447 19.9%
Company, Trustee
Textron Master Trust
One Enterprise Drive
Master Trust -- W6C
North Quincy, MA 02171
Robert W. Johnson, IV(3) .............. 388,416(4) 385,000 773,416 10.0%
The Johnson Company
630 Fifth Avenue, Suite 1510
New York, NY 10111
Cumberland Associates ................. 563,900(5) 0 563,900 7.7%
1114 Avenue of the Americas
New York, NY 10035
Nathan Hevrony ........................ 150,750 250,000 400,750 5.3%
Roger Grafftey-Smith .................. 75,000 112,400 187,400 2.5%
Gabriel Thomas ........................ 0 142,400 142,400 1.9%
Stephen H. Verchick ................... 0 75,000 75,000 1.0%
Ronald A. Artzer ...................... 0 70,000 70,000 (6)
Timothy N. Burditt .................... 0 45,000 45,000 (6)
Earl A. Wearsch ....................... 0 40,000 40,000 (6)
Hans-Georg Stahmer .................... 0 0 0 (6)
Bernhard Muller ....................... 0 0 0 (6)
Richard A. DeCoste .................... 0 45,000 45,000 (6)
Frank J. Nolfi, Jr .................... 0 13,333 13,333 (6)
All directors and executive
officers as a group, including
the named persons (11 persons) ........ 225,750 793,133 1,018,883 12.5%
</TABLE>
- ----------
(1) Unless otherwise indicated, each person included in the table has sole
investment power and sole voting power with respect to the securities
beneficially owned. The address of each director and officer listed is 1
Mill Street, Fort Edward, New York 12828.
(2) The amounts shown reflect shares of common stock underlying stock options,
convertible notes or warrants which are exercisable within 60 days.
(3) Pursuant to the terms of a Note and Warrant Agreement, dated November 3,
1992, by and between DII and Mr. Johnson, as amended, DII is obligated to
name Mr. Johnson as a director nominee while the note described therein is
outstanding (the "Johnson Note"). The Johnson Note was repaid in full on
May 3, 1998.
(4) Mr. Johnson disclaims beneficial interest in 27,000 shares which are held
by trusts for which he is a trustee.
(5) Of this total, Cumberland Associates has sole voting and investment power
with respect to 437,100 shares, and shares such power with respect to
126,800 shares.
(6) Each of these persons owns less than 1% of the outstanding common stock of
DII.
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<PAGE> 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 1, 1997, the Company issued warrants (the "Textron Warrants") to
a pension fund known as the Textron Master Trust ("Textron") in connection with
an $18,000,000 subordinated loan from Textron to the Company (the "Textron
Loan"), the proceeds of which were used to repay existing indebtedness of Decora
and to help facilitate the Hornschuch Acquisition. The Textron Loan was paid in
full on April 29, 1998 as part of a refinancing associated with the Rubbermaid
Acquisition. The Textron Warrants include (i) a warrant to purchase 427,307
shares of the Company's common stock, (ii) a warrant to purchase 69,557 shares
of Series A Preferred Stock, with each share of Series A Preferred Stock to
automatically convert to 20 shares of common stock, for a total of 1,391,140
shares of common stock, and (iii) a contingent warrant to purchase a fixed
percentage of certain additional shares of common stock if issued by the Company
in the future. All of the Textron Warrants are exercisable until September 30,
2005 at an exercise price of $5.00 per share and to date, no warrants have been
exercised. See "Security Ownership of Certain Beneficial Owners and Management."
So long as any of the Textron Warrants are outstanding, Textron shall have the
right to nominate one person to the Company's Board of Directors. Textron
nominated Richard A. Watson, who served as a member of the Board of Directors
until his resignation on May 5, 1998 following the repayment of the Textron
Loan. To date, Textron has exercised this right only during the period that the
Textron Loan was outstanding.
On June 1, 1997, the Board of Directors granted options to purchase 20,000
shares of common stock to Mr. DeCoste at an exercise price of $5.00 per share.
All such options were immediately vested and were exercisable for three years.
On January 8,1998, the Board of Directors granted options to purchase
60,000 shares of common stock to Mr. Wearsch at an exercise price of $4.75 per
share. On February 19, 1998, the Board of Directors granted an option to
purchase 300,000 shares to Mr. Hevrony, an option to purchase 60,000 shares to
Mr. Burditt and an option to purchase 40,000 shares to each of Mr. Artzer, Mr.
Grafftey-Smith, Mr. Thomas and Mr. Verchick, all at an exercise price of $5.50
per share. On the same date, the Board of Directors granted an option to
purchase 30,000 shares to Mr. DeCoste, an option to purchase 60,000 shares to
Mr. Wearsch and an option to purchase 40,000 shares to Mr. Nolfi, all at an
exercise price of $6.00 per share. One third of these options vested on the date
of grant, one third will vest one year after the date of grant and the remaining
one third will vest two years after the date of grant. All such options granted
have an exercise price which was either equal to or greater than the market
price of the Company's common stock on the date of grant. All such options are
exercisable for five years except for those granted to Mr. Wearsch on January 8,
1998 which are exercisable for three years after vesting.
On February 20, 1998, the Board of Directors granted an option to purchase
50,000 shares of common stock to Mr. Muller at an exercise price of $5.00 per
share, with up to 16,666 or 16,667 of the options to vest in each of the next
three years depending on achievement of certain performance targets. On February
20, 1998, the Board of Directors granted an option to purchase 60,000 shares of
common stock to Mr. Stahmer at an exercise price of $5.00 per share, with up to
20,000 of the options to vest in each of the next three years depending on
achievement of certain performance targets. All such options granted have an
exercise price which was either equal to or greater than the market price of the
Company's common stock on the date of grant. All such options are exercisable
for three years after vesting.
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<PAGE> 57
DESCRIPTION OF EXCHANGE NOTES
The Old Notes were and the Exchange Notes will be issued under the
Indenture. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to
all of the provisions of the Indenture, including the definitions of certain
terms therein and those terms made a part of the Indenture by reference to the
TIA as in effect on the date of the Indenture. A copy of the Indenture was filed
with the Commission as an exhibit to the Company's Form 10-K for the fiscal year
ended March 31, 1998. The definitions of certain terms used in the following
summary are set forth below under "-- Certain Definitions." For purposes of this
section, references to the "Company" include only Decora Industries, Inc. and
not its Subsidiaries, and references to the "Notes" include both Exchange Notes
and Old Notes.
The form and terms of the Exchange Notes are substantially identical to the
form and terms of the Old Notes, except that the Exchange Notes (i) will be
registered under the Securities Act, and (ii) will not bear any legends
restricting transfer thereof. The Exchange Notes will be issued solely in
exchange for an equal principal amount of Old Notes. As of the date hereof,
$112.75 million aggregate principal amount of Old Notes is outstanding. See "The
Exchange Offer."
The Old Notes have been, and the Exchange Notes will be, issued in fully
registered form only, without coupons, in denominations of $1,000 and integral
multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar
for the Notes. The Notes may be presented for registration of transfer and
exchange at the offices of the Registrar, which initially will be the Trustee's
corporate trust office. The Company may change any Paying Agent and Registrar
without notice to Holders. The Company will pay principal (and premium, if any)
on the Notes at the Trustee's corporate office in New York, New York. At the
Company's option, interest may be paid at the Trustee's corporate trust office
or by check mailed to the registered address of Holders. Any Old Notes that
remain outstanding after the completion of the Exchange Offer, together with the
Exchange Notes issued in connection with the Exchange Offer, will be treated as
a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $112.75 million, and
will mature on May 1, 2005. Interest on the Notes will accrue at the rate of 11%
per annum and will be payable semiannually in cash on each May 1 and November 1,
commencing on November 1, 1998, to the Persons who are Holders at the close of
business on the April 15 and October 15 immediately preceding the applicable
interest payment date. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from and
including the date of issuance. Interest will be computed on the basis of a
360-day year of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part; provided,
further, that if a partial redemption is made with the proceeds of a Public
Equity Offering, selection of the Notes or portions thereof for redemption shall
be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis
as is practicable (subject to procedures of the Depository Trust Company (the
"Depositary")), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the
49
<PAGE> 58
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Company has deposited with the Paying Agent
funds in satisfaction of the applicable redemption price pursuant to the
Indenture.
SECURITY AND RANKING OF NOTES
The Notes represent senior obligations of the Company, secured by a first
priority pledge of the Guarantor Collateral and the German Collateral. The Notes
will rank (i) senior in right of payment to any future indebtedness of the
Company that is expressly subordinated to the Notes and (ii) effectively senior
to any future senior unsecured indebtedness of the Company to the extent of the
value of the Collateral. The Notes will be effectively subordinated to (x) all
obligations under the Decora Credit Facility, the Intercompany Note and any
other secured obligations of Decora, to the extent of the value of the assets
securing such obligations, and (y) all obligations (including trade payables and
accrued liabilities) of the Company's foreign subsidiaries and its Unrestricted
Subsidiaries.
The Company has entered into pledge agreements (together with any future
collateral documents, the "Pledge Agreements") providing for the pledge of the
Collateral to the Trustee, as collateral agent for the Holders. The Indenture
and the Pledge Agreements require the Company to pledge, or cause to be pledged
as part of the Collateral to secure the Notes, all of the Equity Interests of
each Guarantor held directly or indirectly by the Company. The pledge of the
Collateral secures the payment and performance when due of all of the
Obligations of the Company under the Notes, the Indenture and the Registration
Rights Agreement as provided in the Pledge Agreements.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Pledge
Agreements, the Company or the applicable pledgor will be entitled to receive
all cash dividends and other payments made upon or with respect to the
Collateral and to exercise any voting and other consensual rights pertaining to
the Collateral. Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of the Company or the applicable pledgor to exercise
such voting or other consensual rights shall cease, and all such rights shall
become vested in the Trustee, which to the extent permitted by law, shall have
the sole right to exercise such voting and other consensual rights, (ii) all
rights of the Company or the applicable pledgor to receive all cash dividends
and other payments made upon or with respect to the Guarantor Collateral shall
cease and such cash dividends and other payments shall be paid to the Trustee
and (iii) the Trustee may, but is not obligated to, sell the Guarantor
Collateral or any part thereof in accordance with the terms of the Pledge
Agreement. Under German law the Trustee may be restricted to the right to cause
the pledged shares of DI Deutschland to be sold at a public auction, unless DI
Deutschland, after the occurrence or during the continuance of any Event of
Default, accepts the sale or realization of the pledged shares in any other way
and (i) all rights of the pledgor to exercise voting or other consensual rights
and (ii) all rights of the pledgor to receive cash dividends and other payments
made upon or with respect to the pledged shares of DI Deutschland may not cease
before such sale or realization of the pledged shares. All funds distributed
under the Pledge Agreements and received by the Trustee for the benefit of the
Holders shall be distributed by the Trustee in accordance with the provisions of
the Indenture.
In the event the right to exercise voting and consensual rights pertaining
to the Collateral shall become vested in the Trustee, the Holders of a majority
in principal amount of the outstanding Notes may direct the Trustee in the
exercise of such rights, subject to certain limitation. However, in the absence
of such direction, the Trustee shall exercise such rights using the same degree
of care and skill as a prudent person would exercise under the circumstances in
the conduct of such person's own affairs.
The Indenture provides that the Net Cash Proceeds of all Asset Sales of
assets constituting Collateral shall be deposited by the Company in an account
(the "Collateral Account") subject to a first priority perfected Lien in favor
of the Trustee. Amounts in the Collateral Account shall be released in
accordance with the provisions of the Indenture. All
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<PAGE> 59
or any part of the cash held in the Collateral Account shall, if requested by
the Company, be invested by the Trustee in Cash Equivalents; provided that all
such Cash Equivalents shall continue to be Collateral.
If the Notes become due and payable prior to the final stated maturity
thereof for any reason or are not paid in full at the final stated maturity
thereof and after any applicable grace period has expired, the Trustee has the
right to foreclose upon the Collateral in accordance with instructions from the
Holders of a majority in aggregate principal amount of the Notes or, in the
absence of such instructions, in such manner as the Trustee deems appropriate in
its absolute discretion. The proceeds received by the Trustee will be applied by
the Trustee first to pay the expenses of any foreclosure and fees and other
amounts then payable to the Trustee under the Indenture and, thereafter, to pay
all amounts owing to the Holders under the Indenture (with any remaining
proceeds to be payable to the Company or as may otherwise be required by law).
There can be no assurance that the proceeds of any sale of the Collateral
in whole or in part pursuant to the Indenture and the Pledge Agreements
following an Event of Default would be sufficient to satisfy payments due on the
Notes.
The Indenture and the Pledge Agreements provide that Collateral may be
released from the Lien and security interest created by the Pledge Agreements
(i) upon payment in full of the Notes in accordance with the terms of the Notes
and the Indenture and the other payment obligations then due and owing under the
Notes, the Indenture, the Registration Rights Agreement and the Pledge
Agreements; (ii) upon the sale or other disposition of Collateral constituting
an Asset Sale if such sale or other disposition is not prohibited under the
Indenture and if the Net Cash Proceeds of such sale or other disposition are
applied as provided in the Indenture (see "-- Certain Covenants -- Limitation on
Asset Sales"); and (iii) with respect to amounts in the Collateral Account
consisting of Net Cash Proceeds of Asset Sales, upon the expenditure of such
cash if such expenditure is made in accordance with the Indenture. The Indenture
permits the Company to apply such Net Cash Proceeds to a redemption of Notes,
repayment of term loans under the Credit Facility or to reinvest such Net Cash
Proceeds in Replacement Assets which constitute Collateral. The release of any
Collateral from the terms of the Pledge Agreements will not be deemed to impair
the security under the Indenture or the Pledge Agreements in contravention of
the provisions thereof if and to the extent the Collateral is released pursuant
to the Indenture.
GUARANTEES
Each Guarantor will fully and unconditionally guarantee, on a senior
unsecured basis, jointly and severally, to each Holder and the Trustee, the full
and prompt performance of the Company's obligations under the Indenture and the
Notes, including the payment of principal of and interest on the Notes.
Initially, Decora will be the sole Guarantor. The obligations of each Guarantor
are limited to the maximum amount which, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in an amount based on the net worth of
each Guarantor.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary
without limitation, or with other Persons upon the terms and conditions set
forth in the Indenture. See "-- Certain Covenants -- Merger, Consolidation and
Sale of Assets." In addition, the Indenture will provide that if all of the
Capital Stock of a Guarantor is sold by the Company or any Subsidiary in a
transaction constituting an Asset Sale (or which, but for the provisions of
clause (i) of the definition of such term, would constitute an Asset Sale), and,
if required by the Indenture, (x) the Net Cash Proceeds from such Asset Sale are
used in accordance with the covenant described under "-- Covenants -- Limitation
on Asset Sales" or (y) the Company delivers to the Trustee an Officers'
Certificate to the effect that the Net Cash Proceeds from such Asset Sale will
be used in accordance with the covenant described under "-- Covenants --
Limitation on Asset Sales" within the time limits specified by such
51
<PAGE> 60
covenant, then such Guarantor shall be released and discharged from its
Guarantee upon such use in the case of clause (x) or upon such delivery in the
case of clause (y).
Each Guarantee will be effectively subordinated to secured obligations of
the Guarantor thereof, to the extent of the value of the assets securing such
obligations.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after May 1, 2002,
upon not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on May 1 of the year set forth below,
plus, in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
<TABLE>
<CAPTION>
YEAR Percentage
- ---- ----------
<S> <C>
2002..................................... 105.750%
2003..................................... 103.833%
2004..................................... 101.917%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to May 1, 2001, the Company may, at its option, use the net
cash proceeds of one or more Public Equity Offerings to redeem the Notes at a
redemption price equal to 111.50% of the principal amount at maturity thereof
plus accrued and unpaid interest thereon, if any, to the date of redemption;
provided that at least $73.29 million aggregate principal amount at maturity of
Notes remains outstanding immediately after any such redemption (other than any
Notes owned by DII or any of its Subsidiaries) and such redemption shall be
effected not more than 20 days after the consummation of any such Public Equity
Offering. In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Equity Interests of the Company
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount at maturity thereof, plus accrued and unpaid interest to the date of
purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of
52
<PAGE> 61
Control Offer, the Company expects that it would seek third party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, incur
any Indebtedness (other than Permitted Indebtedness); provided, however, that if
no Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness (including, without limitation, Acquired Indebtedness) and
Restricted Subsidiaries may incur Acquired Indebtedness, in each case if on the
date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio is greater than
(i) 2.0 to 1.0 if such incurrence occurs on or prior to the third anniversary of
the Issue Date and (ii) 2.25 to 1.0 if such incurrence occurs thereafter.
Notwithstanding the foregoing, the Company shall not, and shall not permit
any Guarantor to, incur any Indebtedness that purports to be by its terms (or by
the terms of any agreement or instrument governing such Indebtedness)
subordinated to any other Indebtedness of the Company or of such Guarantor, as
the case may be, unless such Indebtedness is also by its terms (or by the terms
of the agreement or instrument governing such Indebtedness) made expressly
subordinated to the Notes or the Guarantee of such Guarantor, as applicable, to
at least the same extent as such Indebtedness is subordinated to such other
Indebtedness of the Company or such Guarantor, as applicable.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any Restricted Subsidiary to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Equity Interests of the Company)
on or in respect of Equity Interests of the Company to holders of such Equity
Interests,
(b) redeem any Equity Interests of the Company or any Restricted Subsidiary
(other than any held by the Company),
(c) redeem or prepay, in whole or in part, prior to the scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, as applicable,
any Indebtedness of the Company or any Guarantor that is subordinate or junior
in right of payment to the Notes or the Guarantee of such Guarantor, as the case
may be, or
(d) make any Investment (each of the foregoing actions set forth in clauses
(a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the
time of such Restricted Payment or immediately after giving effect thereto,
(i) a Default shall have occurred and be continuing; or
(ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; or
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<PAGE> 62
(iii) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment but excluding Restricted Payments pursuant to clause (2), (3)
or (4) of the next paragraph) made subsequent to the Issue Date shall exceed the
sum (the "Basket") of:
(1) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss)
earned subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus
(2) 100% of the aggregate net cash proceeds received by the Company from
any Person (other than a Subsidiary of the Company) from the issuance
and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Equity Interests of the Company; plus
(3) without duplication of any amounts included in clause (B) above, 100%
of the aggregate net cash proceeds of any common equity contribution
received by the Company (other than from a Subsidiary of the
Company); plus
(4) in the case of the disposition or repayment of any Investment that
was treated as a Restricted Payment made after the Issue Date an
amount (to the extent not included in the computation of Consolidated
Net Income) equal to the lesser of: (x) the return of capital with
respect to such Investment and (y) the amount of such Investment that
was treated as a Restricted Payment, in either case, less the cost of
the disposition of such Investment and net of taxes, plus
(5) so long as the Designation thereof was treated as a Restricted
Payment after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary
after the Issue Date in accordance with "-- Designation of
Unrestricted Subsidiaries," the Company's proportionate interest in
an amount equal to the excess of (x) the total assets of such
Subsidiary, valued on an aggregate basis at the lesser of book value
and fair market value, over (y) the total liabilities of such
Subsidiary, determined in accordance with GAAP (and provided that
such amount shall not in any case exceed the Designation Amount with
respect to such Restricted Subsidiary upon its Designation), minus
(6) with respect to each Subsidiary of the Company which has been
designated as an Unrestricted Subsidiary after the Issue Date in
accordance with "-- Designation of Unrestricted Subsidiaries" the
greater of (x) $0 and (y) the Designation Amount thereof (measured as
of the date of Designation).
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) the redemption of any Equity
Interests of the Company, either (i) solely in exchange for Qualified Equity
Interests of the Company or (ii) through the application of net cash proceeds of
a substantially concurrent sale (other than to a Subsidiary of the Company) of
Qualified Equity Interests of the Company; (3) the redemption or prepayment of
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes either (i) solely in exchange for Qualified Equity
Interests of the Company or (ii) through the application of net cash proceeds of
a substantially concurrent sale (other than to a Subsidiary of the Company) of
(A) Qualified Equity Interests of the Company or (B) Permitted Refinancings of
Indebtedness permitted to be incurred under the Indenture; and (4) Permitted
Investments. No transaction pursuant to this paragraph shall increase the
Basket.
The amount of any non-cash Restricted Payment shall be the fair market
value, on the date such Restricted Payment is made, of the assets or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to such Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors of the Company, whose resolution with respect thereto shall be
delivered to the
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Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $2.5 million.
Limitation on Asset Sales. The Company will not, and will not permit any
Restricted Subsidiary to, consummate an Asset Sale unless (i) the Company or the
applicable Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of; (ii) at least 80% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents; and (iii) upon
the consummation of an Asset Sale, the Company shall apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 180 days of receipt thereof either (A) to permanently prepay any
term loans of the Company or any Restricted Subsidiary under the U.S. Credit
Facility and/or Foreign Credit Facility, as applicable, (B) to make an
investment in Replacement Assets or (C) any combination of the foregoing clauses
(A) and (B); provided, however, that if the assets which were the subject of
such Asset Sale constitute Collateral, the Company or the applicable Restricted
Subsidiary shall have entered into appropriate security documents, and such
Replacement Assets shall be subject to a perfected first priority Lien in favor
of the Trustee and shall constitute Collateral. Pending such application, to the
extent that the assets which are the subject of any Asset Sale constitute
Collateral, such Net Cash Proceeds shall be deposited in the Collateral Account
as described above under "-- Security and Ranking of Notes," and the Company or
the applicable Restricted Subsidiary shall enter into appropriate security
documents and the Net Cash Proceeds of such Asset Sale shall be subject to a
perfected first priority Lien in favor of the Trustee. On the 181st day after an
Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clause (iii) of the next
preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate
amount of Net Cash Proceeds which have not been applied on or before such Net
Proceeds Offer Trigger Date as permitted in clause (iii) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5.0 million resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5.0 million, shall be applied as required pursuant to this
paragraph). To the extent that the Net Cash Proceeds of any Asset Sale of assets
constituting Collateral are not required to be applied to the Notes and if there
are Net Cash Proceeds remaining in the Collateral Account after all such offers
or redemptions required or permitted by the Indenture, then such remaining Net
Cash Proceeds shall be held in the Collateral Account as Collateral and shall be
permitted to be reinvested by the Company at any time as provided above. Pending
the final application of the Net Cash Proceeds of a sale of assets not
constituting Collateral, the Company may temporarily reduce revolving credit
indebtedness or otherwise invest such Net Cash Proceeds in any manner that is
not prohibited by the Indenture.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the Surviving Entity shall be deemed to have sold the
properties and assets of the Company and the Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
and the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
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Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. If the aggregate amount of principal and accrued interest
of Notes validly tendered and not withdrawn by Holders thereof exceeds the
amount of Notes that can be purchased with the Net Proceeds Offer Amount, Notes
to be purchased will be selected pro rata (to the extent practicable) based on
the aggregate principal amount of Notes tendered by each Holder. To the extent
that the aggregate amount of principal and accrued interest of Notes validly
tendered and not withdrawn pursuant to a Net Proceeds Offer is less than the Net
Proceeds Offer Amount, the Company may use such surplus for general corporate
purposes. Upon completion of a Net Proceeds Offer, the aggregate unutilized Net
Proceeds Offer Amount with respect to the applicable Asset Sale or Asset Sales
shall be reset to zero. A Net Proceeds Offer shall remain open for a period of
20 business days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (x) pay dividends or make any other distributions on or
in respect of its Capital Stock; (y) make loans or advances or to pay any
Indebtedness or other obligation owed to, or enter into guarantees for the
benefit of, the Company or any other Restricted Subsidiary; or (z) transfer any
of its property or assets to the Company or any other Restricted Subsidiary,
except for (a) such encumbrances or restrictions existing under or by reason of
(1) applicable law; (2) the Indenture; (3) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired, as such instrument is in effect
on the date of acquisition or as thereafter amended in a manner no less
favorable to the Holders; (4) agreements existing on the Issue Date (including
the U.S. Credit Facility and the Foreign Credit Facility) as in effect on the
Issue Date or as thereafter amended in a manner no less favorable to the
Holders; or (5) an agreement governing Permitted Refinancings of Indebtedness
incurred pursuant to an agreement referred to in clause (2), (3) or (4) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less favorable to the
Holders than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (3) or (4); (b)
customary non-assignment provisions of any contract or any lease governing a
leasehold interest of any Restricted Subsidiary; (c) customary covenants in any
agreement governing Purchase Money Indebtedness that restrict the transfer of
property acquired with the proceeds of such Purchase Money Indebtedness; (d)
covenants in security agreements securing Indebtedness of a Restricted
Subsidiary, to the extent that the Liens securing such Indebtedness were
otherwise incurred in accordance with the "Limitation on Liens" covenant, that
restrict the transfer of property subject to such Liens; and (e) customary
restrictions with respect to a Restricted Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Restricted Subsidiary.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any Restricted Subsidiary to issue any Preferred Stock (other than to
the Company or to a Wholly Owned Restricted Subsidiary) or permit any Person
(other than the Company or a Wholly Owned Restricted Subsidiary) to own any
Preferred Stock of any Restricted Subsidiary.
Limitation on Liens. The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any Restricted Subsidiary whether owned on the Issue
Date or acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless (i) in
the case
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of Liens securing Indebtedness that is expressly subordinate or junior in right
of payment to the Notes, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Liens and (ii) in all
other cases, the Notes are equally and ratably secured. The foregoing shall not
apply to: (a) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date; (b) Liens securing the Notes
and the Guarantees; (c) Liens securing obligations under the U.S. Credit
Facility incurred pursuant to clause (ii) of the definition of "Permitted
Indebtedness" and Liens securing obligations under the Foreign Credit Facility
incurred pursuant to clause (iii) of the definition of "Permitted Indebtedness";
(d) Liens of the Company or a Wholly Owned Restricted Subsidiary on assets of
any Restricted Subsidiary; (e) Liens securing Permitted Refinancings of
Indebtedness secured by a Lien permitted under the Indenture and incurred in
accordance with the provisions of the Indenture; provided, however, that such
Liens (x) are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being refinanced and (y) do not extend to or cover any property or
assets of the Company or any Restricted Subsidiary not securing the Indebtedness
so refinanced; (f) Liens (other than Liens referred to in clauses (a) through
(e)) that secure obligations in an aggregate amount not to exceed (x) prior to
the DI Deutschland Revocation, $2.0 million at any one time outstanding and (y)
after the DI Deutschland Revocation, $4.0 million at any one time outstanding;
and (g) Permitted Liens.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or permit to exist any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), unless such transaction or series of related
transactions is on terms that are no less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Restricted Subsidiary. All Affiliate Transactions (and each series of related
Affiliate Transactions) involving aggregate value in excess of $500,000 shall be
approved by a majority of the Disinterested Directors of the Board of Directors
of the Company or such Restricted Subsidiary, as the case may be, such approval
to be evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If
there are no Disinterested Directors or if the Company or any Restricted
Subsidiary enters into an Affiliate Transaction (or a series of related
Affiliate Transactions) that involves an aggregate value in excess of $2.5
million, the Company or such Restricted Subsidiary, as the case may be, shall,
prior to the consummation thereof, obtain a favorable opinion as to the fairness
of such transaction or series of related transactions to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Financial Advisor and file the same with the Trustee; provided,
however, that no such opinion shall be required for (i) any Permitted
Intercompany Loan or (ii) commercial transactions in the ordinary course of
business and on reasonable and ordinary commercial terms exclusively between or
among the Company and/or one or more of its Subsidiaries.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors; (ii)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned
Restricted Subsidiaries, provided such transactions are not otherwise prohibited
by the Indenture; (iii) any transaction pursuant to an agreement in effect on
the Issue Date as in effect on the Issue Date or as thereafter amended in a
manner not less favorable to the Holders; and (iv) Restricted Payments permitted
by the Indenture, Permitted Investments and any transaction that is deemed not
to be an Investment by reason of the last sentence of the definition of
"Investment."
Additional Subsidiary Guarantees. If the Company or any Restricted
Subsidiary shall organize, acquire or otherwise invest in another Person that
becomes a Restricted Subsidiary, then the Company shall cause such Restricted
Subsidiary to (i) execute and deliver to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall fully and unconditionally guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (ii) deliver to the Trustee an opinion of
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counsel that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
Notwithstanding the foregoing, no Foreign Subsidiary (so long as it is a Foreign
Subsidiary) shall be required to become a Guarantor.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not sell, and shall not cause or permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any Capital
Stock of a Restricted Subsidiary, except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) the sale of all of the Capital Stock of a Restricted
Subsidiary in accordance with "Limitation on Asset Sales"; or (iii) in the case
of issuance of Capital Stock by a non-Wholly Owned Restricted Subsidiary if,
after giving effect to such issuance, the Company maintains its direct or
indirect percentage of beneficial and economic ownership of such non-Wholly
Owned Restricted Subsidiary.
Limitation on Sale and Leaseback Transactions. The Company will not, and
will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback
Transaction; provided, however, that the Company may enter into a Sale and
Leaseback Transaction if (i) the Company would have (a) incurred Indebtedness
(other than Permitted Indebtedness) in an amount equal to the Attributable Debt
relating to such Sale and Leaseback Transaction in compliance with the "--
Limitation on Incurrence of Additional Indebtedness" covenant and (b) incurred a
Lien to secure such Indebtedness pursuant to the "-- Limitation on Liens"
covenant, (ii) the gross cash proceeds of such Sale and Leaseback Transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such Sale and Leaseback
Transaction and (iii) the transfer of assets in such Sale and Leaseback
Transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the "-- Limitation on Asset Sales" covenant.
Designation of Unrestricted Subsidiaries. (a) The Company may designate any
Subsidiary of the Company (other than Decora or any of its Subsidiaries and,
following the DI Deutschland Revocation, other than DI Deutschland and its
Subsidiaries) as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the "-- Limitation on Incurrence of Additional Indebtedness"
covenant; and
(iii) The Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the effectiveness of
such Designation) pursuant to the first paragraph of the "-- Limitation on
Restricted Payments" covenant in an amount (the "Designation Amount") equal to
the fair market value of the Company's proportionate interest in the net worth
of such Subsidiary on such date calculated in accordance with GAAP.
All Subsidiaries of Unrestricted Subsidiaries shall be Unrestricted
Subsidiaries.
DI Deutschland and its Subsidiaries shall be deemed to have been designated
Unrestricted Subsidiaries as of the Issue Date. On January 1, 2001, the
Designation of DI Deutschland and its Subsidiaries as Unrestricted Subsidiaries
shall be deemed to have been revoked (such Revocation, the "DI Deutschland
Revocation") in accordance with paragraph (b) below. Notwithstanding the
foregoing, in the event that the Consolidated Fixed Charge Coverage Ratio after
giving effect to the DI Deutschland Revocation (assuming that DI Deutschland and
its Subsidiaries had been Restricted Subsidiaries since the beginning of the
Four Quarter Period) is less than the Consolidated Fixed Charge Coverage Ratio
before giving effect to the DI Deutschland Revocation (the "Revocation
Condition"), the DI Deutschland Revocation shall not be deemed to have been
effected on such date, but shall be deemed to be effected at the end of the
first fiscal quarter thereafter that the Revocation Condition is satisfied. The
Company shall not cause or suffer DI Deutschland or any of its Subsidiaries
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to incur Indebtedness for the primary purpose of avoiding the Revocation
Condition being satisfied. At no time following the DI Deutschland Revocation
shall DI Deutschland or any of its Subsidiaries be Designated as Unrestricted
Subsidiaries.
Hornschuch is currently an AG stock corporation. Therefore, neither DII nor
DI Deutschland can direct the Hornschuch Management Board to take certain
actions or not to take certain actions. Such limitations upon their powers may
effectively limit the ability of DII or DI Deutschland to cause Hornschuch to
comply with restrictive covenants under the Indenture at such time, if any, as
Hornschuch becomes a Restricted Subsidiary. DII will continue to evaluate
various options concerning Hornschuch's structure. See "Business -- Hornschuch
Minority Tender Offer and Possible Reorganization."
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, at any time (x) provide credit support
for, subject any of its properties or assets (other than the Equity Interests of
any Unrestricted Subsidiary) to the satisfaction of, or guarantee, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary;
provided, however, that the foregoing shall not prohibit any agreement in effect
on the Issue Date as in effect on the Issue Date or as thereafter amended in a
manner not less favorable to the Holders.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") only if:
(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(ii)all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time, have been
permitted to be incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Limitation on Capital Expenditures. The Company will not permit or suffer
the aggregate amount of capital expenditures of the Company and the Restricted
Subsidiaries and DI Deutschland and its Subsidiaries, as determined on a
consolidated basis in accordance with GAAP, (i) for the fiscal year ending March
31, 1999 to exceed $10.5 million or (ii) for any fiscal year thereafter to
exceed the sum of 5.5% of net sales of the Company and the Restricted
Subsidiaries and DI Deutschland and its Subsidiaries for the fiscal year
immediately preceding such fiscal year, as determined on a consolidated basis in
accordance with GAAP; provided, however, that if the actual amount of such
capital expenditures in any fiscal year is less than the amount permitted under
this covenant for such fiscal year, the unused amount (not to exceed 25% of such
permitted amount) may be carried over to the immediately succeeding fiscal year,
but not any subsequent fiscal year.
Conduct of Business. The Company and the Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or reasonably related
to the businesses in which the Company and the Restricted Subsidiaries are
engaged on the Issue Date, except to the extent as would not be material to the
Company and the Restricted Subsidiaries taken as a whole.
Reports to Holders. The Indenture provides that the Company will deliver to
the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting
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requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act within the time
periods specified therein. The Company will also comply with the other
provisions of TIA Section 314(a). In addition, for so long as any Notes remain
outstanding, the Company will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Notes, if not obtainable from the Commission, information
of the type that would be filed with the Commission pursuant to the foregoing
provisions, upon the request of any such Holder.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and the Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of and interest on all of the Notes and the performance of every
covenant of the Notes, the Indenture, the Registration Rights Agreement and the
Pledge Agreements on the part of the Company to be performed or observed; (ii)
other than in a consolidation or merger solely between the Company and a Wholly
Owned Restricted Subsidiary, immediately after giving effect to such transaction
and the assumption contemplated by clause (i)(2)(y) above (including giving
effect to any Indebtedness (including Acquired Indebtedness) incurred or
anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "-- Limitation on Incurrence of Additional
Indebtedness" covenant (if the Company shall not be the Surviving Entity, all
references to the Company and the Restricted Subsidiaries in the definitions
used to determine the Consolidated Fixed Charge Coverage Ratio shall be to the
Surviving Person and its Subsidiaries after giving effect to such transaction
(excluding any Unrestricted Subsidiaries)); (iii) immediately after giving
effect to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including giving effect to any Indebtedness (including Acquired
Indebtedness) incurred or anticipated to be incurred in connection with or in
respect of such transaction), no Default shall have occurred and be continuing;
and (iv) the Company or the Surviving Entity shall have delivered to the Trustee
an officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable provisions
of the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
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Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the "-- Limitation on Asset Sales" covenant)
will not, and the Company will not cause or permit any Guarantor to, consolidate
with or merge with or into any Person other than the Company or any other
Guarantor unless: (i) the entity formed by or surviving any such consolidation
or merger (if other than the Guarantor) or to which such sale, lease, conveyance
or other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia; (ii) such entity assumes by supplemental indenture all of
the obligations of the Guarantor on the Guarantee; and (iii) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on a
pro forma basis, the Company could satisfy the provisions of clause (ii) of the
first paragraph of this covenant. Any merger or consolidation of a Guarantor
with and into the Company (with the Company being the surviving entity) or
another Guarantor that is a Wholly Owned Restricted Subsidiary need only comply
with clause (iv) of the first paragraph of this covenant.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due and
payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise (including
the failure to make a payment to purchase Notes tendered pursuant to a Change of
Control Offer or a Net Proceeds Offer);
(iii) (x) a default in the observance or performance of the "Merger,
Consolidation and Sale of Assets" covenant or the Company's obligation to effect
a Change of Control Offer pursuant to provisions described under "Change of
Control" or (y) a default in the observance or performance of any other covenant
or agreement contained in the Indenture or any Security Document which default
continues for a period of 30 days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from the
Trustee or the Company and the Trustee receiving such notice from Holders of at
least 25% of the outstanding principal amount of the Notes;
(iv) default under any mortgage, indenture or other investment or agreement
under which there may be issued or by which there may be secured or evidenced
Indebtedness of the Company or any Restricted Subsidiary, whether such
Indebtedness now exists or is incurred after the Issue Date, which default (x)
is caused by a failure to pay when due principal or interest on such
Indebtedness within the applicable express grace period, (y) results in the
acceleration of such Indebtedness prior to its express final maturity or (z)
results in the commencement of judicial proceedings to foreclose upon, or to
exercise remedies under applicable law or applicable security documents to take
ownership of, the property or assets securing such Indebtedness and, in each
case, the principal amount of such Indebtedness, together with any other
Indebtedness with respect to which an event described in clause (x), (y) or (z)
has occurred and is continuing, aggregates $2.5 million or more;
(v) one or more judgments in an aggregate amount in excess of $2.5 million
shall have been rendered against the Company or any Restricted Subsidiary and
such judgments remain undischarged, unpaid or unstayed for a period of 60 days
after such judgment or judgments become final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries;
(vii) any of the Guarantees ceases to be in full force and effect or any of
the Guarantees is declared to be null and void and unenforceable or any of the
Guarantees is found to be invalid or any of the Guarantors denies its liability
under its Guarantee (other than by reason of release of a Guarantor in
accordance with the terms of the Indenture); or
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(viii) any of the Pledge Agreements shall cease to be in full force and
effect or cease to give the Trustee the Liens, rights, powers and privileges
purported to be created thereby.
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration," and the
same shall become immediately due and payable. If an Event of Default specified
in clause (vi) above with respect to the Company occurs and is continuing, then
all unpaid principal of, and premium, if any, and accrued and unpaid interest on
all of the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default under the Indenture, and its consequences, except a default in
the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default (provided that such officers shall provide such certification at
least annually whether or not they know of any Default) that has occurred and,
if applicable, describe such Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time,
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elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default shall have occurred and be continuing on the date of such
deposit or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any other
material agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent provided
for or relating to the Legal Defeasance or the Covenant Defeasance have been
complied with; (viii) the Company shall have delivered to the Trustee an opinion
of counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (ix) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (ii)
above with respect to a Legal Defeasance need not be delivered if all Notes not
therefore delivered to the Trustee for cancellation (x) have become due and
payable or (y) will become due and payable on the maturity date within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the
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Company directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) the Company has paid all other
sums payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not adversely affect the rights of any of the Holders. Other modifications
and amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may: (i) reduce the amount of Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Note, or change the date on which any Note may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Note payable in money other than that stated in the Notes; (v)
make any change in provisions of the Indenture protecting the right of each
Holder to receive payment of principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment; (vi) waive a
Default in the payment of principal or interest on any Note (except that Holders
of at least a majority in aggregate principal amount of the then outstanding
Notes may (x) rescind an acceleration of the Notes that resulted from a
non-payment default and (y) waive the payment default that resulted from such
acceleration; (vii) amend in any material respect the obligation of the Company
to make and consummate a Change of Control Offer in the event of a Change of
Control or modify any of the provisions or definitions with respect thereto;
(viii) subordinate the Notes or any Guarantee to any other obligation of the
Company or any Guarantor; (ix) release any Guarantor from any of its obligations
under its Guarantee or the Indenture otherwise than in accordance with the terms
of the Indenture or (x) other than in compliance with the Indenture, consent to
a release of the security interest in the Collateral or make any change in the
provisions of the Indenture or the Pledge Agreement relating to the security
interest of the Trustee in the Collateral in a manner adverse to the Holders.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
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BOOK ENTRY, DELIVERY AND FORMS
Except as set forth in the next paragraph, the Exchange Notes to be resold
as set forth herein will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the sale of the Exchange Notes offered hereby (the "Closing Date") with, or on
behalf of, the Depositary and registered in the name of Cede & Co., as nominee
of the Depositary (such nominee being referred to herein as the "Global Note
Holder").
Exchange Notes that are issued as described below under "-- Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Exchange Notes being
transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants" or the
"Depositary's Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of the
Depositary only thorough the Depositary's Participants or the Depositary's
Indirect Participants. Although the Depositary is expected to follow the
foregoing procedures in order to facilitate transfers of interests in the Global
Note among Participants, it is under no obligation to perform such procedures,
and such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by the Depositary or
the Participants or Indirect Participants of their respective obligations under
the rules and procedures governing their operations.
DII expects that pursuant to procedures established by the Depositary (i)
upon deposit of the Global Note, the Depositary will credit the accounts of
Participants with portions of the principal amount of the Global Note and (ii)
ownership of the Exchange Notes evidenced by the Global Note will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Exchange Notes
evidenced by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Exchange Notes evidenced by the Global Note. Beneficial owners
of Exchange Notes evidenced by the Global Note will not be considered the owners
or Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither DII nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the Exchange
Notes. No beneficial owner of an interest in the Global Note will be able to
transfer such interest except in accordance with the Depositary's applicable
procedures, in addition to those provided for in the Indenture with respect to
the Exchange Notes.
Payments in respect of the principal of, premium, if any and interest if
any, on any Exchange Notes registered in the name of the Global Note Holder on
the applicable record date will be payable by the Trustee to or at the direction
of the Global Note Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, DII and the Trustee may treat the
persons in whose names Exchange Notes, including the Global Note, are registered
as the owners thereof for the purpose of receiving such payments. Consequently,
neither DII nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Exchange Notes. DII
believes, however,
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that it is currently the policy of the Depositary to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants. Neither the Company nor
the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial interest.
Transfers between Participants will be effected in the ordinary way in
accordance with the Depositary's rules and will be settled in same-day funds. If
a Holder requires physical delivery of a Certificated Security for any reason,
including to sell Exchange Notes to persons in states which require physical
delivery of such securities or to pledge such securities, such Holder must
transfer its interest in the Global Note in accordance with the normal
procedures of the Depositary, including, with respect to the Exchange Notes, the
procedures set forth in the Indenture.
CERTIFICATED SECURITIES
Interests in the Global Note will be exchanged for Certificated Securities
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue as depositary for the Global Notes, or the Depositary ceases to be a
"Clearing Agency" registered under the Exchange Act, and a successor depositary
is not appointed by DII within 90 days or (ii) an Event of Default has occurred
and is continuing with respect to the Notes. Upon the occurrence of any of the
events described in the preceding sentence, DII will cause the appropriate
Certificated Securities to be delivered.
Neither DII nor the Trustee will be liable for any delay by the Global Note
Holder or the Depositary in identifying the beneficial owners of Exchange Notes
and DII and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or the Depositary for all
purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
DII and Decora have agreed pursuant to the Registration Rights Agreement
with the Initial Purchaser, for the benefit of the Holders, that DII will, at
its cost, (i) within 75 days after the Issue Date, file a registration statement
(the "Exchange Offer Registration Statement") with the Commission with respect
to the Exchange Offer to exchange the Old Notes for Exchange Notes having terms
substantially identical in all material respects to the Old Notes (except that
the Exchange Notes will not contain terms with respect to transfer restrictions
and future registration under the Securities Act) and (ii) use its reasonable
best efforts to cause the Exchange Offer Registration Statement to be declared
effective by the Commission under the Securities Act within 150 days after the
Issue Date. Upon the effectiveness of the Exchange Offer Registration Statement,
DII will offer the Exchange Notes in exchange for surrender of the Old Notes.
DII will keep the Exchange Offer open for not less than 20 business days
(subject to extension under applicable law) after the date notice of the
Exchange Offer is first mailed to the Holders. For each Old Note surrendered to
DII pursuant to the Exchange Offer, the Holder will receive an Exchange Note
having a principal amount equal to that of the surrendered Old Note. Interest on
each Exchange Note will accrue from the last interest payment date on which
interest was paid on the Old Note surrendered in exchange therefor or, if at the
time of such exchange no interest has been paid on such surrendered Old Note,
from the Issue Date. Based on existing Commission staff interpretations set
forth in published no-action letters to third parties, DII believes that the
Exchange Notes would be freely transferable by Holders other than affiliates of
DII after the Exchange Offer without further registration under the Securities
Act if the Holder of the Exchange Notes is acquiring the Exchange Notes in the
ordinary course of its business, has no arrangement or understanding with any
person to participate in the distribution of the Exchange Notes and is not an
affiliate of DII, as such terms are interpreted by the Commission; provided,
however, that broker-dealers ("Participating Broker-Dealers") receiving Exchange
Notes in the Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements
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with respect to Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement, DII has
agreed to make available, for a period of one year after consummation of the
Exchange Offer, a prospectus meeting the requirements of the Securities Act to
any Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements in connection with the resale of such Exchange
Notes.
A Holder (other than certain specified Holders) who wishes to exchange such
Old Notes for Exchange Notes in the Exchange Offer will be required to represent
that any Exchange Notes to be received by it will be acquired in the ordinary
course of its business and that at the time of the commencement of the Exchange
Offer it has no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the Exchange
Notes and that it is not an "affiliate" of DII, as defined in Rule 405 of the
Securities Act, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
In the event that applicable interpretations of the staff of the Commission
do not permit DII to effect such a Exchange Offer, or if for any other reason
the Exchange Offer is not consummated within 180 days of the Issue Date, or if
the Initial Purchaser so requests with respect to Old Notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer, or if any Holder of Old
Notes is not eligible to participate in the Exchange Offer or (for Holders other
than affiliates) does not receive freely tradeable Exchange Notes in the
Exchange Offer, DII will, at its cost, (a) as promptly as practicable, file a
Shelf Registration Statement covering resales of the Old Notes or the Exchange
Notes, as the case may be, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and (c)
keep the Shelf Registration Statement effective until the earlier of (i) the
time when the Notes covered by the Shelf Registration Statement are eligible for
resale pursuant to Rule 144(k) under the Securities Act, (ii) the time when all
of the Notes covered by the Shelf Registration Statement have been resold
pursuant thereto in accordance with the intended methods of distribution by the
Holders thereof and (iii) two years from the Issue Date. DII and Decora will, in
the event a Shelf Registration Statement is filed, among other things, provide
to each Holder for whom such Shelf Registration Statement was filed copies of
the prospectus which is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement has become effective and take
certain other actions as are required by applicable law to permit unrestricted
resales of the Notes or the Exchange Notes, as the case may be. A Holder selling
such Old Notes or Exchange Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such Holder (including certain indemnification
obligations).
If (i) by the date which is 75 days after the Issue Date, the Exchange
Offer Registration Statement has not been filed with the Commission; (ii) by the
date which is 150 days after the Issue Date, the Exchange Offer Registration
Statement is not declared effective under the Securities Act by the Commission;
(iii) by the date which is 180 days after the Issue Date, the Exchange Offer is
not consummated; (iv) the Shelf Registration Statement (if required) has not
been declared effective within the period specified in the Registration Rights
Agreement; or (v) after either the Exchange Offer Registration Statement or the
Shelf Registration Statement is declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain customary
exceptions) in connection with resales of Old Notes or Exchange Notes in
accordance with and during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) through (v) a
"Registration Default," and each period during which a Registration Default has
occurred and is continuing, a "Registration Default Period"), then damages
("Liquidated Damages") on the Transfer Restricted Notes will accrue at a per
annum rate of 0.50% on the outstanding principal amount of Notes and the
Restricted Exchange Notes for the first 90 days of the Registration Default
Period, at a per annum rate of 1.0% for the second 90 days of the Registration
Default Period and at a per annum rate of 1.50% thereafter for the remaining
portion of the Registration Default Period. From and including the date on which
all Registration Defaults have been cured, the accrual of Liquidated Damages
will cease.
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"Transfer Restricted Notes" means each Old Note until (i) the date on which
such Old Note has been exchanged by a person other than a broker-dealer for a
freely transferable Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of such Old Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Old Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Old Note is distributed to the public pursuant to Rule
144 under the Securities Act or is freely tradable pursuant to Rule 144(k) under
the Securities Act.
If DII effects the Exchange Offer, it will be entitled (subject to
applicable law) to consummate the Exchange Offer 20 business days after the
commencement thereof; provided that it has accepted for exchange all Old Notes
theretofore validly tendered and not properly withdrawn in accordance with the
terms of the Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement which is included as an exhibit to the Registration Statement.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of its
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"amend" means amend, modify, supplement, restate or amend and restate,
including successively; and "amending" and "amended" have correlative meanings.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any Restricted Subsidiary, or shall be merged
with or into the Company or any Restricted Subsidiary, or (b) the acquisition by
the Company or any Restricted Subsidiary of the assets of any Person (other than
a Restricted Subsidiary) which constitute all or substantially all of the assets
of such Person or comprises any division or line of business of such Person or
any other properties or assets of such Person other than in the ordinary course
of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any
Restricted Subsidiary (including any Sale and Leaseback Transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary of (a) any
Capital Stock of any Restricted Subsidiary; or (b) any other property or assets
of the Company or any Restricted Subsidiary other than in the ordinary course of
business; provided, however, that Asset Sales
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shall not include (i) a transaction or series of related transactions for which
the Company or its Restricted Subsidiaries receive aggregate consideration of
less than $750,000, (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company in compliance
with "Merger, Consolidation and Sale of Assets," (iii) any transaction
constituting a Change of Control or a Restricted Payment or (iv) the granting of
any Lien, or any foreclosure thereon, to the extent granted in accordance with
the "Limitation on Liens" covenant.
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
as of the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale and Leaseback Transaction (including any period for which such lease
has been extended).
"Basket" has the meaning given to such term in the "Limitation on
Restricted Payments" covenant.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-2 from S&P or at least P-2 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture) other than
to a Wholly Owned Restricted Subsidiary in compliance with the "-- Merger,
Consolidation and Sale of Assets" covenant; (ii) the
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approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
shall become the owner, directly or indirectly, beneficially or of record, of
shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Company; or (iv)
the replacement of a majority of the Board of Directors of the Company over a
two-year period from the directors who constituted the Board of Directors of the
Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (i) Consolidated Net Income plus (ii) to the extent Consolidated Net Income
has been reduced thereby, (A) all income taxes of the Company and the Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (B) Consolidated Interest Expense and (C) Consolidated
Non-cash Charges less (iii) any non-cash items increasing Consolidated Net
Income for such period, all as determined on a consolidated basis for the
Company and the Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of Consolidated
EBITDA during the four full fiscal quarters (the "Four Quarter Period") ending
on or prior to the date of the transaction giving rise to the need to calculate
the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to
Consolidated Fixed Charges for the Four Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to (i) the
incurrence or repayment of any Indebtedness of the Company or any Restricted
Subsidiary (and the application of the proceeds thereof) giving rise to the need
to make such calculation and any incurrence or repayment of other Indebtedness
(and the application of the proceeds thereof), other than the incurrence or
repayment of Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, occurring during the Four
Quarter Period or at any time subsequent to the last day of the Four Quarter
Period and on or prior to the Transaction Date, as if such incurrence or
repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of the Company or any
Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary
as a result of the Asset Acquisition) incurring Acquired Indebtedness and also
including any Consolidated EBITDA (including any pro forma expense calculated on
a basis consistent with Regulation S-X under the Exchange Act) attributable to
the assets which are the subject of the Asset Acquisition or Asset Sale during
the Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If the Company or any Restricted
Subsidiary directly or indirectly guarantees Indebtedness of a third Person, the
preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if the Company or any Restricted Subsidiary had directly
incurred such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such
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interest is covered by agreements relating to Interest Swap Obligations, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, for any period, the sum, without
duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x)
the amount of all dividend payments on any series of Preferred Stock of the
Company or any Restricted Subsidiary (other than dividends paid in Qualified
Equity Interests or paid to the Company or any Restricted Subsidiary) paid,
accrued or scheduled to be paid or accrued during such period times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated federal, state and local tax rate
of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, for any period, the sum of, without
duplication: (i) the aggregate of the interest expense of the Company and the
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation, (a) any amortization of debt
discount and amortization or write-off of deferred financing costs, (b) the net
costs under Interest Swap Obligations, (c) all capitalized interest and (d) the
interest portion of any deferred payment obligation; and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and the Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the aggregate net income
(or loss) of the Company and the Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom (a) after-tax gains from Asset Sales or abandonments
or reserves relating thereto, (b) after-tax items classified as extraordinary or
nonrecurring gains, (c) the net income of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary or is merged or consolidated with the Company or any Restricted
Subsidiary, (d) the net income (but not loss) of any Restricted Subsidiary to
the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation of
law or otherwise, (e) the net income of any Person, other than a Restricted
Subsidiary, except to the extent of cash dividends or distributions paid to the
Company or to a Wholly Owned Restricted Subsidiary by such Person (subject to
the limitations of the foregoing clause (d)), (f) any restoration to income of
any contingency reserve, except to the extent that provision for such reserve
was made out of Consolidated Net Income accrued at any time following the Issue
Date, (g) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued), and (h) in the case of a
successor to the Company by consolidation or merger or as a transferee of the
Company's assets, any earnings of the successor Person prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Equity
Interests of such Person or any Unrestricted Subsidiaries.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and the
Restricted Subsidiaries reducing Consolidated Net Income of the Company and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
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"Designation Amount" has the meaning given to such term in the "Designation
of Unrestricted Subsidiaries" covenant.
"Disinterested Director" means a member of the Board of Directors of the
Company or a Restricted Subsidiary, as the case may be, who does not have any
direct or indirect personal financial interest in or with respect to the
transaction being considered; provided, however, an indirect interest in an
Affiliate solely by reason of such director's ownership of Equity Interests of
the Company shall not be deemed to be an indirect personal financial interest in
or with respect to the transaction being considered.
"Disqualified Equity Interests" means that portion of any Equity Interests
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Notes; provided, however,
that any Equity Interests that would not constitute Disqualified Equity
Interests but for provisions thereof giving holders thereof the right to require
the Company to redeem such Equity Interests upon the occurrence of a change in
control occurring prior to the final maturity date of the Notes shall not
constitute Disqualified Equity Interests if the change in control provisions
applicable to such Equity Interests are no more favorable to the holders of such
Equity Interests than the provisions described under "-- Change of Control" and
such Equity Interests specifically provide that the Company will not redeem any
such Equity Interests pursuant to such provisions prior to the Company's
repurchase of the Notes as are required to be repurchased pursuant to the
provisions described under "-- Change of Control."
"Equity Interests" means Capital Stock and any warrants, options or other
rights to purchase or acquire any Capital Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction.
"Foreign Credit Facility" means one or more senior credit facilities
providing for term loans, revolving credit loans and/or letters of credit
between one or more Foreign Subsidiaries, on the one hand, and one or more
lenders, on the other hand, together with related documents (including
promissory notes, security agreements and guarantees), as the same may be
amended or Refinanced from time to time.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States or a state thereof or the District
of Columbia and with respect to which more than 80% of any of its sales,
earnings or assets (determined on a consolidated basis in accordance with GAAP)
are located in, generated from or derived from operations located in territories
outside the United States of America and jurisdictions outside the United States
of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"DI Deutschland Revocation" has the meaning given to such term in the
"Designation of Unrestricted Subsidiaries" covenant.
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"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" used as a verb has a
corresponding meaning. The term "guarantor" shall mean any Person guaranteeing
any obligation.
"Guarantor" means (i) Decora and (ii) each Restricted Subsidiary that in
the future executes a supplemental indenture in which such Subsidiary agrees to
be bound by the terms of the Indenture as a Guarantor; provided, however, that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "incurrence," "incurred" and "incurring" shall have meanings
correlative to the foregoing). Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary (other than by reason of the DI
Deutschland Revocation) or is merged or consolidated with or into the Company or
any Restricted Subsidiary shall be deemed to be incurred at such time. The
accrual of interest or the accretion of original issue discount shall not be
deemed to be an incurrence.
"Indebtedness" means with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all indebtedness of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all indebtedness under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business, (v) all indebtedness for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (i) through (v) above and clause
(viii) below, (vii) all indebtedness of any other Person of the type referred to
in clauses (i) through (vi) which are secured by any lien on any property or
asset of such Person, the amount of such indebtedness being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
indebtedness so secured, (viii) all indebtedness under currency agreements and
interest swap agreements of such Person and (ix) all Disqualified Equity
Interests issued by such Person with the amount of Indebtedness represented by
such Disqualified Equity Interests being equal to the greater of its voluntary
or involuntary liquidation preference and its maximum fixed repurchase price,
but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Equity Interests which do not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Equity Interests as if such Disqualified Equity Interests were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Disqualified Equity Interests, such fair market value
shall be determined reasonably and in good faith by the Board of Directors of
the issuer of such Disqualified Equity Interests.
"Independent Financial Advisor" means a nationally recognized investment
banking, consulting, accounting or appraisal firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect
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financial interest in the Company and (ii) which, in the judgment of the Board
of Directors of the Company, is otherwise independent and qualified to perform
the task for which it is to be engaged.
"interest" on any Note means interest and, with respect to Old Notes,
Liquidated Damages, if any, on such Note.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company or any Restricted Subsidiary on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any Restricted Subsidiary, without any adjustments for increases
or decreases in value, or write-ups, write-downs or write-offs with respect to
such Investment, reduced by the payment of dividends or distributions in
connection with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary such that, after giving effect to any such sale
or disposition, the Company no longer owns, directly or indirectly, greater than
50% of the outstanding Common Stock of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of. No Investment shall be deemed to
be made solely by reason of the conversion of an equity interest into a debt
obligation or vice versa.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any Restricted Subsidiary from such Asset Sale net of (a)
reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Indebtedness" means, without duplication, each of the following:
a. Indebtedness under the Notes and the Guarantees, and Permitted
Refinancings thereof;
b. Indebtedness incurred pursuant to the U.S. Credit Facility in an
aggregate principal amount at any time outstanding not to exceed the greater of
(x) $15.0 million and (y) the sum of 85% of the book value of accounts
receivable and 60% of the book value of inventory of the Company and the
Restricted Subsidiaries (other than any Foreign Subsidiary), calculated on a
consolidated basis in accordance with GAAP;
c. Indebtedness incurred pursuant to the Foreign Credit Facility; provided,
however, that after giving effect to such incurrence, the aggregate principal
amount outstanding under the Foreign Credit Facility shall not exceed the
greater of (x) $7.5 million and (y) the sum of 85% of the book value of accounts
receivable and 60% of the book value of inventory of the Foreign Subsidiaries,
calculated on a consolidated basis in accordance with GAAP;
d. Permitted Refinancings of (x) Indebtedness of the Company or any
Restricted Subsidiary (other than Indebtedness described in clause (i), (ii) or
(iii) above) to the extent outstanding on the Issue Date reduced by the amount
of any scheduled amortization payments or mandatory prepayments when actually
paid or permanent reductions thereon and (y) Indebtedness incurred under the
Consolidated Fixed Charge Coverage Ratio test of the "Limitation on Incurrence
of Additional Indebtedness" covenant;
e. Interest Swap Obligations of the Company covering Indebtedness of the
Company or any Restricted Subsidiary and Interest Swap Obligations of any
Restricted Subsidiary covering Indebtedness of such Restricted Subsidiary;
provided, however, that such Interest Swap Obligations are entered into to
protect the Company and its Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with the Indenture to the
extent the notional principal amount of such Interest Swap Obligation does not
exceed the principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
f. Indebtedness under Currency Agreements; provided, however, that in the
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
g. Indebtedness of a Wholly Owned Restricted Subsidiary to the Company or
to a Wholly Owned Restricted Subsidiary for so long as such Indebtedness is held
by the Company or a Wholly Owned Restricted Subsidiary, in each case subject to
no Lien held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary; provided, however, that if as of any date any Person other than the
Company or a Wholly Owned Restricted Subsidiary owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by
the issuer of such Indebtedness;
h. Indebtedness of the Company to a Wholly Owned Restricted Subsidiary for
so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary, in
each case subject to no Lien; provided, however, that (x) any Indebtedness of
the Company to any Wholly Owned Restricted Subsidiary is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Indenture and the Notes and (y) if as of any date any Person other
than a Wholly Owned Restricted Subsidiary owns or holds any such Indebtedness or
any Person holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Indebtedness permitted by
this clause (viii);
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i. Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is extinguished
within five Business Days of incurrence;
j. Indebtedness of the Company or any Restricted Subsidiary represented by
letters of credit for the account of the Company or such Restricted Subsidiary,
as the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business;
k. guarantees by the Company or a Guarantor of any Indebtedness of the
Company or a Wholly Owned Restricted Subsidiary permitted to be incurred under
the "Limitation on Incurrence of Additional Indebtedness" covenant;
l. Permitted Intercompany Loans in an aggregate principal amount not to
exceed $5.0 million at any one time outstanding;
m. Indebtedness represented by Capitalized Lease Obligations and Purchase
Money Indebtedness of the Company and its Restricted Subsidiaries incurred in
the ordinary course of business, and Permitted Refinancings thereof, not to
exceed (x) prior to the DI Deutschland Revocation, $2.5 million at any one time
outstanding and (y) after the DI Deutschland Revocation, $5.0 million at any one
time outstanding; and
n. additional Indebtedness of the Company or any Restricted Subsidiary in
an aggregate principal amount not to exceed (x) prior to the DI Deutschland
Revocation, $5.0 million at any one time outstanding and (y) after the DI
Deutschland Revocation, $10.0 million at any one time outstanding.
"Permitted Intercompany Loan" shall mean any loan or advance between the
Company and one of its Subsidiaries or between its Subsidiaries; provided,
however, that (x) no payments of principal on such loan or advance shall be
required, whether or not upon the happening of any event, on or prior to the
final maturity date of the Notes, (y) upon a bankruptcy, insolvency,
liquidation, dissolution or other similar proceeding all amounts due in respect
of the Notes and the Indenture (including any interest accruing subsequent to an
event of bankruptcy or insolvency, whether or not allowed or allowable
thereunder) shall first be paid in full before any payment in respect of any
Permitted Intercompany Loan shall be made and (z) upon a Default, no payments in
respect of any Permitted Intercompany Loan may be made until such Default has
been waived or cured or the Notes has been discharged in full.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Wholly Owned Restricted Subsidiary or that will merge or
consolidate into the Company or a Wholly Owned Restricted Subsidiary, (ii)
Investments in the Company by any Restricted Subsidiary; provided that any
Indebtedness evidencing such Investment is unsecured and subordinated, pursuant
to a written agreement, to the Company's obligations under the Notes and the
Indenture; (iii) investments in cash and Cash Equivalents; (iv) loans and
advances to employees and officers of the Company and its Restricted
Subsidiaries in the ordinary course of business for bona fide business purposes
not to exceed (x) prior to the DI Deutschland Revocation, $500,000 in the
aggregate at any one time outstanding and (y) after the DI Deutschland
Revocation, $1.0 million at any one time outstanding; (v) Currency Agreements
and Interest Swap Obligations entered into in the ordinary course of the
Company's or any Restricted Subsidiary's businesses and otherwise in compliance
with the Indenture; (vi) Investments in Unrestricted Subsidiaries not to exceed
(x) prior to the DI Deutschland Revocation, $500,000 at any one time outstanding
and (y) after the DI Deutschland Revocation, $1.0 million at any one time
outstanding; (vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (viii)
Investments made by the Company or its Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
the "Limitation on Asset Sales" covenant; (ix) any Investment to the extent that
the consideration therefor (i) consists solely of Qualified Equity Interests or
(II) is paid solely with the proceeds of a substantially concurrent issuance and
sale of Qualified Equity Interests (provided that any such proceeds used for
this purpose shall not increase the Basket); (x)
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Investments in Hornschuch made with the proceeds of the offering of the Old
Notes to the extent used to purchase Equity Interests of Hornschuch; and (xi)
additional Investments in an aggregate amount not to exceed (x) prior to the DI
Deutschland Revocation, $500,000 at any one time outstanding and (y) after the
DI Deutschland Revocation, $1.0 million at any one time outstanding.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate proceedings and
as to which the Company or its Restricted Subsidiaries shall have set aside on
its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, including any Lien securing letters of credit issued in the
ordinary course of business consistent with past practice in connection
therewith, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may have
been duly initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceedings may be initiated shall
not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar charges
or encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of the business of the Company or any
Restricted Subsidiary;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary of the Company acquired in the ordinary course of
business; provided, however, that (A) the related purchase money Indebtedness
shall not exceed the cost of such property or assets and shall not be secured by
any property or assets of the Company or any Restricted Subsidiary other than
the property and assets so acquired and (B) the Lien securing such Indebtedness
shall be created within 90 days of such acquisition;
(viii)Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company or
any Restricted Subsidiary, including rights of offset and set-off;
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(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to clause (xiii) of the definition of "Permitted
Indebtedness";
(xiii) Liens securing Indebtedness under Currency Agreements; and
(xiv) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; provided that
(A) such Liens secured such Acquired Indebtedness at the time of and prior to
the incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and (B) such Liens do not extend to or cover any property or assets
of the Company or of any Restricted Subsidiary other than the property or assets
that secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Restricted Subsidiary and are
no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary.
"Permitted Refinancing" means, with respect to any Indebtedness of any
Person, any Refinancing of such Indebtedness; provided, however, that (i) such
Indebtedness shall not result in an increase in the aggregate principal amount
of Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company in connection with such Refinancing), (ii) such Indebtedness
shall not have a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced or a
final maturity earlier than the final maturity of the Indebtedness being
Refinanced, (iii) if the Indebtedness being Refinanced is Indebtedness of the
Company, then such Refinancing Indebtedness shall be Indebtedness solely of the
Company and (iv) if the Indebtedness being Refinanced is subordinate or junior
to the Notes, then such Refinancing Indebtedness shall be subordinate to the
Notes at least to the same extent and in the same manner as the Indebtedness
being Refinanced.
"Person" means an individual, partnership, limited liability company,
corporation, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"principal" of any Note means principal of and premium, if any, on such
Note.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment; provided,
however, (A) the Indebtedness shall not exceed the cost of such property or
assets and shall not be secured by any property or assets of the Company or any
Restricted Subsidiary other than the property and assets so acquired or
constructed and (B) the Lien securing such Indebtedness shall be created within
180 days of such acquisition or construction or, in the case of a refinancing of
any Purchase Money Indebtedness, within 180 days of such refinancing.
"Qualified Equity Interests" means any Equity Interests that are not
Disqualified Equity Interests.
"redeem" means redeem, repurchase, defease or otherwise acquire or retire
for value; and "redemption" and "redeemed" have correlative meanings.
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"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Replacement Assets" means, with respect to any Asset Sale, properties and
assets that replace the properties and assets that were the subject of such
Asset Sale or properties and assets that will be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto.
"Restricted Subsidiary" means any Subsidiary of the Company which at the
time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Security Documents" means (i) the Pledge Agreements and (ii) any other
pledge or security agreements and Mortgages that may be delivered from time to
time pursuant to the provisions of the Indenture which agreements and Mortgages
shall be in form and substance satisfactory to the Trustee.
"Significant Subsidiary," means, at any date of determination, (a) any
Restricted Subsidiary that satisfies the criteria for a "significant subsidiary"
set forth in Rule 1.02(w) of Regulation S-X under the Securities Act, and (b)
any Restricted Subsidiary which, when aggregated with all other Restricted
Subsidiaries that are not otherwise Significant Subsidiaries and as to which any
event described in clause (vi) of "-- Events of Default" has occurred and is
continuing, would constitute a Significant Subsidiary under clause (a) of this
definition.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning given to such term in the "Merger,
Consolidation and Sale of Assets" covenant.
"U.S. Credit Facility" means one or more senior credit facilities providing
for term loans, revolving credit loans and/or letters of credit between the
Company and/or one or more Restricted Subsidiaries (other than any Foreign
Subsidiary), on the one hand, and one or more lenders, on the other hand,
together with related documents (including promissory notes, security agreements
and guarantees), as the same may be amended or Refinanced from time to time.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries." Any such designation may be revoked by a resolution of the Board
of Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
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"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding Capital Stock (other than
in the case of a foreign Restricted Subsidiary, directors' qualifying shares or
an immaterial amount of shares required to be owned by other Persons pursuant to
applicable law) are owned by such Person or any Wholly Owned Restricted
Subsidiary of such Person.
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a summary of certain indebtedness of the Company which was
outstanding as of June 30, 1998. To the extent such summary contains
descriptions of the Decora Credit Facility, the Intercompany Note, the DI
Deutschland Credit Facility, the Hornschuch Credit Facilities, the HUD Credit
Facility, the IRB Credit Facility and other loan documents, such descriptions do
not purport to be complete and are qualified in their entirety by reference to
such documents.
DECORA CREDIT FACILITY
On April 29, 1998, Decora entered into a revolving credit facility
(the "Decora Credit Facility") with Fleet National Bank ("Fleet Bank").
General. The Decora Credit Facility provides for revolving loans to Decora
in an aggregate amount up to the lesser of (x) $15.0 million and (y) the sum of
85% of eligible accounts receivable of Decora and 60% of eligible inventory of
Decora (subject to a cap on borrowings based on inventory initially equal to
$6.0 million which decreases to $4.0 million during the term of the Decora
Credit Facility). Subject to satisfaction of customary borrowing conditions,
Decora may use the proceeds of loans under the Decora Credit Facility to finance
Decora's working capital requirements and capital expenditures. As of July 2,
1998, there were no outstanding borrowings under the Decora Credit Facility.
Fleet Bank also provides Decora with a $2.5 million declining balance direct pay
letter of credit which supports the IRB Credit Facility (the "Letter of
Credit").
Interest Rate; Fees. Interest is computed on the outstanding daily balance
of the Decora Credit Facility, at the option of Decora, at Fleet Bank's prime
rate or a floating rate per annum equal to 2.25% in excess of LIBOR, and is
payable monthly in arrears. Decora is charged a fee of 0.25% per annum on the
average daily balance of the unused portion of the $15.0 million maximum amount
of the Decora Credit Facility, payable quarterly in arrears. Decora was charged
an underwriting fee of $45,000 and collateral substitution fees aggregating
$70,000. Decora pays a fee of 1.5% per annum of the face amount of the Letter of
Credit.
Repayment. The Decora Credit Facility may be borrowed, repaid and
reborrowed from time to time until three years after the closing of the Decora
Credit Facility. Prepayment of revolving loans bearing interest at the LIBOR
based rate is subject to certain conditions, which include the consent of Fleet
Bank and, if applicable, payment of certain yield maintenance fees. All amounts
outstanding under the Decora Credit Facility are due and payable upon the
maturity date. At the end of each of the first and second years, Fleet Bank will
consider extending the term of the Decora Credit Facility for an additional
year, with a maximum term of five years.
Security. The Decora Credit Facility and the Letter of Credit are secured
by a first priority lien in Decora's accounts receivable, inventory and certain
intangibles and by a first mortgage on Decora's Fort Edward, New York facility.
Certain Covenants. The Decora Credit Facility requires Decora to maintain
compliance with a minimum fixed charge coverage ratio of 1.1 to 1.0. Such ratio
is calculated as the quotient of (x) the sum of (i) EBITDA, (ii) non-cash
restructuring expenses, (iii) cash from intercompany loans divided by (y) the
sum of (i) interest expenses, (ii) current maturities of long-term debt for the
prior four quarters, (iii) cash taxes, (iv) tangible and intangible capital
expenditures (net of financed capital expenditures), (iv) dividends and
distributions and (v) repayment of intercompany loans or advances.
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Conditions to Drawdown. Conditions to each drawdown under the Decora Credit
Facility include absence of a material deterioration to the financial condition
of Decora and absence of a default. Each drawdown is subject to the commercially
reasonable discretion of Fleet Bank exercised in good faith.
Events of Default. The Decora Credit Facility includes events of default
that are typical for these types of credit facilities, including, without
limitation, a change of control of Decora (defined as the failure of Nathan
Hevrony and/or Timothy Burditt to be substantially involved in the management
and operations of Decora); failure of any representation or warranty to be true;
events of default under other indebtedness of Decora or DII (including the
Notes); judgments in excess of $50,000; and certain bankruptcy and ERISA events.
The occurrence of any of such events of default could result in acceleration of
Decora's obligations under the Decora Credit Facility and foreclosure on the
collateral securing such obligations, which could have material adverse results
to Holders of the Notes.
INTERCOMPANY NOTE
In connection with the Rubbermaid Acquisition, Hornschuch borrowed an
additional DM18.0 million (which at the March 31, 1998 exchange rate would have
been approximately $9.7 million) from certain of Hornschuch's existing lenders
under the Hornschuch Credit Facilities. Such DM18.0 million was loaned to Decora
and evidenced by an intercompany note (the "Intercompany Note").
Section 71a of the German Stock Corporations Act prohibits the grant of
loans by a stock corporation "for the purpose" of acquiring stock in that
corporation. There is no case law on the permissibility of loans that indirectly
facilitate such acquisitions of stock. The Intercompany Note was expressly made
for the sole purpose of financing the Rubbermaid Acquisition. Even if the
indirect economic effects of the Intercompany Note include an increase in DII's
liquidity and thus indirectly facilitate the Hornschuch Minority Tender Offer,
the Company believes, based on advice of its German counsel, that the
Intercompany Note should not be covered by the statutory prohibition. However,
such belief may be challenged and, if the challenge prevailed, the Intercompany
Note would be invalidated and required to be immediately repaid.
Interest Rate. The interest rate on the Intercompany Note accrues and is
paid by Decora at an effective rate of 0.50% above the applicable interest rate
paid by Hornschuch to Hornschuch's lenders under the Hornschuch Credit
Facilities.
All interest will be paid on maturity.
Repayment. The Intercompany Note matures in three years. Partial or total
prepayments may be made at any time without penalties.
Security. The Intercompany Note is secured by a first priority lien upon
all of the machinery, equipment and fixtures of Decora.
Governing Law. The Intercompany Note is governed by German law.
DI DEUTSCHLAND CREDIT FACILITY
On September 29, 1997, DI Deutschland entered into a loan agreement with
Dresdner Bank for approximately DM37.3 million to provide a portion of the
financing for the Hornschuch Acquisition (the "DI Deutschland Credit Facility").
Interest Rates; Fees. Interest is computed on the balance of a floating
rate per annum equal to 2.50% in excess of the 3- or 6-month DM-LIBOR Rate (as
chosen by Dresdner Bank). DI Deutschland is charged a fee of 0.50% per annum on
the average daily balance of the unused portion of the DI Deutschland Credit
Facility, payable monthly in arrears. DI Deutschland was also charged a one-time
front-end fee of 2.0% of the total loan amount, payable on the first day of the
draw down under the DI Deutschland Credit Facility.
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Repayment. The DI Deutschland Credit Facility is to be repaid in
semi-annual installments of approximately DM3.0 million beginning March 30,
1999. The final installment is due and payable on September 30, 2004.
Security. The DI Deutschland Credit Facility is secured by a pledge of all
of the capital stock of Hornschuch owned by DI Deutschland.
Guarantees. The obligations of DI Deutschland under the DI Deutschland
Credit Facility are guaranteed by DII up to DM5.0 million plus accrued interest,
commissions, expenses and all costs. In addition, DII has undertaken to pay DI
Deutschland's interest obligation until March 30, 1999, which as of March 31,
1998 totals approximately DM2.5 million, by means of providing DI Deutschland
with subordinated shareholder loans.
Prepayments. DI Deutschland is required to use 100% of its "excess cash
flow" (i.e., dividends received from Hornschuch plus any tax credits in excess
of taxes, management fees, interest and repaid principal under the DI
Deutschland Credit Facility plus cash and positive balances on bank accounts) to
pay the principal. At its option, DI Deutschland may also make voluntary
prepayments of DM500,000 or a multiple thereof under the DI Deutschland Credit
Facility without penalty.
Conditions and Covenants. DI Deutschland is subject to certain financial
and negative covenants, including without limitation, covenants that restrict,
subject to specified exceptions, (i) the incurrence of additional indebtedness
and other obligations and the granting of additional liens, (ii) mergers,
acquisitions, investments and acquisitions and dispositions of assets, (iii) the
incurrence of capitalized and operating lease obligations, (iv) advances,
dividends and stock repurchases and redemptions. There are also covenants
regarding financial reporting, maintenance of insurance and interest rate
protection. In addition, the DI Deutschland Credit Facility requires DI
Deutschland to maintain compliance with certain specified financial ratios.
Events of Default. The DI Deutschland Credit Facility also includes events
of default including, without limitation, the failure of DI Deutschland to
complete the Hornschuch Minority Tender Offer by March 1999 (at which time the
ratio of debt to equity of DI Deutschland is required to be 53% to 47%) and a
change of control of DI Deutschland. The occurrence of any of such events of
default could result in acceleration of DI Deutschland's obligations under the
DI Deutschland Credit Facility and foreclosure on the collateral securing such
obligations.
HORNSCHUCH CREDIT FACILITIES
Hornschuch currently has separate credit lines with Deutsche Bank and
certain other financial institutions for short-term and long-term financing in
an aggregate amount of DM51.8 million which Hornschuch can draw upon only for
purposes of financing Hornschuch's own operating business (the "Hornschuch
Credit Facilities"). At March 31, 1998, on an adjusted pro forma basis (which
includes DM18.0 million loaned to Decora pursuant to the Intercompany Note),
Hornschuch would have had approximately DM34.1 million of borrowings under the
Hornschuch Credit Facilities, of which DM29.1 million consists of long-term
loans and revolving lines of credit (of which DM6.0 million is due August 1998,
but which Hornschuch management anticipates will be renewed) and another DM5.0
million is short term. Of the approximately DM17.7 million of credit which is
currently available under the Hornschuch Credit Facilities, approximately DM12.7
million is available for short-term loans and DM5.0 million is available for
longer-term loans (including revolving lines of credit). However, most of the
short-term credit has been extended subject to the banks' right to revoke at any
time and the long term credit lines have been granted subject to future
agreement of Hornschuch and the banks, on specific terms and conditions of new
loan agreements. Availability under the Hornschuch Credit Facilities will be
reduced by mandatory prepayments made by Hornschuch on loans from Deutsche Bank
which are secured by certain real estate of Hornschuch's unconsolidated
subsidiaries. See "Risk Factors -- Hornschuch Unconsolidated Real Estate."
Interest rates under the Hornschuch Credit Facilities range from 4.8% to 7.5%
per annum. Long-term loans under the Hornschuch Credit Facilities are secured by
a mortgage on Hornschuch's Weissbach manufacturing facility.
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HUD CREDIT FACILITY
On September 20, 1995, Decora borrowed $375,000 from the Washington County
Local Development Corporation for working capital and training costs for the
operation of Decora's business at its principal place of business in Fort
Edward, New York (the "HUD Credit Facility"). The five-year note bears interest
at 5.0% and is payable in monthly installments ending September 1, 2000. The
loan is secured by a second priority lien on certain of Decora's property and
equipment and a guarantee of DII. The HUD Credit Facility includes certain
events of default, including, without limitation, a default by Decora of its
obligations to any other lender (including any issuer of a letter of credit in
connection with the IRB Credit Facility). The occurrence of any such events of
default could result in acceleration of Decora's obligations under the HUD
Credit Facility and foreclosure on the collateral securing such obligations. As
of March 31, 1998, the outstanding balance of the HUD Credit Facility was
approximately $198,000.
IRB CREDIT FACILITY
On November 13, 1996, Decora borrowed $2,460,000 through the issuance of
Tax-Exempt Industrial Development Revenue Bonds (Decora, Incorporated Project),
Series 1996 by the Counties of Warren and Washington, New York Industrial
Development Agency (the "IRB Credit Facility"). These bonds mature on November
1, 2004, and require sinking fund payments by Decora of $20,833 per month
beginning November 1997. The bonds bear interest at a floating rate which is
adjusted weekly based on the remarketing agent's ability to re-market the bonds
at par. At the option of Decora, the bonds are convertible to a fixed interest
rate (to be determined by the remarketing agent) on a conversion date to be
specified by Decora. The bonds are subject to mandatory tender on the conversion
date. Prior to the conversion date, bondholders will have the right to have
their bonds purchased on demand at 100% of the principal amount thereof plus
accrued interest upon proper delivery of notice prior to the purchase date. The
bonds are subject to optional and mandatory redemption and are subject to
standard remedies upon the occurrence of an event of default, including
acceleration. As of March 31, 1998, the interest rate on the bonds was 3.65%.
The bonds are credit enhanced through the Letter of Credit issued by Fleet Bank.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal ("federal")
income tax consequences of the exchange of Old Notes for Exchange Notes pursuant
to the Exchange Offer, as well as of the purchase, ownership and disposition of
the Notes generally. This discussion is a summary for general information only
and does not consider all aspects of federal income taxation that may be
relevant to the exchange by a Holder of Old Notes for Exchange Notes pursuant to
the Exchange Offer or the purchase, ownership and disposition of the Notes by a
Holder, in light of such Holder's personal circumstances. The discussion also
does not address the federal income tax consequences of ownership of Notes not
held as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), or the federal income tax
consequences to Holders subject to special treatment under the federal income
tax laws, such as dealers in securities or foreign currency, tax-exempt
investors, real estate investment trusts, regulated investment companies, banks,
thrifts, insurance companies or other financial institutions, persons that hold
the Notes as a position in a "straddle," or as part of a "synthetic security" or
"hedge," "conversion transaction" or other integrated investment, persons that
have a "functional currency" other than the U.S. dollar, or investors in
pass-through entities. In addition, this discussion is generally limited to the
tax consequences to initial Holders that purchased the Old Notes at the "issue
price." For this purpose, the "issue price" of an Old Note is the first price at
which a substantial part of the Old Notes were sold to the public for money
(excluding sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers).
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed. For purposes of this section, "Certain U.S. Federal Income Tax
Consequences," "Holder" means an owner of Notes.
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This discussion is based upon the Code, existing and proposed regulations
thereunder ("Treasury Regulations"), and current administrative rulings and
court decisions. All of the foregoing are subject to change, possibly on a
retroactive basis, and any such change could affect the continuing validity of
this discussion.
PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR EXCHANGE NOTES OR THE
PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS THE
LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR
SITUATIONS.
EXCHANGE OFFER; TENDERING HOLDERS
The exchange of Notes for Exchange Notes pursuant to the Exchange Offer
should not result in any federal income tax consequences to Holders who tender
their Old Notes for Exchange Notes in the Exchange Offer .
OTHER U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is limited to the federal income tax consequences
relevant to a Holder that is (i) a citizen or resident (as defined in Section
7701(b)(1) of the Code) of the United States, (ii) a corporation organized under
the laws of the United States or any political subdivision thereof or therein,
(iii) an estate the income of which is subject to federal income tax regardless
of its source, or (iv) a trust with respect to which a court within the United
States is able to exercise primary supervision over its administration and one
or more U.S. persons have the authority to control all of its substantial
decisions (a "U.S. Holder"). Certain federal income tax consequences relevant to
a Holder other than a U.S. Holder are discussed separately below.
STATED INTEREST AND ORIGINAL ISSUE DISCOUNT
The stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income either at the time it accrues or is received, depending upon
such U.S. Holder's method of accounting for federal income tax purposes. The
Notes will be issued with original issue discount ("OID") for federal income tax
purposes. All U.S. Holders will be required to include OID in income as it
accrues, regardless of such Holder's regular method of accounting for federal
income tax purposes. OID generally will be treated as interest income to the
U.S. Holder and will accrue on a yield-to-maturity basis over the life of the
Note, as discussed below.
The amount of OID with respect to a Note will be an amount equal to the
excess of the stated redemption price at maturity of such Note over the issue
price of such Note. The stated redemption price at maturity of each Note will
include all cash payments required to be made under the Note through maturity,
other than payments of "qualified stated interest." Stated interest on the Note
will qualify as qualified stated interest. Accordingly, the amount of OID with
respect to a Note will be equal to the excess of the Note's principal amount
over its issue price.
The amount of OID accruing to a Holder with respect to any Note will be the
sum of the "daily portions" of OID with respect to such Note for each day during
the taxable year (or portion thereof) on which such Holder owns such Note. The
daily portion is determined by allocating to each day in any "accrual period" a
pro rata portion of the OID allocable to that accrual period. An accrual day
period for a Note may be of any length and may vary in length over the term of a
Note provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs either on the final day or on
the first day of an accrual period. The amount of OID accruing during any full
accrual period with respect to a Note will be equal to the following amount: (i)
the "adjusted issue price" of such Note at the beginning of that accrual period,
multiplied by (ii) the yield to maturity of such Note (taking into account the
length of the accrual period). The adjusted issue price of a Note at the
beginning of its first accrual period will be equal to its issue price. The
adjusted issue price at the beginning of any subsequent accrual period will be
equal to (i) the adjusted issue price at the beginning of the preceding accrual
period, plus (ii) the amount of OID accrued during the preceding accrual period,
minus
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(iii) any payments made on the Note during the preceding accrual period and on
the first day of such subsequent accrual period, other than payments of stated
interest on a Note.
Under these rules, a Holder generally will have to include in income
increasingly greater amounts of OID in successive accrual periods. The "yield to
maturity" of a Note is the discount rate that, when used in computing the
present value of all payments to be made on a Note, produces an amount equal to
the issue price of the Note.
In the event of a Change of Control, the Holders of Notes will have the
right to require the Company to purchase their Notes. The Treasury Regulations
provide that the right of Holders of the Notes to require redemption of the
Notes upon the occurrence of a Change of Control will not affect the yield or
maturity date of the Notes unless, based on all the facts and circumstances as
of the Issue Date, it is more likely than not that a Change of Control giving
rise to the redemption right will occur. The Company does not intend to treat
this redemption provision of the Notes as affecting the computation of the yield
to maturity of the Notes.
The Company may redeem the Notes at any time on or after a certain date,
and, in certain circumstances, may redeem or repurchase all or a portion of the
Notes any time prior to the maturity date. Under the Treasury Regulations, the
Company is deemed to exercise any option to redeem if the exercise of such
option would lower the yield of the debt instrument. The Company believes, and
intends to take the position, that it will not be treated as having exercised an
option to redeem under these rules.
In certain cases, in the event the Company does not comply with certain
covenants set forth in the Registration Rights Agreement, the Company will be
obligated to pay specified Liquidated Damages to the Holders of the Old Notes.
The Company believes the contingency that the Company will pay such additional
amounts is "remote and incidental" within the meaning of the applicable Treasury
Regulations. On that basis, the Company believes such additional amounts, if
any, will be taxable to U.S. Holders as ordinary income at the time such amounts
accrue or are received in accordance with each such Holder's method of
accounting for federal income tax purposes.
TAX BASIS
A U.S. Holder's adjusted tax basis in a Note at a given date generally will
be equal to the purchase price paid by such U.S. Holder for such Note, increased
by the amount of OID previously included in income with respect to the Notes and
decreased by all prior payments received on the Notes, other than payments of
stated interest.
SALE OR REDEMPTION OF NOTES
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of a Note
will be a taxable event for federal income tax purposes ("Taxable Disposition").
In such event, a U.S. Holder generally will recognize gain or loss equal to the
difference between (i) the amount of cash plus the fair market value of any
other property received upon the Taxable Disposition (other than in respect of
accrued and unpaid stated interest thereon) and (ii) the U.S. Holder's adjusted
tax basis therein (other than any tax basis attributable to accrued and unpaid
stated interest). Such gain or loss generally will be capital gain or loss, and
in the case of non-corporate U.S. Holders, capital gain from the sale or
exchange of a Note and will be taxed at different rates depending upon whether
the holding period of such Note is more than one year but not more than eighteen
months, or more than 18 months. U.S. Holders are advised to consult their tax
advisors regarding the treatment of amounts attributable to interest that is
accrued but unpaid at the date of a Taxable Disposition of the Notes. The
deductibility of capital losses is subject to certain limitations.
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<PAGE> 94
BACKUP WITHHOLDING AND INFORMATION REPORTING
A U.S. Holder of Notes may be subject to "backup withholding" at a rate of
31% with respect to certain "reportable payments" including interest payments
(including OID) and, under certain circumstances, principal payments on the
Notes. These backup withholding rules apply if the U.S. Holder, among other
things, (i) fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to report properly interest, or (iv) under certain circumstances,
fails to provide a certified statement, signed under penalties of perjury, that
the TIN furnished is the correct number and that such Holder is not subject to
backup withholding. A U.S. Holder who does not provide the Company with its
correct TIN also may be subject to penalties imposed by the Internal Revenue
Service (the "Service"). Any amount withheld from a payment to a U.S. Holder
under the back-up withholding rules is creditable against the U.S. Holder's
federal income tax liability, provided the required information is furnished to
the Service. Backup withholding will not apply, however, with respect to
payments made to certain Holders, including corporations and tax-exempt
organizations, provided their exemption from backup withholding is properly
established.
The Company will report to the U.S. Holders of Notes and to the Service the
amount of any "reportable payments" for each calendar year and the amount of tax
withheld, if any, with respect to such payments.
NON-U.S. HOLDERS
The following discussion is limited to the federal income tax consequences
relevant to a Holder of a Note that is not a U.S. Holder, as defined above (a
"Non-U.S. Holder").
For purposes of withholding tax on interest discussed below, a non-resident
alien or other non-resident fiduciary of an estate or trust will be considered a
Non-U.S. Holder. For purposes of the following discussion, interest (including
OID) from the Notes, as well as gain on the sale, exchange (including the
exchange of Notes for Exchange Notes pursuant to the Exchange Offer) or other
disposition of Notes, will be considered to be "U.S. trade or business income"
if such income or gain is (i) effectively connected with the conduct of a U.S.
trade or business or, (ii) in the case of a Non U.S. Holder that is a resident
of a nation with which the United States has entered into an income tax treaty,
attributable to a permanent establishment (or, in the case of an individual, a
fixed base) in the United States.
Stated Interest and Original Issue Discount
Generally, any interest (including OID) paid to a Non-U.S. Holder that is
not U.S. trade or business income will not be subject to federal income tax if
the interest qualifies as "portfolio interest." Interest on the Notes will
generally qualify as portfolio interest if (i) the Non-U.S. Holder does not
actually or constructively own 10% or more of the total voting power of all
voting stock of the Company and is not a "controlled foreign corporation" with
respect to which the Company is a "related person" without the meaning of the
Code, and (ii) the beneficial owner (a) under penalties of perjury, certifies
that the beneficial owner is not a U.S. person and such certificate provides the
beneficial owner's name and address, and (b) is not a bank receiving interest on
an extension of credit made pursuant to a loan agreement made in the ordinary
course of its trade or business.
The gross amount of payments of interest (including OID) to a Non-U.S.
Holder that neither qualify for the portfolio interest exception nor are U.S.
trade or business income will be subject to federal income tax at the rate of
30%, unless a United States income tax treaty applies to reduce or eliminate
withholding. U.S. trade or business income will be taxed at regular federal
income tax rates rather than the 30% gross rate. In the case of a Non-U.S.
Holder that is a corporation, such U.S. trade or business income may also be
subject to the "branch profits tax" (which is generally imposed on a foreign
corporation on the actual or deemed repatriation from the United States of
earnings and profits attributable to U.S. trade or business income) at a rate of
30%. The branch profits tax may not apply (or may apply at a reduced rate) if
the recipient is a qualified resident of certain countries with which the United
States has an income tax treaty. To claim the
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<PAGE> 95
benefit of a tax treaty or to claim exemption from withholding because the
income is U.S. trade or business income, the Non-U.S. Holder must provide a
properly executed Form 1001 or 4224 (or such successor forms as the Service
designates), as applicable, prior to the payment of interest. These forms must
be periodically updated. Under final Treasury Regulations that will be effective
for payments after December 31, 1999 (the "Final Regulations"), the Forms 1001
and 4224 may be replaced by Form W-8. Also, under the Final Regulations, a
Non-U.S. Holder who is claiming the benefit of a treaty in certain circumstances
may be required to obtain a federal TIN and to provide certain documentary
evidence issued by foreign governmental authorities to prove residence in the
foreign country. Certain special procedures are provided in the Final
Regulations for payments through qualified intermediaries. Prospective
purchasers are urged to consult their tax advisors regarding the Final
Regulations.
Sale, Exchange or Redemption of Notes
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange
(including the exchange of Notes for Exchange Notes pursuant to the Exchange
Offer), redemption or other disposition of a Note generally will not be subject
to federal income tax, provided that (i) such gain is not U.S. trade or business
income; (ii) the Non-U.S. Holder is not an individual who holds the Note as a
capital asset, is present in the United States for 183 days or more in the
taxable year of the disposition and who meets certain other requirements; and
(iii) the Non-U.S. Holder is not subject to tax pursuant to the provisions of
federal tax law applicable to certain U.S. expatriates (including certain former
citizens or residents of the United States).
Federal Estate Tax
Notes held (or treated as held) by an individual who is not a citizen or
resident of the United States (for federal estate tax purposes) at the time of
his or her death will not be subject to the federal estate tax, provided that
(i) the individual does not actually or constructively own 10% or more of the
total voting power of all voting stock of the Company and (ii) income on the
Notes was not U.S. trade or business income.
Backup Withholding and Information Reporting
The Company must report annually to the Service and to each Non-U.S. Holder
any interest (including OID) that is subject to withholding, exempt from federal
withholding tax pursuant to a tax treaty, or exempt from federal income tax
under the portfolio interest exception. Copies of such information returns may
also be made available under the provisions of a specific treaty or agreement to
the tax authorities of the country in which the Non-U.S. Holder resides.
The Treasury Regulations provide that backup withholding and information
reporting will not apply to payments of principal on the Notes by the Company to
a Non-U.S. Holder, if the Holder certifies, under penalties of perjury, as to
its non-U.S. status or otherwise establishes an exemption (provided that neither
the Company nor its paying agent has actual knowledge that the Holder is a U.S.
person or that the conditions of any other exemption are not, in fact,
satisfied).
The payment of the proceeds from the disposition of Notes to or through the
U.S. office of any U.S. or foreign broker will be subject to information
reporting and possible backup withholding unless the owner certifies, under
penalties of perjury, as to its Non-U.S. Holder status or otherwise establishes
an exemption (provided that the broker does not have actual knowledge that the
Holder is a U.S. person or that the conditions of any other exemptions are not,
in fact, satisfied). The payment of the proceeds from the disposition of a Note
to or through a non-U.S. office of a non-U.S. broker will not be subject to
information reporting or backup withholding unless the non-U.S. broker has
certain types of relationships with the United States (a "U.S. related person").
In the case of the payment of proceeds from the disposition of the Notes to
or through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the Treasury Regulations require information reporting (but not
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<PAGE> 96
backup withholding) on the payment unless the broker has documentary evidence in
its files that the owner is a Non-U.S. Holder and the broker has no knowledge to
the contrary.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or credit against such Non-U.S.
Holder's federal income tax liability, provided that the requisite procedures
are followed.
The Final Regulations make modifications to the information reporting and
backup withholding rules described above. Prospective purchasers are urged to
consult their tax advisor regarding the Final Regulations.
THE PRECEDING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR
SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES TO IT OF
EXCHANGING OLD NOTES FOR EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER OR OF
PURCHASING, HOLDING OR DISPOSING OF NOTES OF THE COMPANY, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY
PROPOSED CHANGES IN APPLICABLE LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. DII has agreed that it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale for a period ending on
the earlier of the first anniversary of the consummation of the Exchange Offer
and the date on which the Initial Purchaser and all broker-dealers electing to
exchange Old Notes previously acquired by such broker-dealers for their own
account have sold all Exchange Notes held by them. In addition, until _________,
1998, all dealers effecting transactions in Exchange Notes may be required to
deliver a prospectus.
DII will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to he Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
After the Exchange Date, DII will promptly send additional copies of this
Prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. DII has
agreed to pay all expenses incident to the Exchange offer other than commissions
or concessions of any brokers or dealers and will indemnify the Holders of the
Old Notes (including any broker-dealers) against certain liabilities, including
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<PAGE> 97
liabilities under the Securities Act. DII has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Miller & Holguin, Los Angeles, California. Miller & Holguin
and/or its principals are the beneficial owners of 162,571 shares of DII common
stock and of options to purchase 90,000 shares of DII common stock.
EXPERTS
The consolidated financial statements of DII as of March 31, 1998 and March
31, 1997 and for each of the years in the three year period ended March 31, 1998
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of Decora as of March 31, 1998 and
March 31, 1997 and for each of the years in the three year period ended March
31, 1998 included in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Hornschuch as of December 31, 1996
and December 31, 1995 and for each of the years in the three year period ended
December 31, 1996 included in this Prospectus have been so included in reliance
on the report of Dr. Ebner, Dr. Stolz und Partner GmbH, independent accountants,
given on the authority of such firm as experts in accounting and auditing.
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<PAGE> 98
INDEX OF DEFINED TERMS
Set forth below are certain defined terms used throughout the Prospectus.
Reference is made to the Prospectus for a full disclosure of all such terms. See
also "Description of Exchange Notes - Certain Definitions" on page 68 of the
Prospectus for certain defined terms and the full disclosure of such terms used
in the Indenture.
<TABLE>
<CAPTION>
DEFINED TERM SECTION WHERE DEFINED PAGE
- ------------ --------------------- ----
<S> <C> <C>
Acquisition Incentive Bonus "Management -- Employment Agreements" 44
Affiliate Transaction "Description of Exchange Notes -- Certain Covenants 57
-- Limitation on Transactions with Affiliates"
Basket "Description of Exchange Notes -- Certain Covenants 53
-- Limitation on Restricted Payments"
Book-entry transfer facility "The Exchange Offer -- Tender Procedure" 19
Cautionary Statements "Disclosure Regarding Forward-Looking Statements" iv
Certificated Securities "Description of Exchange Notes -- Book Entry 65
Delivery and Forms"
Change of Control Offer "Description of Exchange Notes -- Change of Control" 52
Change of Control Payment Date "Description of Exchange Notes -- Change of Control" 52
Code "Certain U.S. Federal Income Tax Consequences" 83
Collateral Prospectus cover page i
Collateral Account "Description of Exchange Notes -- Security and 50
Ranking of Notes"
Commission "Available Information" iii
Company "Prospectus Summary -- The Company" 1
Covenant Defeasance "Description of Exchange Notes -- Legal Defeasance 62
and Covenant Defeasance"
Decora Prospectus cover page i
Decora Credit Facility "Description of Other Indebtedness -- Decora Credit 80
Facility"
Decorative Coverings Group "The Prospectus Summary -- The Company" 1
Designation "Description of Exchange Notes -- Certain Covenants 58
-- Designation of Unrestricted Subsidiaries"
Designation Amount "Description of Exchange Notes -- Certain Covenants 58
-- Designation of Unrestricted Subsidiaries"
Depositary "Description of Exchange Notes -- Selection and 49
Notice of Redemption"
Depositary's Indirect Participants "Description of Exchange Notes -- Book Entry, 65
Delivery and Forms"
Depositary's Participants "Description of Exchange Notes -- Book Entry, 65
Delivery and Forms"
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM SECTION WHERE DEFINED PAGE
- ------------ --------------------- ----
<S> <C> <C>
DI Deutschland Prospectus cover page i
DI Deutschland Credit Facility "Description of the Indebtedness -- DI Deutschland 81
Credit Facility"
DI Deutschland Revocation "Description of Exchange Notes -- Certain Covenants 58
-- Designation of Unrestricted Subsidiaries"
DII Prospectus cover page i
D-I-Y "Business -- Products and Markets -- Hornschuch" 36
DM "Presentation of Financial Information" iv
Dollars "Presentation of Financial Information" iv
ELA "Risk Factors -- Environmental Matters" 15
Euro "Risk Factors -- Risk of Foreign Exchange Rate 17
Fluctuation; Introduction of the Euro Currency"
Eligible Institution "The Exchange Offer -- Tender Procedure" 19
Exchange Act "Available Information" iii
Exchange Agent "The Exchange Offer -- Expiration Date; Extension; 19
Termination; Amendments"
Exchange Date Prospectus cover page i
Exchange Notes Prospectus cover page i
Exchange Offer Prospectus cover page i
Exchange Offer Registration Statement "Description of Exchange Notes -- Registration Rights 66
Liquidated Damages"
Expiration Date "The Exchange Offer -- Expiration Date; Extension; 19
Termination; Amendments"
Federal "Certain U.S. Federal Income Tax Consequences" 83
Final Regulations "Certain U.S. Federal Income Tax Consequences -- 86
Non-U.S. Holders -- Stated Interest and Original Issue
Discount"
Fleet Bank "Description of Other Indebtedness -- Decora Credit 80
Facility"
German Collateral Prospectus cover page i
Global Note "Description of Exchange Notes -- Book Entry, 65
Delivery and Forms"
Global Note Holder "Description of Exchange Notes -- Book Entry, 65
Delivery and Forms"
Guarantee(s) Prospectus cover page i
Guarantor Collateral Prospectus cover page i
Guarantors Prospectus cover page i
Hornschuch "Prospectus Summary -- The Company" i
</TABLE>
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<PAGE> 100
<TABLE>
<CAPTION>
DEFINED TERM SECTION WHERE DEFINED PAGE
- ------------ --------------------- ----
<S> <C> <C>
Hornschuch Acquisition "Prospectus Summary -- The Company" 1
Hornschuch Credit Facilities "Description of Other Indebtedness -- Hornschuch 82
Credit Facilities"
Hornschuch Minority Tender Offer "Prospectus Summary -- The Company" 1
HUD Credit facility "Description of Other Indebtedness -- HUD Credit 83
Facility"
Indenture "Prospectus Summary -- The Exchange Offer -- Effect 3
on Holders of Notes"
Indirect Participants "Description of Exchange Notes -- Book Entry, 65
Delivery and Forms"
Initial Purchaser "Prospectus Summary -- The Exchange Offer" 2
Intercompany Note "Description of Other Indebtedness -- Intercompany 81
Note"
IRB Credit Facility "Description of Other Indebtedness -- IRB Credit 83
Facility"
Johnson Note "Security Ownership of Certain Beneficial Owners and 46
Management"
Legal Defeasance "Description of Exchange Notes -- Legal Defeasance 62
and Covenant Defeasance"
Letter of Credit "Description of Other Indebtedness -- Decora Credit 80
Facility"
Liquidated Damages "Description of Exchange Notes -- Registration Rights 66
Liquidated Damages"
Management Board "Risk Factors -- Holding Company Structure; 9
Limitation on Access to Cash Flow of Subsidiaries;
Structural Subordination"
Net Proceeds "Description of Exchange Notes -- Certain Covenants 55
-- Limitation on Asset Sales"
Net Proceeds Offer Amount "Description of Exchange Notes -- Certain Covenants 55
-- Limitation on Asset Sales"
Net Proceeds Offer Payment Date "Description of Exchange Notes -- Certain Covenants 55
-- Limitation on Asset Sales"
Net Proceeds Offer Trigger Date "Description of Exchange Notes -- Certain Covenants 55
-- Limitation on Asset Sales"
Non-U.S. Holder "Certain U.S. Federal Income Tax Consequences-- 86
Non-U.S. Holders"
Noon Buying Rate Prospectus cover page i
Notes Prospectus cover page i
OEM's "Prospectus Summary -- The Company" i
</TABLE>
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<PAGE> 101
<TABLE>
<CAPTION>
DEFINED TERM SECTION WHERE DEFINED PAGE
- ------------ --------------------- ----
<S> <C> <C>
OID "Certain U.S. Federal Income Tax Consequences -- 84
Stated Interest and Original Issue Discount"
Old Notes Prospectus cover page i
Participants "Description of Exchange Notes -- Book Entry, 65
Delivery and Forms"
Participating Broker-Dealers "Description of Exchange Notes -- Registration Rights 66
Liquidated Damages"
Pledge Agreements "Description of Exchange Notes -- Security and 50
Ranking of Notes"
Public Equity Offerings "Description of Exchange Notes -- Redemption" 52
PVC "Risk Factors -- Dependence on Suppliers" 13
QIB's "Risk Factors -- Lack of Public Market for the 8
Exchange Notes"
Reference Date "Description of Exchange Notes -- Certain Covenants 53
-- Limitation on Restricted Payments"
Registrar "The Exchange Offer -- Exchange Agent" 23
Registration Default "Description of Exchange Notes -- Registration Rights 66
Liquidated Damages"
Registration Default Period "Description of Exchange Notes -- Registration Rights 66
Liquidated Damages"
Registration Rights Agreement "Prospectus Summary -- The Company" 1
Registration Statement "Available Information" iii
Restricted Payment "Description of Exchange Notes -- Certain Covenants" 53
Revocation "Description of Exchange Notes -- Certain Covenants 58
-- Designation of Unrestricted Subsidiaries"
Rubbermaid "Trademarks" iv
Rubbermaid Acquisition "Prospectus Summary -- The Company" 1
Securities Act Prospectus cover page i
Shelf Registration Statement "The Exchange Offer -- Purpose of the Exchange 17
Offer"
SPA "Risk Factors -- Environmental Matters" 15
Stage III "Risk Factors -- Risk of Foreign Exchange Rate 17
Fluctuations; Introduction of the Euro Currency"
Stockholders Meeting "Risk Factors -- Relationship with the Hornschuch 14
Board"
Subsidiary Guarantors Prospectus cover page i
Supervisory Board "Risk Factors -- Holding Company Structure; 9
Limitation on Access to Cash Flow of Subsidiaries;
Structural Subordination"
</TABLE>
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<PAGE> 102
<TABLE>
<CAPTION>
DEFINED TERM SECTION WHERE DEFINED PAGE
- ------------ --------------------- ----
<S> <C> <C>
Surviving Entity "Description of Exchange Notes -- Certain Covenants 60
-- Merger, Consolidation and Sale of Assets"
Taxable Disposition "Certain U.S. Federal Income Tax Consequences -- 85
Sale or Redemption of Notes"
Textron "Certain Relationships and Related Transactions" 48
Textron Loan "Certain Relationships and Related Transactions" 48
Textron Warrants "Certain Relationships and Related Transactions" 48
TIA "Description of Exchange Notes" 49
TIN "Certain U.S. Federal Income Tax Consequences -- 86
Backup Withholding and Information Reporting"
Transferor "The Exchange Offer-- Terms and Conditions of the 21
Letter of Transmittal"
Treasury Regulations "Certain U.S. Federal Income Tax Consequences" 83
Trustee "Available Information" iii
UM&M "Business -- Development of Business" 33
Unrestricted Subsidiaries "Description of Exchange Notes -- Certain Covenants 58
-- Designation of Unrestricted Subsidiaries"
U.S. Related Person "Certain U.S. Federal Income Tax Consequences -- 87
Non-U.S. Holders-- Backup Withholding and
Information Reporting"
</TABLE>
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<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Index to Audited Consolidated Financial Statements of Decora Industries, Inc. included in this Prospectus:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of March 31, 1998 and 1997 F-3
Consolidated Statements of Income for the Years Ended March 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1998, 1997 and 1996 F-6
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended March 31, 1998, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-8
Index to Audited Financial Statements of Decora, Incorporated included in this Prospectus:
Report of Independent Accountants F-36
Balance Sheets as of March 31, 1998 and 1997 F-37
Statements of Income for the Years Ended March 31, 1998, 1997 and 1996 F-39
Statements of Cash Flows for the Years Ended March 31, 1998, 1997 and 1996 F-40
Statements of Changes in Shareholder's Equity
for the Years Ended March 31, 1998, 1997 and 1996 F-41
Notes to Financial Statements F-42
Index to Unaudited Consolidated Financial Statements of Konrad Hornschuch, AG
included in this Prospectus:
Consolidated Balance Sheet as of September 30, 1997 F-51
Consolidated Profit and Loss Account for the Nine Months Ended September 30, 1997 and 1996 F-53
Measurement of Material Variations in Accounting Methods Used Under German
GAAP Versus U.S. GAAP on Balance Sheet Accounts at September 30, 1997 F-54
Measurement of Material Variations in Accounting Methods Used
In Computing Net Income Under German GAAP Versus U.S.
GAAP for the Nine Months Ended September 30, 1997 and 1996 F-55
Quantitative Reconciliation of Financial Statements
Prepared on a Comprehensive Basis Other Than U.S. GAAP F-56
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended March 31, 1998 F-57
Index to Audited Consolidated Financial Statements of Konrad Hornschuch, AG
included in this Prospectus:
Report of Independent Accountants for December 31, 1996 F-59
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-60
Consolidated Profit and Loss Account for the Years Ended December 31, 1996 and 1995 F-62
Development Consolidated Fixed Assets for the Years Ended December 31, 1996 and 1995 F-63
Schedule of Investments as of December 31, 1996 F-65
Appendix of the Public Company and the Group for the Year Ended December 31, 1996 F-66
Report of Independent Accountants for December 31, 1995 F-78
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-79
Consolidated Profit and Loss Account for the Years Ended December 31, 1995 and 1994 F-81
Development Consolidated Fixed Assets for the Years Ended December 31, 1995 and 1994 F-82
Schedule of Investments as of December 31, 1995 F-83
Appendix of the Public Company and the Group for the Year Ended December 31, 1995 F-84
Measurement of Material Variations in Accounting Methods Used Under German GAAP
Versus U.S. GAAP on Balance Sheet Accounts at December 31, 1996 and 1995 F-97
Measurment of Material Variations in Accounting Methods Used In Computing Net Income
Under German GAAP Versus U.S. GAAP for the Years Ended December 31, 1996 and 1995 F-98
Quantitative Reconciliation of Financial Statements Prepared on a Comprehensive
Basis Other Than U.S. GAAP F-99
</TABLE>
F - 1
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Decora Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Decora Industries, Inc. and its subsidiaries at March 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
June 5, 1998
F-2
<PAGE> 105
Decora Industries, Inc.
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's (except per share data)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,682 $ 243
Restricted cash 125 --
Accounts receivable, less allowance for
doubtful accounts of $2,148 and $499 at
March 31, 1998 and 1997, respectively 26,049 6,168
Inventories 26,964 5,439
Deferred income taxes 1,913 378
Prepaid expenses and other current assets 1,481 582
-------- --------
Total current assets 58,214 12,810
Property and equipment, net 44,152 7,781
Notes receivable 626 1,468
Goodwill and other intangibles, net 22,478 10,924
Deferred income taxes 3,787 3,849
Other assets 1,959 357
-------- --------
Total assets $131,216 $ 37,189
======== ========
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 106
Decora Industries, Inc.
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's (except per share data)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,577 $ 2,002
Accrued liabilities 17,104 1,867
Current portion of long-term debt 10,472 2,310
Other current liabilities 4,928 --
-------- --------
Total current liabilities 42,081 6,179
Long-term debt 50,644 16,507
Pension obligation 13,424 --
-------- --------
Total liabilities 106,149 22,686
-------- --------
Minority interest in subsidiary 6,978 --
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000 shares
authorized -- --
Common stock, $.01 par value; 20,000 shares
authorized; 7,331 and 7,094 shares issued and
outstanding at March 31, 1998 and 1997,
respectively 73 71
Additional paid-in capital 33,775 32,146
Accumulated deficit (14,984) (17,714)
Cumulative translation adjustment (775) --
-------- --------
Total shareholders' equity 18,089 14,503
-------- --------
Commitments and contingencies -- --
-------- --------
Total liabilities and shareholders' equity $131,216 $ 37,189
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 107
Decora Industries, Inc.
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's (except per share data)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
Net sales $98,407 $41,082 $38,828
Cost of goods sold 68,220 30,503 28,244
------- ------- -------
Gross profit 30,187 10,579 10,584
Selling, general and administrative
expenses 17,677 5,853 6,476
Non-recurring charges 1,461 -- --
------- ------- -------
Operating income 11,049 4,726 4,108
Interest expense 3,829 2,319 2,675
------- ------- -------
Income before income taxes and
minority interest 7,220 2,407 1,433
Income tax provision (benefit) 3,278 (1,159) (1,486)
------- ------- -------
Income before minority interest 3,942 3,566 2,919
Minority interest in earnings of subsidiary 1,212 -- --
------- ------- -------
Net income $ 2,730 $ 3,566 $ 2,919
======= ======= =======
Net income per share of common stock:
Basic $ 0.38 $ 0.51 $ 0.45
Diluted 0.35 0.46 0.44
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 108
Decora Industries, Inc.
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's (except per share data)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,730 $ 3,566 $ 2,919
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,534 2,444 1,305
Minority interest in earnings of
subsidiary 1,212 -- --
Provision for doubtful notes
receivable 789 -- --
Loss on disposal of property and
equipment 98 -- 98
Deferred income tax provision
(benefit) 3,284 (1,327) (1,500)
Net changes in current assets and
liabilities 2,267 (1,601) (3,316)
Other, net (1,133) -- (337)
-------- ------- -------
Net cash provided by (used in)
operating activities 14,781 3,082 (831)
-------- ------- -------
Cash flows from investing activities:
Acquisition of shares (37,899) -- --
Reductions in (additions to) notes
receivable 406 290 (198)
Purchase of property and equipment (1,778) (489) (2,699)
Disposal of property and equipment -- -- 154
-------- ------- -------
Net cash used in investing activities (39,271) (199) (2,743)
-------- ------- -------
Cash flows from financing activities:
Issuance of long-term debt 39,205 5,814 3,823
Repayment of long-term debt (6,011) (8,362) (920)
Decrease in short-term borrowings (7,216) -- --
Proceeds from exercise of warrants 63 30 --
Proceeds from issuance of common stock 750 -- 550
Payment of deferred financing costs (771) (310) --
-------- ------- -------
Net cash provided by (used in)
financing activities 26,020 (2,828) 3,453
-------- ------- -------
Effect of exchange rate fluctuations on
cash and cash equivalents 34 -- --
-------- ------- -------
Net increase (decrease) in cash 1,564 55 (121)
Cash at beginning of year 243 188 309
-------- ------- -------
Cash at end of year $ 1,807 $ 243 $ 188
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 109
Decora Industries, Inc.
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL ACCUMU- CUMULATIVE
PAR PAID-IN LATED TRANSLATION
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 6,144 $ 61 $28,534 $(24,199) $ --
Conversion of note payable 115 1 349 -- --
Common shares issued for interest and debt
restructuring 180 2 545 -- --
Common shares issued to settle outstanding
obligations 267 3 1,374 -- --
Common shares issued in private placement 180 2 548 -- --
Net income -- -- -- 2,919 --
----- ---- ------- -------- ----
Balance at March 31, 1996 6,886 69 31,350 (21,280) --
Warrants exercised 8 -- 30 -- --
Common shares issued in warrant exchange 200 2 766 -- --
Net income -- -- -- 3,566 --
----- ---- ------- -------- ----
Balance at March 31, 1997 7,094 71 32,146 (17,714) --
Common shares issued in private placement 187 2 748 -- --
Allocable detachable warrants issued with
debt -- -- 818 -- --
Warrants exercised 50 -- 63 -- --
Cumulative translation adjustment -- -- -- -- (775)
Net income -- -- -- 2,730
----- ---- ------- -------- ----
Balance at March 31, 1998 7,331 $ 73 $33,775 $(14,984) $(775)
===== ==== ======= ======== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 110
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Decora Industries, Inc. (the "Company") is a leading manufacturer and
marketer of self-adhesive consumer decorative and surface coverings and
other specialty industrial products. The Company is a holding company and
operates primarily through two subsidiaries, Decora, Incorporated
("Decora"), a wholly-owned subsidiary based in the U.S., and Konrad
Hornschuch AG ("Hornschuch"), which is based in Germany and 75.5% owned by
the Company. Hornschuch's results have been included for the six months
since the acquisition (see Note 2). The Company's principal products are
sold under the Con-Tact and d-c-fix brands. The two subsidiaries
manufacture similar products and serve similar customers within their
respective geographic markets; therefore, the Company considers the
subsidiaries to constitute a single business segment.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Decora
Industries, Inc. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
REVERSE STOCK SPLIT
In December 1997, the Company's shareholders approved a one-for-five
reverse stock split which was effective December 29, 1997. The presentation
of common shares and per share amounts for all periods presented has been
restated to retroactively reflect the reverse stock split.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, accounts receivable, accounts payable and accrued
expenses approximate their carrying values. Financial instruments, when
acquired, are held for purposes other than trading.
A portion of the Company' debt, in combination with interest rate swap
agreements, bears current market rates of interest or is payable on demand.
Accordingly, the carrying amount is considered a reasonable approximation
of fair value.
CASH AND CASH EQUIVALENTS
The Company invests surplus cash in highly liquid debt instruments which
have original maturities of less than three months and are considered to be
cash equivalents. Certain debt agreements require the payment of monthly
sinking fund deposits in order to retire the debt. Cash balances
transferred for this purpose are considered restricted and are separately
stated in the accompanying financial statements.
REVENUES AND RECEIVABLES
Sales of products and services are recognized when products are shipped and
services are performed. Returns are minimal and are recorded when received.
The Company's receivables are generally concentrated from customers in the
U.S. and Europe. A portion of Hornschuch's sales made outside of Germany
are covered by confirmed letters of credit or credit insurance. The Company
does not generally require collateral for sales made within the United
States.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
F-8
<PAGE> 111
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally five to thirty years.
GOODWILL AND OTHER INTANGIBLES
The excess of the aggregate purchase price over the fair value of the net
assets of businesses acquired has been recorded as goodwill and is being
amortized on the straight-line method over forty years. The trademark is
being amortized over twenty years. At each balance sheet date, the Company
evaluates the recoverability of its intangible assets based on estimated
future cash flows.
NET INCOME PER SHARE
Effective fiscal 1998, net income per share is calculated in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
Per Share. Under SFAS No. 128, the Company is required to report both basic
net income per share based on the weighted average number of common shares
outstanding and diluted net income per share based on the weighted average
number of common shares outstanding plus all potentially dilutive common
shares issuable. In accordance with SFAS No. 128, prior period net income
per share data have been restated. Net income per share calculations for
fiscal 1998, 1997 and 1996 are presented in Note 11.
INCOME TAXES
Income taxes are provided based on the liability method pursuant to SFAS
No. 109, Accounting for Income Taxes. Deferred income taxes are recorded to
reflect expected future tax consequences of events that have been
recognized in the Company's financial statements or its tax returns, but
not both. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
the years in which the differences are expected to reverse.
RESEARCH AND DEVELOPMENT
Research and development costs related to both present and future products
are expensed as incurred. Research and development expenses amounted to
$1,024,000, $216,000 and $302,000 in fiscal 1998, 1997 and 1996,
respectively.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its employee stock options. Under APB No.
25, when the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense
is recorded. The Company has adopted the disclosure only provisions of SFAS
No. 123, Accounting for Stock-Based Compensation.
FOREIGN CURRENCY
The assets and liabilities for the Company's foreign subsidiaries are
translated into U.S. dollars using year-end exchange rates. Income
statement items are translated at average exchange rates prevailing during
the year. The resulting translation adjustments are recorded as a separate
component of shareholders' equity. Exchange gains and losses on
intercompany balances of a long-term nature are also recorded as a
translation adjustment. Foreign currency transaction gains and losses,
which historically have been immaterial, are included in net income. In
addition, the Company also will occasionally enter into foreign currency
hedges.
F-9
<PAGE> 112
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues, costs and expenses during the reporting period. Actual results
may differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform
with the current year presentation.
2. ACQUISITION OF HORNSCHUCH SHARES
On October 1, 1997, the Company acquired 73.2% of the voting stock (the
"Shares") of Hornschuch through a newly formed subsidiary, Decora
Industries Deutschland GmbH ("DI Deutschland"). The Shares were acquired
directly from Hornschuch's two largest shareholders in private transactions
for total consideration of DM 61,582,280, or approximately $35,000,000. The
remaining voting stock of Hornschuch is held by minority shareholders.
Since October 1, the Company has increased its ownership to 75.5% through
open market purchases and, in addition to such purchases, intends to
purchase the remaining shares pursuant to the German Takeover Code within
18 months of the initial acquisition.
The purchase of the Shares was funded with a combination of debt and
equity, including a loan secured by the Shares of approximately $21,205,000
to DI Deutschland from a German bank (the "Bank Loan"), a subordinated loan
of $18,000,000 in the United States (the "Subordinated Loan") provided by a
pension fund (the "Pension Fund") and a private placement of the Company's
common stock in the amount of $750,000. The Pension Fund was also granted
Series A warrants which are currently exercisable for the purchase of
1,818,000 shares of common stock of the Company at an exercise price of
$5.00 per share. The total amount raised was sufficient to fund the
purchase of up to 75% of the shares of Hornschuch, repay an existing
subordinated debt of $2.9 million and pay a portion of the $3.4 million in
closing costs associated with the transaction.
The accompanying consolidated statements of income include the results of
Hornschuch since the date of the acquisition. Pro forma unaudited
consolidated operating results for fiscal 1998 and 1997, assuming the
acquisition had been made as of April 1, 1996, are summarized below (in
thousands, except per share amounts). The income statements of Hornschuch
for the years ended December 31, 1997 and 1996 were translated at DM 1.7347
per dollar and DM 1.5080 per dollar, respectively.
<TABLE>
<CAPTION>
UNAUDITED
--------------------------------
YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997
<S> <C> <C>
Net sales $158,199 $175,061
Net income 2,199 1,529
Basic earnings per common share 0.30 0.22
Diluted earnings per common share 0.28 0.20
</TABLE>
F-10
<PAGE> 113
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
These pro forma results have been prepared for informational purposes only
and include adjustments as a result of applying purchase accounting and the
conversion of financial data compiled using the generally accepted
accounting principles used in Germany to generally accepted accounting
principles in the United States. These adjustments include, but are not
limited to, additional depreciation expense and cost of goods sold due to
the step-up in the basis of property, plant and equipment, goodwill
amortization and increased interest expense on acquisition debt. The
pro-forma financial information is not necessarily indicative of the
operating results that would have occurred if the acquisition had taken
place on the aforementioned date or of future results of operations of the
consolidated entities.
The purchase price for the Shares of approximately $38.4 million (including
closing costs of approximately $3.4 million) has been allocated as of the
acquisition date to the assets acquired and the liabilities assumed as
follows:
<TABLE>
<S> <C>
Cash $ 889
Accounts receivable 18,886
Inventories 21,360
Other current assets 1,072
Property, plant and equipment 40,405
Notes receivable 371
Goodwill 12,297
Intangibles 474
Deferred income taxes 5,147
Other non-current assets 702
Accounts payable (4,976)
Accrued liabilities (12,935)
Other current liabilities (5,619)
Debt (18,696)
Pension obligation (14,332)
Minority interest (6,689)
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
Inventories consist of ($000's):
<S> <C> <C>
Raw materials $7,335 $3,194
Work-in-process 4,634 1,035
Finished goods 14,995 1,210
------- ------
$26,964 $5,439
======= ======
</TABLE>
F-11
<PAGE> 114
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of ($000's):
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
Land and buildings $17,368 $ 4,881
Machinery and equipment 29,565 9,580
Furniture and fixtures 7,132 393
Leasehold improvements 617 617
Construction in progress 1,560 89
------- -------
56,242 15,560
Less accumulated depreciation (12,090) (7,779)
------- -------
$44,152 $ 7,781
======= =======
</TABLE>
Depreciation expense was $4,394,000, $1,652,000 and $1,234,000 for fiscal
1998, 1997 and 1996, respectively.
5. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist of the following (000's):
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
Goodwill $21,539 $ 9,857
Less: accumulated amortization (1,968) (1,549)
------- -------
19,571 8,308
------- -------
Trademark 2,000 2,000
Organization fees 1,299 1,299
Other 800 280
------- -------
4,099 3,579
Less: accumulated amortization (1,192) (963)
------- -------
2,907 2,616
------- -------
$22,478 $10,924
======= =======
</TABLE>
Goodwill amortization was $425,000, $252,000 and $252,000 for fiscal 1998,
1997 and 1996, respectively. Amortization of other intangibles was
$231,000, $166,000 and $133,000 for fiscal 1998, 1997 and 1996,
respectively.
F-12
<PAGE> 115
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. EMPLOYEE BENEFIT PLANS
Hornschuch maintains two non-contributory defined benefit pension plans in
Germany. Both pension plans are unfunded as the laws requiring pension
funding in Germany are considerably different than those in the U.S. Plan A
represents a combination of individual pension arrangements negotiated with
appropriately 40 participants representing past and present management
individuals and is open to additional participants based on individually
negotiated employment contracts. The pension benefits under Plan A may vary
to include only a specified annual benefit amount or may be based on
compensation level and years of service. Plan B covers all employees of the
Company with 1,737 active and retired participants. Plan B provides for a
fixed monthly retirement benefit after 10 years of service with benefit
increases based on additional years of service. Plan B was closed effective
January 1, 1989, and any active participant at that time was permitted to
accrue up to 10 more years of creditable service through December 31, 1998.
The following sets forth the net pension expense recognized in the
Company's financial statements (000's):
<TABLE>
<CAPTION>
MARCH 31,
1998
<S> <C>
Service costs -- benefits earned during the period $ 82
Interest cost on projected benefit obligation 483
Actual returns on plan assets --
Net amortization and deferral --
----
Net pension expense $565
====
</TABLE>
Based on the purchase accounting for the Hornschuch acquisition, the full
projected benefit obligation ("PBO") liability of $15,740,000 was
recognized at the acquisition date. The PBO of $14,867,000 at the end of
fiscal 1998 was determined using a discount rate of 6.5% and a salary
increase assumption of 1.5% in the actuarial valuation. As there are no
plan assets, there are no deferred gains or losses to amortize to future
pension expense.
Decora and its union have executed an agreement to provide retirement
benefits to qualified union employees through the Paper Industry Union -
Management Pension Fund (the "Fund"). Based upon this agreement, Decora
contributes a contractually agreed upon amount for each qualifying hour
that a union employee works. Total contributions to the Fund were $302,000,
$334,000 and $317,000 in fiscal 1998, 1997 and 1996, respectively.
The Company has a profit sharing plan and a 401K plan covering its U.S.
salaried employees. The Company does not contribute to the 401K plan. The
Company contributes to the profit sharing plan based upon company
performance. Total expense relative to the profit sharing contributions
amounted to $200,000, $175,000 and $68,000 in fiscal 1998, 1997 and 1996,
respectively.
F-13
<PAGE> 116
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7. DEBT
<TABLE>
<CAPTION>
Debt consists of ($000's): MARCH 31,
1998 1997
<S> <C> <C>
DI Deutschland Credit Facility (a) $ 20,203 $ --
Decora, Incorporated, Subordinated Loan (b) 18,000* --
Hornschuch Lines of Credit (c) 7,783 --
Decora, Incorporated Term Loans (d) 6,910* 8,795
Hornschuch Term Loans (e) 2,780 --
Decora, Incorporated Lines of Credit (f) 2,500* 2,907
Decora, Incorporated Industrial
Development Revenue Bonds (g) 2,460 2,460
Decora Industries, Inc. Convertible Notes (h) 1,250* 1,500
Decora, Incorporated Senior Subordinated Note (i) -- 2,900
Decora Industries, Inc. Note (j) -- 321
-------- --------
61,886 18,883
Less: Amounts due within one year (10,472) (2,310)
Unamortized debt discount (770) (66)
-------- --------
$ 50,644 $ 16,507
======== ========
</TABLE>
* Amounts were paid in full with a portion of proceeds of the debt offering
of $112,750,000 principal amount, 11% secured notes due in May 2005
completed by the Company in April 1998.
Amounts maturing in fiscal 1999, 2000, 2001, 2002 and 2003 are:
$10,472,000, $4,077,000, $3,797,000, $3,756,000 and $3,756,000,
respectively. Substantially all of the Company's assets have been pledged
as collateral.
(a) On September 29, 1997, DI Deutschland entered into a loan agreement with a
German Bank for approximately DM 37.3 million ($20.2 million) to provide a
portion of the financing for the Hornschuch acquisition. The loan bears
interest at the German interbank borrowing rate plus 2.50%. In addition, DI
Deutschland will be charged a fee of 0.50% per annum on the average daily
balance of the difference between the original loan amount and the then
current balance. The interest rate at March 31, 1998 was 6.17%.
The DI Deutschland Credit Facility is to be paid in semi-annual
installments of approximately DM 3.0 million ($1.6 million) beginning March
30, 1999. The final installment is due and payable on September 30, 2004.
The DI Deutschland Credit Facility is secured by a pledge of all the
capital stock of Hornschuch owned by DI Deutschland.
DI Deutschland is subject to certain covenants, including a covenant
specifying that DI Deutschland must complete the acquisition of the
remaining minority interest in Hornschuch.
F-14
<PAGE> 117
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(b) On September 30, 1997, Decora, Incorporated entered into an $18 million
subordinated loan agree- ment with a Pension Fund to provide a portion of
the financing for the Hornschuch acquisition. The subordinated loan bears
interest at 13% with the first cash interest payment due in September 1998
and three principal payments of $6,000,000 each due in September 2003, 2004
and 2005, respectively. The Pension Fund was also granted Series A warrants
which are currently exercisable for the purchase of 1,818,000 shares of
common stock of the Company at an exercise price of $5.00 per share. In
addition, the Pension Fund was granted a contingent warrant to purchase a
fixed percentage of certain additional shares of the Company's common stock
which may be issued in the future. The ability to exercise such contingent
warrant is triggered solely by the issuance of shares of the Company's
common stock in connection with an existing exchange agreement or the sale
of additional shares of common stock of the Company, the proceeds of which
must be used to purchase the outstanding minority interest.
(c) Hornschuch has separate lines of credit with its primary lender and certain
other financial institutions. Interest rates under the lines of credit
range from 3.35% to 7.24% at March 31, 1998. At March 31, 1998, the
availability under these lines was DM 35.7 million ($19.3 million).
(d) Decora, Incorporated has three term loans aggregating $6,910,000 at March
31, 1998. Two of such term loans with its primary lender of $3,837,000 and
$2,875,000, respectively, bear interest at 30-day LIBOR plus 2.00% (7.69%
at March 31, 1998) and are secured by certain accounts receivable,
inventory and property and equipment. Of such term loans, $3,837,000 mature
in May 1999 and $2,875,000 mature in April 2002.
The third term loan arose in September 1995 when Decora, Incorporated
borrowed $375,000 from the Washington County Local Development Corporation.
The loan bears interest at 5.00% and is payable in monthly installments
ending September 1, 2000. It is secured by certain of Decora,
Incorporated's property and equipment. As of March 31, 1998, the
outstanding balance of this loan was $198,000.
As of March 27, 1997, Decora, Incorporated entered into an interest rate
swap agreement with its primary bank lender which expires May 31, 1999. The
agreement effectively converts $8,523,000 of its variable rate borrowings
into fixed rate obligations. Under the terms of the agreement, Decora,
Incorporated makes payments at a fixed rate of 8.58% and receives variable
rate payments at LIBOR plus 200 basis points, repriced at the beginning of
each month. The net amount which will be paid or received is included in
interest expense. The agreement became effective as of April 1, 1997. At
March 31, 1998, the fair value of the interest rate swap agreement
was a $50,000 liability.
(e) Hornschuch has a term loan of DM 1,333,000 (approximately $722,000) at
March 31, 1998 with its primary lender which matures in September 1999,
bears interest at 5% and is secured by certain assets. The loan is to be
repaid at DM 444,000 ($240,000) each March 1 and September 1. Hornschuch
has a second term loan with a balance at March 31, 1998 of DM 3,800,000
(approximately $2,058,000) which matures in March 2006 and is also secured
by certain assets. The second loan is to be repaid at DM 238,000 ($129,000)
semi-annually commencing September 30, 1998 and bears interest at 4.8% as
of March 31, 1998.
(f) Decora, Incorporated has a revolving line of credit of up to $6,000,000
which matures in August 1998 and is secured by various accounts receivable,
inventory and equipment. The amount outstanding under the facility bears
interest at prime plus 1 1/4% (9.5% at March 31, 1998). Availability under
this credit facility is limited by specified percentages of current trade
receivables and on-hand inventories. On March 27, 1997, Decora,
Incorporated established a second line of credit of up to $1,000,000 which
also matures in August 1998, bears interest at prime plus 1.0% (9.25% at
March 31, 1998) and is secured by certain accounts receivable. Availability
under this credit facility is limited by specified
F-15
<PAGE> 118
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
percentages of certain international trade accounts receivable. As of March
31, 1998, the borrowing capacity under these lines of credit was
$3,087,000.
(g) On November 13, 1996, Decora, Incorporated borrowed $2,460,000 through the
issuance of Tax-Exempt Industrial Development Revenue Bonds (Decora,
Incorporated Project), Series 1996 by the Counties of Warren and
Washington, New York Industrial Development Agency. These bonds mature on
November 1, 2004 and require sinking fund payments of $20,833 per month
beginning November 1997. The bonds bear interest at a floating rate which
is adjusted weekly based on the remarketing agent's ability to re-market
the bonds at par. As of March 31, 1998, the interest rate on the bonds was
3.65%. The bonds are credit enhanced through a letter of credit issued by
the Company's primary lender and, in addition to interest on the bonds,
Decora, Incorporated pays its primary lender an annual letter of credit fee
equal to 1.50% of the outstanding balance of the letter of credit which
was $2,497,000 at March 31, 1998.
(h) In November 1992, the Company borrowed $1,500,000 from a private lender and
issued a convertible note. As part of the transaction, the Company also
issued 17,800 shares of its common stock, warrants to purchase 45,000
shares of common stock at $7.00 per share and warrants for an additional
20,000 shares of common stock at prices contingent upon the future market
price of the Company's common stock. The convertible note was due in
November 1995 and bears interest at 12% per annum, payable in the form of
the Company's common stock. The fair value of the shares and warrants
issued were reflected as debt issuance costs and amortized to interest
expense over the term of the debt agreement.
In November 1995, the Company and the lender agreed to extend the note
until May 1998. Interest for the extension period ($303,000) and a closing
fee ($197,000) were paid at the date of the extension through the issuance
of 156,400 shares of the Company's common stock and warrants to purchase an
additional 163,600 common shares at $3.90 per share exercisable only in the
event that the note is paid in full without conversion. The prepaid
interest expense and the closing fee are being amortized over the term of
the extended debt agreement.
(i) In April 1990, Decora, Incorporated issued $7,000,000 of 14% senior
subordinated notes, interest payable semi-annually. On June 28, 1996,
Decora, Incorporated and the lender agreed to extend the repayment terms of
the notes to include payments of $3,500,000 on each of April 15, 1997 and
April 15, 1998. The amount due on April 15, 1997 was prepaid by Decora,
Incorporated in two installments of $2,800,000 and $700,000 on November 13,
1996 and March 27, 1997, respectively. On March 27, 1997, Decora,
Incorporated also prepaid $600,000 of the amount due on April 15, 1998. The
notes were repaid in full during fiscal 1998.
On June 28, 1996, the Company and the lender also exchanged warrants held
by the lender to purchase 20% of Decora, Incorporated's common stock for
(i) a two-year, non-interest bearing, promissory note for $200,000 (the
"new note") due April 15, 1998 and (ii) 200,000 shares of the Company's
common stock (the "new common stock"). The new note was repaid in full on
March 27, 1997. The new common stock contains a guaranty which requires the
issuance of additional shares to the lender if the market price of the
Company's common stock does not exceed $15.00 per share by April 1998. As
of March 31, 1998, the market price of the Company's common stock was
$5.69. At March 31, 1996, prior to closing of the exchange agreement, the
warrants held by the lender were valued at $1,642,000. Prior to the
exchange, changes in the value of the warrants based upon results of
operations and financial position of Decora, Incorporated were charged or
credited to interest expense.
F-16
<PAGE> 119
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(j) In January 1996, the Company borrowed $650,000 from its primary bank lender
in the form of a three year note. The note which bears interest at prime
plus 1 1/2% (9.75% at March 31, 1998) was repaid in full during fiscal
1998.
8. LONG-TERM INCENTIVE PLANS AND STOCK OPTIONS
The Company has several domestic long-term incentive plans under which
shares of the Company's common stock may be sold to directors, officers and
key employees. Certain other parties have been granted stock options by the
Company in connection with various transactions.
The Company adopted a Stock Option Plan in 1987 (the "1987 Plan") pursuant
to which 340,000 shares of common stock are available for grant. The 1987
Plan is administered by a committee of Directors of the Company who are not
covered by the 1987 Plan. All options granted under the 1987 Plan terminate
either five or ten years after the date of grant and vest quarterly over a
three-year period subsequent to the date of the grant, unless modified by
the Company.
In 1988, the shareholders of the Company approved the Decora Industries,
Inc. 1988 Employee Stock Purchase Plan (the "1988 Plan") pursuant to which
a total of 100,000 shares of the Company's Common Stock may be issued to
participants during the term of the 1988 Plan at an issue price of 85% of
the fair market value at the date of the purchase. The 1988 Plan is
administered by the Board of Directors provided that a majority are not
covered by the 1988 Plan, or by a committee appointed by the Board of
Directors. The 1988 Plan terminates on December 31, 1998; no shares have
been purchased pursuant to the 1988 Plan.
A summary of stock option activity under all plans for the three years
ended March 31, 1998 follows (000's except average price data):
<TABLE>
<CAPTION>
AVERAGE
OPTIONS PRICE
------- -----
<S> <C> <C>
Outstanding at:
March 31, 1995 803 $ 6.90
Granted 45 5.20
Exercised -- $ --
Expired (43) $ 6.50
---
March 31, 1996 805 $ 6.80
Granted 164 $ 5.70
Exercised (8) $ 3.75
Expired (27) $ 8.50
---
</TABLE>
F-17
<PAGE> 120
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE
OPTIONS PRICE
------- -----
<S> <C> <C>
March 31, 1997 934 $6.45
-----
Granted 890 $5.46
Exercised -- $ --
Expired (130) $6.38
-----
March 31, 1998 1,694 $5.94
=====
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
EXERCISE AVERAGE TERM AVERAGE
PRICE SHARES PRICE (MONTHS) SHARES PRICE
------------------ ------ ----- -------- ------- -----
<S> <C> <C> <C> <C> <C>
$4.50 - $4.95 60,000 $4.75 45.27 20,000 $4.75
$5.00 - $5.50 822,000 5.36 42.34 672,000 5.41
$5.55 - $5.95 354,800 5.64 33.04 254,800 5.60
$6.00 - $6.50 195,000 6.07 49.13 101,666 6.14
$7.00 - $7.50 192,000 7.43 14.27 107,000 7.38
$8.00 - $9.30 70,000 8.76 36.37 70,000 8.76
</TABLE>
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair values on the fiscal 1998, 1997 and 1996 grant
dates for those awards, consistent with the requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net income and
net income per share would have been reduced to the pro forma amounts
indicated below ($000's except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C>
Net Income -- As Reported $2,730 $3,566 $2,919
-- Pro Forma 2,527 3,171 2,831
Basic Net Income Per Share -- As Reported $ 0.38 $ 0.51 $ 0.45
-- Pro Forma 0.35 0.45 0.44
Diluted Net Income Per Share -- As Reported $ 0.35 $ 0.46 $ 0.44
-- Pro Forma 0.33 0.41 0.43
</TABLE>
The fair value of each stock option grant has been estimated on the date of
each grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Risk-free interest rate 5.49 % 6.22 % 6.23 %
Expected life (months) 60 45.6 62.4
Expected volatility 0.484 0.594 0.594
Expected dividend yield -- -- --
</TABLE>
F-18
<PAGE> 121
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The weighted average grant date fair values of options granted during
fiscal 1998, 1997 and 1996 were $1.38, $0.80 and $1.25, respectively.
The Company reserved 185,000 shares of common stock for the future possible
exercise of warrants; 90,000 of these warrants expired on July 14, 1997 and
the remaining 95,000 warrants can be exercised at prices ranging from $2.50
to $7.00 and expire on November 3, 2000.
9. INCOME TAXES
Income taxes are summarized as follows ($000's):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current provision (benefit):
United States:
Federal $ 9 $ 68 $ 45
State 35 100 (31)
Foreign -- -- --
------ ------- -------
44 168 14
------ ------- -------
Deferred provision (benefit):
United States:
Federal 205 (1,327) (1,500)
State -- -- --
Foreign 3,029 -- --
------ ------- -------
3,234 (1,327) (1,500)
------ ------- -------
$3,278 $(1,159) $(1,486)
====== ======= =======
</TABLE>
The sources of income before income taxes and minority interest were
$305,000 in the U.S. and $6,915,000 foreign in the year ended March 31,
1998. All taxable income for the fiscal years ended March 31, 1997 and
1996 was from the U.S.
Net deferred tax assets are comprised of the following at March 31, 1998
and 1997 ($000's):
Current:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
German statutory accruals $ 1,478 $ --
Valuation reserves 435 378
------- ----
$ 1,913 $378
======= ====
</TABLE>
Non-current:
<TABLE>
<CAPTION>
<S> <C> <C>
Depreciation $(7,580) $ (296)
Net operating loss carryforwards 6,919 4,503
Pensions 3,029 --
Non-compete agreement 2,366 --
Tax credits 325 313
Other, net (1,272) (671)
------- ------
$ 3,787 $3,849
======= ======
</TABLE>
F-19
<PAGE> 122
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The provision for (benefit from) income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory federal
income tax rate to pretax income as a result of the following ($000's):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Provision at statutory rate $ 2,527 $ 840 $ 502
State tax expense (benefit) 35 65 (20)
Effect of non-deductible items 160 182 261
Effect of tax credits -- (313) --
Change in valuation allowance -- (1,695) (1,500)
Other 556 (238) (729)
------- ------- -------
Income tax provision (benefit) $ 3,278 $(1,159) $(1,486)
======= ======= =======
</TABLE>
Approximately $11,946,000 and $6,246,000 of the Company's net operating
loss carryforwards remain available at March 31, 1998 in the United States
and Germany, respectively. Their use is limited to future taxable earnings
in the respective countries. In the United States, the carryforwards expire
over the period 2003 through 2007, while in Germany the carryforwards have
an unlimited life.
At March 31, 1998, foreign subsidiary earnings of $3,886,000 were
considered permanently invested in those businesses. Accordingly, U.S.
income taxes have not been provided on these earnings. Foreign withholding
taxes would be payable to the foreign taxing authorities if these earnings
were remitted. Subject to certain limitations, the withholding taxes would
then be available for use as credits against the U.S. tax liability.
10. NON-RECURRING CHARGES
The consolidated statements of income for fiscal 1998 reflects certain
non-recurring charges totalling $1,461,000. Of these charges, $531,000
related to severance costs for U.S. work force reductions implemented in
anticipation of operating synergies with Hornschuch and $141,000 related to
print tooling redundancies between the two operations. An additional
$789,000 was recorded to reserve against notes receivable which the Company
obtained in fiscal years 1996 and 1995 in conjunction with the sale of
previously discontinued operations.
F-20
<PAGE> 123
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. NET INCOME PER SHARE
The Company adopted SFAS No. 128, as required, in the quarter ended
December 31, 1997 with all prior periods being restated. The adoption did
not have a significant impact on net income per share reported for fiscal
1998, 1997 and 1996, respectively.
The number of shares of common stock and common stock equivalents used in
the computation of net income per common share, assuming dilution for each
period, is the weighted average number of common shares outstanding during
the periods and, if dilutive, common stock options, warrants and
convertible securities which are considered common stock equivalents. The
following is a reconciliation of the numerators and denominators for
determining basic and diluted net income per share for fiscal 1998, 1997
and 1996 (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- --------------------
Per Per Per
Income Shares Share Income Shares Share Income Share Share
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC NET INCOME PER
SHARE
Net income $2,730 7,236 $0.38 $3,566 7,044 $0.51 $2,919 6,456 $0.45
EFFECT OF DILUTIVE
SECURITIES
Contingently issuable
shares 327 568 --
Options 193 162 165
DILUTED NET INCOME
PER SHARE $2,730 7,756 $0.35 $3,566 7,774 $0.46 $2,919 6,621 $0.44
</TABLE>
The total number of shares of common stock and common stock equivalents
that were not included in the computation of diluted income per common
share because they were anti-dilutive was approximately 3,546,000, 616,000
and 751,000 for fiscal 1998, 1997 and 1996, respectively.
12. COMMITMENTS AND CONTINGENCIES
Leases -- The Company uses certain equipment under lease arrangements, all
of which are accounted for as operating leases. Rent expense under such
arrangements was $699,000, $15,000 and $12,000 for fiscal 1998, 1997 and
1996, respectively. Rental commitments under long-term noncancellable
operating leases are as follows (000's):
<TABLE>
<S> <C>
FY 1999 $1,083
FY 2000 723
FY 2001 357
FY 2002 --
FY 2003 --
</TABLE>
Legal Proceedings -- The Company is involved in various legal proceedings,
the ultimate resolution of which, in the opinion of management, will not
have a materially adverse impact on the financial condition, results of
operations or cash flows of the Company.
F-21
<PAGE> 124
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Guarantee of Subsidiary Debt - As part of the Hornschuch acquisition, the
Company acquired Hornschuch's wholly-owned real estate subsidiaries.
Management identified these subsidiaries as non-core operations upon
acquisition and has decided to sell them. The subsidiaries carry
approximately $16,300,000 of debt, with Hornschuch a guarantor of the debt
by virtue of its profit pooling agreement with the subsidiaries. The
Company has estimated that the debt exceeds the net realizable value of
these subsidiaries by approximately $4,900,000 and has therefore, recorded
a liability for such amount.
13. BUSINESS AND CREDIT CONCENTRATIONS
Since the acquisition of Hornschuch on October 1, 1997, the Company's sales
reflect a broader range of customers. Prior to the acquisition of the
Decorative Coverings Group (see Note 16), Decora Incorporated's primary
customer was Rubbermaid, Inc., which accounted for 31%, 89% and 90% of net
sales in fiscal 1998, 1997 and 1996, respectively. Accounts receivable from
Rubbermaid at March 31, 1998 and 1997 were $4,279,000 and $3,115,000,
respectively. The Company estimates an allowance for doubtful accounts
based upon the credit worthiness of its customers as well as general
economic conditions. Consequently, an adverse change in these factors could
affect the Company's estimate.
14. GEOGRAPHIC SEGMENTS
At March 31, 1998, the Company's equity in subsidiaries outside North
America ("ONA") was $17.8 million. Prior to fiscal 1998, the Company had no
equity in subsidiaries ONA.
Net sales to ONA customers, including exports from U.S. operations,
represented 68%, 10% and 6% of net sales in fiscal 1998, 1997 and 1996,
respectively.
The following is information about the Company's operations in different
geographic regions (000's):
<TABLE>
<CAPTION>
NET SALES OPERATING INCOME TOTAL ASSETS
------------------------- ------------------------ ------------------
1998 1997 1996 1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America $31,285 $36,920 $36,644 $ 6,312 $ 6,109 $ 6,289 $ 36,117 $37,454
ONA 67,122 4,162 2,184 4,737 (1,383) (2,181) 90,343 --
------- ------- ------- ------- ------- ------- -------- -------
$98,407 $41,082 $38,829 $11,049 $ 4,726 $ 4,108 $126,460 $37,454
======= ======= ======= ======= ======= ======= ======== =======
</TABLE>
F-22
<PAGE> 125
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
15. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and liabilities, exclusive of acquisitions and
dispositions of subsidiaries, were as follows ($000's):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Increase in accounts receivable $(1,951) $(2,017) $(1,210)
(Increase) decrease in inventory (1,176) 564 (1,074)
Increase in other assets (19) (205) (193)
Increase (decrease) in
accounts payable 2,884 140 (713)
Increase (decrease) in accrued
liabilities 2,968 (83) (126)
Decrease in other current
liabilities (439) -- --
------- ------- -------
$ 2,267 $(1,601) $(3,316)
======= ======= =======
Supplemental cash flow information is as
follows ($000's):
Cash paid during the year for interest $ 2,140 $ 1,871 $ 2,218
======= ======= =======
Cash paid during the year for income
taxes $ 184 $ 194 $ 45
======= ======= =======
</TABLE>
During fiscal 1997, 200,000 shares of common stock and notes payable in the
amount of $874,000 were issued upon the conversion of $1,642,000 of
warrants in subsidiary. During fiscal 1996, 267,200 shares of common stock
were issued to satisfy the terms of an agreement with the former owners of
an inactive subsidiary of the Company. Also during fiscal 1996, the Company
issued 271,000 shares of common stock in the restructuring of outstanding
obligations and 24,000 shares of stock for the payment of interest expense.
F-23
<PAGE> 126
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
16. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Fiscal 1998:
Net sales $ 9,147 $10,308 $36,909 $42,043
Gross profit $ 2,591 $ 2,410 $ 9,715 $15,471
Net income (loss) $ 583 $ (489)* $ 241 $ 2,395
Net income (loss) per share:
Basic $ 0.08 $ (0.07) $ 0.03 $ 0.33
Diluted 0.08 (0.07) 0.03 0.31
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Fiscal 1997:
Net sales $10,138 $ 12,904 $ 9,533 $ 8,507
Gross profit $ 2,444 $ 3,222 $ 2,379 $ 2,534
Net income $ 520 $ 1,078 $ 406 $ 1,562
Net income per share:
Basic $ 0.08 $ 0.15 $ 0.06 $ 0.22
Diluted 0.07 0.14 0.05 0.19
</TABLE>
*Includes a non-recurring charge of $1,461,000.
17. SUBSEQUENT EVENTS
On April 29, 1998, the Company, through Decora, Incorporated, acquired (at
a cost of approximately $69,000,000 which includes closing costs) certain
assets, including trademarks (including the Con-Tact trademark) and
tradenames, of Rubbermaid's Decorative Coverings Group ("DCG") and
refinanced certain debt (aggregating approximately $32,000,000). These
transactions were funded with a bond offering of $112,750,000 principal
amount, 11%, secured notes due in May 2005, and a loan of $10 million from
Hornschuch's existing credit facilities. The Company has pledged 100% and
65% of the stock of Decora, Incorporated and DI Deutschland, respectively,
as collateral.
F-24
<PAGE> 127
Decora Industries, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
18. CONSOLIDATING FINANCIAL STATEMENTS
The aforementioned debt offering resulted in the Company designating the
Decora, Incorporated subsidiary as a guarantor of the debt. Separate
audited financial statements of Decora, Incorporated have been provided
pursuant to Rule 3-10 of Regulation S-X.
The following summarized condensed consolidating financial information
for the Company segregates the financial information of Decora
Industries, Inc., the Wholly-Owned Guarantor (Decora, Incorporated) and
the Non-Guarantor Subsidiary. The results of the Non-Guarantor
Subsidiary are included since October 1, 1997.
Decora Industries, Inc. consists of parent company operations.
Subsidiaries of the parent company are reported on the equity basis.
Debt and goodwill allocated to subsidiaries are presented on an
accounting "push-down" basis.
F-25
<PAGE> 128
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NON-
DECORA GUARANTOR GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 115 $ 356 $ 1,211 $ -- $ 1,682
Restricted cash -- 125 -- -- 125
Accounts receivable, net -- 5,937 20,112 -- 26,049
Inventories -- 6,154 20,810 -- 26,964
Deferred income taxes 115 320 1,478 -- 1,913
Prepaid expenses and other current
assets 75 332 1,074 -- 1,481
-------- -------- -------- -------- --------
Total current assets 305 13,224 44,685 -- 58,214
Property and equipment, net -- 6,990 37,162 -- 44,152
Investments in consolidated subsidiaries 31,872 -- -- (31,872) --
Notes receivable 273 -- 353 -- 626
Due from affiliate 1,425 18,227 146 (19,798) --
Goodwill and other intangibles, net -- 10,522 11,956 -- 22,478
Deferred income taxes 4,088 -- 245 (546) 3,787
Other assets 6 1,255 698 -- 1,959
-------- -------- -------- -------- --------
Total assets $ 37,969 $ 50,218 $ 95,245 $(52,216) $131,216
======== ======== ======== ======== ========
</TABLE>
F - 26
<PAGE> 129
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NON-
DECORA GUARANTOR GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 3,233 $ 6,344 $ -- $ 9,577
Accrued liabilities (207) 3,118 14,193 -- 17,104
Current portion of long-term debt -- 327 10,145 -- 10,472
Other current liabilities -- -- 4,928 -- 4,928
--------- --------- --------- --------- ---------
Total current liabilities (207) 6,678 35,610 -- 42,081
Long-term debt 1,250 28,774 20,620 -- 50,644
Deferred income taxes -- 546 -- (546) --
Pension obligation -- -- 13,424 -- 13,424
Due to affiliate 18,880 -- 1,562 (20,442) --
--------- --------- --------- --------- ---------
Total liabilities 19,923 35,998 71,216 (20,988) 106,149
--------- --------- --------- --------- ---------
Minority interest in subsidiary -- -- 6,978 -- 6,978
--------- --------- --------- --------- ---------
Shareholders equity:
Preferred stock -- -- -- -- --
Common stock 73 160 28 (188) 73
Additional paid-in capital 32,957 3,658 15,141 (17,981) 33,775
Retained earnings (accumulated deficit) (14,984) 10,402 2,674 (13,076) (14,984)
Cumulative translation adjustment -- -- (792) 17 (775)
--------- --------- --------- --------- ---------
Total shareholders' equity 18,046 14,220 17,051 (31,228) 18,089
--------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity $ 37,969 $ 50,218 $ 95,245 $ (52,216) $ 131,216
========= ========= ========= ========= =========
</TABLE>
F - 27
<PAGE> 130
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1998
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NON-
DECORA GUARANTOR GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales $ 800 $36,305 $62,150 $ (848) $98,407
Cost of goods sold -- 27,015 41,253 (48) 68,220
------- ------- ------- ------- -------
Gross profit 800 9,290 20,897 (800) 30,187
Selling, general and administrative
expenses 750 4,963 12,764 (800) 17,677
Non-recurring charges 789 672 -- -- 1,461
------- ------- ------- ------- -------
Operating income (loss) (739) 3,655 8,133 -- 11,049
Interest expense 223 2,388 1,218 -- 3,829
------- ------- ------- ------- -------
Income (loss) before income taxes (962) 1,267 6,915 -- 7,220
Income tax provision (benefit) (263) 512 3,029 -- 3,278
Equity in earnings of affiliated
companies, net of tax 3,429 -- -- (3,429) --
Minority interest -- -- 1,212 -- 1,212
------- ------- ------- ------- -------
Net income $ 2,730 $ 755 $ 2,674 $(3,429) $ 2,730
======= ======= ======= ======= =======
</TABLE>
F - 28
<PAGE> 131
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING CASH FLOW STATEMENT
FOR THE YEAR ENDED MARCH 31, 1998
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECORA GUARANTOR NON-GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,730 $ 755 $ 2,674 $ (3,429) $ 2,730
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 234 2,101 3,199 -- 5,534
Minority interest in earnings of subsidiary -- -- 1,212 -- 1,212
Provision for doubtful notes receivable 789 -- -- -- 789
Loss on disposal of property and equipment -- 98 -- -- 98
Deferred income tax provision (benefit) 483 (233) 3,034 -- 3,284
Net changes in current assets and liabilities (53) 1,883 437 -- 2,267
Other, net (1) (759) (373) -- (1,133)
-------- -------- -------- -------- --------
Net cash provided by operating activities 4,182 3,845 10,183 (3,429) 14,781
-------- -------- -------- -------- --------
Cash flows from investing activities:
Acquisition of shares -- -- (37,899) -- (37,899)
Reductions in notes receivable 406 -- -- -- 406
Purchase of property and equipment -- (785) (993) -- (1,778)
Intercompany payable (receivable) 13,699 (15,167) 1,468 -- --
Intercompany investment (18,529) -- 15,100 3,429 --
-------- -------- -------- -------- --------
Net cash used in investing activities (4,424) (15,952) (22,324) 3,429 (39,271)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Issuance of long-term debt -- 18,000 21,205 -- 39,205
Repayment of long-term debt (571) (5,193) (247) -- (6,011)
Decrease in short-term borrowings -- -- (7,216) -- (7,216)
Proceeds from exercise of warrants 63 -- -- -- 63
Proceeds from issuance of common stock 750 -- -- -- 750
Payment of deferred financing costs -- (347) (424) -- (771)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 242 12,460 13,318 -- 26,020
-------- -------- -------- -------- --------
Effect of exchange rate fluctuations on cash and
cash equivalents -- -- 34 -- 34
-------- -------- -------- -------- --------
Net increase in cash -- 353 1,211 -- 1,564
Cash at beginning of year 115 128 -- -- 243
-------- -------- -------- -------- --------
Cash at end of year $ 115 $ 481 $ 1,211 $ -- $ 1,807
======== ======== ======== ======== ========
</TABLE>
F - 29
<PAGE> 132
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NON-
DECORA GUARANTOR GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 115 $ 128 $ -- $ -- $ 243
Accounts receivable, net -- 6,168 -- -- 6,168
Inventories -- 5,439 -- -- 5,439
Deferred income taxes 41 337 -- -- 378
Prepaid expenses and other current
assets 405 177 -- -- 582
-------- -------- --------- -------- --------
Total current assets 561 12,249 -- -- 12,810
Property and equipment, net -- 7,781 -- -- 7,781
Investments in consolidated subsidiaries 12,647 -- -- (12,647) --
Notes receivable 1,468 -- -- -- 1,468
Due from affiliate -- 3,060 -- (3,060) --
Goodwill and other intangibles, net -- 10,924 -- -- 10,924
Deferred income taxes 4,645 -- -- (796) 3,849
Other assets 103 254 -- -- 357
-------- -------- --------- -------- --------
Total assets $ 19,424 $ 34,268 $ -- $(16,503) $ 37,189
======== ======== ========= ======== ========
</TABLE>
F - 30
<PAGE> 133
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NON-
DECORA GUARANTOR GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19 $ 1,983 $ -- $ -- $ 2,002
Accrued liabilities 21 1,846 -- -- 1,867
Current portion of long-term debt 321 1,989 -- -- 2,310
-------- -------- -------- -------- --------
Total current liabilities 361 5,818 -- -- 6,179
Long-term debt 1,500 15,007 -- -- 16,507
Deferred income taxes -- 796 -- (796) --
Due to affiliate 3,060 -- -- (3,060) --
-------- -------- -------- -------- --------
Total liabilities 4,921 21,621 -- (3,856) 22,686
-------- -------- -------- -------- --------
Shareholders' equity:
Preferred stock -- -- -- -- --
Common stock 71 160 -- (160) 71
Additional paid-in capital 32,146 2,840 -- (2,840) 32,146
Retained earnings (accumulated deficit) (17,714) 9,647 -- (9,647) (17,714)
-------- -------- -------- -------- --------
Total shareholders' equity 14,503 12,647 -- (12,647) 14,503
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity $ 19,424 $ 34,268 $ -- $(16,503) $ 37,189
======== ======== ======== ======== ========
</TABLE>
F - 31
<PAGE> 134
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NON-
DECORA GUARANTOR GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales $ 800 $ 41,082 $ -- $ (800) $ 41,082
Cost of goods sold -- 30,503 -- -- 30,503
-------- -------- --------- -------- --------
Gross profit 800 10,579 -- (800) 10,579
Selling, general and administrative
expenses 483 6,170 -- (800) 5,853
-------- -------- --------- -------- --------
Operating income 317 4,409 -- -- 4,726
Interest expense 309 2,010 -- -- 2,319
-------- -------- --------- -------- --------
Income before income taxes 8 2,399 -- -- 2,407
Income tax provision (benefit) (2,181) 1,022 -- -- (1,159)
Equity in earnings of affiliated
companies, net of tax 1,377 -- -- (1,377) --
-------- -------- --------- -------- --------
Net income $ 3,566 $ 1,377 $ -- $ (1,377) $ 3,566
======== ======== ========= ======== ========
</TABLE>
F - 32
<PAGE> 135
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING CASH FLOW STATEMENT
FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECORA GUARANTOR NON-GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,566 $ 1,377 $ -- $(1,377) $ 3,566
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 191 2,253 -- -- 2,444
Deferred income tax benefit (1,256) (71) -- -- (1,327)
Net changes in current assets and liabilities11 (1,612) -- -- (1,601)
------- ------- --------- ------- -------
Net cash provided by operating activities 2,512 1,947 -- (1,377) 3,082
------- ------- --------- ------- -------
Cash flows from investing activities:
Reductions in notes receivable 290 -- -- -- 290
Purchase of property and equipment -- (489) -- -- (489)
Intercompany payable (receivable) (1,034) 1,034 -- -- --
Intercompany investment (1,377) -- -- 1,377 --
------- ------- --------- ------- -------
Net cash used in investing activities (2,121) 545 -- 1,377 (199)
------- ------- --------- ------- -------
Cash flows from financing activities:
Issuance of long-term debt -- 5,814 -- -- 5,814
Repayment of long-term debt (329) (8,033) -- -- (8,362)
Proceeds from exercise of warrants 30 -- -- -- 30
Payment of deferred financing costs -- (310) -- -- (310)
------- ------- --------- ------- -------
Net cash used in financing activities (299) (2,529) -- -- (2,828)
------- ------- --------- ------- -------
Net increase (decrease) in cash 92 (37) -- -- 55
Cash at beginning of year 23 165 -- -- 188
------- ------- --------- ------- -------
Cash at end of year $ 115 $ 128 $ -- $ -- $ 243
======= ======= ========= ======= =======
</TABLE>
F - 33
<PAGE> 136
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NON-
DECORA GUARANTOR GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales $ 800 $ 38,828 $ -- $ (800) $ 38,828
Cost of goods sold -- 28,244 -- -- 28,244
-------- -------- ---------- -------- --------
Gross profit 800 10,584 -- (800) 10,584
Selling, general and administrative
expenses 680 6,596 -- (800) 6,476
-------- -------- ---------- -------- --------
Operating income 120 3,988 -- -- 4,108
Interest expense 557 2,118 -- -- 2,675
-------- -------- ---------- -------- --------
Income (loss) before income taxes (437) 1,870 -- -- 1,433
Income tax provision (benefit) (2,353) 867 -- -- (1,486)
Equity in earnings of affiliated
companies, net of tax 1,003 -- -- (1,003) --
-------- -------- ---------- -------- --------
Net income $ 2,919 $ 1,003 $ -- $ (1,003) $ 2,919
======== ======== ========== ======== ========
</TABLE>
F - 34
<PAGE> 137
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATING CASH FLOW STATEMENT
FOR THE YEAR ENDED MARCH 31, 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECORA GUARANTOR NON-GUARANTOR
INDUSTRIES SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,919 $ 1,003 $ -- $(1,003) $ 2,919
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization (429) 1,734 -- -- 1,305
Loss on disposal of property and equipment -- 98 -- -- 98
Deferred income tax benefit (1,488) (12) -- -- (1,500)
Net changes in current assets and liabilities (434) (2,882) -- -- (3,316)
Other, net (337) -- -- -- (337)
------- ------- --------- ------- -------
Net cash provided by (used in) operating activities 231 (59) -- (1,003) (831)
------- ------- --------- ------- -------
Cash flows from investing activities:
Additions to notes receivable (198) -- -- -- (198)
Purchase of property and equipment -- (2,699) -- -- (2,699)
Retirement of property and equipment -- 154 -- -- 154
Intercompany payable (receivable) (209) 209 -- -- --
Intercompany investment (1,003) -- -- 1,003 --
------- ------- --------- ------- -------
Net cash used in investing activities (1,410) (2,336) -- 1,003 (2,743)
------- ------- --------- ------- -------
Cash flows from financing activities:
Issuance of long-term debt 650 3,173 -- -- 3,823
Repayment of long-term debt (200) (720) -- -- (920)
Proceeds from issuance of common stock 550 -- -- -- 550
------- ------- --------- ------- -------
Net cash provided by financing activities 1,000 2,453 -- -- 3,453
------- ------- --------- ------- -------
Net increase (decrease) in cash (179) 58 -- -- (121)
Cash at beginning of year 202 107 -- -- 309
------- ------- --------- ------- -------
Cash at end of year $ 23 $ 165 $ -- $ -- $ 188
======= ======= ========= ======= =======
</TABLE>
F - 35
<PAGE> 138
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of
Decora, Incorporated
In our opinion, the accompanying balance sheets and the related statements of
income, of cash flows and of changes in shareholder's equity present fairly, in
all material respects, the financial position of Decora, Incorporated (a
wholly-owned subsidiary of Decora Industries, Inc.) at March 31, 1998 and 1997
and the results of its operations and its cash flows for each of the three years
in the period ended March 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform an audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
June 5, 1998
F - 36
<PAGE> 139
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 356 $ 128
Restricted cash 125 --
Accounts receivable, less allowance for
doubtful accounts of $171 and $499 at
March 31, 1998 and 1997, respectively 5,937 6,168
Inventories 6,154 5,439
Deferred income taxes 320 337
Prepaid expenses and other current assets 332 177
------- -------
Total current assets 13,224 12,249
Property and equipment, net 6,990 7,781
Due from affiliates 18,227 3,060
Goodwill and other intangibles, net 10,522 10,924
Other non-current assets 1,255 254
------- -------
Total assets $50,218 $34,268
======= =======
</TABLE>
(continued)
See accompanying notes to financial statements.
F - 37
<PAGE> 140
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 3,233 $ 1,983
Accrued liabilities 2,007 1,513
Accrued interest payable 1,111 333
Current portion of long-term debt 327 1,989
------- -------
Total current liabilities 6,678 5,818
Long-term debt 28,774 15,007
Deferred income taxes 546 796
------- -------
Total liabilities 35,998 21,621
------- -------
Shareholder's equity:
Common stock, $.01 par value, 20,000
shares authorized, 16,000 shares issued
and outstanding 160 160
Additional paid-in capital 3,658 2,840
Retained earnings 10,402 9,647
------- -------
Total shareholder's equity 14,220 12,647
------- -------
Commitments and contingencies (Note 9) -- --
------- -------
Total liabilities and shareholder's equity $50,218 $34,268
======= =======
</TABLE>
See accompanying notes to financial statements.
F - 38
<PAGE> 141
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
Net sales $36,305 $41,082 $38,828
Cost of goods sold 27,015 30,503 28,244
------- ------- -------
Gross profit 9,290 10,579 10,584
Selling, general and administrative
expenses 4,963 6,170 6,596
Non-recurring charges 672 -- --
------- ------- -------
Operating income 3,655 4,409 3,988
Interest expense 2,388 2,010 2,118
------- ------- -------
Income before income taxes 1,267 2,399 1,870
Income tax provision 512 1,022 867
------- ------- -------
Net income $ 755 $ 1,377 $ 1,003
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F - 39
<PAGE> 142
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 755 $ 1,377 $ 1,003
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,101 2,253 1,734
Loss on disposal of property and equipment 98 -- 98
Net changes in current assets and liabilities 1,883 (1,612) (2,882)
Deferred income tax provision (benefit) (233) (71) (12)
Other, net (759) -- --
-------- -------- --------
Net cash provided by (used in)
operating activities 3,845 1,947 (59)
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (785) (489) (2,699)
Retirement of property and equipment -- -- 154
Intercompany payable (receivable) (15,167) 1,034 209
-------- -------- --------
Net cash used in investing activities (15,952) 545 (2,336)
-------- -------- --------
Cash flows from financing activities:
Issuance of long-term debt 18,000 5,814 3,173
Repayment of long-term debt (5,193) (8,033) (720)
Payment of deferred financing costs (347) (310) --
-------- -------- --------
Net cash provided by (used in)
financing activities 12,460 (2,529) 2,453
-------- -------- --------
Net increase (decrease) in cash 353 (37) 58
Cash at beginning of year 128 165 107
-------- -------- --------
Cash at end of year $ 481 $ 128 $ 165
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F - 40
<PAGE> 143
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Financial Statements
- --------------------------------------------------------------------------------
Amounts in 000's
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS
<S> <C> <C> <C> <C>
Balance at March 31, 1995 16,000 $ 160 $ 2,840 $ 7,267
Net income -- -- -- 1,003
------- ------- ------- -------
Balance at March 31, 1996 16,000 160 2,840 8,270
Net income -- -- -- 1,377
------- ------- ------- -------
Balance at March 31, 1997 16,000 160 2,840 9,647
Capital contribution from Parent -- -- 818 --
Net income -- -- -- 755
------- ------- ------- -------
Balance at March 31, 1998 16,000 $ 160 $ 3,658 $10,402
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F - 41
<PAGE> 144
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Decora, Incorporated (the "Company"), a wholly-owned subsidiary of Decora
Industries, Inc. (the "Parent"), is a leading manufacturer and marketer
of self-adhesive consumer decorative and surface coverings and other
specialty industrial products. The Company's products are sold under the
ConTact brand name and manufactured at its production facility in Fort
Edward, New York. The Company considers its operations to constitute a
single business segment.
The accompanying financial statements reflect the "push-down" basis of
accounting in that the original acquisition debt incurred by the Parent
and the resulting goodwill have been allocated to the Company's financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, accounts receivable, accounts payable and
accrued expenses approximate their carrying values. All financial
instruments are held for purposes other than trading.
A substantial majority of the Company' debt, in combination with interest
rate swap agreements, bears current market rates of interest or is
payable on demand. Accordingly, the carrying amount is considered a
reasonable approximation of fair value.
CASH AND CASH EQUIVALENTS
The Company invests surplus cash in highly liquid debt instruments which
have original maturities of less than three months and are considered to
be cash equivalents. Certain debt agreements require the payment of
monthly sinking fund deposits in order to retire the debt. Cash balances
transferred for this purpose are considered restricted and are separately
stated in the accompanying financial statements.
REVENUES AND RECEIVABLES
Sales of products and services are recognized when products are shipped
and services are performed. Returns are minimal and are recorded when
received. The Company's receivables are generally concentrated in the
U.S. and Europe. A portion of the foreign sales are covered by confirmed
letters of credit or export insurance. The Company does not generally
require collateral for sales made within the United States.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally five to thirty years.
GOODWILL AND OTHER INTANGIBLES
The excess of the aggregate purchase price over the fair value of the net
assets of businesses acquired has been recorded as goodwill and is being
amortized on the straight-line method over forty years. The trademark is
being amortized over twenty years. Deferred financing fees are amortized
to interest expense over the life of the underlying debt agreement. At
each balance sheet date, the Company evaluates the
F - 42
<PAGE> 145
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
recoverability of its intangible assets based on estimated future cash
flows.
INCOME TAXES
The Company files a consolidated federal tax return with its Parent. The
Parent and the Company have an informal tax sharing agreement which calls
for the Company to record its current and deferred tax exposure as if it
were a separate taxpayer. The provision for income taxes is provided based
on the liability method of accounting pursuant to SFAS No. 109, Accounting
for Income Taxes. Deferred income taxes are recorded to reflect expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between
the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in the years in which the differences
are expected to reverse.
RESEARCH AND DEVELOPMENT
Research and development costs related to both present and future products
are expensed as incurred. Research and development expenses amounted to
$239,000, $216,000 and $302,000 in fiscal 1998, 1997 and 1996,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues, costs and expenses during the reporting period. Actual results
may differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts in order
to conform with the current year presentation.
2. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
Inventories consist of ($000's):
<S> <C> <C>
Raw materials $3,131 $3,194
Work-in-process 1,626 1,035
Finished goods 1,397 1,210
------ ------
$6,154 $5,439
====== ======
</TABLE>
F - 43
<PAGE> 146
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of ($000's):
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
Land and buildings $ 5,052 $ 4,881
Machinery and equipment 9,570 9,580
Furniture and fixtures 440 393
Leasehold improvements 617 617
Construction in progress 568 89
-------- --------
16,247 15,560
Less: accumulated depreciation (9,257) (7,779)
-------- --------
$ 6,990 $ 7,781
======== ========
</TABLE>
Depreciation expense was $1,478,000, $1,652,000 and $1,234,000 for fiscal
1998, 1997 and 1996, respectively.
4. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist of the following ($000's):
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
Goodwill $ 9,857 $ 9,857
Less: accumulated amortization (1,803) (1,549)
-------- --------
8,056 8,308
-------- --------
Trademark 2,000 2,000
Organization fees 1,299 1,299
Other 280 280
-------- --------
3,579 3,579
Less: accumulated amortization (1,113) (963)
-------- --------
2,466 2,616
-------- --------
$ 10,522 $ 10,924
======== ========
</TABLE>
Goodwill amortization was $254,000, $252,000 and $252,000 for fiscal
1998, 1997 and 1996, respectively. Amortization of other intangibles was
$150,000, $166,000 and $133,000 for fiscal 1998, 1997 and 1996,
respectively.
F - 44
<PAGE> 147
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
5. EMPLOYEE BENEFIT PLANS
The Company and its union have executed an agreement to provide
retirement benefits to qualified union employees through the Paper
Industry Union - Management Pension Fund (the "Fund"). Based upon this
agreement, the Company contributes a contractually agreed upon amount for
each qualifying hour that a union employee works. Total contributions to
the Fund were $302,000, $334,000 and $317,000 in fiscal 1998, 1997 and
1996, respectively.
The Company has a profit sharing plan and a 401(k) plan covering its
salaried employees. The Company does not contribute to the 401(k) plan.
The Company contributes to the profit sharing plan based upon Company
performance at the discretion of executive management. Total expense
relative to the profit sharing contributions amounted to $200,000,
$175,000 and $68,000 in fiscal 1998, 1997 and 1996, respectively.
6. DEBT
Debt consists of ($000's):
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
<S> <C> <C>
Subordinated Loan (a) $ 18,000* $ --
Term Loans (b) 6,910* 8,795
Lines of Credit (c) 2,500* 2,907
Industrial Development Revenue Bonds (d) 2,460 2,460
Senior Subordinated Note (e) -- 2,900
-------- --------
29,870 7,062
Less: Amounts due within one year (326) (1,989)
Unamortized debt discount (770) (66)
-------- --------
$ 28,774 $ 15,007
======== ========
</TABLE>
* Amounts were paid in full with a portion of proceeds of the debt
offering completed by the Parent in April 1998 (see Note 13). These
amounts which would have been classified as current portion of debt at
the end of fiscal 1998 have been reclassified to long-term debt due to
the refinancing.
Amounts maturing in fiscal 1999, 2000, 2001, 2002 and 2003 are:
$4,558,000, $3,224,000, $665,000, $608,000, and $6,590,000, respectively.
Substantially all of the Company's assets have been pledged as
collateral. The Company's debt agreements generally prohibit the payment
of dividends.
F - 45
<PAGE> 148
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
(a) On September 30, 1997, the Company entered into an $18 million
subordinated loan agreement with a Pension Fund to provide a portion of
the financing for the Parent's acquisition of the stock of Konrad
Hornschuch AG ("Hornschuch"), a German corporation. The subordinated loan
bears interest at 13% with the first cash interest payment due in
September 1998 and three principal payments of $6,000,000 each due in
September 2003, 2004 and 2005, respectively. The Pension Fund was also
granted Series A warrants for the Parent's stock which are exercisable
for the purchase of 1,818,000 shares of common stock at an exercise price
of $5.00 per share.
(b) The Company has term loans aggregating $6,910,000 at March 31, 1998. Two
term loans with its primary lender of $3,837,000 and $2,875,000,
respectively, bear interest at 30-day LIBOR plus 2.00% (7.69% at March
31, 1998) and are secured by certain accounts receivable, inventory and
property and equipment. Of such term loans, $3,837,000 mature in May 1999
and $2,875,000 mature in April 2002.
The third term loan arose in September 1995 when the Company borrowed
$375,000 from the Washington County Local Development Corporation. The
loan bears interest at 5.00% and is payable in monthly installments
ending September 1, 2000. It is secured by certain of the Company's
property and equipment. As of March 31, 1998, the outstanding balance of
this note was $198,000.
As of March 27, 1997, the Company entered into an interest rate swap
agreement with its primary bank lender which expires May 31, 1999. The
agreement effectively converts $8,523,000 of its variable rate borrowings
into fixed rate obligations. Under the terms of the agreement, the
Company makes payments at a fixed rate of 8.58% and receives variable
rate payments at LIBOR plus 200 basis points, repriced at the beginning
of each month. The net amount which will be paid or received will be
included in interest expense. The agreement became effective as of April
1, 1997. At March 31, 1998, the fair value of the interest rate swap
agreement was a $50,000 liability.
(c) The Company has a revolving line of credit of up to $6,000,000 which
matures in August 1998 and is secured by various accounts receivable,
inventory and equipment. The amount outstanding under the facility bears
interest at prime plus 1 1/4% (9.5% at March 31, 1998). Availability
under this credit facility is limited by specified percentages of current
trade receivables and on-hand inventories. On March 27, 1997, the Company
established a second line of credit of up to $1,000,000 which also
matures in August 1998, bears interest at prime plus 1.0% (9.25% at March
31, 1998) and is secured by certain accounts receivable. Availability
under this credit facility is limited by specified percentages of certain
international trade accounts receivable. As of March 31, 1998, the
availability under these lines of credit was $3,087,000.
(d) On November 13, 1996, the Company borrowed $2,460,000 through the
issuance of Tax-Exempt Industrial Development Revenue Bonds, Series 1996
by the Counties of Warren and Washington, New York Industrial Development
Agency. These bonds mature on November 1, 2004 and require sinking fund
payments of $20,833 per month beginning November 1997. The bonds bear
interest at a floating rate which is adjusted weekly based on the
remarketing agent's ability to re-market the bonds at par. As of March
31, 1998, the interest rate on the bonds was 3.65%. The bonds are credit
enhanced through a letter of credit issued by the Parent's primary lender
and, in addition
F - 46
<PAGE> 149
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
to interest on the bonds, the Company pays its primary lender an annual
letter of credit fee equal to 1.50% of the outstanding balance of the
letter of credit, which was $2,497,000 at March 31, 1998.
(e) In April 1990, the Company issued $7,000,000 of 14% senior subordinated
notes, interest payable semi-annually. On June 28, 1996, the Company and
the lender agreed to extend the repayment terms of the notes to include
payments of $3,500,000 on each of April 15, 1997 and April 15, 1998. The
amount due on April 15, 1997 was prepaid by the Company in two
installments of $2,800,000 and $700,000 on November 13, 1996 and March
27, 1997, respectively. On March 27, 1997, the Company also prepaid
$600,000 of the amount due on April 15, 1998. The notes were repaid in
full during fiscal 1998.
On June 28, 1996, the Parent and the lender also exchanged warrants held
by the lender to purchase 20% of the Company's common stock for (i) a
two-year, non-interest bearing, promissory note for $200,000 (the "new
note") due April 15, 1998 and (ii) 200,000 shares of the Parent's common
stock (the "new common stock"). The new note was repaid in full on March
27, 1997. The new common stock contains a guaranty which requires the
issuance of additional shares to the lender if the market price of the
Parent's common stock does not exceed $15.00 per share by April 1998. As
of March 31, 1998, the market price of the Parent's common stock was
$5.69.
At March 31, 1996, prior to closing of the exchange agreement, the
warrants held by the lender were valued at $1,642,000. Prior to the
exchange, changes in the value of the warrants based upon results of
operations and financial position of the Company were charged or credited
to interest expense.
7. INCOME TAXES
Income taxes are summarized as follows ($000's):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current tax expense (benefit):
Federal $ 710 $ 993 $ 920
State 35 100 (41)
------- ------- -------
745 1,093 879
Deferred tax expense (benefit) (233) (71) (12)
------- ------- -------
$ 512 $ 1,022 $ 867
======= ======= =======
</TABLE>
F - 47
<PAGE> 150
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
Net deferred tax (liabilities) assets are comprised of the following at
March 31, 1998 and 1997 ($000's):
<TABLE>
<CAPTION>
CURRENT
1998 1997
<S> <C> <C>
Accruals $ 156 $ 133
Valuation reserves 164 204
----- -----
$ 320 $ 337
----- -----
NON-CURRENT
1998 1997
Depreciation $(466) $(296)
Other, net (288) (688)
Tax credits 208 188
----- -----
$(546) $(796)
----- -----
</TABLE>
The Company had $152,000 in research and development tax credits at March
31, 1998, which begin to expire in 2005.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax
rate to pretax income as a result of the following ($000's):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Provision at statutory rate $ 443 $ 840 $ 678
Effect of permanent items 152 176 183
Other (83) 6 6
------ ------ ------
Provision for income taxes $ 512 $1,022 $ 867
====== ====== ======
</TABLE>
8. NON-RECURRING CHARGES
The statement of income for fiscal 1998 reflects certain non-recurring
charges totalling $672,000. Of these charges, $531,000 related to
severance costs for U.S. work force reductions implemented in
anticipation of operating synergies with the Parent's acquisition of
Hornschuch and $141,000 related to print tooling redundancies between the
two operations.
F - 48
<PAGE> 151
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings, the ultimate
resolution of which, in the opinion of management, will not have a
materially adverse impact on the financial condition, results of
operations or cash flows of the Company.
10. BUSINESS AND CREDIT CONCENTRATIONS
Prior to the acquisition of the Decorative Coverings Group (see Note 13),
the Company's primary customer was Rubbermaid, Inc., which accounted for
84%, 89% and 90% of net sales in fiscal 1998, 1997 and 1996,
respectively. Accounts receivable from Rubbermaid at March 31, 1998 and
1997 were $4,279,000 and $3,115,000, respectively. The Company estimates
an allowance for doubtful accounts based upon the credit worthiness of
its customers as well as general economic conditions. Consequently, an
adverse change in these factors could affect the Company's estimate.
11. RELATED PARTY TRANSACTIONS
During fiscal 1998, 1997 and 1996, the Company paid management fees to
its Parent of approximately $800,000 which is included in selling,
general and administrative expenses on the statement of income. These
fees relate to various operating and management services including
centralized cash management.
The Due from affiliate represents the net intercompany transactions
between the Company, it's Parent and the Parent's German subsidiary. As
more fully described in Note 6, the Company borrowed $18,000,000 from a
Pension Fund on October 1, 1997 to assist the Parent in financing the
acquisition of Hornschuch. The funds were loaned to the Parent with
$15,100,000 being used to acquire shares of Hornschuch and $2,900,000 of
the remaining funds being used to retire certain indebtedness. The debt
was issued with warrants to purchase shares of the Parent's common stock
at an exercise price of $5.00 per share. The fair value of the warrant as
of the date of issuance approximated $818,000, which was accounted for as
debt discount and an increase to additional paid in capital. No interest
is charged by the Company on the outstanding balance and the amount due
has no definitive repayment schedule. The average balance due from
affiliates was $10,644,000, $3,577,000 and $4,199,000 at March 31, 1998,
1997 and 1996, respectively. The Parent's sources of income are limited
to the management fees received from the Company and the dividends, if
any, that it receives from its foreign subsidiaries.
F - 49
<PAGE> 152
DECORA, INCORPORATED
(a wholly-owned subsidiary of Decora Industries, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
12. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and liabilities, exclusive of acquisitions and
dispositions of subsidiaries, were as follows ($000's):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
(Increase) decrease in accounts receivable $ 231 $(2,017) $(1,800)
(Increase) decrease in inventory (715) 564 (1,129)
(Increase) decrease in other assets (155) 106 621
Increase (decrease) in accounts payable 1,250 (159) (673)
Increase (decrease) in accrued liabilities 1,272 (106) 99
------- ------- -------
$ 1,883 $(1,612) $(2,882)
======= ======= =======
Supplemental cash flow information is as follows ($000's):
Cash paid during the year for interest $ 1,551 $ 1,816 $ 2,001
======= ======= =======
Cash paid during the year for
income taxes $ 184 $ 194 $ 45
======= ======= =======
</TABLE>
During fiscal 1997, 200,000 shares of the Parent's common stock and notes
payable in the amount of $874,000 were issued upon the conversion of
$1,642,000 of warrants in subsidiary.
13. SUBSEQUENT EVENTS
On April 29, 1998, the Company acquired (at a cost of approximately
$69,000,000 which includes closing costs) certain assets, including
trademarks (including the Con-Tact trademark) and tradenames, of
Rubbermaid's Decorative Coverings Group ("DCG") and refinanced certain
debt (aggregating approximately $27,000,000). These transactions were
funded with a bond offering by the Parent of $112,750,000 principal
amount, 11%, secured notes due in May 2005 and a loan of $10 million from
Hornschuch's existing credit facility. In securing the loan, the Parent
has pledged 100% of the Company's stock as collateral against the bonds.
F - 50
<PAGE> 153
CONSOLIDATED BALANCE SHEET OF
KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEISSBACH
AS OF SEPTEMBER 30, 1997
(GERMAN MARKS, IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
Unaudited
-------------------
TDM TDM
<S> <C> <C>
A. FIXED ASSETS
I. Intangible assets
Licences, trademarks and patents 234
II. Tangible assets
1. Land and buildings 6,341
2. Technical equipment and machinery 25,862
3. Other equipment, office furniture and equipment 6,355
4. Assets under construction 1,763
------
40,321
III. Financial assets
Shares in affiliated companies 80
B. CURRENT ASSETS
I. Inventories
1. Raw materials and supplies 5,123
2. Work in process 4,920
3. Finished goods 27,146
------
37,189
II. Receivables and other current assets
1. Trade receivables 33,527
2. Due from affiliated companies 3,085
3. Other current assets 1,488
------
38,100
III. Marketable securities
Shares in affiliated companies 50
IV. Cash and cash equivalents 1,564
C. PREPAID EXPENSES
1. Debt discount 8
2. Other 749
------
757
-------
118,295
=======
</TABLE>
F - 51
<PAGE> 154
CONSOLIDATED BALANCE SHEET OF
KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEISSBACH
AS OF SEPTEMBER 30, 1997
(GERMAN MARKS, IN THOUSANDS)
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
Unaudited
--------------------
TDM TDM
<S> <C> <C>
A. SHAREHOLDERS' EQUITY
I. Capital stock 30,800
II. Additional paid in capital 4,400
III. Revenue reserves 3,024
IV. Accumulated deficit (1,447)
------
36,777
B. ACCRUALS
1. Accruals for pensions 11,150
2. Accrued taxes 4
3. Other accruals 23,046
------
34,200
C. LIABILITIES
1. Liabilities to banks 32,895
2. Advance payments received 303
3. Trade payables 8,913
4. Amounts due to affiliated companies --
5. Other liabilities 5,207
------
47,318
D. DEFERRED INCOME --
118,295
=======
</TABLE>
F - 52
<PAGE> 155
CONSOLIDATED PROFIT AND LOSS ACCOUNT OF
KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEISSBACH
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(GERMAN MARKS, IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
---------------------------------------------------------
TDM TDM TDM TDM
<S> <C> <C> <C> <C>
Net sales 155,021 153,885
Increase (decrease) in finished
goods and work in process 103 (1,650)
Other capitalized labor, overhead, and material 234 153
Other operating income 3,023 158,381 1,244 153,632
-------- --------
Material cost 69,611 69,175
Personnel cost 43,948 45,540
Depreciation expense 8,111 8,760
Other operating expenses 30,416 30,293
Interest expense 2,237 2,627
-------- --------
Results of ordinary income (loss) 4,058 (2,763)
Taxes on income 113 38
Other taxes 374 487 591 629
-------- -------- -------- --------
3,571 (3,392)
======== ========
</TABLE>
F - 53
<PAGE> 156
KONRAD HORNSCHUCH GROUP ACCOUNTS
MEASUREMENT OF MATERIAL VARIATIONS IN ACCOUNTING
METHODS USED UNDER GERMAN GAAP VERSUS U.S. GAAP
ON BALANCE SHEET ACCOUNTS
AT SEPTEMBER 30, 1997
(Unaudited)
(GERMAN MARKS, IN THOUSANDS)
<TABLE>
<CAPTION>
DIFFERENCE
GERMAN GAAP U.S. INCREASE/
AMOUNT GAAP AMOUNT (DECREASE)
----------- ----------- ----------
<S> <C> <C> <C>
Asset affected:
ITEM 1 - Deferred tax asset 0 8,773 8,773
ITEM 2 - Intangible asset 0 11,822 11,822
------- ------- -------
Total assets affected 0 20,595 20,595
------- ------- -------
Liabilities affected:
ITEM 2 - Pension obligation 12,037 27,693 15,656
ITEM 3 - Accrued expenses - repair and
maintenance 600 0 (600)
ITEM 4 - Accrued expenses - restructuring
charges 2,757 1,157 (1,600)
------- ------- -------
Total liabilities affected 15,394 28,850 13,456
------- ------- -------
Net equity 7,139
=======
</TABLE>
F - 54
<PAGE> 157
KONRAD HORNSCHUCH GROUP ACCOUNTS
MEASUREMENT OF MATERIAL VARIATIONS IN ACCOUNTING
METHODS USED IN COMPUTING NET INCOME UNDER GERMAN
GAAP VERSUS U.S. GAAP FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(GERMAN MARKS, IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Net income (loss) as reported in the unaudited financial
statements of Konrad Hornschuch under German GAAP 3,571 (3,392)
Income (expense):
ITEM 1 - Differences in income tax provision (assumes initial
implementation of FAS 109 in 1994 and
an effective tax rate of 43.8%) (710) 2,186
ITEM 2 - Differences in pension expense as calculated
under FAS 87 of U.S. GAAP versus German
GAAP (2,065) (1,511)
------ ------
Net income (loss) as reported in the unaudited financial
statements of Konrad Hornschuch under U.S. GAAP 796 (2,717)
====== ======
</TABLE>
F - 55
<PAGE> 158
KONRAD HORNSCHUCH GROUP ACCOUNTS
QUANTITATIVE RECONCILIATION OF FINANCIAL STATEMENTS
PREPARED ON A COMPREHENSIVE BASIS OTHER THAN U.S. GAAP
Item 1 - Under U.S. GAAP - SFAS NO. 109 - "Accounting for Income Taxes" - a
deferred tax asset or liability is determined based on the difference between
the financial reporting and the tax basis of the asset or liability tax effected
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Included in the tax effects is the recognition of a
deferred tax asset for German net operating loss carryforwards which have an
unlimited life under German tax law. Considering the unlimited NOL life and the
earnings potential of the Company, the deferred tax asset determined in
accordance with SFAS 109 has been calculated, as well as the impact on the
provision for income taxes and is shown as a reconciling item between German
GAAP and U.S. GAAP.
Item 2 - Under German GAAP, the Company has two pension liabilities, one
recorded and one unrecorded. In addition, the German GAAP actuarial calculation
does not consider anticipated salary increases or cost of living increases for
pension payments. For German GAAP purposes, both pension liabilities are
calculated using a statutorily mandated 6% interest rate to present value the
pension liabilities. For U.S. GAAP purposes, both pension liabilities have been
calculated in accordance with SFAS No. 87 - "Employer Accounting for Pensions"
for each of the periods presented and an appropriate U.S. GAAP pension expense
was recognized for each year presented. The German requirements are funded on a
cash basis, therefore no plan assets exist. In accordance with SFAS No. 87, an
additional minimum liability for the unfunded accumulated benefit obligation has
also been recognized as a liability. In addition, an intangible asset equal to
the amount of the unamortized transition obligation has been recognized in
accordance with SFAS 87. The differences between German GAAP and U.S.
GAAP valuations at September 30, 1997 and for the nine months then ended
have been reflected.
Item 3 - Under U.S. GAAP, repair and maintenance costs are expensed as incurred,
while under German GAAP, a liability can be established for future repair and
maintenance costs. Accordingly, the differences between German GAAP and U.S.
GAAP at September 30, 1997 have been reflected. There were no differences in
expense between German GAAP and U.S. GAAP for the nine months ended
September 30, 1997.
Item 4 - Under U.S. GAAP, restructuring charges are recognized in accordance
with EITF 94-3. Under German GAAP, the restructuring charge, which was recorded
in 1996, includes an employee reduction plan plus accruals relative to future
consulting fees to reengineer/implement new automated accounting and
administrative technology. Under U.S. GAAP, these consulting fees cannot be
accrued as they benefit future periods. Accordingly, the differences between
German GAAP and U.S. GAAP for accrued restructuring charges at each balance date
have been reflected.
F - 56
<PAGE> 159
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma condensed consolidated statement of
operations for the fiscal year ended March 31, 1998 is based upon the individual
consolidated statements of operations of the Company and Hornschuch and give
effect to the Hornschuch Acquisition as if it had occurred on April 1, 1997.
The Company has accounted for the Hornschuch Acquisition using the
purchase method of accounting under which tangible and identifiable intangible
assets acquired and liabilities assumed are recorded at their respective fair
values. Adjustments to the unaudited pro forma condensed consolidated statement
of operations include such adjustments that are directly attributable to the
Hornschuch Acquisition and which are expected to have a continuing impact on the
Company. Allocations of the purchase price in the Hornschuch Acquisition have
been determined based on estimates of fair value and, therefore, are subject to
change. Differences between the amounts included herein and the final
allocations are not expected to be material.
This unaudited pro forma condensed consolidated statement of operations
is not necessarily indicative of the results of operations which would have been
attained had the Hornschuch Acquisition been consummated on April 1, 1997 or
which may be attained in the future. Such statement should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements included
herein.
F-57
<PAGE> 160
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Hornschuch for
the Six Months
The Company for Ended
the Year Ended September 30, Pro Forma Pro Forma
March 31, 1998(a) 1997 Adjustments Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ......................... $ 98,407 $ 59,791 $ 158,198
Cost of goods sold ................ 68,220 44,111 $ 137(b) 111,929
(539)(c)
--------- --------- --------- ---------
Gross profit ...................... 30,187 15,680 402 46,269
Selling, general and administrative 17,677 14,211 68(b) 32,170
expenses ...................... 214(d)
Non-recurring charges ............. 1,461 -- -- 1,461
--------- --------- --------- ---------
Operating income .................. 11,049 1,469 120 12,638
Interest expense .................. 3,829 848 1,692(e) 6,369
--------- --------- --------- ---------
Income before income taxes and
minority interest ............. 7,220 621 (1,572) 6,269
Income tax provision .............. 3,278 330 (827)(f) 2,781
Minority interest in earnings of
subsidiary .................... 1,212 -- 77(g) 1,289
--------- --------- --------- ---------
Net income ........................ $ 2,730 $ 291 $ (822) $ 2,199
========= ========= ========= =========
</TABLE>
- -------------------
(a) The results of operations of Hornschuch are included in the results of
the Company since the Hornschuch Acquisition on October 1, 1997. During
the three months ended March 31, 1997, Hornschuch's net sales, operating
income and net income were $30,277, $773 and $173, respectively. Such
amounts have not been included in the pro forma information.
(b) Reflects the estimated increase in depreciation expense based on the
step-up in basis of property and equipment acquired.
(c) The six months ended September 30, 1997 for Hornschuch reflects an
adjustment to pension expense to recognize amortization of an intangible
pension asset. Effective with the Hornschuch Acquisition, the intangible
asset was replaced in purchase accounting. This adjustment reflects the
reversal of the charge to cost of sales for the amortization of the
pension asset.
(d) Reflects the amortization of intangibles including goodwill over an
estimated life of 40 years and an agreement not to compete over the
contract life of four years.
(e) Reflects interest expense on indebtedness and amortization of related
fees and expenses incurred in connection with the Hornschuch
Acquisition.
(f) Reflects the estimated income tax effect of the pro forma adjustments.
(g) Reflects the minority interest in Hornschuch's earnings.
F-58
<PAGE> 161
GERMAN OPINION
The consolidated financial statements based on the financial statements of the
parent company KHAG to 31 December 1996 have been examined by us and we give our
unqualified opinion thereon. The financial statements of foreign affiliated
companies have been examined by local auditors and they have also given their
unqualified opinion thereon.
We verify that this report complies with the regulations according to ss. 321
(1) HGB and finally confirm that the consolidated financial statements of Konrad
Hornschuch Aktiengesellschaft, WeiBbach, to 31 December 1996 and the group
management report for the financial year 1996 comply with the legal regulations.
On the basis of our examination, we give our unqualified opinion as follows:
"The consolidated financial statements, which we have audited in
accordance with professional standards, comply with the legal
regulations. The consolidated financial statements present, in
compliance with required accounting principles, a true and fair view of
the net worth, financial position and results of the group. The group
management report is in agreement with the consolidated financial
statements."
Stuttgart, 2 April 1997
Dr. Ebner, Dr.Stolz und Partner GmbH
Wirtschaftsprufungsgesellschaft,Weissbach
Steuerberatungsgesellschaft
UNITED STATES OPINION
In our opinion, the consolidated financial statements of Konrad Hornschuch AG
present fairly, in all material respects, the financial position of the group at
31st December 1996 and 1995 and the results of its operations for each of the
two years in the period ended 31st December 1996 in conformity with accounting
principles generally accepted in Germany.
Accounting principles generally accepted in Germany vary in certain significant
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of consolidated
net income for each of the two years in the period ended 31st December 1996 and
consolidated shareholders' equity at 31st December 1996 and 1995 as shown in
the summary of differences between German and U.S. generally accepted accounting
principles.
Stuttgart, 11 December 1997
Dr. Ebner, Dr.Stolz und Partner GmbH
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
F - 59
<PAGE> 162
CONSOLIDATED BALANCE SHEET OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEIBBACH,
AS OF 31 DECEMBER 1996
<TABLE>
<CAPTION>
A S S E T S As of As of
December 31, December 31,
1996 1995
--------------------------------------------------
DM DM TDM
<S> <C> <C> <C>
A. FIXED ASSETS
I. Intangible Assets
Licences, trademarks and patents 299.107 197
II. Tangible Assets
1. Land and buildings 6.340.823 6.475
2. Technical equipment and machinery 33.525.077 34.934
3. Other equipment, office
furniture and equipment 6.237.569 6.652
4. Assets under construction 200.806 292
---------- -------
46.304.275 48.353
III. Financial Assets
Shares in affiliated companies 80.001 80
B. CURRENT ASSETS
I. Inventories
1. Raw materials and supplies 5.275.366 6.407
2. Work in process 4.358.104 4.106
3. Finished goods 26.845.904 28.561
---------- -------
36.479.374 39.074
II. Receivables and other
current assets
1. Trade receivables 31.138.688 30.297
2. Due from affiliated
companies 2.375.872 3.116
3. Other current assets 2.474.673 2.769
---------- -------
35.989.233 36.182
III. Marketable securities
Shares in affiliated companies 50.000 229
IV. Cash and cash equivalents 673.618 718
C. PREPAID EXPENSES
1. Debt discount 13.500 37
2. Other 1.153.763 898
---------- -------
1.167.263 935
----------- -------
121.042.871 125.768
=========== =======
</TABLE>
F - 60
<PAGE> 163
Enclosure 1
<TABLE>
<CAPTION>
L I A B I L I T I E S A N D E Q U I T Y As of As of
December 31, December 31,
1996 1995
---------------------------------------------------
DM DM TDM
<S> <C> <C> <C>
A. SHAREHOLDERS' EQUITY
I. Capital Stock 30.800.000 30.800
II. Additional paid in capital 4.400.000 4.400
III. Revenue Reserves 2.240.993 1.244
IV. Accumulated deficit -3.107.454 -2.050
---------- -------
34.333.539 34.394
B. ACCRUALS
1. Accruals for pensions 11.149.716 11.261
2. Accrued taxes 19.331 28
3. Other accruals 16.192.682 8.070
---------- -------
27.361.729 19.359
C. LIABILITIES
1. Liabilities to banks 46.145.714 56.332
2. Advance payments
received 125.457 183
3. Trade payables 8.224.028 9.664
4. Amounts due to
affiliated companies 11.284 227
5. Other liabilities 4.841.120 5.607
---------- -------
59.347.603 72.013
D. DEFERRED INCOME 0 2
----------- -------
121.042.871 125 768
=========== =======
</TABLE>
F - 61
<PAGE> 164
Enclosure 2
CONSOLIDATED PROFIT AND LOSS ACCOUNT OF KONRAD-HORNSCHUCH AKTIENGESELLSCHAFT,
WEIBBACH, FOR THE PERIOD OF 1 JANUARY TO 31 DECEMBER 1996
<TABLE>
<CAPTION>
1996 1995
DM DM TDM TDM
---------------------------------------------------
<S> <C> <C> <C> <C>
1. SALES 202.044.414 189.163
2. Decrease in finished goods and work in process - 2.981.808 - 896
3. Other capitalized labor, overheads and material 332.139 333
4. Other operating income 2.909.993 202.304.738 5.261 193.861
----------- -------
5. Material costs
a) Raw materials, supplies and purchased goods 81.706.517 86.118
b) Purchased services 3.805.427 85.511.944 5.220 91.338
----------- -------
6. Personnel costs
a) Wages and salaries 45.117.026 47.354
b) Social security and pension 10.767.142 55.884.168 10.800 58.154
----------- -------
7. Depreciation on intangible and tangible assets 10.772.854 11.305
8. Other operating expenses 46.977.947 38.084
----------- -------
3.157.825 - 5.020
9. Income from profit and loss transfer agreement 1.989 0
10. Other interest and similar income 227.048 420
- -. Write-down of shares in affiliated companies 0 29
- -. Expenses from loss absorption 0 212
11. Interest and similar expenses 3.468.742 - 3.239.705 3.684 - 3.505
----------- ----------- ------- -------
12. RESULTS OF ORDINARY OPERATIONS - 81.880 - 8.525
13. Taxes on income 128.404 227
14. Other taxes 548.123 676.527 743 970
----------- ----------- ------- -------
15. NET LOSS OF THE YEAR - 758.407 - 9.495
16. (Accumulated deficit)/retained earnings - 2.049.511 617
beginning of year
17. Withdrawal from revenue reserves 979.176 6.973
18. Earnings appropriated to revenue reserves 1.278.712 145
----------- -------
19. ACCUMULATED DEFICIT - 3.107.454 - 2.050
=========== =======
</TABLE>
F - 62
<PAGE> 165
Enclosure 3
DEVELOPMENT CONSOLIDATED FIXED ASSETS OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT,
WEIBBACH, IN THE FISCAL YEAR 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Costs
- ----------------------------------------------------------------------------------------------
As of Differences Additions Transfers Disposals As of
1.1.1996 in currency 31.12.1996
- ----------------------------------------------------------------------------------------------
DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C>
I. INTANGIBLE ASSETS
Licences, trademarks
and patents 4.864.835 455 201.478 50.279 3.868 5.113.179
- -----------------------------------------------------------------------------------------------
II. TANGIBLE ASSETS
1. Land and
buildings 23.832.200 0 468.429 0 197.671 24.102.958
- -----------------------------------------------------------------------------------------------
2. Technical equipment
and machinery 136.765.328 0 6.261.809 260.974 5.493.449 137.794.662
- -----------------------------------------------------------------------------------------------
3. Other equipment,
office furniture
and equipment 26.888.242 128.817 1.895.492 - 19.151 813.183 28.080.217
- -----------------------------------------------------------------------------------------------
4. Assets under
construction 291.718 384 200.806 - 292.102 0 200.806
- -----------------------------------------------------------------------------------------------
187.777.488 129.201 8.826.536 - 50.279 6.504.303 190.178.643
- -----------------------------------------------------------------------------------------------
III. FINANCIAL ASSETS
Shares in affiliated
Companies 328.702 0 0 0 28.700 300.002
- -----------------------------------------------------------------------------------------------
192.971.025 129.656 9.028.014 0 6.536.871 195.591.824
- -----------------------------------------------------------------------------------------------
Licences, trademarks
and patents 4.864.835 455 201.478 50.279 3.868 5.113.179
- -----------------------------------------------------------------------------------------------
II. TANGIBLE ASSETS
1. Land and buildings 23.832.200 0 468.429 0 197.671 24.102.958
- -----------------------------------------------------------------------------------------------
2. Technical equipment
and machinery 136.765.328 0 6.261.809 260.974 5.493.449 137.794.662
- -----------------------------------------------------------------------------------------------
3. Other equipment,
office furniture
and equipment 26.888.242 128.817 1.895.492 - 19.151 813.183 28.080.217
- -----------------------------------------------------------------------------------------------
4. Assets under
construction 291.718 384 200.806 - 292.102 0 200.806
- -----------------------------------------------------------------------------------------------
187.777.488 129.201 8.826.536 - 50.279 6.504.303 190.178.643
- -----------------------------------------------------------------------------------------------
III. FINANCIAL ASSETS
Shares in affiliated
companies 328.702 0 0 0 28.700 300.002
- -----------------------------------------------------------------------------------------------
192.971.025 129.656 9.028.014 0 6.536.871 195.591.824
- -----------------------------------------------------------------------------------------------
</TABLE>
F - 63
<PAGE> 166
Enclosure 3
DEVELOPMENT CONSOLIDATED FIXED ASSETS OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT,
WEIBBACH, IN THE FISCAL YEAR 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net book
Accumulated depreciation value
- ---------------------------------------------------------------------------------------------------------------------------
As of Differences As of As of As of
1.1.1996 in currency Additions Transfers Disposals 31.12.1996 31.12.1996 31.12.1996
- ---------------------------------------------------------------------------------------------------------------------------
DM DM DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I. INTANGIBLE ASSETS
Licences, trademarks
and patents 4.667.852 170 130.912 18.085 2.947 4.814.072 299.107 196.983
- ---------------------------------------------------------------------------------------------------------------------------
II. TANGIBLE ASSETS
1. Land and buildings 17.357.412 0 545.538 0 140.815 17.762.135 6.340.823 6.474.788
- ---------------------------------------------------------------------------------------------------------------------------
2. Technical equipment
and machinery 101.831.602 0 7.892.660 0 5.454.677 104.269.585 33.525.077 34.933.726
- ---------------------------------------------------------------------------------------------------------------------------
3. Other equipment,
office furniture
and equipment 20.236.379 88.620 2.203.744 - 18.085 668.010 21.842.648 6.237.569 6.651.863
- ---------------------------------------------------------------------------------------------------------------------------
4. Assets under
construction 0 0 0 0 0 0 200.806 291.718
- ---------------------------------------------------------------------------------------------------------------------------
139.425.393 88.620 10.641.942 - 18.085 6.263.502 143.874.368 46.304.275 48.352.095
- ---------------------------------------------------------------------------------------------------------------------------
III. FINANCIAL ASSETS
Shares in affiliated
Companies 248.700 0 0 0 28.699 220.001 80.001 80.002
- ---------------------------------------------------------------------------------------------------------------------------
144.341.945 88.790 10.772.854 0 6.295.148 148.908.441 46.683.383 48.629.080
- ---------------------------------------------------------------------------------------------------------------------------
Licences, trademarks
and patents 4.667.852 170 130.912 18.085 2.947 4.814.072 299.107 196.983
- ---------------------------------------------------------------------------------------------------------------------------
II. TANGIBLE ASSETS
1. Land and buildings 17.357.412 0 545.538 0 140.815 17.762.135 6.340.823 6.474.788
- ---------------------------------------------------------------------------------------------------------------------------
2. Technical equipment
and machinery 101.831.602 0 7.892.660 0 5.454.677 104.269.585 33.525.077 34.933.726
- ---------------------------------------------------------------------------------------------------------------------------
3. Other equipment,
office furniture
and equipment 20.236.379 88.620 2.203.744 - 18.085 668.010 21.842.648 6.237.569 6.651.863
- ---------------------------------------------------------------------------------------------------------------------------
4. Assets under
construction 0 0 0 0 0 0 200.806 291.718
- ---------------------------------------------------------------------------------------------------------------------------
139.425.393 88.620 10.641.942 - 18.085 6.263.502 143.874.368 46.304.275 48.352.095
- ---------------------------------------------------------------------------------------------------------------------------
III. FINANCIAL ASSETS
Shares in affiliated
companies 248.700 0 0 0 28.699 220.001 80.001 80.002
- ---------------------------------------------------------------------------------------------------------------------------
144.341.945 88.790 10.772.854 0 6.295.148 148.908.441 46.683.383 48.629.080
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
F - 64
<PAGE> 167
Enclosure 5
SCHEDULE OF INVESTMENTS OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEIBBACH,
AS OF 31 DECEMBER 1996
(Amounts in 1.000 units local currency)
<TABLE>
<CAPTION>
Share in authorized Result
Name and domicile capital share capital Net assets of the year
of the company Currency % 31.12.1996 31.12.1996 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Affiliated companies
1. Consolidated companies
Hornschuch Italia S.R.L.,
Rho/Italy ITL 100 1,000,000 1,055,000 - 662,000(1)
Hornschuch U.K. Limited,
Northampton/Great Britain GBP 100 50 9 - 21(1)
Hornschuch CS spol. s.r.o.,
Kraluv Dvur/Czech Republic
CZK 100 400 - 905 - 3,514(1)
2. Non-consolidated
companies
Verwaltungsgesellschaft
WeiBbach Gesellschaft
mit be-schrankter Haftung,
WeiBbach DM 100 50 50 (2)(2)
Spinnereien und Webereien
im Wiesental Gesellschaft
mit beschrankter Haftung,
Lorrach DM 100 2,500 2,500 (1,785)(3)
Hornschuch (Suisse) GmbH,
Lenzburg/Suisse CHF 100 50 99 7
</TABLE>
An inactive foreign participation was not listed because of the little
importance.
- --------------------
(1) according to commercial balance sheet II
(2) Konrad Hornschuch Aktiengesellschaft maintains a profit pooling
agreement with this subsidiary whereby profits or losses of the
subsidiary are consolidated with the parent company both for income
tax and trade tax filing purposes. No tax impact is included in the
results at the subsidiary level. The result of the financial year
1995 of TDM 2 was transferred to Konrad Hornschuch
Akt;engesellschaft. This result includes the profit of TDM 1,765 of
Spinnerelen und Webereien im Wiesental GmbH.
(3) Verwaltungsgesellschaft WeiBbach GmbH maintains a profit
pooling agreement with this subsidiary whereby profits and losses of
the subsidiary are consolidated with the parent company. No tax
impact is included in the results at the subsidiary level. The
profit of TDM 1,785 was transferred to Verwaltungsgeselischaft
WeiBbach GmbH.
F - 65
<PAGE> 168
APPENDIX OF THE PUBLIC COMPANY AND THE GROUP
KONRAD HORNSCHUCH AG, WEIBBACH,
FOR THE FISCAL YEAR 1996
The individual and the consolidated financial statements of Konrad Hornschuch AG
are explained together below; unless otherwise stated, these explanations apply
to both these financial statements.
To improve the overview, the amounts of the balance sheet and the profit and
loss account are stated in full DM.
I. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements of Konrad Hornschuch AG and the consolidated financial
statements have been drawn up according to the regulations of the commercial
code or the company law.
For the profit and loss accounts, the cost-summary method has been used
consistently.
The remarks which have to be made, according to the legal regulations, for the
items of the profit and loss account as well as extensive explanations are
stated in the summarized appendix for the Konrad Hornschuch AG and the group.
II. CONSOLIDATED COMPANIES
The consolidated financial statements include, apart from Konrad Hornschuch AG,
the marketing companies in Italy, Great Britain and Czech Republic:
Hornschuch Italia S.R.L., Rho/Italy
Hornschuch U.K. Limited, Northampton/Great Britain
Hornschuch CS spol. s r.o., Kraluv Dvur/Czech Republic
For all companies, Konrad Hornschuch AG holds 100 % of the capital shares; a
year end closing date of 31 December is used for the group.
The group financial statements exclude an inactive foreign subsidiary as well as
the Hornschuch (Suisse) GmbH, according to ss. 296 Abs. 2 HGB because of their
secondary importance. Hornschuch (Suisse) GmbH, which has no individual
organization, provides for billing of deliveries to the Swiss customers.
In addition, the Verwaltungsgesellschaft WeiBbach Gesellschaft mit
beschrankter Haftung as well as its subsidiary Spinnereien und Webereien im
Wiesental GmbH have not been consolidated because their exclusive purpose is the
utilization of the no longer operational plant areas in Urbach and Lorrach (ss.
296 Abs. 1 Nr. 3 HGB).
The VICO AG and the Hornschuch France S.A.R.L. were liquidated during the fiscal
year. They have not been included in the consolidated financial statements, as
in the prior year.
F - 66
<PAGE> 169
III. CAPITAL CONSOLIDATION IN THE GROUP
The capital consolidation reflects cost method investment accounting.
Differences between the cost basis investment and the equity of the consolidated
subsidiary is recorded against retained earnings revenue reserve account:
<TABLE>
<CAPTION>
1996 1995
TDM TDM
---- ----
<S> <C> <C>
Active difference amounts 484 484
Passive difference amounts - 14 - 14
==== ====
Charged to the revenue reserves account 470 470
==== ====
</TABLE>
For the following consolidation entities, taking the equity value at the
beginning of the fiscal year, the date the entities were first included in the
consolidated financial statements was:
Hornschuch Italia S.R.L., Rho/Italy 1.1.1990
Hornschuch U.K. Limited, Northampton/Great Britain 1.1.1990
Hornschuch CS spol s r.o., Kraluv Dvur/Czech Republic 1.1.1993
IV. DEBT-, EXPENSE- AND PROFIT-CONSOLIDATION AS WELL AS INTERCOMPANY PROFIT
ELIMINATION IN THE GROUP
Receivables and liabilities as well as expense- and profit movements between the
included companies have been eliminated.
Intercompany profits have been eliminated.
V. FOREIGN CURRENCY TRANSLATION
The values of the annual financial statements of the foreign companies have been
converted with the spot rates of the balance sheet date into German Mark (DM):
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
---------- ----------
<S> <C> <C> <C>
1,000 ITL 1.0174 0.9045
1 GBP 2.6267 2.2135
100 CZK 5.69 5.37
</TABLE>
In the consolidation of the balance sheet and income statement accounts, the
differences resulting from the elimination of intercompany accounts have not
impacted operating results but are reflected in shareholders' equity, whereas
exchange rate differences resulting from the consolidation of intercompany
transactions are reflected in the income statement
F - 67
<PAGE> 170
VI. ACCOUNTING AND VALUATION METHODS
For the individual company financial statements and the consolidated financial
statements, the same accounting and valuation methods have been used which are
valid for corporations.
INTANGIBLE ASSETS
Purchased EDP-programs as well as licences and patents are capitalized at
acquisition cost and depreciated in a straight-line method over three to five
years.
TANGIBLE ASSETS
The tangible fixed assets are valued at acquisition or manufacturing cost minus
accumulated depreciation.
The straight-line depreciation for buildings is based on a useful life from 20
to 50 years.
An owner-occupied flat will be depreciated degressive according to ss. 7 Abs. 5
EStG.
For moveable tangible fixed assets, the depreciation is calculated according to
the straight-line method with a useful life of four to ten years which is usual
in the industry. For multi-shift operation depreciation rates are increased.
Additions to the moveable tangible fixed assets within the first half year are
depreciated at the full annual rate; those acquired during the second half of
the year at a half year rate (R 44 Abs. 2 Satz 3 EStR).
Low value intangible assets will be fully depreciated according to ss. 6 Abs. 2
EStG in the year of addition and will be shown as disposal in the analysis of
fixed assets.
FINANCIAL ASSETS
The shares in group companies are recorded at acquisition cost or at the lower
estimated fair value at the balance sheet date.
INVENTORIES
Raw materials and supplies as well as purchased trading stock are activated to
acquisition cost considering the lower of cost or market principle. For stock
with limited usability adequate reserves have been made.
Finished and unfinished goods are recorded at manufacturing cost but limited to
a maximum value which results from the principle of the loss free valuation.
In addition to the direct materials, factory and special production costs,
manufacturing costs also include the following optional items: prorated indirect
material costs, general and special production overheads as well as
depreciation.
Limited usability as well as low stock turnover have been considered by adequate
write-downs.
RECEIVABLES AND OTHER CURRENT ASSETS
For receivables and other current assets, identifiable individual risks have
been taken into account by valuation reserves.
For the general risk of credit as well as the expected discount deductions there
will be made a general allowance.
F - 68
<PAGE> 171
Receivables denominated in foreign currency have been valued at the rate of the
day the receivable was incurred or to the lower buying rate at the balance sheet
date. A long term receivable has been discounted.
The other receivables and assets are shown at nominal value.
SECURITIES, STOCKS AND BONDS
The shares in subsidiaries are recorded at acquisition cost.
PREPAID EXPENSES
The debt discounts included in the prepaid expenses will be depreciated
straight-line over the interest bearing period of the respective loans.
ACCRUALS
Accruals for pensions and similar obligations correspond to the actuarial going
concern value which has been determined on the basis of an interest rate of 6 %.
They have been built up with the possible extent according to ss. 6 a EStG.
The other accruals take into account all recognizable balance risks and
uncertain obligations and have been calculated according to reasonable business
judgments.
LIABILITIES
All liabilities are valued at the repayment amount, liabilities denominated in
foreign currency are valued at the rate on the day the liabilities were incurred
or at the higher offer rate on the balance sheet date.
VII. EXPLANATIONS TO THE INDIVIDUAL BALANCE SHEET ITEMS
FIXED ASSETS
The development of the fixed assets of the public company and the group which
are shown separately, are integral part of the appendix.
The capital expenditure of Konrad Hornschuch AG for intangible and tangible
assets amounts to DM 8.3 million (prior year: DM 9.5 million).
The main stress of the capital expenditures were for production and auxiliary
machinery as well as for equipment.
The list of investments will be deposited at the trade register of Schwabisch
Hall under HRB 167 K.
INVENTORIES
Devaluations for inventory risks which could occur because of period of storage,
reduced usability or fashion tendencies have been reflected in the inventory
valuation at the rate of DM 7.5 million (prior year: DM 6.9 million) for the
individual accounts and in the group at the rate of DM 7.7 million (prior year:
DM 7.1 million).
F - 69
<PAGE> 172
RECEIVABLES AND OTHER ASSETS
The receivables and other assets include receivables due within more than one
year up to the following amounts:
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG TDM
-----
<S> <C>
Trade receivables 680
Due from affiliated companies 2,783
Other current assets 408
=====
3,871
=====
GROUP 1,518
=====
</TABLE>
DUE FROM AFFILIATED COMPANIES
Receivables due from affiliated companies of TDM 1,228 result from normal trade
activities.
SECURITIES
The shares in the Verwaltungsgesellschaft WeiBbach GmbH are shown as
current assets consistent with prior year.
The difference concerns the disposal of VICO AG which was liquidated in the
fiscal year.
LIQUID ASSETS
The liquid assets include cash on hand and cash at banks.
PREPAID EXPENSES
The prepaid expenses contain, apart from debt discounts for loans, bonuses for
closed interest security business.
SUBSCRIBED CAPITAL
The capital stock of KONRAD HORNSCHUCH AG is divided into the following bearer
stock:
<TABLE>
<CAPTION>
Nominal value Number of
votes
DM DM
------------- -------
<S> <C> <C>
616,000 common stock each DM 50.00 30,800,000.00 616,000
</TABLE>
By the resolution of the ordinary general meeting on 20 June 1996, 4,000
preferred stock are converted into 4,000 common stock.
By the resolution of the ordinary general meeting on 20 June 1996, there exists
an approved capital at a rate of DM 10 million which can be used until 19 June
2001. This opportunity has not been used in the fiscal year.
CAPITAL RESERVES
Capital reserves include the premium of the capital increase in 1978.
F - 70
<PAGE> 173
REVENUE RESERVES
The CONSOLIDATED FINANCIAL STATEMENTS the legal reserve and other revenue
reserves are combined.
ACCRUALS
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG 31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Accruals for pensions 11,150 11,261
Tax accruals 0 8
Other accruals 14,542 7,633
------ -----
25,692 18,902
====== ======
GROUP 27,362 19,359
====== ======
</TABLE>
The accruals for pensions concern obligations from current pension services and
pension rights.
The pension reserves are based on the actuarial calculations of SCHITAG Ernst &
Young Deutsche Allgemeine Treuhand AG, Stuttgart, on the basis of probability
figures according to the guide table of Dr. Klaus Heubeck as well as an interest
rate of 6 %. Actuarial retirement age is the retirement age according to the
employment contract or, where early retirement is envisaged, the minimum
retirement age according to the statutory pension insurance.
The accruals for pensions correspond to the going concern value according to ss.
6 a EStG.
Other accruals contain mainly accruals for personnel expenditures (TDM 2,647),
warranties (TDM 1,301), outstanding invoices (TDM 739), customer credit
notes/bonuses/discounts (TDM 2,039), environmental obligations (TDM 2,050),
deferred maintenance (TDM 600) as well as accruals for measures implemented to
improve the efficiency of work in progress (TDM 3,300).
LIABILITIES
The liabilities to banks of KONRAD HORNSCHUCH AG are as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 26,463 23,573
Due within 1 - 5 years 15,994 30,207
Due over more than 5 years 1,575 775
====== ======
44,032 54,555
====== ======
</TABLE>
An amount of TDM 34,458 is secured through mortgage liens on the real estate of
KHAG in WeiBbach.
F - 71
<PAGE> 174
The other liabilities of KONRAD HORNSCHUCH AG are structured as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 3,878 3,778
Due within 1 - 5 years 587 1,443
===== =====
4,465 5,221
===== =====
</TABLE>
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Tax liabilities 443 637
Liabilities in respect of
social security 1,121 1,293
Liabilities to
employee welfare fund 1,799 2,243
Other liabilities 1,102 1,048
===== =====
4,465 5,221
===== =====
</TABLE>
The liabilities to banks in the GROUP are as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 28,577 25,350
Due within 1 - 5 years 15,994 30,207
Due over more than 5 years 1,575 775
====== ======
46,146 56,332
====== ======
</TABLE>
An amount of TDM 34,458 is secured through mortgage liens.
F - 72
<PAGE> 175
The other liabilities in the GROUP are structured as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 4,254 4,164
Due within 1 - 5 years 587 1,442
===== =====
4,841 5,606
===== =====
</TABLE>
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Tax liabilities 665 826
Liabilities in respect of
social security 1,213 1,426
Liabilities to
employee welfare fund 1,799 2,243
Other liabilities 1,164 1,111
===== =====
4,841 5,606
===== =====
</TABLE>
For the trade payable, the supplier retains the title of the goods until fully
paid for.
All other liabilities are due within one year.
VIII. CONTINGENT LIABILITIES AND OTHER OBLIGATIONS
The contingent liabilities and other financial obligations of KONRAD HORNSCHUCH
AG and the GROUP exist as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Contingent liabilities 421 1,681
Guarantee obligations 103 129
=== =====
524 1,810
=== =====
Thereof for affiliated companies 103 129
=== =====
</TABLE>
In addition financial obligations from lease contracts are:
<TABLE>
<CAPTION>
KHAG Konzern
TDM TDM
----- -------
<S> <C> <C>
Due within 1 year 1,648 2,009
Due within 1 - 5 years 3,232 4,253
Due over more than 5 years 0 475
===== =====
4,880 6,737
===== =====
</TABLE>
F - 73
<PAGE> 176
The purchase commitment for investment goods is within the framework of the
planning which has been released in 1997.
The deficit from the pension obligations of the employee welfare funds which
results as difference between the tax part value according to ss. 6 a EStG of
the promised services and the cash on hand amounts to about DM 13.4 million for
31 December 1996.
IX. EXPLANATIONS FOR THE PROFIT AND LOSS ACCOUNTS
SALES
The sales are spread at KONRAD HORNSCHUCH AG as follows:
Division in product areas
<TABLE>
<CAPTION>
1996 1995
million million
DM DM
------- -------
<S> <C> <C>
Fashion products 42 45
Technical products 55 51
Decorative products 93 83
=== ===
190 179
=== ===
</TABLE>
Division in regions
<TABLE>
<CAPTION>
1996 1995
million million
DM DM
------- -------
<S> <C> <C>
Federal Republic of Germany 102 107
Other Europe 65 50
Outside Europe 23 22
=== ===
190 179
=== ===
</TABLE>
GROUP sales are spread as follows:
Division in product areas
<TABLE>
<CAPTION>
1996 1995
million million
DM DM
------- -------
<S> <C> <C>
Fashion products 43 46
Technical products 55 51
Decorative products 104 92
=== ===
202 189
=== ===
</TABLE>
F - 74
<PAGE> 177
Division in regions
<TABLE>
<CAPTION>
1996 1995
million million
DM DM
------- -------
<S> <C> <C>
Federal Republic of Germany 102 107
Other Europe 76 59
Outside Europe 24 23
=== ===
202 189
=== ===
</TABLE>
OTHER OPERATING INCOME
The other operating income of KONRAD HORNSCHUCH AG include the following:
<TABLE>
<CAPTION>
1996 1995
TDM TDM
----- -----
<S> <C> <C>
Know-how 126 1,561
Exchange profit 367 315
Insurance indemnification 162 292
Further charged cost 165 163
Tax liable remunerations in kind 347 255
Others 386 1,355
Sale of fixed assets and adjustments of reserves 1,253 1,158
----- -----
2,806 5,099
===== =====
GROUP 2,910 5,261
===== =====
</TABLE>
MATERIALS COSTS
The material costs, related to the total product cost, reflects the decreases in
the raw material markets, and the general decrease in price levels.
PERSONNEL EXPENSES
<TABLE>
<CAPTION>
1996 1995
KONRAD HORNSCHUCH AG TDM TDM
------ ------
<S> <C> <C>
Wages and salaries 44,104 45,793
Social security 8,320 8,837
Pension costs 1,963 1,479
====== ======
54,387 56,109
====== ======
</TABLE>
<TABLE>
<CAPTION>
1996 1995
GROUP TDM TDM
------ ------
<S> <C> <C>
Wages and salaries 45,117 47,353
Social security 8,788 9,286
Pension costs 1,979 1,515
====== ======
55,884 58,154
====== ======
</TABLE>
F - 75
<PAGE> 178
OTHER OPERATING EXPENSES
The other operating expenses of KONRAD HORNSCHUCH AG include the following:
<TABLE>
<CAPTION>
1996 1995
TDM TDM
------ ------
<S> <C> <C>
Licences/commissions 2,121 2,676
Other selling expenses 14,705 14,275
Legal and professional fees 2,416 1,842
Other administrative expenses 2,127 2,079
Catastr.-/Work-/Environmental protection 2,308 1,567
Other maintainance/EDP-maintainance 5,383 4,228
Other expenses 6,491 7,449
Neutral expenses 5,852 953
------ ------
41,403 35,069
====== ======
GROUP 46,978 38,084
====== ======
</TABLE>
INCOME FROM PARTICIPATIONS
In the fiscal year 1996, KONRAD HORNSCHUCH AG has participation income of TDM 51
(prior year: TDM 139) from affiliated companies.
INCOME FROM PROFIT AND LOSS ABSORPTION
This income results from transfers based on profit pooling with affiliated
companies.
OTHER INTERESTS AND SIMILAR INCOME
At KONRAD HORNSCHUCH AG the income from affiliated companies have been realized
at a rate of TDM 460 (prior year: TDM 325).
DEPRECIATION ON FINANCIAL ASSETS
The disclosure relates to affiliated companies and includes investment write
down for the Italian subsidiary.
TAXES
Because of the negative result of the year and the loss carry forward from
previous fiscal years, no domestic income taxes arise. Amounts reflect the
balance from tax back-payments/tax refund for previous years and foreign
withholding taxes.
The other taxes are mainly related to the net asset-, trading capital-, land-
and automobile taxes which are not dependent on income.
INCOME RELATING TO OTHER PERIODS
The other operating income, social expenses, income from participation, taxes
from income and the other taxes include income relating to other periods of TDM
1.386.
EXPENSES RELATING TO OTHER PERIODS
The other operating expenses, wages and salaries and other taxes include
expenses relating to other periods of TDM 204.
F - 76
<PAGE> 179
X. OTHER NOTES
1. The total remunerations of the members of the board for the fiscal
year 1996 amount to DM 1,044,375.00 (group DM 1,044,375.00).
The remunerations of former board members and their surviving
dependents amount to DM 690,867.00 (GROUP DM 701,068.00).
For pension obligations with regard to former members of the board
and their surviving dependents DM 5,150,180.00 (GROUP DM
5,202,314.00) has been reserved.
2. The remunerations for the supervisory board for the fiscal year 1996
amount to DM 92,000.00 plus value added tax.
3. The members of the supervisory board and the management board are
listed on page 2 of the annual report.
The supervisory board of the company consists of nine members.
Appointed members of the supervisory board are:
Wilhelm Freiherr Haller von Hallerstein, Stuttgart (chairman),
Eberhard Christian Kunz, Nurtingen (first deputy chairman),
Dr. Wilhelm Dengler, Gschwend,
Dieter Maier, Stuttgart,
Helmut Menges, Welzheim,
Dr. Roland Schelling, Stuttgart,
and as representative of the employees:
Hans Roth, Hohebach (second deputy chairman), Willi Bobka,
WeiBbach, and Hans Fenzl, WeiBbach.
The administrative period of the supervisory board closes with the
end of the shareholders general meeting which decides above the
discharge for the fiscal year 1997.
The management board consists of two persons. Members of the board
are or have been, appointed by the supervisory board,
Hans-Georg Stahmer, Taunusstein (speaker), Dr. Roland
Schulze-Kadelbach, Flein (until 31 December 1996), and
Dr. Bernhard Muller, Saarbrucken (from 1. April 1997).
4. With the letter of 3 February 1984 the Kunz Holding GmbH & Co. KG,
Gschwend, has told according to ss. 20 Abs. 4 AktG that she has the
majority holding for Konrad Hornschuch AG.
To the majority shareholder Kunz Holding GmbH & Co. KG and the related
companies there existed only minor delivery- and service relations.
5. In the fiscal year KONRAD HORNSCHUCH AG has ordinarily employed:
<TABLE>
<CAPTION>
1996 1995
persons persons
------- -------
<S> <C> <C>
Salaried employees(*) 296 294
Payroll employee 453 446
Trainees 49 38
=== ===
798 778
=== ===
</TABLE>
F - 77
<PAGE> 180
The GROUP has employed:
<TABLE>
<CAPTION>
1996 1995
persons persons
------- -------
<S> <C> <C>
Salaried employees**) 324 327
Payroll employees 462 455
Trainees 49 38
=== ===
835 820
=== ===
</TABLE>
- -------------------
*) including members of the board
**) including members of the board and managers
6. Because of special tax depreciations in the previous fiscal years on
tangible fixed assets, the annual result is only insignificantly
influenced. Also the effects on future annual results are not
significant.
7. The annual financial statements of Konrad Hornschuch AG to 31
December 1996 which have been drawn up by the management board shows
an accumulated deficit of DM - 3,107,454.24. The board suggests to
carry forward the deficit to the next year.
WeiBbach, March 1997
Konrad Hornschuch AG
Management Board
A:\state96\KHAGU3.DOC
GERMAN OPINION
The consolidated financial statements based on the financial statements of the
parent company Konrad Hornschuh Aktiengese IIschaft to 31 December 1995 have
been examined by us and we give our unqualified opinion thereon. The financial
statements of foreign affiliated companies have been examined by local auditors
and they have also given their unqualified opinion thereon.
We verify that this report complies with the regulations according to ss. 321
(1) HGB and finally confirm that the consolidated financial statements of Konrad
Hornschuch Aktiengesellschaft, WeiBbach, to 31 December 1995 and the group
management report for the financial year 1995 comply with the legal regulations.
On the basis of our examination, we give our unqualified opinion as follows:
"The consolidated financial statements, which we have audited in
accordance with professional standards, comply with the legal
regulations. The consolidated financial statements present, in
compliance with required accounting principles, a true and fair view of
the net worth, financial position and results of the group. The group
management report is in agreement with the consolidated financial
statements."
Stuttgart, 22 March 1996
Dr. Ebner, Dr.Stolz und Partner GmbH
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
F - 78
<PAGE> 181
CONSOLIDATED BALANCE SHEET OF KONRAD HORNSCHUCH AG, WEIBBACH, AS OF 31 DECEMBER
1995
<TABLE>
<CAPTION>
ASSETS As of As of
December 31, December 31,
1995 1994
---------- ------------ ------------
DM DM TDM
<S> <C> <C> <C>
A. FIXED ASSETS
I. Intangible Assets
Licences, trademarks and patents 196,983 69
Advances paid on intangible assets 0 23
---------- -------
196,983 92
II. Tangible Assets
1. Land and buildings 6,474,788 6,464
2. Technical equipment and machinery 34,933,726 37,885
3. Other equipment, office
furniture and equipment 6,651,863 4,935
4. Assets under construction 291,718 1,032
---------- -------
48,352,095 50,316
III. Financial Assets
Shares in affiliated companies 80,002 106
B. CURRENT ASSETS
I. Inventories
1. Raw materials and supplies 6,407,438 8,896
2. Work in process 4,106,154 4,156
3. Finished goods 28,560,878 28,737
---------- -------
39,074,470 41,789
II. Receivables and other
current assets
1. Trade receivables 30,297,140 28,958
2. Due from group companies 3,115,819 4,405
3. Other current assets 2,769,479 4,012
---------- -------
36,182,438 37,375
III. Securities
Shares in affiliated companies 228,800 229
IV. Cash and cash equivalents 718,263 591
C. PREPAID EXPENSES
1. Debt discount 37,300 55
2. Other 897,610 363
---------- -------
934,910 418
=========== =======
125,767,961 130,916
=========== =======
</TABLE>
F - 79
<PAGE> 182
Enclosure 1
<TABLE>
<CAPTION>
L I A B I L I T I E S A N D E Q U I T Y As of As of
December 31, December 31,
1995 1994
----------- ------------ ------------
DM DM TDM
<S> <C> <C> <C>
A. SHAREHOLDERS' EQUITY
I. Capital Stock 30,800,000 30,800
II. Additional paid in capital 4,400,000 4,400
III. Revenue Reserves 1,243,944 8,168
IV. (Accumulated deficit)/
Retained earnings - 2,049,511 617
----------- -------
34,394,433 43,985
B. ACCRUALS
1. Accruals for pensions 11,260,832 11,211
2. Accrued taxes 28,018 0
3. Other accruals 8,070,067 11,308
----------- -------
19,358,917 22,519
C. LIABILITIES
1. Liabilities to banks 56,332,012 46,284
2. Advance payments
received on account of orders 183,120 435
3. Trade payables 9,664,123 11,175
4. Amounts due to
affiliated companies 227,154 184
5. Other liabilities 5,606,876 6,329
----------- -------
72,013,285 64,407
D. DEFERRED INCOME 1,326 5
----------- -------
125,767,961 130,916
=========== =======
</TABLE>
F - 80
<PAGE> 183
Enclosure 2
CONSOLIDATED PROFIT AND LOSS ACCOUNT OF KONRAD-HORNSCHUCH AKTIENGESELLSCHAFT,
WEIBBACH, FOR THE PERIOD OF 1 JANUARY TO 31 DECEMBER 1995
<TABLE>
<CAPTION>
1995 1994
DM DM TDM TDM
----------- ----------- ------- -------
<S> <C> <C> <C> <C>
1. SALES 189,162,654 184,190
2. (Decrease)/(Prior year: Increase in finished goods - 895,540 4,816
and work in process)
3. Other capitalized labor, overheads and material 332,963 221
4. Other operating income 5,261,095 193,861,172 3,621 192,848
----------- -------
5. Material costs
a) Raw materials, supplies and purchased goods 86,118,229 76,622
b) Purchased services 5,220,206 91,338,435 5,620 82,242
----------- -------
6. Personnel costs
a) Wages and salaries 47,353,482 49,385
b) Social security and pension costs 10,800,194 58,153,676 10,669 60,054
----------- -------
7. Depreciation on intangible and tangible assets 11,305,141 10,844
8. Other operating expenses 38,083,824 35,081
----------- -------
- 4,627
5,019,904
9. Other interest and similar income 420,334 3,762
10. Write-down of shares in affiliated companies 28,699 3,034
11. Expenses from loss absorption 212,419 0
12. Interest and similar expenses 3,684,454 - 3,824 - 3,096
3,505,238
----------- ----------- ------- -------
13. RESULTS FROM ORDINARY OPERATIONS - 1,531
8,525,142
-.Extraordinary income 0 13,690
-.Extraordinary expense 0 11,391
----------- -------
-.Extraordinary result 0 2,299
14. Taxes on income 227,218 324
15. Other taxes 743,127 970,345 601 925
----------- ----------- ------- -------
16. (NET LOSS)/(PRIOR YEAR: INCOME OF THE YEAR) 2,905
9,495,487
17. Retained earnings beginning of year 617,000 0
18. Withdrawal from revenue reserves 6,973,696 652
19. Earnings appropriated to revenue reserves 144,720 2,940
----------- -------
20. (ACCUMULATED DEFICIT)/(Prior year: Retained earnings) - 617
2,049,511
=========== =======
</TABLE>
F - 81
<PAGE> 184
Enclosure 3
DEVELOPMENT CONSOLIDATED FIXED ASSETS OF KONRAD HORNSCHUCH
AKTIENGESELLSCHAFT, WEIBBACH,
IN THE FISCAL YEAR 1995
<TABLE>
<CAPTION>
Costs
---------------------------------------------------------------------------------------
As of Differeces in As of
1.1.1995 Currency Additions Transfer Disposals 31.12.1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM
I. INTANGIBLE ASSETS
- --------------------
Licences, trademarks
and patents 4,685,711 - 103 180,376 0 1,149 4,864,835
Payments on account 23,000 0 0 0 23,000 0
---------------------------------------------------------------------------------------
4,708,711 - 103 180,376 0 24,149 4,864,835
II. TANGIBLE ASSETS
1. Land and buildings 23,327,799 0 504,401 0 0 23,832,200
2. Technical equipment
and machinery 132,066,332 0 4,555,242 887,268 743,514 136,765,328
3. Other equipment, office
furniture and equipment 23,995,256 - 52,804 4,311,066 143,970 1,509,246 26,888,242
4. Assets under
construction 1,032,378 - 1,140 291,718 1,031,238 0 291,718
---------------------------------------------------------------------------------------
180,421,765 - 53,944 9,662,427 0 2,252,760 187,777,488
III. FINANCIAL ASSETS
Shares in affiliated
companies 325,818 0 2,884 0 0 328,702
185,456,294 - 54,047 9,845,687 0 2,276,909 192,971,025
=======================================================================================
<CAPTION>
Net book
Accumulated depreciation value
------------------------ ----------
As of Differences in As of As of As of
1.1.1995 currency Additions Disposal 31.12.1995 31.12.1995 31.12.1994
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM DM
I. INTANGIBLE ASSETS
- --------------------
Licences, trademarks
and patents 4,616,629 - 44 52,097 830 4,667,852 196,983 69,082
Payments on account 0 0 0 0 0 0 23,000
------------------------------------------------------------------------------------------------------
4,616,629 - 44 52,097 830 4,667,852 196,983 92,082
II. TANGIBLE ASSETS
1. Land and buildings 16,863,549 0 493,863 0 17,357,412 6,474,788 6,464,250
2. Technical equipment
and machinery 94,181,954 0 8,354,027 704,379 101,831,602 34,933,726 37,884,378
3. Other equipment, office
furniture and equipment 19,060,054 - 37,762 2,405,154 1,191,067 20,236,379 6,651,863 4,935,201
4. Assets under
construction 0 0 0 0 0 291,718 1,032,378
------------------------------------------------------------------------------------------------------
130,105,557 37,762 11,253,044 1,895,446 139,425,393 48,352,095 50,316,207
III. FINANCIAL ASSETS
Shares in affiliated
companies 220,001 0 28,699 0 248,700 80,002 105,817
134,942,187 37,806 11,333,840 1,896,276 144,341,945 48,629,080 50,514,106
======================================================================================================
</TABLE>
F - 82
<PAGE> 185
Enclosure 5
SCHEDULE OF INVESTMENTS OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEIBBACH,
AS OF 31 DECEMBER 1995
(Amounts in 1,000 units local currency)
<TABLE>
<CAPTION>
Name and domicile Currency Share in authorized Net assets
of the company capital share 31.12.1995 Result
% capital of the year
31.12.1995 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Affiliated companies
1. Consolidated companies
Hornschuch Italia S.R.L.,
Pero-Milano/Italy ITL 100 1,000,000 1,767,000 160,000
Hornschuch U.K. Limited,
Northampton/Great Britain GBP 100 50 30 - 33
Hornschuch CS spol. s.r.o.,
Prag/Czech Republic CZK 100 400 849 176
2. Non-consolidated
companies
Verwaltungsgesellschaft
WeiBbach Gesellschaft mit be-
schrankter Haftung, DM 100 50 50 (- 45)(1)
WeiBbach
Spinnereien und Webereien
im Wiesental Gesellschaft
mit beschrankter Haftung,
Lorrach DM 100 2,500 2,500 (1,775)(2)
VICO AG i.L., Zug/Schweiz CHF 100 100 140 - 8
Hornschuch (Suisse) GmbH,
Lenzburg/Schweiz CHF 100 50 93 - 5
Hornschuch France
S.A.R.L.,
Villeurbanne/Frankreich FFR 100 100 - 2,079 - 1,850
</TABLE>
An inactive foreign participation was not listed because of the little
importance.
- ----------
(1) Konrad Hornschuch Aktiengesellschaft maintains a profit pooling
agreement with this subsidiary whereby profits or losses of the
subsidiary are consolidated with the parent company for income
tax and trade tax filing purposes. No tax impact is included in
the results at the subsidiary level. Verwaltungsgesellschaft
WeiBbach GmbH maintains a similar arrangement with its
subsidiary Spinnereien und Webereien im Wiesental GmbH.
(2) Verwaltungsgesellschaft WeiBbach GmbH maintains a profit pooling
agreement with this subsidiary whereby profits or losses of the
subsidiary are consolidated with the parent company for
corporate income and trade tax filing purposes. No tax impact is
included in the results at the subsidiary level.
F - 83
<PAGE> 186
APPENDIX OF THE PUBLIC COMPANY AND THE GROUP
KONRAD HORNSCHUCH AG, WEIBBACH,
FOR THE FISCAL YEAR 1995
The individual and the consolidated financial statements of Konrad Hornschuch AG
are explained together below; unless otherwise stated, these explanations apply
to both these financial statements.
To improve the overview, the amounts of the balance sheet and the profit and
loss account are stated in full DM.
I. APPLICATION OF ACCOUNTING DIRECTIVES ACT
The financial statements of Konrad Hornschuch AG and the consolidated financial
statements have been drawn up according to the regulations of the commercial
code or the company law.
For the profit and loss accounts, the cost-summary method has been used
consistently.
The remarks which have to be made, according to the legal regulations, for the
items of the profit and loss account as well as extensive explanations are
stated in the summarized appendix for the Konrad Hornschuch AG and the group.
II. CONSOLIDATED COMPANIES
The consolidated financial statements include, apart from Konrad Hornschuch AG,
the marketing companies in Leipzig, Italy, Great Britain and Czech Republic:
Konrad Hornschuch GmbH, Leipzig
Hornschuch Italia S.R.L., Pero-Milano/Italy
Hornschuch U.K. Limited, Northampton/Great Britain
Hornschuch CS spol. s r.o., Prag/Czech Republic
For all companies, Konrad Hornschuch AG holds 100 % of the capital shares; a
year end closing date of the 31 December is used for the group.
The participation in Konrad Hornschuch GmbH has been sold in the fiscal year to
Verwaltungsgesellschaft WeiBbach GmbH and was merged with this company. The
consolidated financial statements of this company reflect this permanent
consolidation.
F - 84
<PAGE> 187
The group financial statements exclude inactive foreign subsidiaries, the
Hornschuch (Suisse) GmbH as well as the Hornschuch France S.A.R.L., according to
ss. 296 Abs. 2 HGB, because of their secondary importance. Hornschuch (Suisse)
GmbH, which has no individual organization, provides for billing of deliveries
to the Swiss customers.
In addition, the Verwaltungsgesellschaft WeiBbach Gesellschaft mit
beschrankter Haftung as well as its subsidiary Spinnereien und Webereien im
Wiesental GmbH have not been consolidated because their exclusive purpose is the
utilization of the no longer operational plant areas in Urbach and Lorrach (ss.
296 Abs. 1 Nr. 3 HGB). Also not consolidated is the VICO AG (ss. 296 Abs. 2 HGB)
because it is in liquidation.
III. CAPITAL CONSOLIDATION IN THE GROUP
The capital consolidation reflects cost method investment accounting.
Differences between the cost basis investment and the equity of the consolidated
subsidiary is recorded against retained earnings revenue reserve account:
<TABLE>
<CAPTION>
1995 1994
TDM TDM
---- ----
<S> <C> <C>
Active difference amounts 484 484
Passive difference amounts - 14 - 22
=== ===
Charged to the revenue reserves account 470 462
=== ===
</TABLE>
For the following consolidated entities, taking the equity value at the
beginning of the fiscal year, the date the entities were first included in the
consolidated financial statements was:
Konrad Hornschuch GmbH 1.1.1990
Hornschuch Italia S.R.L. 1.1.1990
Hornschuch U.K. Limited 1.1.1990
Hornschuch CS spol s r.o. 1.1.1993
IV. DEBT-, EXPENSE- AND PROFIT-CONSOLIDATION AS WELL AS
INTERCOMPANY PROFIT ELIMINATION IN THE GROUP
Receivables and liabilities as well as expense- and profit movements between the
included companies have been eliminated.
Intercompany profits have been eliminated.
V. FOREIGN CURRENCY TRANSLATION
The values of the annual financial statements of the foreign companies have been
converted with the spot rates of the balance sheet date into German Mark (DM).
The differences which resulted from the so determined value and the
corresponding DM-value in the balance sheet of Konrad Hornschuch AG have been
classified within the equity section to the revenue reserves.
F - 85
<PAGE> 188
VI. ACCOUNTING AND VALUATION METHODS
For the individual company financial statements and the consolidated financial
statements, the same accounting and valuation methods have been used which are
valid for corporations.
INTANGIBLE ASSETS
Purchased EDP-programmes as well as licences and patents are capitalized at
acquisition cost and depreciated in a straight-line method over three to five
years.
TANGIBLE ASSETS
The tangible fixed assets are valued at acquisition or manufacturing cost minus
accumulated depreciations.
The straight-line depreciations for buildings is based on a useful life from 20
to 50 years.
An owner-occupied flat will be depreciated degressive according to ss. 7 Abs. 5
EStG.
For movable tangible fixed assets, the depreciation is calculated according to
the straight-line method with a useful life of four to ten years which is usual
in the industry. For multi-shift operation depreciation rates are increased.
Low value intangible assets will be fully depreciated according to ss. 6 Abs. 2
EStG in the year of addition and will be shown as disposal in the analysis of
fixed assets.
FINANCIAL ASSETS
The shares in group companies are recorded at acquisition cost or at the lower
estimated fair value at the balance sheet date.
INVENTORIES
Raw materials and supplies as well as purchased trading stock are activated to
acquisition cost considering the lower of cost or market principle. For stock
with limited usability adequate reserves have been made.
Finished and unfinished goods are recorded at manufacturing cost but limited to
a maximum value which results from the principle of the loss free valuation.
The manufacturing cost are based on actually incurred costs or standard
calculations.
Limited usability as well as low stock turnover have been considered by adequate
write downs.
RECEIVABLES AND OTHER CURRENT ASSETS
For receivables and other current assets, identifiable individual risks have
been taken into account by valuation reserves.
For the general risk of credit as well as the expected discount deductions there
will be made a general allowance.
Receivables denominated in foreign currency have been valued at the rate of the
day the receivable was incurred or to the lower buying rate at the balance sheet
date. A long term receivable has been discounted. The other receivables and
assets are shown at nominal value.
F - 86
<PAGE> 189
SECURITIES, STOCKS AND BONDS
The shares in subsidiaries are recorded at acquisition cost, reduced for any
write-downs.
PREPAID EXPENSES
The debt discounts included in the prepaid expenses will be depreciated
straight-line over the interest bearing period of the respective loans.
ACCRUALS
Accruals for pensions and similar obligations correspond to the actuarial going
concern value which has been determined on the basis of an interest rate of 6 %.
They have been built up with the possible extent according to ss. 6 a EStG.
The other accruals take into account all recognizable balance risks and
uncertain obligations and have been calculated according to reasonable business
judgments.
LIABILITIES
All liabilities are valued at the repayment amount, liabilities denominated in
foreign currency are valued at the rate on the day the liabilities were incurred
or to the higher offer rate on the balance sheet date.
VII. EXPLANATIONS TO THE INDIVIDUAL BALANCE SHEET ITEMS
FIXED ASSETS
The development of the fixed assets of the public company and the group which
are shown separately, are integral part of the appendix.
The capital expenditure of Konrad Hornschuch AG for intangible and tangible
assets amounts to DM 9.5 million (prior year: DM 8.7 million).
The main stress of the capital expenditures were for production and auxiliary
machinery as well as for office furniture.
The list of investments is integral part of the appendix and will be deposited
at the trade register of Schwabisch Hall under HRB 167 K.
F - 87
<PAGE> 190
INVENTORIES
Devaluations for inventory risks which could occur because of period of storage,
reduced usability or fashion tendencies have been reflected in the inventory
valuation.
RECEIVABLES AND OTHER ASSETS
The receivables and other assets include receivables due within more than one
year up to the following amounts:
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG TDM
------
<S> <C>
Trade receivables 759
Due from affiliated companies 3,390
Other current assets 356
=====
4,505
=====
GROUP 1,115
=====
</TABLE>
DUE FROM AFFILIATED COMPANIES
Receivables due from affiliated companies of TDM 632 result from normal trade
activities.
SECURITIES
The shares in the VICO AG i.L. and the Verwaltungsgesellschaft WeiBbach
GmbH are shown as current assets, consistent with prior year.
LIQUID ASSETS
The liquid assets include cash on hand, balances on post office bank accounts
and cash at banks.
PREPAID EXPENSES
The prepaid expenses contain, apart from debt discounts for loans, bonuses for
closed interest security business.
SUBSCRIBED CAPITAL
The capital stock of KONRAD HORNSCHUCH AG is divided into the following bearer
stock:
<TABLE>
<CAPTION>
Nominal value Number of
votes
DM DM
-------------- --------
<S> <C> <C>
612,000 common stock each DM 50.00 30,600,000.00 612,000
4,000 preferred stock each DM 50.00 200,000.00 48,000
============= =======
30,800,000.00 660,000
============= =======
</TABLE>
By the resolution of the ordinary meeting on 5 July 1990, there existed an
approved capital at a rate of DM 10 million which could be used until 4 July
1995. This opportunity has not been used.
F - 88
<PAGE> 191
CAPITAL RESERVES
Capital reserves include the premium of the capital increase in 1978.
REVENUE RESERVES
The consolidated balance sheet reflects, in contrast to the prior year, the
combining of the legal reserve and the other reserves.
ACCRUALS
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG 31.12.1995 31.12.1994
TDM TDM
---------- --------
<S> <C> <C>
Accruals for pensions 11,261 11,211
Accrued taxes 8 0
Other accruals 7,633 10,715
------ ------
18,902 21,926
====== ======
GROUP 19,359 22,519
====== ======
</TABLE>
The other accruals contain mainly separations for holiday and flex-time credits,
customer bonuses and discounts, waste water disposal, warranties, customer
credit notes and open invoices.
LIABILITIES
The liabilities to banks of KONRAD HORNSCHUCH AG are as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
-------- --------
<S> <C> <C>
Due within 1 year 23,573 20,192
Due within 1 - 5 years 30,207 21,180
Due over more than 5 years 775 1,162
====== ======
54,555 42,534
====== ======
</TABLE>
An amount of TDM 2.787 is secured through mortgage liens on the real estate of a
subsidiary.
The other liabilities of KONRAD HORNSCHUCH AG are structured as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 3,778 3,366
Due within 1 - 5 years 1,443 2,393
===== =====
5,221 5,759
===== =====
</TABLE>
F - 89
<PAGE> 192
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
---------- ----------
<S> <C> <C>
Tax liabilities 637 752
Liabilities in respect of
social security 1,293 1,255
Liabilities to
employee welfare funds 2,243 3,193
Other liabilities 1,048 559
----- ---
5,221 5,759
===== =====
</TABLE>
The liabilities to banks in the GROUP are as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
------------ ---------
<S> <C> <C>
Due within 1 year 25,350 23,942
Due within 1 - 5 years 30,207 21,180
Due over more than 5 years 775 1,162
------ ------
56,332 46,284
====== ======
</TABLE>
An amount of TDM 2.787 is secured through mortgage liens.
The other liabilities in the GROUP are structured as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
------------ ----------
<S> <C> <C>
Due within 1 year 4,164 3,936
Due within 1 - 5 years 1,443 2,393
----- -----
5,607 6,239
===== =====
</TABLE>
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
------------ ----------
<S> <C> <C>
Tax liabilities 826 1,024
Liabilities in respect of
social security 1,426 1,423
Liabilitites to
employee welfare fund 2,243 3,193
Other liabilities 1,112 689
----- -----
5,607 6,329
===== =====
</TABLE>
For the trade payable, the supplier retains the title of goods until fully paid.
The amounts due to affiliated companies of Konrad Hornschuch AG are TDM 5 from
the trade activities.
All other liabilities are due within one year.
F - 90
<PAGE> 193
VIII. CONTINGENT LIABILITIES AND OTHER FINANCIAL OBLIGATIONS
The contingent liabilities and other financial obligations of KONRAD HORNSCHUCH
AG and the GROUP exist as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
------------ ---------
<S> <C> <C>
Contingent liabilities 1,681 1,337
Guarantee obligations 129 189
----- -----
1,810 1,526
===== =====
</TABLE>
In addition financial obligations from lease contracts are:
<TABLE>
<CAPTION>
KHAG Group
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 962 1,324
Due within 1 - 5 years 131 1,065
Due over more than 5 years 0 197
----- -----
1,093 2,586
===== =====
</TABLE>
The purchase commitment for investment goods is within the framework of the
planning which has been released in 1996.
The deficit from the pension obligations of the employee welfare funds which
results as difference between the tax part value according to ss. 6 a EStG of
the promised services and the cash on hand amounts to about DM 13.2 million for
31 December 1995.
IX. EXPLANATIONS FOR THE PROFIT AND LOSS ACCOUNTS
SALES
The sales are spread at KONRAD HORNSCHUCH AG as follows:
Division in product areas
<TABLE>
<CAPTION>
1995 1994
million DM million DM
----------- -----------
<S> <C> <C>
Fashion products 45 46
Technical products 51 46
Decorative products 83 82
--- ---
179 174
=== ===
</TABLE>
F - 91
<PAGE> 194
Division in regions
<TABLE>
<CAPTION>
1995 1994
million DM million DM
---------- -----------
<S> <C> <C>
Federal Republic of Germany 107 108
Other Europe 50 47
Outside Europe 22 19
--- ---
179 174
=== ===
</TABLE>
GROUP sales are spread as follows:
Division in product areas
<TABLE>
<CAPTION>
1995 1994
million DM million DM
---------- -----------
<S> <C> <C>
Fashion products 46 49
Technical products 51 46
Decorative products 92 89
--- ---
189 184
=== ===
</TABLE>
Division in regions
<TABLE>
<CAPTION>
1995 1994
million DM million DM
----------- -----------
<S> <C> <C>
Federal Republic of Germany 107 108
Other Europe 59 57
Outside Europe 23 19
--- ---
189 184
=== ===
</TABLE>
OTHER OPERATING INCOME
The other operating income of KONRAD HORNSCHUCH AG include the following:
<TABLE>
<CAPTION>
1995 1994
TDM TDM
----------- -----------
<S> <C> <C>
Know-how 1,561 583
Exchange profit 315 161
Insurance indemnification 292 1,327
Further charged costs 163 246
Tax liable remunerations in kind 255 181
Others 1,355 390
Neutral income 1,158 743
----- -----
5,099 3,631
===== =====
GROUP 5,261 3,621
===== =====
</TABLE>
F - 92
<PAGE> 195
MATERIAL COSTS
The material costs, related to the total product cost, reflects the increases in
the raw material markets and the general increase in price levels.
PERSONNEL EXPENSES
<TABLE>
<CAPTION>
1995 1994
KONRAD HORNSCHUCH AG TDM TDM
----------- ---------
<S> <C> <C>
Wages and salaries 45,793 47,419
Social security 8,837 8,990
Pension costs 1,479 1,083
------ ------
56,109 57,492
====== ======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
GROUP TDM TDM
-------- ---------
<S> <C> <C>
Wages and salaries 47,354 49,385
Social security 9,285 9,540
Pension costs 1,515 1,129
------ ------
58,154 60,054
====== ======
</TABLE>
OTHER OPERATING EXPENSES
The other operating expenses of KONRAD HORNSCHUCH AG include the following:
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG 1995 1994
TDM TDM
------------ -------
<S> <C> <C>
Licences/commissions 2,676 3,530
Other selling expenses 14,275 12,851
Legal and professional fees 1,842 1,195
Other administrative expenses 2,079 2,113
Catastr.-/Work-/Environmental protection 1,567 1,102
Other maintenance/EDP-maintenance 4,228 4,653
Other expenses 7,449 5,340
Sale of fixed assets and adjustments of reserves 953 805
------ ------
35,069 31,589
====== ======
GROUP 38,084 35,081
====== ======
</TABLE>
INCOME FROM PARTICIPATIONS
In the fiscal year 1995, KONRAD HORNSCHUCH AG had participation income of TDM
139 (prior year: TDM 201) from affiliated companies.
OTHER INTERESTS AND SIMILAR INCOME
F - 93
<PAGE> 196
At KONRAD HORNSCHUCH AG the income from affiliated companies have been realized
at a rate of TDM 325 (prior year: TDM 3.714).
EXPENSES FROM LOSS TRANSFERS
These expenses result from loss transfers based on profit pooling with
affiliated companies.
INCOME RELATING TO OTHER PERIODS
The other operating income, taxes from income and the other taxes include income
relating to other periods of TDM 1.238.
EXPENSES RELATING TO OTHER PERIODS
The other operating expenses and the taxes from income include expenses relating
to other periods of TDM 365.
TAXES
Because of the negative result of the year and the loss carry forward from
previous fiscal years, no domestic income taxes arise. Amounts reflect the
balance from tax back-payments/tax refund for previous years and foreign
withholding taxes.
The other taxes are mainly related to the net asset-, trading capital-, land-
and automobile taxes which are not dependent on income.
X. OTHER NOTES
1. The total remunerations of the members of the board for the
fiscal year 1995 amount to DM 992,145.00.
The remunerations of former board members and their surviving
dependents amount to DM 698,950.00 (GROUP DM 709,027.00).
For pension obligations with regard to former members of the
board and their surviving dependents, DM 5,255,617.00 (GROUP DM
5,310,029.00) has been reserved.
2. The remunerations for the supervisory board for the fiscal year
1995 amount to DM 85,300.00 plus value added tax.
3. The supervisory board of the company consists of nine members.
Appointed members of the supervisory board are:
Wilhelm Freiherr Haller von Hallerstein, Stuttgart (chairman),
Eberhard Christian Kunz, Nurtingen (first deputy chairman),
Dr. Wilhelm Dengler, Gschwend,
Dieter Maier, Stuttgart,
Helmut Menges, Welzheim,
Dr. Roland Schelling, Stuttgart,
and as representative of the employees:
Hans Roth, Hohebach (second deputy chairman), Willi Bobka,
WeiBbach, and Hans Fenzl, WeiBbach.
F - 94
<PAGE> 197
The administrative period of the supervisory board closes with the end
of the shareholders general meeting which decides above the discharge
for the fiscal year 1997.
*) The supervisory board has in his meeting on 9 December 1994 appointed
Mr Helmut Menges according to ss. 105 Abs.
2 AktG from 1 January 1995 for the maximum of one year, as managing
director of the company and as chairman of the management. For this
time, his supervisory board client has rested.
The management board consists of two persons. Members of the management
board are or have been, appointed by the supervisory board,
Hans-Georg Stahmer, Taunusstein
(from 1 October 1995; chairman from 1 November 1995),
Dr. Roland Schulze-Kadelbach, Flein, and
Helmut Menges, Welzheim,
(from 1 January until 31 October 1995; chairman until 31.
Oktober 1995)*)
4. With the letter of 3 February 1984 the Kunz Holding GmbH & Co. KG,
Gschwend, has told according to ss. 20 Abs. 4 AktG that she has the
majority holding for Konrad Hornschuch AG.
To the majority shareholder Kunz Holding GmbH & Co. KG and the related
companies there existed only minor delivery- and service relations.
5. In the fiscal year KONRAD HORNSCHUCH AG has ordinarily employed:
<TABLE>
<CAPTION>
1995 1994
persons persons
---------- ----------
<S> <C> <C>
Salaried employees**) 294 295
Payroll employees 446 509
Trainees 38 35
--- ---
Employees 778 839
=== ===
The GROUP has employed:
Salaried employees***) 333 339
Payroll employees 455 520
Trainees 38 35
--- ---
Employees 826 894
=== ===
</TABLE>
F - 95
<PAGE> 198
6. Because of special tax depreciations in the previous fiscal years on tangible
fixed assets, the annual result is only insignificantly influenced. Also the
effects on future annual results are not significant.
*) The supervisory board has in his meeting on 9 December 1994 appointed Mr
Helmut Menges according to ss. 105 Abs. 2 AktG from 1 January 1995 for the
maximum of one year, as managing director of the company and as chairman of the
management. For this time, his supervisory board client has rested.
**) including members of the board
***) including members of the board and managers
7. The annual financial statements of Konrad Hornschuch AG to 31 December
1995 which have been drawn up by the board show, after charging with the
retained earnings brought forward from the previous year at a rate of DM
617,000.00 and withdrawals from the other retained earnings at a rate of
DM 6,282,000.00 an accumulated deficit of DM - 2,049,511.00.
The management board suggests to carry forward the deficit to the next year.
WeiBbach, March 1996
Konrad Hornschuch AG
Board
F - 96
<PAGE> 199
KONRAD HORNSCUCH GROUP ACCOUNTS
MEASUREMENT OF MATERIAL VARIATIONS IN ACCOUNTING
METHODS USED UNDER GERMAN GAAP VERSUS U.S. GAAP
ON BALANCE SHEET ACCOUNTS
(GERMAN MARKS, IN THOUSANDS)
<TABLE>
<CAPTION>
GERMAN U.S. 1996 GERMAN U.S. 1995
GAAP GAAP DIFFERENCE GAAP GAAP DIFFERENCE
AMOUNT AMOUNT INCREASE/ AMOUNT AMOUNT INCREASE/
1996 1996 <DECREASE> 1995 1995 <DECREASE>
<S> <C> <C> <C> <C> <C>
Asset affected:
ITEM 1- Deferred tax asset:
0 9,313 9,313 0 9,421 9,421
ITEM 2- Intangible asset
0 13,241 13,241 0 15,132 15,132
Total assets affected:
0 22,554 22,554 0 24,553 24,553
Liabilities affected:
ITEM 2- Pension obligation:
12,948 27,958 15,010 13,503 28,390 14,887
ITEM 3- Accrued expenses-repair and maintenance:
600 0 (600) 0 0 0
ITEM 4- Accrued expenses- restructuring charges
3,300 1,700 (1,600) 0 0 0
Total liabilities affected:
16,848 29,658 12,810 13,503 28,390 14,887
Net equity:
9,744 9,666
</TABLE>
F - 97
<PAGE> 200
KONRAD HORNSCHUCH GROUP ACCOUNTS
MEASUREMENT OF MATERIAL VARIATIONS IN ACCOUNTING METHODS
USED IN COMPUTING NET INCOME UNDER GERMAN GAAP VERSUS
U.S. GAAP FOR THE YEARS ENDED DECEMBER 31,
(GERMAN MARKS, IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net loss as reported in the audited financial statements of Konrad
Hornschuch under German GAAP
(758) (9,495)
Income <expense>:
Item 1- Differences in tax provision (assumes initial
implementation of FAS 109 in 1994 and an effective
Tax rate of 43.8%)
(107) 5,058
Item2- Differences in pension expense as calculated
under FAS 87 of U.S. GAAP versus German
GAAP
(2,014) (2,810)
Item 3- Accrued liability for repair and maintenance
costs under German GAAP
600 0
Item 4- Accrued liability for restructuring costs under
German GAAP
1,600 0
Net loss as reported in the audited financial
statements of Konrad Hornschuch under
U.S. GAAP
(679) (7,247)
</TABLE>
F - 98
<PAGE> 201
KONRAD HORNSCHUCH GROUP ACCOUNTS
QUANTITATIVE RECONCILIATION OF FINANCIAL STATEMENTS
PREPARED ON A COMPREHENSIVE BASIS OTHER THAN U.S. GAAP
Item 1- Under U.S. GAAP -SFAS NO. 109- "Accounting for Income Taxes" - a
deferred tax asset or liability is determined based on the difference between
the financial reporting and the tax basis of the asset or liability tax effected
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Included in the tax effects is the recognition of a
deferred tax asset for German net operating loss carryforwards which have an
unlimited life under German tax law. Considering the unlimited NOL life and the
earnings potential of the Company, the deferred tax asset determined in
accordance with FAS 109 has been calculated , as well as the impact on the
provision for income taxes and is shown as a reconciling item between German
GAAP and U.S. GAAP.
Item 2- Under German GAAP, the Company has two pension liabilities, one recorded
and one unrecorded. In addition , the German GAAP actuarial calculation does not
consider anticipated salary increases or cost of living increases for pension
payments. For German GAAP purposes, both pension liabilities are calculated
using a statutorily mandated 6% interest rate to present value the pension
liabilities. For U.S. GAAP purposes, both pension liabilities have been
calculated in accordance with FAS No. 87 - "Employer Accounting for Pensions"
for each of the periods presented and an appropriate U.S. GAAP pension expense
was recognized for each year presented. The German requirements are funded on a
cash basis, therefore no plan assets exist. In accordance with SFAS No. 87, an
additional minimum liability for the unfunded accumulated benefit obligation has
also been recognized as a liability. In addition, an intangible asset equal to
the amount of the unamortized transition obligation has been recognized in
accordance with SFAS 87. The differences between German GAAP and U.S. GAAP
valuations at each balance sheet date have been reflected.
Item 3- Under U.S. GAAP, repair and maintenance costs are expensed as incurred,
while under German GAAP, a liability can be established for future repair and
maintenance costs. Accordingly, the differences between German GAAP and U.S.
GAAP at each balance sheet date have been reflected.
Item 4- Under U.S. GAAP, restructuring charges are recognized in accordance with
EITF 94-3. Under German GAAP, the 1996 restructuring charge includes an employee
reduction plan plus accruals relative to future consulting fees to reengineer/
implement new automated accounting and administrative technology. Under U.S.
GAAP, these consulting fees cannot be accrued as they benefit future periods.
Accordingly, the differences between German GAAP and U.S. GAAP for accrued
restructuring charges at each balance date have been reflected.
F - 99
<PAGE> 202
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits the Boards of
Directors of DII and Decora to indemnify any person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding in which such person is made a party by
reason of his being or having been a director, officer, employee or agent of
each such corporation, in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). The statute provides that indemnification pursuant to
its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
DII's Bylaws provide for mandatory indemnification of directors and
officers of the Company, and those serving at the request of DII as directors,
officers, employees, or agents of other entities (collectively, "Agents") to the
maximum extent permitted by law. The Bylaws provide that such indemnification
shall be a contract right between each Agent and DII.
Decora's Bylaws provide that Decora shall indemnify its officers, directors
and agents to the extent permitted by the Delaware General Corporation Law.
DII's Certificate of Incorporation provides that a director of DII shall
not be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. Such a provision likewise appears
in Decora's Certificate of Incorporation.
DII has obtained a liability insurance policy which insures its directors
and officers and the directors and officers of its subsidiaries, including
Decora, against certain liabilities, including liabilities under the
federal securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
The following exhibits are filed or incorporated by reference as part of
this Registration Statement:
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1 Stock Purchase Agreement by and between Baden-Wurttenbergische Bank
AG and Newco dated as of September 3, 1997, as amended.(15)
2.2 Stock Purchase Agreement by and between der Kunz Holding GmbH & Co.
KG and Newco dated as of August 18, 1997, as amended.(15)
2.3 Asset Purchase Agreement dated as of March 30, 1998, by and between
Rubbermaid Incorporated and Rubbermaid Specialty Products, Inc., on
the one hand, and Decora Industries, Inc. and Decora, Incorporated,
on the other hand(16)
II - 1
<PAGE> 203
(3) Articles of Incorporation and By-Laws
3.1 Certificate of Incorporation of DII filed on January 28, 1992.(3)
3.2 Amendment No. 1 to DII's Certificate of Incorporation filed on
November 2, 1993.
3.3 Amendment No. 2 to DII's Certificate of Incorporation filed on
December 29, 1997.
3.4 Amendment No. 3 to DII's Certificate of Incorporation filed on
December 29, 1997.
3.5 By-laws of DII.(3)
3.6 Certificate of Incorporation of Decora filed on March 5, 1990.
3.7 By-laws of Decora.
(4) Instruments Defining the Rights of Security Holders
4.1 Form of Indenture dated as of April 29, 1998 among Decora Industries,
Inc. as Issuer, Decora, Incorporated, Subsidiary Guarantors, and
United States Trust Company of New York as Trustee (the
"Indenture").(18)
4.2 Form of 11% Senior Secured Notes due 2005 ("Old Notes") issued under
the Indenture (included as Exhibit A to the Indenture).(18)
4.3 Form of Series B 11% Senior Secured Notes due 2005 ("Exchange Notes")
issuable under the Indenture (included as Exhibit B to the
Indenture).(18)
4.4 Form of Guarantee of Decora, Incorporated dated as of April 29 1998
(included as Exhibit G to the Indenture).(18)
4.5 Form of Registration Rights Agreement dated as of April 29, 1998 among
Lazard Freres & Co. LLC, Decora Industries, Inc. and Decora,
Incorporated.(18)
(5) Opinion Re Legality
5.1 Opinion of Miller & Holguin dated July 13, 1998.
(8) Opinion Re Tax Matters
8.1 Opinion of Miller & Holguin dated July 13, 1998.
(10) Material Contracts
10.1 Utilitech, Incorporated, 1987 Stock Option Plan.(1)
10.2 Management Agreement dated as of April 18, 1990 by and between
Utilitech and Decora, Incorporated.(2)
10.3 Loan and Security Agreement dated as of April 18, 1990 by and between
Decora, Incorporated, Utilitech and Norstar Bank of Upstate NY
("Norstar").(2)
II - 2
<PAGE> 204
10.4 Forms of 14% Senior Subordinated Notes due April 15, 1998 dated as of
April 18, 1990 in the amounts of $3,206,480.21, $1,327,732.26,
$1,138,055.27 and $1,327,732.26 to CIGNA Mezzanine Partners II, L.P.,
CIGNA Property and Casualty Property and Casualty Insurance Company
and Zande and Co.(2)
10.5 Securities Purchase Agreement dated as of April 15, 1990 by and
between Utilitech, Decora, Incorporated and Purchasers of 14% Senior
Subordinated Notes due 1998 and Warrants to Purchase Common Stock of
Decora, Incorporated.(2)
10.6 Option Agreement dated as of January 7, 1992, by and between
Utilitech, Incorporated and Nathan Hevrony.(3)
10.7 Option Agreement dated as of January 7, 1992, by and between
Utilitech, Incorporated and Roger Grafftey- Smith.(3)
10.8 Option Agreement dated as of January 7, 1992, by and between
Utilitech, Incorporated and Gabriel Thomas.(3)
10.9 Note and Warrant Purchase Agreement by and between Decora Industries,
Inc. and Robert W. Johnson IV, dated November 3, 1992.(4)
10.10 Convertible Negotiable Promissory Note by and between Decora
Industries, Inc. and Robert W. Johnson IV, dated November 3, 1992.(4)
10.11 Series A Warrant to Purchase Common Stock of Decora Industries, Inc.,
dated November 3, 1992 issued to Robert W. Johnson IV.(4)
10.12 Series B Warrant to Purchase Common Stock of Decora Industries, Inc.,
dated November 3, 1992 issued to Robert W. Johnson IV.(4)
10.13 Form of Option Agreement dated as of January 11, 1993, by and between
Richard A. DeCoste and the Company.(5)
10.14 1988 Employee Stock Purchase Plan.(5)
10.15 Promissory Note in the amount of $8,500,000 by and between Decora,
Incorporated and Fleet Bank of New York (successor to Norstar) dated
July 20, 1994.(6)
10.16 Amendment No. 1 to Loan and Security Agreement between Decora,
Incorporated and Fleet Bank of New York dated July 20, 1994.(6)
10.17 Promissory Note in the amount of $1,000,000 by and between Decora,
Incorporated and Fleet Bank of New York dated July 20, 1994.(6)
10.18 Loan and Security Agreement in the amount of $1,000,000 by and
between Decora, Incorporated and Fleet Bank of New York dated July
20, 1994.(6)
10.19 Amendment to Securities Purchase Agreement dated as of July 19, 1994
by and between Decora, Incorporated and CIGNA Mezzanine Partners,
Inc., CIGNA Property and Casualty and Insurance Company of North
America.(6)
II - 3
<PAGE> 205
10.20 Promissory Note in the amount of $6,000,000 dated as of July 20, 1994
by and between Decora Industries, Inc. as borrower and Decora,
Incorporated as lender.(6)
10.21 Form of Option Agreement dated as of July 5, 1994 by and between
Decora Industries, Inc. and Stephen Verchick.(6)
10.22 Form of Option Agreement dated as of July 5, 1994 by and between
Decora Industries, Inc. and Ronald Artzer.(6)
10.23 Form of Option Agreement dated as of August 15, 1994 by and between
Decora Industries, Inc. and Nathan Hevrony.(7)
10.24 Amendment to Securities Purchase Agreement dated as of April 1, 1995,
by and among Decora, Incorporated and CIGNA Mezzanine Partners II,
L.P., CIGNA Property and Casualty Insurance Company and Insurance
Company of North America.(8)
10.25 Manufacturing Agreement dated April 12, 1995 by and among Decora
Industries, Inc., Decora, Incorporated and Rubbermaid Incorporated.
(8)(9)
10.26 Employment Agreement dated June 28, 1995 by and between John
Tattersall and Decora, Incorporated.(8)
10.27 Option Agreement dated June 28, 1995 by and between John Tattersall
and Decora Industries, Inc.(8)
10.28 Option Agreement dated July 6, 1995 by and between Gabriel Thomas and
Decora Industries, Inc.(8)
10.29 Amended and Restated Note and Warrant Purchase Agreement by and
between Decora Industries, Inc. and Johnson.(10)
10.30 Amended and Restated Convertible Negotiable Promissory Note in the
amount of $1,500,000 by and between Decora Industries, Inc. as payor
and Johnson as holder.(10)
10.31 Series C Warrant to Purchase Common Stock of Decora Industries,
Inc.(10)
10.32 Business Purpose Note dated January 24, 1996 in the amount of
$650,000 by and between Decora Industries, Inc. as payor and Fleet
Bank.(11)
10.33 Form of Amendment No. 3 to the Securities Purchase Agreement dated as
of March 31, 1996 by and among Decora, Incorporated, CIGNA Mezzanine
Partners, Inc., CIGNA Property and Casualty and Insurance Company of
North America.(11)
10.34 Form of Exchange Agreement dated March 31, 1996 by and among Decora,
Incorporated, CIGNA Mezzanine Partners, Inc., CIGNA Property and
Casualty and Insurance Company of North America.(11)
10.35 Form of Loan and Security Agreement Amendment no. 2, dated August 13,
1996, by and among Decora, Incorporated, as Borrower, the Company, as
Corporate Guarantor and Fleet Bank as Lender.(12)
10.36 Form of Restated Promissory Note dated August 13, 1996 by and between
Decora, Incorporated and Fleet Bank.(12)
10.37 Form of Line of Credit Note dated March 27, 1997 by and between
Decora, Incorporated and Fleet Bank.(13)
II - 4
<PAGE> 206
10.38 Form of Consolidated and Restated Promissory Note dated March 27,
1997 by and between Decora, Incorporated and Fleet Bank.(13)
10.39 Form of Amended and Restated Term Note dated March 27, 1997 by and
between Decora, Incorporated and Fleet Bank.(13)
10.40 Form of Employment Agreement dated as of June 1, 1997 by and between
Decora Industries, Inc. and Nathan Hevrony.(13)
10.41 Form of Employment Agreement dated as of June 1, 1997 by and between
Decora, Incorporated and Richard DeCoste.(14)
10.42 Form of Employment Agreement dated as of June 1, 1997 by and between
Decora Industries, Inc. and Timothy N. Burditt.(14)
10.43 Certificate of Designation of Series A Preferred Stock of DII dated
September 26, 1997.(15)
10.44 Note and Warrant Purchase Agreement dated as of September 26, 1997
among Decora, Incorporated ("Borrower"), Decora Industries, Inc.,
Dorrance Street Capital Advisors, LLC ("Agent") and Textron Master
Trust ("Purchaser").(15)
10.45 Common Warrant Certificate with respect to 2,136,534 shares of Decora
Industries, Inc., Common Stock, dated September 29, 1997 issued by
Decora Industries, Inc. to Purchaser.(15)
10.46 Preferred Warrant Certificate with respect to 69,557 shares of Decora
Industries, Inc. Series A Stock, dated September 29, 1997 issued by
Decora Industries, Inc. to Purchaser.(15)
10.47 Contingent Common Warrant Certificate with respect to an
indeterminate number of shares of Decora Industries, Inc. Common
Stock, dated September 29, 1997 issued by Decora Industries, Inc. to
Purchaser.(15)
10.48 13% Senior Subordinated Note due 2005, dated September 29, 1997
issued by Borrower in the principal amount of $18,000,000 to
Purchaser.(15)
10.49 First Amendment to March 27, 1997 Note dated September 26, 1997 by
and between Fleet Bank and Borrower regarding a $1,000,000 note.(15)
10.50 Second Amendment to Loan and Security Agreement dated September 26,
1997 by and between Fleet Bank and Borrower regarding a $3,354,167
note.(15)
10.51 Credit and Reimbursement Agreement Modification Agreement No. 2 dated
September 26, 1997 by and between the Borrower and Fleet Bank in
connection with a letter of credit issued by Fleet Bank in favor of
Mellon Bank, FSB, as Trustee, concerning the issuance of $2,460,000
industrial revenue development bond.(15)
10.52 Note and Loan and Security Agreement Amendment No. 4 dated September
26, 1997 by and between Borrower and Fleet Bank regarding a
$5,169,000 note.(15)
10.53 Promissory Note in the amount of $15,207,000 dated September 30, 1997
by Decora Industries, Inc. to Borrower.(15)
II - 5
<PAGE> 207
10.54 Loan Agreement dated September 29, 1997 among Decora Industries
Deutschland GmbH, Decora Industries, Inc. and Dresdner Bank AG.(15)
10.55 Form of Guarantor Pledge Agreement dated as of April 29, 1998 between
Decora Industries, Inc. and United States Trust Company of New
York.(18)
10.56 Form of Notarial Deed dated as of April 28, 1998 between Decora
Industries, Inc. and United States Trust Company of New York relating
to pledge of shares of Decora Industries Deutschland GmbH ("German
Pledge Agreement").(18)
10.57 Form of Amendment to German Pledge Agreement dated as of April 29,
1998 between Decora Industries, Inc. and United States Trust Company
of New York.(18)
10.58 Form of Loan Agreement dated as of April 28, 1998 between Decora,
Incorporated and Konrad Hornschuch AG.(18)
10.59 Form of Security Agreement dated as of April 29, 1998 between Decora,
Incorporated and Konrad Hornschuch AG.(18)
10.60 Form of Restated Revolving Promissory Note dated as of April 29, 1998
by Decora, Incorporated in favor of Fleet National Bank in the
principal amount of $15,000,000.(18)
10.61 Form of Restated Secured Revolving Line of Credit Agreement dated as
of April 29, 1998 between Decora, Incorporated and Fleet National
Bank.(18)
10.62 Form of Credit and Reimbursement Agreement Modification Agreement No.
3 dated as of April 29, 1998 between Decora, Incorporated and Fleet
National Bank.(18)
10.63 Form of Mortgage Modification and Consolidation Agreement dated as of
April 29, 1998 between Decora, Incorporated and Fleet National
Bank.(18)
10.64 Form of Mortgage dated as of April 29, 1998 between Decora,
Incorporated and Fleet National Bank securing principal indebtedness
in the amount of $2,497,000.(18)
10.65 Form of Mortgage dated as of April 29, 1998 between Decora,
Incorporated and Fleet National Bank securing principal indebtedness
in the amount of $499,000.(18)
10.66 Form of Restated Security Agreement dated as of April 29, 1998
between Decora, Incorporated and Fleet National Bank.(18)
10.67 Form of Environmental Compliance and Indemnification Agreement dated
as of April 29, 1998 between Decora, Incorporated and Fleet National
Bank.(18)
10.68 Form of Option Agreement dated as of January 8, 1998, by and between
Decora Industries, Inc. and Earl A. Wearsch.(18)
10.69 Form of Option Agreement dated as of February 19, 1998, by and
between Decora Industries, Inc. and Nathan Hevrony.(18)
II - 6
<PAGE> 208
10.70 Form of Option Agreement dated as of February 19, 1998, by and
between Decora Industries, Inc. and Timothy N. Burditt.(18)
10.71 Form of Option Agreement dated as of February 19, 1998, by and
between Decora Industries, Inc. and Richard DeCoste.(18)
10.72 Form of Option Agreement dated as of February 19, 1998, by and
between Decora Industries, Inc. and Earl A. Wearsch.(18)
10.73 Form of Option Agreement dated as of February 19, 1998, by and
between Decora Industries, Inc. and Frank J. Nolfi, Jr.(18)
10.74 Form of Option Agreement dated as of February 19, 1998, by and
between Decora Industries, Inc. and Bernhard Muller.(18)
10.75 Form of Option Agreement dated as of February 19, 1998, by and
between Decora Industries, Inc. and Hans- Georg Stahmer.(18)
10.76 Form of Option Agreement dated as of February 19, 1998, by and
between Decora Industries, Inc. and each of its non-employee
directors (Messrs. Artzer, Grafftey-Smith, Thomas and Verchick,
respectively).(18)
10.77 Form of Option Agreement dated as of June 1, 1997, by and between
Decora Industries, Inc. and Richard DeCoste.(18)
10.78 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.(17)
(12) Subsidiaries of the Registrants
12.1 Statement of Ratio of Earnings to Fixed Charges.
(21) Subsidiaries of the Registrants
21.1 Subsidiaries of Registrants.
(23) Consents of Experts and Counsel
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Dr. Ebner, Dr. Stolz und Partner GmbH.
23.3 Consents of Miller & Holguin (included in Exhibits 5.1 and 8.1).
(25) Statement of Eligibility of Trustee
25.1 Statement of Eligibility on Form T-1 of United States Trust Company
of New York
(28) Financial Data Schedule
II - 7
<PAGE> 209
28.1 Financial Data Schedule.(18)
(99) Additional Exhibits
99.1 Form of Exchange Agency Agreement, dated as of ______, 1998, by and
between DII and United States Trust Company of New York.
99.2 Form of Letter of Transmittal for Old Notes.
99.3 Form of Notice of Guaranteed Delivery of Old Notes.
- ----------
Notes:
(1) Previously filed as Exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1988.
(2) Previously filed as Exhibit to the Company's Report on Form 8-K dated
April 18, 1990.
(3) Previously filed as Exhibit to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1992.
(4) Previously filed as Exhibit to the Company's Report on Form 8-K dated
November 5, 1992.
(5) Previously filed as Exhibit to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1993.
(6) Previously filed as Exhibit to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1994.
(7) Previously filed as Exhibit to the Company's Report on Form 10-Q for
the fiscal quarter ended December 31, 1994.
(8) Previously filed as Exhibit to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1995.
(9) Confidential treatment requested.
(10) Previously filed as Exhibit to the Company's Report on Form 10-Q for
the fiscal quarter ended December 31, 1995.
(11) Previously filed as Exhibit to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1996.
(12) Previously filed as Exhibit to the Company's Report on Form 10-Q for
the fiscal quarter ended September 30, 1996
(13) Previously filed as Exhibit to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1997.
(14) Previously filed as Exhibit to the Company's Report on Form 10-Q for
the fiscal quarter ended June 30, 1997.
(15) Previously filed as Exhibit to the Company's Report on Form 8-K dated
October 1, 1997.
(16) Previously filed as Exhibit to the Company's Report on Form 8-K dated
March 31, 1998.
II - 8
<PAGE> 210
(17) Previously filed as Exhibit to the Company's Report on Form 10-Q for
the fiscal quarter ended December 31, 1996.
(18) Previously filed as Exhibit to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1998.
(b) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed as part of this
Registration Statement and should be read in conjunction with the consolidated
financial statements of DII.
<TABLE>
<CAPTION>
Schedule Page
-------- ----
<S> <C>
Schedule II: Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the DII Consolidated Financial Statements or the Notes
thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or
13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date
of the Registration Statement through the date of responding
to the request; and
II - 9
<PAGE> 211
(5) To supply by means of a post-effective amendment all information
concerning the Exchange Offer that was not the subject of and
included in the Registration Statement when it became effective.
(g) (1) The undersigned registrants hereby undertake as follows: That
prior to any public re-offering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such re-offering prospectus will contain the
information called for by the applicable registration form with
respect to re-offerings by persons who may be deemed underwriters,
in addition to the information called for by the other Items of
the applicable form.
(2) The registrants undertake that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the
Securities Act of 1933 and is used in connection with an offering
of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II - 10
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Edward, State of New York, on July 13, 1998.
DECORA INDUSTRIES, INC.
By: /s/ Nathan Hevrony
-----------------------------
Nathan Hevrony
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Nathan Hevrony Chief Executive Officer and July 13, 1998
- --------------------------------------- Director (Principal Executive
Nathan Hevrony Officer)
/s/ Timothy N. Burditt Executive Vice President, July 13, 1998
- --------------------------------------- Administration and Finance
Timothy N. Burditt (Principal Financial and
Accounting Officer)
/s/ Roger Grafftey-Smith Director July 13, 1998
- ---------------------------------------
Roger Grafftey-Smith
/s/ Gabriel Thomas Director July 13, 1998
- ---------------------------------------
Gabriel Thomas
/s/ Stephen H. Verchick Director July 13, 1998
- ---------------------------------------
Stephen H. Verchick
/s/ Ronald A. Artzer Director July 13, 1998
- ---------------------------------------
Ronald A. Artzer
</TABLE>
II - 11
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Fort
Edward, State of New York, on July 13, 1998.
DECORA, INCORPORATED
By: /s/ Nathan Hevrony
---------------------------------
Nathan Hevrony
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Nathan Hevrony Chief Executive Officer and July 13, 1998
- ----------------------------------- Director (Principal Executive
Nathan Hevrony Officer)
/s/ Timothy N. Burditt Vice President, Administration July 13, 1998
- ----------------------------------- and Finance and Director
Timothy N. Burditt (Principal Financial and
Accounting Officer)
</TABLE>
<PAGE> 214
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statement Schedules of Decora Industries, Inc.
for the three years ended March 31, 1998
Schedule II -- Valuation and Qualifying Accounts S-2
</TABLE>
S - 1
<PAGE> 215
DECORA INDUSTRIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
charged
Balance (credited) Deductions Acquisition Transla- Balance
at beginning to costs from of tion at end
Description of period and expenses accounts Hornschuch Adjustment of period
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reserve deducted from asset to
which it applied:
For the year ended
March 31, 1998
Accounts Receivable
Reserves $499 $ 146 $ 1,572(a) $3,195 $ 120 $2,148
For the year ended
March 31, 1997
Accounts Receivable
Reserves $202 $ 554 $ 257(a) $ -- $ -- $ 499
For the year ended
March 31, 1996
Accounts Receivable
Reserves $175 $ 157 $ 130(a) $ -- $ -- $ 202
(a) Uncollectible receivables written
off net of recoveries
</TABLE>
S - 2
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
DECORA INDUSTRIES, INC.
A DELAWARE CORPORATION
DECORA INDUSTRIES, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of Decora
Industries, Inc., resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation shall be amended by changing subsection A of the Fourth
Article thereof so that, as amended subsection A of said Article shall
be and read as follows:
FOURTH:
A. The total number of shares of all classes of stock which
the Corporation shall have the authority to issue is Fifty
million (50,000,000), consisting of:
(1) Forty-Five million (45,000,000) shares of Common Stock,
par value one cent ($.01) per share (the "Common Stock"); and
(2) Five million (5,000,000) shares of Preferred Stock, par
value one cent ($.01) per share (the "Preferred Stock").
SECOND: That thereafter, pursuant to a resolution of its Board of
Directors, at the annual meeting of stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 2
IN WITNESS WHEREOF, said Decora Industries, Inc. has caused this
certificate to be signed by Nathan Hevrony, its Chief Executive Officer, and
Timothy Burditt, its Secretary, this 30th day of October, 1993.
By: /s/ Nathan Hevrony
---------------------------------
Nathan Hevrony
Chief Executive Officer
ATTEST:
By: /s/ Timothy Burditt
------------------------------
Timothy Burditt
Secretary
-2-
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DECORA INDUSTRIES, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
Decora Industries, Inc., a Delaware corporation (the "Corporation"),
hereby certifies as follows:
FIRST: The name of the Corporation is Decora Industries, Inc.
SECOND: The Certificate of Incorporation of the Corporation is hereby
amended to effect a one-for-five reverse split of the Common Stock by adding a
new paragraph C to Article FOURTH to read as follows:
"C. Simultaneously with the effective date of this amendment (the
"Effective Date"), each share of the Common Stock issued and
outstanding immediately prior to the Effective Date and each such share
held in the corporation's treasury (the "Old Common Stock") shall
automatically and without any action on the part of the holder thereof
be reclassified as and changed into one-fifth (1/5) of a share of the
Common Stock, par value $.01 per share (the "Common Stock"), subject to
the treatment of fractional share interests as described below. Each
holder of a certificate or certificates which immediately prior to the
Effective Date represented outstanding shares of the Old Common Stock
(the "Old Common Certificates," whether one or more) shall be entitled
to receive upon surrender of the Old Common Certificates to the
Corporation's Transfer Agent for cancellation, a certificate or
certificates representing the number of whole shares of the Common
Stock (the "Common Certificates") into which and for which the shares
of the Old Common Stock formerly represented by the Old Common
Certificates so surrendered are reclassified under the terms hereof. No
certificate or scrip representing fractional share interests in the
Common Stock will be issued, and no such fractional share interest will
entitle the holder thereof to vote or to any rights of a stockholder of
the Corporation. A holder of the Old Common Certificates shall receive,
in lieu of any fraction of a share of the Common Stock to which the
holder otherwise would be entitled, a cash payment equal to the product
of the number of shares of the Old Common Stock which have not been
reclassified into a whole share of the Common Stock multiplied by the
average closing price of the Old Common Stock on the NASDAQ Small Cap
Market on the five most recent business days preceding the Effective
Date that the Old
1
<PAGE> 2
Common Stock was traded. If more than one Old Common Certificate shall
be surrendered at one time for the account of the same stockholder, the
number of full shares of the Common Stock for which Common Certificates
shall be issued shall be computed on the basis of the aggregate number
of shares represented by the Old Common Certificates so surrendered.
In the event that the Corporation's Transfer Agent determines
that a holder of the Old Common Certificates has not tendered all of
his or her certificates for exchange, the Transfer Agent shall carry
forward any fractional share until all certificates of such holder have
been presented for exchange so that payment for fractional shares to
such holder shall not exceed the value of one (1) whole share of the
Common Stock as a result of the rounding up of fractional shares. If
any Common Certificate is to be issued in a name other than that in
which the Old Common Certificates surrendered for exchange are issued,
the Old Common Certificates so surrendered shall be properly endorsed
and otherwise in proper form for transfer, and the person or persons
requesting such exchange shall affix any requisite stock transfer tax
stamps to the Old Common Certificates surrendered, or provide funds for
their purchase or establish to the satisfaction of the Transfer Agent
that such taxes are not payable."
THIRD: This Certificate of Amendment of Certificate of Incorporation
shall be effective as of December 29, 1997.
FOURTH: This Certificate of Amendment of Certificate of Incorporation
was duly adopted by the requisite vote of the Board of Directors and by the vote
of the holders of a majority of the outstanding shares of the Corporation
entitled to vote thereon in accordance with Section 242 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, Decora Industries, Inc. has caused this Certificate
of Amendment of Certificate of Incorporation to be executed by its Executive
Vice President this 29th day of December, 1997.
DECORA INDUSTRIES, INC.
By /s/Timothy N. Burditt
---------------------------------
Timothy N. Burditt
Executive Vice President
2
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DECORA INDUSTRIES, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
Decora Industries, Inc., a Delaware corporation (the "Corporation"),
hereby certifies as follows:
FIRST: The name of the Corporation is Decora Industries, Inc.
SECOND: The Certificate of Incorporation of the Corporation is hereby
amended to decrease the number of authorized shares of the Common Stock of the
Corporation from 45,000,000 shares to 20,000,000 shares by amending subsection A
of Article FOURTH of the Certificate of Incorporation so that, as amended,
subsection A of said Article shall be and read as follows:
"FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is twenty five million
(25,000,000), consisting of:
(1) Twenty million (20,000,000) shares of Common Stock, par value one
cent ($.01) per share (the "Common Stock"); and
(2) Five million (5,000,000 shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock")."
THIRD: This Certificate of Amendment of Certificate of Incorporation
shall be effective as of December 29, 1997.
FOURTH: This Certificate of Amendment of Certificate of Incorporation
was duly adopted by the requisite vote of the Board of Directors and by the vote
of the holders of a majority of the outstanding shares of the Corporation
entitled to vote thereon in accordance with Section 242 of the Delaware General
Corporation Law.
1
<PAGE> 2
IN WITNESS WHEREOF, Decora Industries, Inc. has caused this Certificate
of Amendment of Certificate of Incorporation to be executed by its Executive
Vice-President this 29th day of December, 1997.
DECORA INDUSTRIES, INC.
By /s/Timothy N. Burditt
---------------------------------
Timothy N. Burditt
Executive Vice President
2
<PAGE> 1
EXHIBIT 3.6
CERTIFICATE OF INCORPORATION
OF
DECORA, INCORPORATED
* * * * * *
1. The name of the corporation is
DECORA, INCORPORATED
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is twenty million (20,000,000) and the par value of such
shares is One Cent ($0.01) amounting in the aggregate to Two Hundred Thousand
Dollars ($200,000).
5. The name and mailing address of each incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
V. A. Brookens Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
J. L. Austin Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
T. L. Ford Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
</TABLE>
6. The corporation is to have perpetual existence.
<PAGE> 2
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the corporation.
8. Elections of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
9. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 5th day of March, 1990.
/s/ V. A. Brookens
------------------------------------
V. A. Brookens
/s/ J. L. Austin
------------------------------------
J. L. Austin
/s/ T. L. Ford
------------------------------------
T. L. Ford
<PAGE> 1
EXHIBIT 3.7
DECORA, INCORPORATED
* * * * *
BY-LAWS
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
board of directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders, shall be held at such date
and time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
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Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the meeting
until a quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented any business may be transacted
which might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any
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question brought before such meeting, unless the question is one upon which by
express provision of the statutes or of the certificate of incorporation, a
different vote is required in which case such express provision shall govern and
control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
At all elections of directors of the corporation each stockholder having
voting power shall be entitled to exercise the right of cumulative voting as
provided in the certificate of incorporation.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than three nor more than seven. The first board shall
consist of three directors Thereafter, within the limits above specified, the
number of directors shall be determined by resolution of the board of directors
or by the stockholders at the annual meeting. The directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 2 of this
Article, and each director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in
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the manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any such
increase) , the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the president
on no minimum day's notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors unless the
board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be
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otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation) adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee
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shall have the power or authority to declare a dividend or to authorize the
issuance of stock or to adopt a certificate of ownership and merger. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board
of directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the board
of directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the corporation
shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
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THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the vice- president (or in the event there be more
than one vice- president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and
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the board of directors, at its regular meetings, or when the board of directors
so requires, an account of all his transactions as treasurer and of the
financial condition of the corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner,
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and to hold liable for calls and assessments a person registered on its books as
the owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
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SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the board of directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
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Exhibit 5.1
[LETTERHEAD OF MILLER & HOLGUIN]
July 13, 1998
Decora Industries, Inc.
Decora, Incorporated
1 Mill Street
Fort Edward, New York 12828
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Decora Industries, Inc., a Delaware
corporation ("DII"), and Decora, Incorporated, a Delaware corporation
("Decora"), in connection with the preparation and filing of the Registration
Statement on Form S-4 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), relating to the proposed offer by DII
(the "Exchange Offer") to exchange $112,750,000 aggregate principal amount of
11% Senior Secured Notes due 2005, Series B ("Exchange Notes") for a like amount
of its outstanding 11% Senior Secured Notes due 2005 ("Old Notes"). The Exchange
Notes will be guaranteed ("Guarantee") on a full and unconditional basis by
Decora pursuant to the terms and provisions of Article 10 of the Indenture. The
Exchange Notes will be issued pursuant to the Indenture, dated April 29, 1998,
among DII, Decora and United States Trust Company of New York (the "Indenture"),
which has been included as an Exhibit to the Registration Statement.
We have examined the Registration Statement and the Indenture. In
addition, we have examined, and have relied as to matters of fact upon, the
originals or copies, certified or otherwise identified to our satisfaction, of
such corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers and
representatives of DII and Decora, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
Based on the foregoing, we are of the opinion that:
1. The Exchange Notes have been duly authorized by DII and, when issued
and delivered in exchange for the Old Notes in the manner described in the
Registration Statement and when executed and authenticated as specified in the
Indenture, will be duly issued and delivered and will constitute valid and
binding obligations of DII.
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2. The Guarantee of Decora, when the Exchange Notes have been executed
and authenticated as specified in the Indenture, will be duly issued and
delivered and will constitute the valid and binding obligation of Decora.
Our opinion set forth above is subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
We are members of the Bar of the State of California and we do not
express any opinion herein concerning any law other than the law of the State of
California, the General Corporation Law of the State of Delaware and the federal
law of the United States.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ MILLER & HOLGUIN
Miller & Holguin
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Exhibit 8.1
[LETTERHEAD OF MILLER &HOLGUIN]
July 13, 1998
Decora Industries, Inc.
Decora, Incorporated
1 Mill Street
Fort Edward, New York 12828
Ladies and Gentlemen:
We have acted as counsel for Decora Industries, Inc., a Delaware
corporation ("DII") and Decora, Incorporated, a Delaware corporation ("Decora")
in connection with the Registration Statement on Form S-4 (the "Registration
Statement") filed by DII and Decora with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the issuance by DII of $112,750,000 aggregate principal
amount of 11% Senior Secured Notes due 2005, Series B ("Exchange Notes") which
are to be offered by DII in exchange for $112,750,000 aggregate principal amount
of its outstanding 11% Senior Secured Notes due 2005 (the "Old Notes").
We have examined the Registration Statement and the Indenture dated as
of April 29, 1998 (the "Indenture") among DII, Decora and United States Trust
Company of New York, as Trustee (the "Trustee"), which has been included as an
Exhibit to the Registration Statement. In addition, we have examined, and have
relied as to matters of fact upon, the originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments and such certificates or comparable documents of
public officials and of officers and representatives of DII and Decora, and have
made such other and further investigations, as we have deemed relevant and
necessary as a basis for the opinion hereinafter set forth.
We have assumed the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies, and the authenticity of the originals of such
latter documents.
Based on the foregoing, and subject to the qualifications and
limitations stated herein, our opinion is as set forth in the Prospectus in the
Registration Statement under the heading "Certain U.S. Federal Income Tax
Consequences."
<PAGE> 2
We are members of the Bar of the State of California and we do not
express any opinion herein concerning any law other than the federal law of the
United States.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Certain U.S. Federal Income Tax Consequences" in the Prospectus included
therein.
Very truly yours,
/s/ Miller & Holguin
MILLER & HOLGUIN
<PAGE> 1
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
For purposes of this calculation, earnings consist of income tax
(benefit) provision and minority interest plus fixed charges. Fixed charges
consist of interest and indebtedness plus that portion of lease rental expense
deemed representative of the interest factor.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Pre-tax income from continuing operations 6,008 2,407 1,433 1,237 1,741
Minority interest in the income
of subsidiary with fixed charges 1,212 0 0 0 0
------ ------ ------ ------ ------
7,220 2,407 1,433 1,237 1,741
------ ------ ------ ------ ------
Fixed charges:
Interest expense and amortization of debt
discount on all indebtedness 3,829 2,319 2,675 2,658 2,451
Office and other equipment rentals 51 11 10 9 10
------ ------ ------ ------ ------
Total fixed charges 3,880 2,330 2,685 2,667 2,461
------ ------ ------ ------ ------
Earnings before income taxes, minority interest
and fixed charges 11,100 4,737 4,118 3,904 4,202
Ratio of earnings to fixed charges 2.86x 2.03x 1.53x 1.46x 1.71x
</TABLE>
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANTS
Subsidiaries of Decora Industries, Inc.
Decora, Incorporated, a Delaware corporation
Decora Industries Deutschland GmbH, a German limited liability company
Konrad Hornschuch AG, a German corporation
Subsidiaries of Decora, Incorporated
None
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Decora Industries, Inc. of our reports
dated June 5, 1998 relating to the financial statements of Decora Industries,
Inc., and Decora, Incorporated, which appear in such Prospectus. We also consent
to the application of our report on Decora Industries, Inc. to the Financial
Statement Schedules for the three years ended March 31, 1998 listed under Item
21(b) of this Registration Statement when such schedules are read in conjunction
with the financial statements referred to in our report. The audits referred to
in such report also included these schedules. We also consent to the references
to us under the heading "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that PricewaterhouseCoopers LLP has not
prepared or certified such "Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
July 10, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of the Decora Industries Inc. of our reports
dated April 2, 1997 and March 22, 1996 related to the consolidated financial
statements for Konrad Hornschuch Aktiengesellschaft for the years ended December
31, 1996 and 1995 and 1995 and 1994, respectively, which appear in such
Prospectus. We also consent to the references to us under the heading "Experts"
in such Prospectus.
Stuttgart, 10 July 1998
Dr. Ebner, Dr. Stolz und Partner GmbH
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
/s/ Gerhard Weigl /s/ Roland Abele
Gerhard Weigl Roland Abele
Wirtschaftspufer Wirtschaftspufer
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
--------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
Corporate Trust Department
(212) 852-1661
(Agent for Service)
--------------------------
Decora Industries, Inc.
(Exact name of OBLIGOR as specified in its charter)
Delaware 68-0003300
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
--------------------------
Decora, Incorporated
(Exact name of OBLIGOR as specified in its charter)
Delaware 93-1028300
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1 Mill Street 12828
Fort Edward, New York (Zip code)
(Address of principal executive offices)
--------------------------
11% Senior Secured Notes due 2005, Series B
(Title of the indenture securities)
<PAGE> 2
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Decora Industries, Inc. and Decora, Incorporated currently are not in
default. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
<TABLE>
<S> <C> <C>
T-1.1 -- Organization Certificate, as amended, issued by
the State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
</TABLE>
<PAGE> 3
- 3 -
16. LIST OF EXHIBITS
(cont'd)
<TABLE>
<S> <C> <C>
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15, 1995
with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
</TABLE>
NOTE
As of July 2, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 2nd day
of July 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Cynthia Chaney
------------------------------
Cynthia Chaney
Assistant Vice President
CC/kk
<PAGE> 4
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission 450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/Gerard F. Ganey
------------------------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
----------
TOTAL ASSETS $3,159,978
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
----------
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
----------
TOTAL LIABILITIES $2,987,921
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
----------
TOTAL STOCKHOLDER'S EQUITY 172,057
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $3,159,978
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<PAGE> 1
Exhibit 99.1
FORM OF
EXCHANGE AGENCY AGREEMENT
This Agreement is entered into as of ___________ 1998 between United
States Trust Company of New York, as Exchange Agent (the "Agent") and Decora
Industries, Inc., a corporation organized under the laws of the State of
Delaware (the "Company").
The Company proposes to exchange $1,000 principal amount of the
Company's 11% Senior Secured Notes due 2005, Series B (the "New Notes") in
exchange (the "Exchange Offer") for an equal aggregate principal amount of the
Company's outstanding 11% Senior Secured Notes due 2005 (the "Old Notes")
pursuant to the Registration Rights Agreement dated as of April 29, 1998 among
the Company, Decora, Incorporated ("Decora") and Lazard Freres & Co. LLC, and
the accompanying Letter of Transmittal. The Exchange Offer will terminate at
5:00 p.m. New York City Time on ________________ unless extended by the Company
in its sole discretion (the "Expiration Date"). The New Notes are to be issued
by the Company pursuant to the terms of an Indenture dated as of April 29, 1998
(the "Indenture") among the Company, Decora and United States Trust Company of
New York, as trustee (the "Trustee").
Subject to the provisions hereof, the Company hereby appoints and the
Agent hereby accepts the appointment as Agent for the purposes of receiving,
accepting for delivery and otherwise acting upon tenders of the Old Notes (the
"Certificates") in accordance with the form of Letter of Transmittal attached
hereto (the "L/T") and with the terms and conditions set forth herein and under
the caption "The Exchange Offer" in the Prospectus.
The Agent has received the following documents in connection with its
appointment:
(1) L/T
(2) a form of Notice of Guaranteed Delivery
(3) the Prospectus
The Agent is authorized and hereby agrees to act as follows:
(a) to address, and deliver by first class mail, in the case of the
initial distribution, and by hand or next day courier, in the
case of any amendments to the initial distribution, a complete
set of the Exchange Offer Documents to each person who, prior to
the Expiration Date, becomes a registered holder of Old Notes
promptly after such person becomes a registered holder of Old
Notes;
<PAGE> 2
(b) to receive all tenders of Old Notes made pursuant to the Exchange
Offer and stamp the L/T with the day, month and approximate time
of receipt;
(c) to examine each L/T and Old Notes received to determine that all
requirements necessary to constitute a valid tender have been met
The Agent shall be entitled to rely on the DTC electronic
messages sent regarding ATOP delivery of the Notes to the Agent's
account at DTC from the DTC participants listed on the DTC
position listing provided to the Agent;
(d) to take such actions necessary and appropriate to correct any
irregularity or deficiency associated with any tender not in
proper order;
(e) to follow instructions given by Timothy Burditt of the Company,
with respect to the waiver of any irregularities or deficiencies
associated with any tender;
(f) to hold all valid tenders subject to further instructions from
Timothy Burditt of the Company;
(g) to render a written report, in form and substance satisfactory to
the Company, on each business day during the Exchange Offer and
promptly confirm, by telephone, the information contained therein
to Timothy Burditt at 1 Mill Street, Fort Edward, New York 12858
telephone: (518) 747-6255 , facsimile: (518) 747-5089;
(h) to follow and act upon any written amendments, modifications or
supplements to these instructions, any of which may be given to
the Agent by the President, any Vice President or the Secretary
of the Company or such other person or persons as they shall
designate in writing;
(i) to return to the presentors, in accordance with the provisions of
the L/T, any Old Notes that were not received in proper order and
as to which the irregularities or deficiencies were not cured or
waived;
(j) in the event the Exchange Offer is consummated, to deliver
authenticated Exchange Notes to tendering Noteholders, in
accordance with the instructions of such Noteholder's specified
in the respective L/T's, as soon as practicable after receipt
thereof;
(k) to determine that all endorsements, guarantees, signatures,
authorities, stock transfer taxes (if any) and such other
requirements are fulfilled in connection with any request for
issuance of the Exchange Notes in a name other than that of the
registered owner of the Old Notes;
2
<PAGE> 3
(l) to deliver to the Company, on a daily basis , a transfer journal
detailing all exchanges of New Notes for Old Notes pursuant to
the Exchange Offer and, if requested by the Company, all
certificates received under the Exchange Offer, together with any
related assignment forms and other documents; and
(m) to take all other actions reasonable and necessary in the good
faith judgment of the Agent, to effect the foregoing matters.
The Agent shall:
(a) have no duties or obligations other than those specifically set
forth herein;
(b) not be required to refer to any documents for the performance of
its obligations hereunder other than this Agreement, the L/T and
the documents required to be submitted with the L/T; other than
such documents, the Agent will not be responsible or liable for
any directions or information in the Prospectus or any other
document unless the Agent specifically agrees thereto in writing;
(c) not be required to act on the directions of any person, including
the persons named above, unless the Company provides a corporate
resolution to the Agent or other evidence satisfactory to the
Agent of the authority of such person;
(d) not be required to and shall make no representations and have no
responsibilities as to the validity, accuracy, value or
genuineness of (i) the Exchange Offer, (ii) any Certificates,
L/T's or documents prepared by the Company in connection with the
Exchange Offer or (iii) any signatures or endorsements, other
than its own;
(e) not be obligated to take any legal action hereunder that might,
in its judgement, involve any expense or liability, unless it has
been furnished with reasonable indemnity by the Company;
(f) be able to rely on and shall be protected in acting on the
written or oral instructions with respect to any matter relating
to its actions as Agent specifically covered by this Agreement,
of any officer of the Company authorized to give instructions
under paragraph (c) above;
(g) be able to rely on and shall be protected in acting upon any
certificate, instrument, opinion, notice, letter, telegram or any
other document or security delivered to it and believed by it
reasonably and in good faith to be genuine and to have been
signed by the proper party or parties;
(h) not be responsible for or liable in any respect on account of the
identity, authority or rights of any person executing or
delivering or purporting to execute or deliver any
3
<PAGE> 4
document or property under this Agreement and shall have no
responsibility with respect to the use or application of any
property delivered by it pursuant to the provisions hereof;
(i) be able to consult with counsel satisfactory to it (including
counsel for the Company or counsel of the Agent) and the advice
or opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in
accordance with advice or opinion of such counsel;
(j) not be called on at any time to advise, and shall not advise, any
person delivering an L/T pursuant to the Exchange Offer as to the
value of the consideration to be received;
(k) not be liable for anything which it may do or refrain from doing
in connection with this Agreement except for its own gross
negligence, willful misconduct or bad faith;
(l) not be bound by any notice or demand, or any waiver or
modification of this Agreement or any of the terms hereof, unless
evidenced by a writing delivered to the Agent signed by the
proper authority or authorities and, if the Agent's duties or
rights are affected, unless the Agent shall give its prior
written consent thereto;
(m) have no duty to enforce any obligation of any person to make
delivery, or to direct or cause any delivery to be made, or to
enforce any obligation of any person to perform any other act;
and
(n) have the right to assume, in the absence of written notice to the
contrary from the proper person or persons, that a fact or an
event by reason of which an action would or might be taken by the
Agent does not exist or has not occurred without incurring
liability for any action taken or omitted, or any action suffered
by the Agent to be taken or omitted, in good faith or in the
exercise of the Agent's best judgement, in reliance upon such
assumption.
The Agent hereby acknowledges receipt of $3,500 as full and complete
consideration for its services under this Agreement .
The Company covenants and agrees to reimburse the Agent for, indemnify
it against, and hold it harmless from any and all reasonable costs and expenses
(including reasonable fees and expenses of counsel and allocated cost of staff
counsel) that may be paid or incurred or suffered by it or to which it may
become subject without gross negligence, willful misconduct or bad faith on its
part by reason of or as a result of its compliance with the instructions set
forth herein or with any additional or supplemental written or oral instructions
delivered to it pursuant hereto, or which may
4
<PAGE> 5
arise out of or in connection with the administration and performance of its
duties under this Agreement.
This Agreement shall be construed and enforced in accordance with the
laws of the State of New York and shall insure to the benefit of, and the
obligations created hereby shall be binding upon, the successors and assigns of
the parties hereto. The parties agree to submit and to the exclusive
jurisdiction of the federal or state courts located in the State of New York,
New York County.
Unless otherwise expressly provided herein, all notices, requests,
demands and other communications hereunder shall be in writing, shall be
delivered by hand, facsimile or by First Class Mail, postage prepaid, shall be
deemed given when received and shall be addressed to the Agent and the Company
at the respective addresses listed below or to such other addresses as they
shall designate from time to time in writing, forwarded in like manner.
If to the Agent: United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Telephone: (212) 852-1661
Facsimile: (212) 852-1626
If to the Company, to: Timothy N. Burditt
Decora Industries, Inc.
1 Mill Street
Fort Edward, New York 12858
Telephone: (518) 747-6255
Facsimile: (518) 747-5089
with copies to: J. Brad Wiggins, Esq.
Miller & Holguin
1801 Century Park East
7th Floor
Los Angeles, California 90067
Telephone: (310) 556-1990
Facsimile: (310) 557-2205
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their officers thereunto duly authorized, all as of
the day and year first above written.
UNITED STATES TRUST COMPANY OF NEW YORK
By: ________________________________
Assistant Vice President
6
<PAGE> 1
Exhibit 99.2
FORM OF
LETTER OF TRANSMITTAL
FOR
11% SENIOR SECURED NOTES DUE 2005
OF
DECORA INDUSTRIES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON, _______________ 1998 (THE "EXPIRATION DATE") UNLESS EXTENDED.
EXCHANGE AGENT:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
By Hand By Overnight Courier and by Hand after 4:30 p.m.
( Before 4:30 p.m.) on the Expiration Date only
United States Trust Company of New York United States Trust Company of New York
111 Broadway 770 Broadway, 13th Floor
New York, New York 10006 New York, New York 10003
Attention: Lower Level
Corporate Trust Window
By Mail: By Facsimile Transmission:
(insured or registered mail recommended)
(212) 780-0592
United States Trust Company of New York (For Eligible Institutions Only)
P. O. Box 843 Cooper Station
New York, New York 10276 To confirm receipt:
Attention: Corporate Trust Services (800) 548-6565
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus, dated
_______________, 1998 (the 'Prospectus"), of Decora Industries, Inc. ("Decora
Industries"), and this Letter of Transmittal (the "Letter of Transmittal"),
which together describe Decora Industries' offer (the "Exchange Offer") to
exchange $1,000 principal amount of its 11% Senior Secured Notes due 2005,
Series B (the "Exchange Notes") for each $1,000 principal amount of its
outstanding 11% Senior Secured Notes due 2005 (the "Old Notes"). Capitalized
terms used but not defined herein have the meanings given to them in the
Prospectus.
<PAGE> 2
The undersigned has checked the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND
THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NAME(S) AND ADDRESSES AGGREGATE PRINCIPAL PRINCIPAL
OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBER(S) BY OLD NOTES* TENDERED**
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have
tendered the full aggregate principal amount represented by such Old
Notes. See instruction 2.
This Letter of Transmittal is to be used whether the Old Notes are to
be physically delivered herewith or whether guaranteed delivery procedures or
book-entry delivery procedures are being used, pursuant to the procedures set
forth in "The Exchange Offer - Tender Procedure" in the Prospectus. If delivery
of Old Notes is to be made by book-entry transfer to the account maintained by
the Exchange Agent at The Depository Trust Company (the "Depository"), this
Letter of Transmittal need not be manually executed, provided, however, that
tenders of Old Notes must be effected in accordance with the procedures mandated
by the Depository and the procedures set forth in the Prospectus under the
caption "The Exchange Offer - Tender Procedure."
- 2 -
<PAGE> 3
Registered holders whose Old Notes are not immediately available or
who cannot deliver their Old Notes and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or if the procedures for
delivery by book-entry transfer cannot be completed on a timely basis, may
tender their Notes according to the guaranteed delivery procedures set forth in
the Prospectus under the caption "The Exchange Offer - Procedures for Tendering
Old Notes - Tender Procedure."
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________
[ ] The Depository Trust Company
Account Number: __________________________________________________
Transaction Code Number: __________________________________________
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY AND DELIVERED TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s): ____________________________________
Name of Eligible Institution that Guaranteed Delivery:______________
Date of Execution of Notice of Guaranteed Delivery:_________________
If Delivered by Book-Entry Transfer:
Account Number: ____________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.
Name: ___________________________________________________________
Address: ___________________________________________________________
(Including Zip Code)
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
Broker-dealers who did not acquire Old Notes are not eligible to participate in
the Exchange Offer.
- 3 -
<PAGE> 4
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
[ ] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO A PERSON OTHER
THAN THE PERSON SIGNING THE LETTER OF TRANSMITTAL:
Name: ___________________________________________________________
Address: ___________________________________________________________
(Including Zip Code)
Employer Identification or Social Security Number
(Complete the Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
[ ] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO AN ADDRESS
DIFFERENT FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Name: ___________________________________________________________
Address: ___________________________________________________________
(Including Zip Code)
- 4 -
<PAGE> 5
Employer Identification or Social Security Number
(Complete the Substitute Form W-9)
PAYER'S NAME: _________________________________
<TABLE>
<CAPTION>
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<S> <C> <C>
SUBSTITUTE Part 1-PLEASE PROVIDE YOUR TIN IN Social Security Number
THE BOX AT THE RIGHT AND CERTIFY
Form W-9 BY SIGNING AND DATING BELOW. OR ___________________________
Department of the Treasury Employer Identification Number
Internal Revenue Service ---------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER Part 2--Please check the box at the right if you have applied for, and are awaiting
IDENTIFICATION NUMBER (TIN) receipt of, your TIN [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Certification--under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding either because I have not been notified by the IRS that I am subject to backup
withholding as a result of a failure to report all interests or dividends, or the IRS has notified me that I am no longer
subject to backup withholding.
Certification Instructions-You must cross out item (2) above if you have been notified by the IRS that you are subject to backup
withholding because of under reporting interest or dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see Certification under Specific Instructions in the enclosed Guidelines.)
SIGNATURE ______________________________________________________________________ DATE ___________________________, 1998
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</TABLE>
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN AND
DATE THE FOLLOWING CERTIFICATION:
- 5 -
<PAGE> 6
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31% of all payments made
to me pursuant to this Exchange Offer shall be retained until I provide a Tax
Identification Number to the payer and that, if I do not provide my Taxpayer
Identification Number within sixty (60) days, such retained amounts shall be
remitted to the Internal Revenue Service as backup withholding and 31% of all
reportable payments made to me thereafter will be withheld and remitted to the
Internal Revenue service until I provide a Taxpayer Identification Number.
SIGNATURE _____________________________________ DATE _______________, 1998
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NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to Decora Industries the principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered herewith, the undersigned hereby exchanges,
assigns and transfers to, or upon the order of Decora Industries all right,
title and interest in and to such Old Notes. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of Decora Industries in connection with the Exchange
Offer) with respect to the Old Notes to be assigned, transferred and exchanged
with full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest). The undersigned represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Old Notes tendered hereby and to acquire Exchange Notes issuable
upon the exchange of such tendered Old Notes, and that, when the same are
accepted for exchange, Decora Industries will acquire good and unencumbered
title to the tendered Old Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim or right. The
undersigned also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent to be necessary or desirable
to complete the exchange, assignment and transfer of the Old Notes tendered
hereby or transfer ownership of such Old Notes on the account books maintained
by the book-entry transfer facility.
The Exchange Offer is subject to certain conditions as set forth in
the Prospectus under the caption "The Exchange Offer - Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived by Decora Industries, in whole or in part, in the
reasonable judgment of Decora Industries), as more particularly set forth in the
Prospectus, Decora Industries may not be required to exchange any of the Old
Notes tendered hereby and, in such event, the Old Notes not exchanged will be
returned to the undersigned at the address shown above.
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<PAGE> 7
The undersigned acknowledges that the Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchased Old Notes directly from Decora Industries for resale pursuant to Rule
144A under the Securities Act or (ii) a person that is an "affiliate" of Decora
Industries within the meaning of Rule 405 under the Securities Act provided that
such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such Exchange Notes. See Morgan Stanley & Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1988); and "The Exchange Offer - Terms of the Exchange" in the Prospectus.
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT DECORA INDUSTRIES
RESERVES THE RIGHT NOT TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF
DECORA INDUSTRIES DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT SUCH
ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS.
The undersigned, if the undersigned is a beneficial holder,
represents, or, if the undersigned is a broker, dealer, commercial bank, trust
company or other nominee, represents that it has received representations from
the beneficial owners of the Old Notes stating that (i) the Exchange Notes to be
acquired in connection with the Exchange Offer are being acquired in the
ordinary course of business, (ii) the holder is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the Exchange Notes, (iii) the holder
acknowledges and agrees that any person participating in the Exchange Offer for
the purpose of distributing the Exchange Old Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Notes acquired by
such person and cannot rely on the position of the staff of the Commission set
forth in no-action letters that are discussed in the Prospectus under the
caption "The Exchange Offer - Terms of the Exchange," (iv) that if the holder is
a broker-dealer that acquired Old Notes as a result of market-making or other
trading activities, it will deliver a prospectus in connection with any resale
of Exchange Notes acquired in the Exchange Offer, (v) the holder understands
that a secondary resale transaction described in clause (iii) above should be
covered by an effective registration statement containing the selling security
holder information required by Item 507 of Regulation S-K of the Securities Act
and (vi) the holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of Decora Industries except as otherwise disclosed to Decora
Industries in writing.
In addition, if the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. Broker-dealers who
did not so acquire Old Notes are not eligible to participate in the Exchange
Offer.
All authority herein conferred or agreed to be conferred by this
Letter of Transmittal and every obligation of the undersigned hereunder shall be
binding upon the heirs, legal representatives, successors and assigns,
executors, administrators and trustees in bankruptcy of the undersigned and
shall survive the death
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<PAGE> 8
or incapacity of the undersigned. Tendered Old Notes may be withdrawn at any
time prior to the Expiration Date in accordance with the terms of the Letter of
Transmittal.
The undersigned understands that tenders of the Old Notes pursuant to
any one of the procedures described under "The Exchange Offer -- Tender
Procedure" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and Decora Industries in accordance
with the terms and subject to the conditions of the Exchange Offer.
The undersigned understands that by tendering Notes pursuant to one
of the procedures described under "The Exchange Offer -- Tender Procedure" in
the Prospectus and the instructions hereto, the tendering holder will be deemed
to have waived the right to receive any payment in respect of interest on the
Old Notes accrued up to the date of issuance of the Exchange Notes.
The undersigned understands and acknowledges that Decora Industries
reserves the right in its sole discretion to purchase or make offers for any Old
Notes that remain outstanding subsequent to the Expiration Date in the open
market, in privately negotiated transactions, through subsequent exchange offers
or otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
Certificates for all Exchange Notes delivered in exchange for
tendered Old Notes and any Old Notes delivered herewith but not exchanged, and
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
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<PAGE> 9
ALL TENDERING HOLDER(S) SIGN HERE
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
- --------------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated: ____________ Area Code and Telephone Number: ________________________
(Must he signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) of Old Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
Name(s): ______________________________________________________________________
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(Please Type or Print)
Capacity (full title): ________________________________________________________
Address: ______________________________________________________________________
Area Code and Telephone No.: __________________________________________________
Taxpayer Identification or Social Security No.(s):______________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED - SEE INSTRUCTION 3)
Authorized Signature: _________________________________________________________
Name: _________________________________________________________________________
Title: ________________________________________________________________________
Address: ______________________________________________________________________
Name of Firm: _________________________________________________________________
Area Code and Telephone No.: __________________________________________________
Dated: ____________________________
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<PAGE> 10
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered Old Notes or confirmation
of any book-entry transfer to the Exchange Agent's or its agent's account at a
Book-Entry Transfer Facility of Old Notes tendered by book-entry transfer, as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile thereof, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at any of its
addresses set forth herein on or prior to the Expiration Date.
The method of delivery of the Old Notes, this Letter of Transmittal
and any other required documents is at the election and risk of the holder. If
such delivery is by mail, it is suggested that registered mail, properly
insured, with return receipt requested, be used. It is recommended that the
holders use an overnight or hand delivery service. In all cases sufficient time
should be allowed to permit timely delivery.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other required documents to the Exchange Agent
on or prior to the Expiration Date or comply with book-entry transfer procedures
on a timely basis must tender their Old Notes pursuant to the guaranteed
delivery procedure set forth in that Prospectus under "The Exchange Offer -
Tender Procedure". Pursuant to such procedure: (i) such tender must be made by
or through an Eligible Institution; (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from such Eligible Institution a letter,
telex, telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) setting forth the name and
address of the tendering holder, the names in which such Old Notes are
registered, and, if possible, the certificate numbers of the Old Notes to be
tendered; and (iii) all tendered Old Notes (or a confirmation of any book- entry
transfer of such Old Notes into the Exchange Agent's account at a Book-Entry
Transfer Facility) as well as this Letter of Transmittal and all other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within three business days after the Expiration Date, all as provided in the
Prospectus under the caption "The Exchange Offer - Tender Procedure."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
manually signed facsimile thereof), shall waive any right to receive notice of
the acceptance of the Old Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS.
Tenders of Old Notes will be accepted only in integral multiples of
$1,000. If less than the entire principal amount of Old Notes evidenced by a
submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Old Notes submitted but not
tendered will be sent to such holder as soon as practicable after the Expiration
Date. All Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise clearly indicated.
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. To be effective, a written,
telegraphic, telex or facsimile transmission notice of withdrawal must be
received by the Exchange
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<PAGE> 11
Agent at one of its addresses set forth in this Letter of Transmittal by 5:00
P.M., New York City time, on the Expiration Date unless extended by Decora
Industries. Any such notice of withdrawal, the certificate number(s) of the Old
Notes to be withdrawn (except in the case of book-entry tenders), the principal
amount of Old Notes delivered for exchange or a Book-Entry Confirmation with
respect to such Old Notes and must be signed by the holder in the same manner as
the original signature on the Letter of Transmittal (including any required
signature guarantees). The signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution unless such Old Notes have been tendered
(i) by a Registered Holder (which term for purposes of this document shall
include any participant tendering by book-entry transfer) of Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii)
for the account of an Eligible Institution. If the Old Notes have been tendered
pursuant to the procedure for book-entry tender set forth in the Prospectus
under the caption "The Exchange Offer - Tender Procedure" a notice of withdrawal
is effective immediately upon receipt by the Exchange Agent of a written,
telegraphic or facsimile transmission notice of withdrawal even if physical
release is not yet effected. In addition, such notice must specify, in the case
of Old Notes tendered by delivery of such Old Notes, the name of the registered
holder (if different from that of the tendering holder) to be credited with the
withdrawn Old Notes. Withdrawals may not be rescinded and any Old Notes
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer. However, properly withdrawn Old Notes may be retendered by
following one of the procedures described under "The Exchange Offer - Tender
Procedure" in the Prospectus at any time on or prior to the applicable
Expiration Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s)
of the Old Notes tendered hereby, the signature must correspond with the name(s)
as written on the face of the certificates without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Notes tendered hereby are registered in different
names, it will be necessary to complete sign and submit as many separate copies
of this Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
Book-Entry Transfer Facility whose name appears on a security listing as the
owner of the Old Notes) of Old Notes specified herein and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required. If, however, Exchange Notes are to be issued, or any
untendered principal amount of Old Notes are to be reissued to a person other
than the registered holder, then endorsements of any Old Notes transmitted
hereby or separate bond powers are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Old Notes specified herein, such Old Notes
must be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to Decora Industries and duly executed by the
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<PAGE> 12
registered holder, in either case signed exactly as the name or names of the
registered holder or holders appear(s) on the Old Notes.
If this Letter of Transmittal or a Notice of Guaranteed Delivery or
any certificates or separate written instruments of transfer or exchange are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
Decora Industries, proper evidence satisfactory to Decora Industries of their
authority so to act must be submitted.
Except as described in this paragraph, signatures on this Letter of
Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by
an Eligible Institution which is a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution").
Signatures on this Letter of Transmittal or a notice of withdrawal, as the case
may be, need not be guaranteed if the Old Notes tendered pursuant hereto are
tendered (i) by a Registered Holder of Old Notes who has not completed either
the box entitled "Special Exchange Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) for the account of
an Eligible Institution.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders should indicate in the applicable box the name and
address to which Exchange Notes and/or substitute Old Notes for the principal
amounts not exchanged are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the employer identification or social security
number of the person named must also be indicated. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter of Transmittal.
5. TAX IDENTIFICATION NUMBER AND BACKUP WITHHOLDING.
Federal income tax law of the United States requires that a holder of
Old Notes whose Old Notes are accepted for exchange provide Decora Industries
with such holder's correct taxpayer identification number, which, in the case of
a holder who is an individual, is the holder's social security number, or
otherwise establish an exemption from backup withholding. If Decora Industries
is not provided with the holder's correct taxpayer identification number, the
exchanging holder of Old Notes may be subject to a penalty imposed by the
Internal Revenue Service. In addition, interest on the Exchange Notes acquired
pursuant to the Exchange Offer may be subject to backup withholding in an amount
equal to 31 percent of any interest payment. If withholding occurs and results
in an overpayment of taxes, a refund may be obtained from the Internal Revenue
Service through the filing of a return.
To prevent backup withholding, each exchanging holder of Old Notes
subject to backup withholding must provide his correct taxpayer identification
number by completing the Substitute Form W-9 provided in this Letter of
Transmittal, certifying that the taxpayer identification number provided is
correct (or that
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<PAGE> 13
the exchanging holder of Old Notes is awaiting a taxpayer identification number)
and that either (a) the exchanging holder has not been notified by the Internal
Revenue Service that he is subject to backup withholding as a result of failure
to report all interest or dividends or (b) the Internal Revenue Service has
notified the exchanging holder that he is no longer subject to backup
withholding.
Certain exchanging holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding requirements. A foreign individual and other exempt holders (e.g.,
corporations) should certify, in accordance with the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9, to such
exempt status on the Substitute Form W-9 provided in this Letter of Transmittal.
6. TRANSFER TAXES.
Holders tendering pursuant to the Exchange Offer will not be
obligated to pay brokerage commissions or fees or to pay transfer taxes with
respect to their exchange under the Exchange Offer unless the box entitled
"Special Exchange Instructions" in this Letter of Transmittal has been
completed, or unless the securities to be received upon exchange are to be
issued to any person other than the holder of the Old Notes tendered for
exchange. Decora Industries will pay all other charges or expenses in connection
with the Exchange Offer. If holders tender Old Notes for exchange and the
Exchange Offer is not consummated, such Old Notes will be returned to the
holders at Decora Industries's expense.
Except as provided in this Instruction 6, it will not be necessary
for transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS.
Decora Industries reserves the right to waive, in whole or in part,
in its reasonable judgment, any of the conditions to the Exchange Offer set
forth in the Prospectus under the caption "The Exchange Offer - Conditions of
the Exchange Offer".
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or
destroyed, should contact the Exchange Agent at the address indicated above for
further instructions.
9. VALIDITY AND ACCEPTANCE OF TENDERS.
All questions as to the validity, form, eligibility (including time
of receipt), acceptance and withdrawal of Old Notes tendered for exchange will
be determined by Decora Industries in its sole discretion, which determination
shall be final and binding. Decora Industries reserves the absolute right to
reject any and all Old Notes not properly tendered and to reject any Old Notes
Decora Industries's acceptance of which might, in the judgment of Decora
Industries or its counsel, be unlawful. Decora Industries also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to particular Old Notes either before or after the Expiration
Date (including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer (including this Letter of Transmittal and the
instructions hereto) by Decora Industries shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection
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<PAGE> 14
with tenders of Old Notes for exchange must be cured within such period of time
as Decora Industries shall determine. Decora Industries will use reasonable
efforts to give notification of defects or irregularities with respect to
tenders of Old Notes for exchange but shall not incur any liability for failure
to give such notification. Tenders of the Old Notes will not be deemed to have
been made until such irregularities have been cured or waived.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as
requests for additional copies of the Prospectus and this Letter of Transmittal,
should be directed to the Exchange Agent at the address and telephone number set
forth above.
IMPORTANT: This Letter of Transmittal or a facsimile hereof (together
with certificates of Old Notes or confirmation of book-entry transfer and all
other required documents) or a Notice of Guaranteed Delivery must be received by
the Exchange Agent on or prior to the Expiration Date.
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<PAGE> 1
Exhibit 99.3
FORM OF
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
11% SENIOR SECURED NOTES DUE 2005
IN EXCHANGE FOR
11% SENIOR SECURED NOTES DUE 2005, SERIES B
OF
DECORA INDUSTRIES, INC.
Registered holders of outstanding 11% Senior Secured Notes due 2005
(the Old "Notes") who wish to tender their Notes in exchange for a like
principal amount of new 11% Senior Secured Notes due 2005, Series B, which have
been registered under the Securities Act of 1933, as amended (the "Exchange
Notes"), and whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to United States Trust Company
of New York (the "Exchange Agent") prior to the Expiration Date (as defined), or
if the procedures for delivery by book-entry transfer cannot be completed on a
timely basis, may use this Notice of Guaranteed Delivery or one substantially
equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand
or sent by facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight delivery) or mail to the Exchange
Agent. See "The Exchange Offer--Tender Procedure" in the Prospectus, dated
___________, 1998 (the "Prospectus").
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
By Hand (Before 4:30 p.m.) By Overnight Courier and by Hand after 4:30 p.m
on Expiration Date only.
United States Trust Company of New York United States Trust Company of New York
111 Broadway 770 Broadway, 13th Floor
New York, New York 10006 New York, New York 10003
Attention: Lower Level
Corporate Trust Window
By Mail: By Facsimile Transmission:
(insured or registered mail recommended)
(212) 780-0592
United States Trust Company of New York (For Eligible Institutions Only)
P. O. Box 843 Cooper Station
New York, New York 10276 To confirm receipt:
Attention: Corporate Trust Services (800) 548-6565
</TABLE>
<PAGE> 2
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE
TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ___________________ 1998, UNLESS THE EXCHANGE OFFER IS
EXTENDED.
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Exchange
Offer"), receipt of which is hereby acknowledged, pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer-Procedures For Tendering Old Notes--Tender Procedure."
<TABLE>
<CAPTION>
DESCRIPTION OF SECURITIES TENDERED
<S> <C> <C>
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER AS IT APPEARS CERTIFICATE NUMBER(S) OF PRINCIPAL AMOUNT OF
ON THE OLD NOTES (PLEASE PRINT) OLD NOTES TENDERED OLD NOTES TENDERED
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</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ______________________________________
[ ] The Depository Trust Company
Account Number: ______________________________________
Transaction Code Number: ______________________________________
- 2 -
<PAGE> 3
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, an Eligible Institution (as defined in the
Prospectus), hereby (a) represents that the above named person(s) "own(s)" the
Old Notes tendered hereby within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b)) represents that
such tender of Old Notes complies with Rule 14e-4, and (c) guarantees to either
deliver to the Exchange Agent the certificates representing all of the Old Notes
tendered hereby, in proper form for transfer, or to deliver such Old Notes
pursuant to the procedure for book-entry transfer into the Exchange Agent's
account at The Depository Trust Company, in either case together with the Letter
of Transmittal (or a facsimile thereof), properly completed and duly executed,
with any required signature guarantees in the case of a book-entry transfer, and
any other required documents, all within three business days after the date
hereof.
Name of Firm:________________________________ _________________________________
(Authorized Signature)
Address: ____________________________________ Title:___________________________
____________________________________ Name: ___________________________
(Zip Code) (Please type or print)
____________________________________ Date:____________________________
Area Code and Telephone Number (Please type or print)
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY,
CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
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