<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1999
Commission File Number 0-16072
DECORA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 68-0003300
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MILL STREET
FORT EDWARD, NY 12828
(address of principal executive offices) (Zip code)
Registrant's telephone number
(including area code) (518) 747-6255
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At November 10, 1999 there were 7,823,887 shares of Common Stock of the
registrant outstanding.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 1999 and March 31, 1999 3-4
Condensed Consolidated Statements of
Income for the three and six months ended
September 30, 1999 and 1998 5
Condensed Consolidated Statements of
Cash Flows for the six months ended
September 30, 1999 and 1998 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 18
PART II OTHER INFORMATION 19
SIGNATURES 23
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 740 $ 6,158
Restricted cash 235 504
Accounts receivable, less allowance 35,996 26,826
Inventories 41,256 42,676
Prepaid expenses and other current assets 2,574 1,811
--------------- ----------------
Total current assets 80,801 77,975
Property and equipment, net 54,333 54,341
Goodwill and other intangibles, net 80,001 78,081
Deferred income taxes 2,302 3,769
Deferred financing costs, net 4,095 4,171
Other assets 3,308 2,402
--------------- ----------------
Total assets $ 224,840 $ 220,739
=============== ================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ --------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,156 $ 11,547
Accrued liabilities 14,260 12,438
Accrued interest 5,245 5,293
Current portion of long-term debt 7,782 9,467
Deferred income taxes 271 242
Other current liabilities 3,124 4,331
--------------- --------------
Total current liabilities 41,838 43,318
Long-term debt 146,932 140,562
Pension obligation 14,421 14,634
--------------- --------------
Total liabilities 203,191 198,514
--------------- --------------
Minority interest in subsidiary 3,161 3,360
--------------- --------------
Shareholders' equity:
Preferred stock, $.01 par value;
5,000 shares authorized, none issued - -
Common stock, $.01 par value;
20,000 shares authorized; 7,824 and
7,342 shares issued and outstanding at
September 30, 1999 and March 31, 1999,
respectively 74 73
Additional paid-in capital 33,203 33,634
Accumulated deficit (12,725) (13,307)
Cumulative translation adjustment (1,452) (918)
Additional minimum pension liability (612) (617)
--------------- --------------
Total shareholders' equity 18,488 18,865
--------------- --------------
Total liabilities and shareholders' equity $ 224,840 $ 220,739
=============== ==============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 43,394 $ 49,018 $ 87,786 $ 95,496
Cost of goods sold 28,013 29,681 56,885 61,368
-------- -------- -------- --------
Gross profit 15,381 19,337 30,901 34,128
Selling, general and administrative
expenses 11,349 13,395 21,464 22,367
-------- -------- -------- --------
Operating income 4,032 5,942 9,437 11,761
Interest expense, net 4,063 3,656 7,897 6,672
-------- -------- -------- --------
Income (loss) before income taxes,
minority interest and extraordinary
item (31) 2,286 1,540 5,089
Income tax provision 43 932 742 2,115
-------- -------- -------- --------
Income (loss) before minority interest
and extraordinary item (74) 1,354 798 2,974
Minority interest in earnings of
subsidiary 96 33 216 359
-------- -------- -------- --------
Income (loss) before extraordinary item (170) 1,321 582 2,615
Extraordinary item, net of income taxes 0 0 0 (2,019)
-------- -------- -------- --------
Net income (loss) $ (170) $ 1,321 $ 582 $ 596
======== ======== ======== ========
Per share of common stock:
Income (loss) before extraordinary item
Basic $(0.02) $0.18 $0.08 $0.36
Diluted (0.02) 0.16 0.07 0.31
Extraordinary item
Basic - - - (0.28)
Diluted - - - (0.24)
Net income (loss)
Basic (0.02) 0.18 0.08 0.08
Diluted (0.02) 0.16 0.07 0.07
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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DECORA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 582 $ 596
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item, net of income taxes - 2,019
Depreciation and amortization 4,463 4,609
Amortization of debt discounts and fees 542 481
Minority interest in earnings of subsidiary 216 359
Deferred tax provision 1,453 -
Net changes in current assets and liabilities (8,698) 5,083
Other, net (2,215) (792)
-------- --------
Net cash provided by (used in) operating activities (3,657) 12,355
-------- --------
Cash flows from investing activities:
Acquisitions (3,053) (63,979)
Reduction in notes receivable - 66
Purchase of property and equipment (3,152) (3,032)
-------- --------
Net cash used in investing activities (6,205) (66,945)
-------- --------
Cash flows from financing activities:
Issuance of long-term debt 9,750 110,086
Repayment of long-term debt (4,057) (28,913)
Change in short-term borrowing (1,049) 6,280
Proceeds from exercise of options 120 -
Payment of warrant exchange obligations (900) (200)
Payment of debt penalties and fees - (7,087)
-------- --------
Net cash provided by financing
activities 3,864 80,166
-------- --------
Effect of exchange rate fluctuations on cash
and cash equivalents 311 538
-------- --------
Net increase (decrease) in cash and cash equivalents (5,687) 26,114
Cash and cash equivalents at beginning of period 6,662 1,807
-------- --------
Cash and cash equivalents at end of period $ 975 $ 27,921
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Integration of Financial Statements Reported on Form 10-K
The accompanying Condensed Consolidated Financial Statements should be read in
conjunction with Decora Industries, Inc.'s ( "DII" and together with its
subsidiaries, the "Company") Consolidated Financial Statements included in its
Form 10-K for the fiscal year ended March 31, 1999, filed with the Securities
and Exchange Commission (File No. 0-16072) (the "Form 10-K"). In the opinion of
the Company, the accompanying Condensed Consolidated Financial Statements
contain all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the results for the interim periods.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". The new standard
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from the changes
in the values of the derivatives would be accounted for depending on whether it
qualifies for hedge accounting. The Company has adopted this standard as of the
beginning of this fiscal year. Adoption of this statement had no material impact
on the financial statements.
Certain reclassifications of prior year amounts have been made to conform to the
current year presentation.
NOTE 2 - Inventories
Inventories at September 30, 1999 and March 31, 1999 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------- --------------
<S> <C> <C>
Raw Materials $ 7,964 $ 8,018
Work-in-Process 10,280 8,832
Finished Goods 23,012 25,826
-------- -------
$ 41,256 $42,676
======== =======
</TABLE>
NOTE 3 - Comprehensive Income
The components of comprehensive income, net of tax, are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- -----------------------
1999 1998 1999 1998
---- ----- ----- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (170) $ 1,321 $ 582 $ 596
Cumulative translation adjustment 606 2,441 (534) 2,088
Additional minimum pension liability (18) - 5 -
------ ------- ------ ------
$ 418 $ 3,762 $ 53 $2,684
====== ======= ====== ======
</TABLE>
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NOTE 4 - 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 (loss) per common share reported for the three
and six months ended September 30, 1999 and 1998.
The number of shares of common stock and common stock equivalents used in the
computation of net income (loss) 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 denominators for determining basic and diluted net income
(loss) per common share for the three and six months ended September 30, 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
1999 1998 1999 1998
----------------------- -----------------------
<S> <C> <C> <C> <C>
Weighted average shares:
Shares outstanding at beginning
of period 7,407 7,331 7,342 7,331
Shares issued 257 2 201 1
----- ----- ----- -----
Shares used in the calculation
of Basic EPS 7,664 7,333 7,543 7,332
Effect of dilutive securities:
Contingently issuable shares - 339 393 339
Options/Warrants - 537 358 664
----- ----- ----- -----
Adjusted weighted average shares 7,664 8,209 8,294 8,335
===== ===== ===== =====
</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 1,322 and 679 for the three months
ended September 30, 1999 and 1998, respectively, and approximately 1,089 and 484
for the six months ended September 30, 1999 and 1998, respectively.
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NOTE 5 - Segment Financial Data
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, as required, in fiscal 1999, which changes the way the
Company reports information about its operating segments. The Company's
operating subsidiaries design, develop, and manufacture and sell products,
classified in two principal operating segments. The company's operating segments
were generally determined on the basis of strategic business units within the
operating subsidiaries which require different marketing strategies.
Consumer products include global sales of self-adhesive, decorative and surface
protection products sold in a wide variety of retail stores worldwide.
Industrial products primarily include converted films for use in the manufacture
of cabinets, furniture, automobiles, luggage and shoes which are sold to users
and original equipment manufacturers in diversified markets, principally in
Europe.
Information for fiscal 1999 has been restated from the prior year's presentation
in order to conform to the current year presentation.
OPERATING SEGMENTS
NET SALES (000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer $29,763 $35,791 $60,824 $68,575
Industrial 13,631 13,227 26,962 26,921
------- ------- ------- -------
Consolidated $43,394 $49,018 $87,786 $95,496
======= ======= ======= =======
</TABLE>
OPERATING PROFITS (000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer $ 2,897 $ 6,836 $ 7,959 $12,320
Industrial 1,540 80 2,544 1,096
------- -------- ------- -------
Total segment 4,437 6,916 10,503 13,416
General corporate expenses 405 974 1,066 1,655
------- -------- ------- -------
4,032 5,942 9,437 11,761
Interest expense, net 4,063 3,656 7,897 6,672
------- -------- ------- -------
Consolidated income (loss) before
income taxes, minority
interest and extraordinary
item $ (31) $ 2,286 $ 1,540 $ 5,089
======== ======== ======= =======
</TABLE>
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NOTE 6 - Recent Litigation
In September 1999, the Company filed a complaint in Federal District Court in
Ohio against Rubbermaid Incorporated. The complaint alleges fraud and
misrepresentation by Rubbermaid Incorporated relative to representations made to
the Company during the acquisition of Rubbermaid's Decorative Coverings Group.
The complaint seeks damages resulting from Rubbermaid's actions.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report on Form 10-Q (the "10-Q") includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts, including, without
limitation, the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and located elsewhere herein
regarding company and industry prospects are forward-looking statements.
Although management believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from management's expectations are disclosed
in this 10-Q and in the annual report of Decora Industries, Inc. ("DII", and
together with its subsidiaries, the "Company") on Form 10-K for the year ended
March 31, 1999.
Prior to October 1997, the Company was operating primarily as a toll
manufacturer under an exclusive agreement with Rubbermaid Incorporated
("Rubbermaid") with approximately 90% of its sales to Rubbermaid. Since October
1, 1997, the Company has been transforming itself into a vertically integrated,
world-wide leader in the self-adhesive consumer decorative products category
through a series of acquisitions and restructuring of operations including the
following:
o The October 1, 1997 acquisition of approximately 73.2% of the shares of
Konrad Hornschuch AG (since increased to approximately 90% as of September
30, 1999) by the Company's wholly-owned subsidiary, Decora Industries
Deutschland GmbH (the "Hornschuch Acquisition").
o The April 29, 1998 acquisition of certain assets from Rubbermaid (the
"Rubbermaid Acquisition"), including the Con-Tact(R) brand name, which
constituted Rubbermaid's Decorative Coverings Group (the "DCG").
o The acquisition of EtchArt .
o The establishment of a totally new organization in North America, including
sales, marketing, customer service, distribution and financial operations,
together with associated computer systems. Prior to the current fiscal year
these functions had been provided by Rubbermaid.
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The following amounts are reflected in thousands:
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED SEPTEMBER 30, 1998.
Net sales for the three months ended September 30, 1999 were $43,394 as compared
with net sales of $49,018 for the three months ended September 30, 1998. The
change of $5,624 resulted from decreases in net sales at Hornschuch and at the
North American operations of approximately $2,133 and $3,491, respectively, in
the current year quarter as compared with the prior year quarter. The decrease
in net sales at Hornschuch is principally due to two factors: 1) In the second
quarter of fiscal year 1999, sales to Russia, primarily to a single customer,
were at an unusually high level. Following the collapse of the Russian economy
in August 1998, sales in that area declined sharply. As a result, sales to all
customers in Russia for the second quarter of fiscal 2000 were approximately
$2,000 less than the prior year's quarter. 2) An unfavorable foreign currency
translation adjustment (German marks to U.S. dollar) in the current year quarter
reduced net sales by approximately $1,500 as compared to the prior year quarter.
These two factors were partially offset by sales gains achieved in Hornschuch's
domestic markets. The lower net sales in North American operations is primarily
a result of manufacturing and distribution issues arising from the transition
from Rubbermaid's distribution system, conversion of product packaging to the
Con-Tact(R) brand to eliminate reference to Rubbermaid and some reduction of
SKUs.
Gross profit was $15,381, or 35.4% of net sales, for the three months ended
September 30, 1999, a margin similar to that of the first quarter of fiscal 2000
as compared with $19,337, or 39.4% of net sales, for the three months ended
September 30, 1998. The higher gross margin percentage in the prior year quarter
was primarily due to higher margin sales to Russian customers of Hornschuch. The
decrease in gross profit at the North American operations of $2,283 was due to
lower sales volumes and a higher level of sales allowances in the current year
quarter.
Selling, general and administrative expenses were $11,349 or 26.2% of net sales,
for the three months ended September 30, 1999 as compared with $13,395 or 27.3%
of net sales, in the three months ended September 30, 1998. The decrease of
$2,046 was principally a result of reduced variable costs related to the lower
sales discussed above and lower expenses in the current year quarter resulting
from cost reduction efforts at both Hornschuch and in the North American
operations.
Interest expense, net was $4,063 for the three months ended September 30, 1999
as compared with $3,656 in the prior year quarter. The increase of $407 is
principally due to the current year quarter reflecting higher average borrowings
as compared with the prior year quarter.
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As a result of the above, the Company recorded a $31 loss before income taxes,
minority interest and extraordinary item in the three months ended September 30,
1999, as compared with income of $2,286 in the three months ended September 30,
1998.
As a result of the above-noted changes, an $889 decrease in the provision for
income taxes and a $63 increase in the deduction for the minority interest in
earnings of Hornschuch, a net loss of $170 for the three months ended September
30, 1999 was recorded as compared to net income of $1,321 for the three months
ended September 30, 1998.
SIX MONTHS ENDED SEPTEMBER 30, 1999 VS. SIX MONTHS ENDED SEPTEMBER 30, 1998
Since the Condensed Consolidated Statements of Income of the Company for the six
months ended September 30, 1998 reflect the effects of only approximately five
months of results from the Rubbermaid Acquisition, the results for the six
months ended September 30, 1999 are not directly comparable with those of the
six months ended September 30, 1998.
During the six months ended September 30, 1999 the Company has operated in North
America as a vertically integrated consumer products company, for the first time
totally independent of Rubbermaid. Net sales for the six months ended September
30, 1999 were $87,786 as compared with net sales of $95,496 for the six months
ended September 30, 1998. The change of $7,710 resulted from decreases in net
sales at Hornschuch and the North American operations of approximately $5,478
and $2,232, respectively. The decrease in net sales at Hornschuch is principally
due to two factors: 1) In the first six months of fiscal year 1999, sales to
Russia, primarily to a single customer, were at an unusually high level.
Following the collapse of the Russian economy in August 1998, sales in that area
declined sharply. As a result, sales to all customers in Russia for the first
six months of fiscal 2000 were approximately $5,200 less than the prior year's
quarter. 2) An unfavorable foreign currency translation adjustment (German marks
to U.S. dollar) in the current year period reduced net sales by approximately
$2,300 as compared with the prior year period. These two factors were partially
offset by sales gains achieved in Hornschuch's domestic markets. The lower net
sales in North American operations is primarily a result of manufacturing and
distribution issues arising from the transition from Rubbermaid's distribution
system, conversion of product packaging to the Con-Tact(R) brand to eliminate
reference to Rubbermaid and some reduction of SKUs.
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Gross profit was $30,901, or 35.2% of net sales, for the six months ended
September 30, 1999 a similar percentage to the 35.7% of net sales for the six
months ended September 30, 1998. The decrease from $34,128 in the prior year
period was a result of decreases in gross profit at Hornschuch and at the North
American operations of $2,062 and $1,165, respectively, primarily due to the
lower sales discussed above.
Selling, general and administrative expenses were $21,464 or 24.5% of net sales,
for the six months ended September 30, 1999 as compared with $22,367 or 23.4% of
net sales, in the six months ended September 30, 1998. The decrease of $903 was
principally a result of the lower sales discussed above and lower expenses in
the current year period resulting from cost reduction efforts at both Hornschuch
and at the North American operations, partially offset by higher expenses in the
North American operations which operated throughout the six months ended
September 30, 1999 with a fully developed sales, marketing, supply chain and
accounting infrastructure in place, as compared with the prior year period when
these functions were in transition from Rubbermaid.
Interest expense, net was $7,897 for the six months ended September 30, 1999 as
compared with $6,672 in the prior year period. The increase of $1,225 is
principally due to the current year period reflecting six months of interest
expense relative to the $112,750 of senior secured notes issued April 29, 1998
(the "Notes") as compared with five months of interest expense in the prior year
period and higher average balances on other borrowings in the current year
period as compared with prior year.
As a result of the above, the Company recorded income before income taxes,
minority interest and extraordinary item of $1,540 in the six months ended
September 30, 1999, as compared with $5,089 in the six months ended September
30, 1998.
The Company recognized an extraordinary charge of $2,019 (net of income taxes)
in the six months ended September 30, 1998 associated with the debt refinancing
and the Rubbermaid Acquisition in April 1998.
As a result of the above-noted changes, a $1,373 decrease in the provision for
income taxes and a $143 decrease in the deduction for the minority interest in
earnings of Hornschuch, net income of $582 was recorded for the six months ended
September 30, 1999, as compared with $596 for the six months ended September 30,
1998.
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.
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The Company's net working capital increased from $34,657 at March 31, 1999 to
$38,963 at September 30, 1999, an increase of $4,306. This is mainly due to an
increase in accounts receivable which in part reflects the transition from a
single customer (Rubbermaid) remitting on a fixed payment schedule to a
multi-customer structure. Increased working capital was funded primarily by
utilization of existing lines of credit. Consolidated cash balances as of
September 30, 1999 were $975, which are limited by certain security agreements,
minority interests and debt covenants as to use.
Net cash flow used in operating activities for the six months ended September
30, 1999 was $3,657 versus cash flow provided by operating activities of $12,355
for the six months ended September 30, 1998. The change resulted from a decrease
in net income, the extraordinary charge reflected in the prior year period and
the increase in net working capital noted above.
Net cash flow used in investing activities for the six months ended September
30, 1999 was $6,205 as compared with $66,945 in the prior year period. The
change resulted primarily from the effect of the Rubbermaid Acquisition in the
prior year period.
Net cash provided by financing activities in the six months ended September 30,
1999 was $3,864 as compared with $80,166 in the six months ended September 30,
1998. The change was primarily a result of the issuance of the Notes in the
prior year period, partially offset by the use of a portion of the proceeds to
repay existing long-term debt.
Capital expenditures for the six months ended September 30, 1999 were $3,152
(including expenditures of $2,302 at Hornschuch) versus $3,032 for the six
months ended September 30, 1998. Expenditures at the North American operations
and Hornschuch are consistent with historical averages. During the current
fiscal year, the Company plans to make capital expenditures at similar levels to
prior years and intends to finance such expenditures with operating cash flow
and existing lines of credit.
The Company currently owns, through Decora Industries Deutschland GmbH
approximately 90% of the outstanding shares of a foreign entity (Hornschuch). As
a result, the Company's consolidated operations and cash flow have become
significantly exposed to changes in exchange rates between the U.S. dollar and
the German Mark/Euro, 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.
Concurrent with the Rubbermaid Acquisition, DII issued the Notes with an
original issue discount of $2,664 resulting in gross cash proceeds of $110,086.
Interest on the notes is paid semi-annually and no principal payments are
required prior to maturity on May 1, 2005. In addition, (i) Hornschuch borrowed
approximately $10.0 million
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under its secured credit facilities; (ii) Hornschuch participated in the
acquisition by loaning Decora such $10.0 million pursuant to a secured
inter-company note, the proceeds of which were used by Decora to partially
finance the acquisition of the DCG; and (iii) Decora entered into a three year,
$15.0 million secured revolving line of credit facility. Availability under the
credit line is based on a factor of the amount of accounts receivable and
inventory held by Decora. At November 10, 1999, borrowings under the credit line
totaled $13,227.
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 $11,566. Currently, the
properties are producing rental income sufficient to cover interest payments.
Negotiations to sell the properties are at an advanced stage. While there is no
guarantee that these negotiations will be completed in the near term, management
believes the real estate can be sold at a price sufficient to repay the loans in
full. Hornschuch could be required to pay the amount of any shortfall.
OUTLOOK
During the current fiscal year, the Company has substantially advanced its
transition in North America from being a toll manufacturer into a vertically
integrated consumer products company. A major objective is to continue to
enhance the value of its consumer brands by capitalizing on each brand's
strength and popularity in its respective region; Con-Tact(R) in North America
and d-c-fix(R) in Europe. The Company has a strong distribution position in the
housewares market in North America and primarily in the home furnishing market
in Europe. The Company plans to capitalize on the Con-Tact(R) brand recognition
and awareness in North America by expanding its product offerings beyond its
housewares and shelving position into the other categories for which the
European products are used. Similarly, by capitalizing on the same strengths of
d-c-fix(R), the North American products, targeted for different applications,
will expand the product offering in Europe. The Company recently presented its
new Collections line to the trade which was well received. A new Arts & Crafts
program and new packaging for the EtchArt line have also been developed. The
other major objective in the short term is to continue to rebuild goodwill at
certain customers where relationships had eroded due to alleged poor customer
service from Rubbermaid. The Company has commenced legal action against
Rubbermaid which is detailed in "Legal Proceedings".
As a result of the financing associated with the Rubbermaid Acquisition and
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. At September 30, 1999,
the Company had consolidated outstanding indebtedness of $154,714 representing
approximately 89% of total capitalization. The Company's ability to service its
debt will depend upon the
16
<PAGE> 17
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 would be able to accomplish these objectives on terms
acceptable to it, if at all.
The Company's foreign operations are conducted primarily through Hornschuch. The
Company's European operations, representing approximately 58% of the Company's
net sales for the six months ended September 30, 1999, 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.
YEAR 2000 RISKS
Many existing computer systems, communication systems, machines and other items,
whether large or small, which utilize microprocessors and/or software use only
two digits rather than four digits to process date-related transactions. As a
result, many of these items will not be able to correctly process a transaction
with the year 2000 date, as the "00" could cause the program or system to fail
or create erroneous results before, on or after January 1, 2000 (the "Year 2000
Issue"). The Company has employees in both its North American and European
operations who have the task of identifying potential Year 2000 Issues and
overseeing the implementation of solutions with respect to these issues where
possible.
With regard to the Company's primary computer systems, the Company's European
operating subsidiary licenses and utilizes a comprehensive management
information system which was installed in 1996/1997 and includes general ledger,
accounts receivable, accounts payable and manufacturing control. This system is
currently Year 2000 compliant.
The Company's North American operations recently completed Phases I & II of a
program to replace its primary management information and communication systems
with full Year 2000 compliance. This included hardware and software required to
operate its telephone systems, its accounting systems (including general ledger,
accounts receivable, accounts payable) and manufacturing control systems at a
cost of approximately $600.
17
<PAGE> 18
In addition to its primary management information system, the Company utilizes
personal computers, which function either on a stand-alone basis or as
workstations on an integrated network. These computers utilize a variety of
operating systems and software packages ranging from Windows NT to DOS
platforms. The Company has completed its survey to detect non-compliant systems
and believes that all of these systems can and will be made Year 2000 compliant
prior to January 1, 2000 at little or no cost to the Company through software
updates provided by the respective software vendors. Any full system
replacements which were required have been replaced. The Company has completed
the process of reviewing other equipment and systems in order to determine and
remedy any potential Year 2000 Issues. All manufacturing systems have been
reviewed for Year 2000 compliance. All in-house programmable Logic Controllers
(PLCs) and micro processor based Digital Drive Regulators were checked for Year
2000 compliance as of March 1, 1999. All equipment manufacturers were contacted
regarding our PLCs, Digital Drives and PLC programs, and it was determined that
there were no Year 2000 issues. The Company does not separately track the
incremental costs incurred for the investigation, analysis and remedy of Year
2000 Issues. Such costs consist principally of related payroll costs of certain
members of its systems and operations groups.
The Company sells its products primarily to retailers, distributors and original
equipment manufacturers with a significant number of such transactions occurring
electronically. The Company also purchases raw materials from many vendors;
however, the majority of such purchasing transactions are not handled
electronically. 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 which could negatively affect the financial condition and
results of operations of the Company. This is particularly true in the case of
retail customers where high volume transactions would have to be converted to a
manual system until any Year 2000 Issue was resolved. The Company has completed
the process of reviewing the Year 2000 compliance status with its vendors and
customers and to-date is not aware of a situation which would have a material
adverse impact on the Company's operations and/or financial condition, although
no assurances can be given that such a problem does not exist, or will not exist
in the future. As the Company continues to evaluate the Year 2000 compliance
status of its suppliers and vendors, it will also develop contingency plans to
deal with any potential problems that may arise in this analysis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information about market risks for the six months ended September 30, 1999 does
not differ materially from that discussed under Item 7A of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999.
18
<PAGE> 19
DECORA INDUSTRIES, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 16, 1999, Decora Industries, Inc. and Decora, Incorporated
(collectively, "Decora") commenced a legal action against Rubbermaid
Incorporated in the United States District Court for the Northern District of
Ohio. In the action, Decora has alleged causes of action for fraud and negligent
misrepresentation in connection with Decora's acquisition in 1998 of
Rubbermaid's Decorative Coverings Group. Decora claims that Rubbermaid
fraudulently induced Decora into acquiring Rubbermaid's Decorative Coverings
Group by means of certain material misrepresentations, including
misrepresentations with respect to the status of certain of the Decorative
Covering Group's major customer accounts. Decora seeks damages in excess of
$14,000,000 as a result of Rubbermaid's wrongful acts. Decora is proceeding with
the prosecution of the action.
On April 1, 1999, Decora commenced a proceeding against Rubbermaid
Incorporated with the American Arbitration Association. Decora has alleged
causes of action for breach of contract, breach of fiduciary duty, fraud and
deceit, conversion, breach of the covenant of good faith and fair dealing,
constructive fraud, and money had and received. Decora's claims arise from
Rubbermaid's failure to perform its obligations under a service agreement Decora
entered into with Rubbermaid for a nine-month transition period subsequent to
Decora's acquisition of Rubbermaid's Decorative Coverings Group. Decora seeks
damages in excess of $2,500,000 as a result of Rubbermaid's wrongful acts.
Decora is proceeding with the prosecution of its claims in the arbitration.
The Company and its subsidiaries are defendants in pending actions
which, in the opinion of management of the Company, are not material to the
Company's financial condition or results of operations. Although no assurances
can be given regarding the ultimate outcome of such matters, the Company has
accrued amounts for defense and settlement costs which the Company considers
adequate.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company believes that the transactions described below in which securities
were sold were exempt from registration under the Securities Act of 1933, as
amended, by virtue of Section 4(2) thereof as transactions not involving any
public offerings. In each transaction, the number of investors was limited, the
investors were provided with information about the Company and/or access to such
information, and restrictions were placed on the resale of such securities.
19
<PAGE> 20
<TABLE>
<CAPTION>
Date Title Amount Consideration
- ---- ----- ------ -------------
<S> <C> <C> <C>
5/1/99 Options to purchase 405,000(1) Services
Common Stock
8/3/99 Common Stock 400,000 Exchange of Warrants(2)
</TABLE>
(1)Includes a total of 100,000 options issued to the Company's directors and a
total of 305,000 options issued to the Company's employees. All of the options
are exercisable at a price of $6.50. The grant of the options was made effective
as of May 1, 1999, subject to the approval by the Company's stockholders. Such
approval was obtained at the Company's Annual Meeting of Stockholders held on
October 26, 1999.
(2)A holder of warrants to purchase 2,136,534 shares of the Company's Common
Stock, warrants to purchase 69,557 shares of the Company's Series A Convertible
Preferred Stock and contingent warrants to purchase Common Stock exchanged all
of such warrants for 400,000 shares of the Company's Common Stock and a payment
by the Company in the amount of $750,000.
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
Not Applicable.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed or incorporated by reference as part of
this Report.
(3) Articles of Incorporation and By-Laws
3.1 Certificate of Incorporation of DII filed on January 28, 1992. (1)
3.2 Amendment No. 1 to DII's Certificate of Incorporation filed on
November 2, 1993. (4)
3.3 Certificate of Designation of Series A Preferred Stock of
Decora Industries, Inc. dated September 26, 1997. (2)
20
<PAGE> 21
3.4 Amendment No. 2 to DII's Certificate of Incorporation filed on
December 29, 1997. (4)
3.5 Amendment No. 3 to DII's Certificate of Incorporation filed on
December 29, 1997. (4)
3.6 By-laws of DII. (1)
(4) Instruments Defining the Rights of Security Holders
4.1 Certificate of Incorporation and By-laws (see Exhibits 3.1-3.6).
4.2 Form of Specimen Certificate. (3)
4.3 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. (3)
4.4 Form of 11% Senior Secured Notes due 2005 issued under Indenture
dated as of April 29, 1998 (included as Exhibit A to Indenture). (3)
4.5 Form of Series B 11% Senior Secured Notes due 2005 issuable under
Indenture dated as of April 29, 1998 (included as Exhibit B to
Indenture). (3)
4.6 Form of Guarantee of Decora, Incorporated dated as of April 29 1998
(included as Exhibit G to Indenture). (3)
4.7 Form of Registration Rights Agreement dated as of April 29, 1998 among
Lazard Freres & Co. LLC, Decora Industries, Inc. and
Decora, Incorporated. (3)
(10) Material Contracts
10.1 Form of Employment Agreement effective as of June 2 , 1999 by and
between DII and Robert L. Macdonald.
10.2 Form of Warrant Exchange Agreement dated as of August 3, 1999 between
State Street Bank and Trust Company, as Trustee for the The Textron
Master Trust, DII and Decora, Incorporated
10.3 Form of Amended and Restated Payment and Deferral Agreement dated as of
September 23, 1999 between DII and Connecticut General Life Insurance
Company, Cigna Property and Casualty Insurance Company, Cigna Mezzanine
Partners II, L.P. and Century Indemnity Company.
21
<PAGE> 22
(21) Subsidiaries of DII
21.1 Subsidiaries of Decora Industries, Inc. (4)
(27) Financial Data Schedule
27.1 Financial Data Schedule.
Notes:
(1) Previously filed as Exhibits to the Company's Report on Form 8-K dated
November 5, 1992.
(2) Previously filed as Exhibit to the Company's Report on Form 8-K dated
October 1, 1997.
(3) Previously filed as Exhibit to the Company's report on Form 10-K for
the fiscal year ended March 31, 1998.
(4) Previously filed as Exhibit to the Company's Registration Statement No.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three months ended
September 30, 1999
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DECORA INDUSTRIES, INC.
(REGISTRANT)
BY /s/ Robert L. Macdonald
------------------------
Robert L. Macdonald
Chief Financial Officer
DATED: November 15, 1999
23
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement is effective as of the 21st day of June, 1999, by and
between Robert L. Macdonald, (hereinafter referred to as "Employee"), and Decora
Industries, Inc., a Delaware Corporation, (hereinafter referred to as the
"Company").
WHEREAS, the Company wishes to employ Employee and Employee wishes to
accept such employment on the terms and conditions set forth herein;
NOW, THEREFORE, the parties agree as follows:
1. TERM OF EMPLOYMENT: The Company hereby employs Employee and
Employee hereby accepts employment on the terms and conditions of this Agreement
for a term of three years commencing June 21, 1999 (the "Term"), subject to the
provisions of paragraph 8 below.
2. DUTIES: Employee shall have the title of Chief Financial Officer
and be responsible for duties customarily associated with such position, which
shall include, without limitation, those of Principal Financial Officer.
Employee shall report to, and take direction from, the Chairman and CEO of the
Company. Employee shall also perform such other duties pertaining to the
operations of the Company as the Board of Directors of the Company (the "Board")
may from time to time direct.
3. NECESSARY SERVICES:
(a) Performance of Duties. Employee agrees that he will at all
times faithfully, industriously and to the best of his ability, experience and
talents, perform to the reasonable satisfaction of the Company all of the duties
that may be assigned to him hereunder and shall devote such time to the
performance of these duties as may be reasonably necessary therefor.
(b) Full-Time Service. During the term of the Agreement, Employee
shall be available on a full-time basis, to perform the duties assigned him, in
accordance with the prevailing policies of the Company. Expenditures of
reasonable amounts of time for personal, business, charitable and other
activities shall not be deemed a breach of this Agreement, provided that such
activities do not interfere with the services required to be rendered to the
Company hereunder.
(c) Exclusive Services. Employee agrees that during the period of
his employment, Employee shall provide services exclusively pursuant to this
Agreement, and Employee will not, without the prior written consent of the
Company (which consent may be granted or withheld in the sole and absolute
discretion of the Company), directly or indirectly:
-1-
<PAGE> 2
i) plan or organize any business activity competitive with
the business or planned business of the Company or its affiliates, or combine,
participate, or conspire with other employees of the Company or its affiliates
or other persons or entities for the purpose of organizing any such competitive
business activity; or
ii) divert or take away, or attempt to divert or take away,
any of the customers or potential customers of the Company or its affiliates,
either for himself or for any other person, firm, partnership, corporation or
other business entity.
4. THE COMPANY'S AUTHORITY: Employee agrees to observe and comply
with the Company's rules and regulations as adopted by the Company's board of
directors regarding performance of his duties and to carry out and to perform
orders, directions, and policies stated by the Company to him periodically,
either orally or in writing.
5. COMPENSATION: Subject to such deductions as the Company may from
time to time be required to make pursuant to law, governmental regulation or
order, the Company agrees to pay to Employee during the term hereof, and
Employee agrees to accept as payment in full for all services rendered by him to
or for the benefit of the Company, the following compensation:
(a) Base Salary. Base salary in an amount equal to a yearly rate
of $290,000 payable in installments in accordance with the general practice of
the Company. Such base salary will be subject to annual review and may be
increased in the sole and absolute discretion of the Board or the Compensation
Committee of the Board, as applicable.
(b) Performance Based Compensation. Employee shall be entitled
during each year to performance based compensation not to exceed 60% of
Employee's base salary. For the first year of this Agreement, $30,000 of such
incentive compensation will be paid with the closing of the first acquisition
made by the Company with a market value exceeding $60 million; with the
remaining incentive performance based compensation to be contingent upon
achieving goals which the parties use their best efforts in good faith to agree
upon not later than 30 days following the effective date of this Agreement,
subject to the understanding that 50% of such remaining performance based
compensation will be based on reaching or exceeding an agreed upon EBITDA target
for the Company's fiscal year ending March 31, 2000. For the years following the
first year of this Agreement, the parties shall use their best efforts in good
faith to agree not later than 30 days prior to the commencement of each such
year upon a set of criteria pursuant to which performance based compensation for
such year shall be based.
(c) Stock Options.
(i) Immediately Vesting. Concurrently with the execution
hereof, the Company shall grant to Employee, effective as of the date hereof,
the right and option to purchase 41,666 theretofore authorized but unissued
common shares of the Company at an exercise price equal to the market value of
such shares as of the date hereof.
-2-
<PAGE> 3
(ii) Deferred Vesting. Concurrently with the execution
hereof, the Company shall grant to Employee, the right and option to purchase
83,334 theretofore authorized but unissued common shares of the Company at an
exercise price equal to the market value of such shares as of the date hereof.
One-third of such options shall vest, if at all, and be immediately exercisable
by Employee, on the first, second and third anniversary, respectively, of the
date hereof, provided that Employee is then an employee of the Company as of the
date of such vesting.
(iii) Stock Option Plan. The stock options to be granted to
Employee shall be granted pursuant to the Company's 1999 Stock Option Plan, and
shall be subject to all of the terms and conditions thereof.
6. EMPLOYEE BENEFITS: In addition to the compensation set forth above,
Employee agrees to grant Employee the following benefits for the Term:
(a) Annual accrued vacation in accordance with prevailing policies
of the Company, but not less than three (3) weeks per year;
(b) Sick leave and personal leave with pay in accord with the
prevailing policies of the Company;
(c) Health and medical benefit insurance as granted by the Company
to employees performing similar services;
(d) Car allowance of $500.00 a month;
(e) Any other benefits not specifically set forth herein as may be
granted by the Company, in its sole and absolute discretion, to employees
performing similar services.
7. BUSINESS EXPENSES: Employee may incur, on behalf of and for the
convenience of the Company, certain reasonable business expenses including
travel and entertainment and other miscellaneous expenses. Expenses of Employee
incurred on behalf of the Company will be reimbursed by the Company and it shall
be the responsibility of Employee to retain vouchers and other proof of proper
expenditures. The decision as to whether an expense incurred by Employee is for
the benefit of the Company shall be in the sole discretion of the Company, and
all expenses not deemed to be incurred for the benefit of the Company shall be
paid by Employee.
8. TERMINATION:
(a) This Agreement shall terminate at the option of the Company:
i) Immediately upon the death or permanent disability of
Employee, "permanent disability" being defined as the inability of Employee to
perform his duties as required
-3-
<PAGE> 4
hereunder as a result of physical or mental illness for a continuous period in
excess of ninety (90) days.
ii) At the election of the Company, immediately upon the
dismissal of Employee by the Company for cause. "Cause", as used in this
section, shall include, without limitation, any one or more of the following:
(1) The breach by Employee of any material term or
condition of this Agreement;
(2) The refusal or failure to perform duties assigned
in accordance with the terms of this Agreement, if such refusal shall continue
after written instructions to perform such duties have been given under the
authority of the Board of Directors of the Company.
(3) Engaging in one or more acts constituting a felony;
(4) Engaging in one or more acts involving fraud or
serious moral turpitude;
(5) Engaging in acts of insubordination towards any
officer or duly authorized representative of the Company;
(6) Misappropriating the Company's assets or engaging
in gross misconduct materially injurious to the Company or its affiliates or
subsidiaries; or
(7) Breach of any Trade Secrets and Confidentiality
Agreement with the Company, including without limitation the agreement dated
concurrently herewith.
iii) Without Cause, upon not less than twelve (12) months
prior written notice of termination by the Company to Employee (provided,
however that the effective date of termination pursuant to such notice shall in
no event be prior to June 21, 2002).
Notwithstanding the expiration of the initial three year term of this
Agreement, this Agreement shall automatically be extended, and shall continue in
full force and effect in accordance with its terms unless and until terminated
as provided this subsection (a).
(b) The Compensation paid upon termination shall be determined as
follows:
(1) In the event of termination of this Agreement prior
to completion of the Term or any extension thereof as set forth in Paragraph
8(a)(i) or 8(a)(ii), Employee shall be entitled to receive only accrued, but
unpaid compensation up to the date of termination.
-4-
<PAGE> 5
(2) In the event of any other termination of the
Agreement prior to the completion of the Term or any extension thereof, Employee
shall be entitled to receive his compensation and benefits as set forth in this
Agreement until the effective date of termination (taking into account any
notice period required pursuant to Paragraph 8(a)(iii) above), except that if
such termination occurs concurrently with or following a Change in Control (as
defined below), then Employee shall be entitled to receive compensation and
benefits as shall be set forth in a Supplemental Executive Compensation
Agreement to be entered into between the Company and Employee in the form of
that attached as Exhibit A to this Agreement (the "Supplemental Compensation
Agreement").
The Company shall have the option of paying any compensation payable
pursuant to this subsection (b) in accordance with its regular payroll
practices.
(c) For purposes of this Agreement, a "Change of Control" shall
have the meaning set forth in the Supplemental Compensation Agreement.
9. NOTICES. All notices or demands of any kind which either party
hereto may be required or may desire to serve upon the other party under the
terms of this Agreement, shall be in writing and shall be served upon such other
party by personal service upon such other party or by leaving a copy of said
notice or demand, addressed to such other party at the address hereafter set
forth, whereupon such service shall be deemed complete, or by mailing a copy
thereof by registered or express mail, postage prepaid with return receipt
requested, addressed as follows:
IF TO THE COMPANY:
Decora Industries, Inc.
1 Mill Street
Fort Edward, New York 12828
WITH A COPY TO:
Dale S. Miller, Esq.
Miller & Holguin
1801 Century Park East
7th Floor
Los Angeles, CA 90067
IF TO EMPLOYEE:
Mr. Robert Macdonald
----------------------
----------------------
-5-
<PAGE> 6
In case of service by mail, service shall be deemed completed at the
expiration of the third day after the date of mailing. The addresses to which
notices and demands shall be delivered or sent may be changed from time to time
by written notice served as herein above provided by either party upon the other
party hereto.
10. ATTORNEYS' FEES: If either party sues the other to enforce any of
the terms of this Agreement, the prevailing party shall, in addition to all
other damages, be entitled to recover reasonable attorneys' fees.
11. LEGAL REPRESENTATION. Employee confirms that he is not represented
by Miller & Holguin and that he has been advised to seek the advice of
independent counsel in connection with the negotiation of this Agreement and the
transactions contemplated hereby.
12. MISCELLANEOUS:
(a) This Agreement shall be governed and construed in accordance
with the substantive laws of the State of New York.
(b) No change in the terms of this Agreement shall be effective
unless made in writing and signed by the Employee and a duly authorized
representative of the Company.
(c) A waiver of any term or condition of this Agreement shall not
be construed as a general waiver by the Company and the Company shall be free to
reinstate any such term or condition with or without notice to the other party.
(d) Employee's rights and obligations under this Agreement are
personal and not assignable.
(e) This Agreement contains the entire Agreement and understanding
between the parties and supersedes all other agreements or understandings
between the parties concerning employment. Neither party has relied on any
representations other than those as contained herein.
(f) This Agreement shall be binding on and inure to the benefit of
the heirs, personal representatives, successors, and assigns of the parties;
subject, however, to the restrictions on assignment contained herein.
(g) The paragraph headings used in this Agreement are for
reference and convenience only, and shall not in any way limit or amplify the
terms and provisions hereof, nor enter into the interpretation of this
Agreement.
-6-
<PAGE> 7
IN WITNESS WHEREOF, he Company has caused this Agreement to be signed
by their duly authorized officers and Employee has executed this Agreement
effective as of the day and year first above written.
THE COMPANY: EMPLOYEE:
DECORA INDUSTRIES, INC.
By:
-------------------------- ---------------------
ROBERT L. MACDONALD
-7-
<PAGE> 1
EXHIBIT 10.2
WARRANT EXCHANGE AGREEMENT
This WARRANT EXCHANGE AGREEMENT (this "Agreement") is made this 3rd day
of August, 1999, by and between State Street Bank and Trust Company, as Trustee
for The Textron Master Trust (hereinafter referred to as "Trustee"), and Decora
Industries, Inc., a Delaware corporation (hereinafter referred to as "DII") and
Decora Incorporated, a Delaware corporation (hereinafter referred to as "DI"
and, together with DII, "Decora").
WHEREAS, Trustee is the record owner of warrants to purchase shares of
Decora's common stock, par value $.01 per share, and warrants to purchase shares
of Decora's Series A Convertible Preferred Stock, par value $.01 per share;
WHEREAS, Decora desires to exchange with Trustee, and Trustee desires
to exchange with Decora, all of such warrants for aggregate consideration
consisting of (i) Seven Hundred Fifty Thousand Dollars ($750,000) payable by
DII, and (ii) the issuance by DII to Trustee of Four Hundred Thousand (400,000)
shares of its common stock, par value $.01 per share; and
WHEREAS, the parties desire to enter into this Agreement to set forth
the terms and conditions upon which Trustee may exchange such warrants for such
consideration from Decora;
NOW, THEREFORE, in consideration of the representations, warranties and
covenants and the mutual agreements herein contained, it is understood and
agreed as follows:
1. Exchange of Warrants. In exchange for the consideration to be
tendered by Decora pursuant to the terms hereof, and on the other terms and
conditions set forth herein, Trustee hereby sells, transfers, assigns, and
delivers to Decora all of its right, title and interest in and to (i) the
warrants, evidenced by Common Stock Purchase Warrant Certificate(s) dated
September 30, 1997, to purchase up to an aggregate of 2,136,534 shares of
Decora's common stock, par value $.01 per share; (ii) the warrants, evidenced by
Series A Convertible Preferred Stock Purchase Warrant Certificate(s) dated
September 30, 1997, to purchase up to an aggregate of 69,557 shares of Decora's
Series A Convertible Preferred Stock, par value $.01 per share; and (iii) the
warrants, evidenced by Contingent Common Stock Purchase Warrant Certificate(s)
dated September 30, 1997, to purchase a number of shares of Decora's common
stock, par value $.01 per share, as shall equal 21.2% of the sum of (A) the
shares of such common stock, if any, issued after the closing date with respect
to such Certificate(s) pursuant to the terms of the Cigna Exchange Agreement (as
defined in said Certificate(s)), and (B) the Conny Minority Acquisition Shares
(as defined in said Certificate(s)), owned of record by Trustee (hereinafter
referred to as the "Warrants").
<PAGE> 2
2. Consideration for Warrants. As full payment in exchange for
the sale and transfer of the Warrants to Decora by Trustee, Decora shall deliver
to Trustee concurrently with the execution hereof and on the date hereof (the
"Closing Date"): (i) the sum of $750,000, and (ii) in reliance upon the
representations and warranties of Trustee to Decora set forth in Section 4
hereof, 400,000 newly issued shares of DII's common stock, par value $.01 per
share (the "Securities").
3. Transfer of Warrants; Issuance of Shares.
(a) In order to effectuate the transfer of the Warrants to
Decora and the issuance of the Securities to Trustee on the Closing Date,
Trustee shall deliver to Decora all warrant agreements, warrants and other
instruments comprising the Warrants duly endorsed for transfer or accompanied by
duly executed instruments of assignment and any other documents reasonably
requested by Decora to effectuate the purposes of this Agreement, and Decora
shall deliver by wire transfer to the Trustee, in accordance with Trustee's
wiring instructions, the amount set forth in Section 2 above and duly executed
share certificates representing all of the Securities registered in the name of
Trustee.
(b) Promptly upon receipt of the Warrants, Decora shall
cancel, or cause to be canceled, all of the Warrants.
4. Amendment of 1997 Agreement. Upon the Closing Date, that certain
Note and Warrant Purchase Agreement dated as of September 26, 1997 (the "1997
Agreement") to which the parties hereto were parties, shall be deemed amended in
the following respects:
(a) The term "Registrable Securities", as defined in Section
17.1(c) of the 1997 Agreement, shall be deemed to include the Securities (but
only to the extent that any such Securities cannot then otherwise be sold,
transferred or distributed without registration in compliance with Rule 144 (or
any similar provision then in force, but not including Rule 144A) under the
Securities Act of 1933, as amended).
(b) Section 7.23 of the 1997 Agreement ("Board Seat") shall be
deleted, and shall be of no further force and effect.
5 Representations, Warranties and Covenants of Trustee. Trustee
hereby represents, warrants and covenants, as applicable, to Decora as follows:
(a) Authority; No Liens. Trustee is a defined Rhode Island
benefit plan, duly organized, validly existing and in good standing, under the
laws of the jurisdiction in which it is incorporated. Trustee has all requisite
power and authority to convey, assign, and transfer the Warrants pursuant to
this Agreement. The Warrants are free and clear of restrictions on, or
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<PAGE> 3
conditions to, such transfer or assignment, and free and clear of any security
interests, liens, pledges, charges, encumbrances, equities, claims, covenants,
conditions, or restrictions of any kind. This Agreement constitutes the valid
and binding obligation of Trustee enforceable against Trustee in accordance with
its terms.
(b) Agreement Will Not Cause Breach or Violation. The
consummation of the transactions contemplated herein will not result in or
constitute (i) a default or an event that, with notice or lapse of time or both,
would be a default, breach, or violation of any agreement or arrangement to
which Trustee is a party or by which it is bound, or (ii) a conflict with or a
violation of any provision of the certificate of incorporation or bylaws of
Trustee, or (iii) a violation of any law, rule, regulation, rider or decree
(including U.S. federal and state securities laws and regulations of any
securities self-regulatory organizations to which Trustee is subject) applicable
to Trustee or by which any asset of Trustee is bound or affected.
(c) Litigation. There is no suit, action, or arbitration, or
legal, administrative, or other proceeding, or governmental investigation
pending or, to the best of Trustee's knowledge, threatened, that would affect
the transfer of the Warrants as provided for herein either directly or
indirectly.
(d) Warrant Ownership. Trustee represents and warrants that
the Warrants transferred by it to Decora pursuant to the terms hereof constitute
all of the warrants, capital stock or other securities of Decora owned by
Trustee (except for the Securities to be issued and sold to Trustee pursuant
hereto).
(e) Access to Independent Counsel. Trustee represents and
warrants that it has had ample opportunity to consult and has consulted
independent legal counsel with respect to its entering into this Agreement and
the terms hereof and has not relied upon Decora, or any counsel to Decora, for
legal or other advice.
(f) Trustee Evaluation. By reason of Trustee's knowledge and
experience in financial and business matters in general, and investments in
particular, Trustee is able to evaluate the merits and risks of the Securities.
(g) No Disposition. The Trust has income and net worth in an
amount such that the Trust is not now, and does not contemplate in the future
being, required to dispose of any portion of any investment in the Securities to
satisfy any existing or contemplated undertaking.
(h) Bear Economic Risks. The Trust is able to bear the
economic risks of an investment in the Securities, including, without limiting
the generality of the foregoing, the risk of losing part or all of the Trust's
investment in the Securities, and the probable inability to sell or transfer the
Securities for an indefinite period of time.
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<PAGE> 4
(i) Accredited Investor. The Trust is an "accredited investor"
as that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act"). The Trust is such an "accredited
investor" because it is a trust, with total assets in excess of $5 million, not
formed for the specific purpose of acquiring the Securities, whose acquisition
of the Securities is directed by a sophisticated person as described in Section
506(b)(2)(ii) of said Regulation D.
------
(initial)
(j) Acquisition for Investment. The Trust intends to acquire
the Securities solely for the Trust's own account, for investment, and not with
a present view to, or to offer or sell for an issuer in connection with, a
distribution of the Securities, or to participate or have a direct or indirect
participation in any such undertaking, or to participate or have a participation
in the direct or indirect underwriting of any such undertaking; provided,
however, by making the representations and warranties herein, the Trustee does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an applicable exemption under
the Act.
(k) Disclosure. Trustee further acknowledges that it has
received and reviewed Decora's Form 10-K for the fiscal year ended March 31,
1999, and has received satisfactory and complete information concerning the
business and financial condition of Decora in response to all inquiries made by
Trustee in respect thereof.
(l) Direct Communication of Offer. The offer by DII to issue
the Securities to Trustee was directly communicated to Trustee by DII in such a
manner that Trustee was able to ask questions of and receive answers from DII or
a person acting on its behalf concerning the terms of this transaction and that
at no time was Trustee presented with or solicited by any leaflet, public or
promotional meeting, newspaper or magazine article, radio or television
advertisement or any other form of general advertising or general solicitation.
(m) Reliance Upon Information. In determining whether to
acquire the Securities, Trustee has relied solely upon the information
concerning Decora obtained by Trustee (i) from independent investigations made
by Trustee with respect to Decora and (ii) from the sources described in
paragraph 4(l) above, and no oral or written representations concerning Decora
or the value of the Securities have been made to Trustee other than in
connection with the information obtained as described in this sentence, this
Agreement and the agreements and documents referred to herein.
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<PAGE> 5
(n) Restricted Securities. Decora has disclosed to Trustee and
Trustee acknowledges that:
(i) the Securities have not been registered
under the Act or qualified under any state securities laws;
(ii) the Securities are "restricted securities"
as defined in Rule 144 promulgated under the Act; and
(iii) each certificate representing the Securities
will bear a legend substantially similar to the following:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNDER SAID ACT, WITHOUT
REGISTRATION, EXCEPT UPON RECEIPT BY THE COMPANY OF
AN OPINION OF LEGAL COUNSEL IN FORM, SUBSTANCE AND
SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, OR A COPY OF A LETTER FROM THE STAFF OF
THE SECURITIES AND EXCHANGE COMMISSION, IN EITHER
CASE REASONABLY SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT SUCH SECURITIES MAY LEGALLY BE SOLD OR
TRANSFERRED WITHOUT SUCH REGISTRATION."
(o) Loss of Investment. Trustee understands that Trustee may
lose its entire investment in DII represented by the Securities.
(p) Reliance by Decora. Decora is authorized to rely on all of
the representations and warranties made by Trustee in this Warrant Exchange
Agreement.
(q) Correct and Complete Information. All information which
Trustee has provided to Decora is correct and complete as of the date of
Trustee's execution of this Warrant Exchange Agreement. If there should be any
material change in such information prior to execution and delivery of this
Warrant Exchange Agreement by Decora, Trustee will immediately provide such
information to Decora.
(r) Binding Agreement. Trustee understands that this Warrant
Exchange Agreement shall be binding upon Trustee's successors and assigns.
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<PAGE> 6
(s) Authority of Trustee. Trustee has been and is duly
authorized and empowered to legally represent the Trust and to execute, deliver
and perform this Warrant Exchange Agreement and all other instruments in
connection with the purchase of the Securities on behalf of the Trust and the
signature of Trustee is binding upon the Trust.
6. Representations, Warranties and Covenants of Decora. Decora
hereby, jointly and severally, represents, warrants and covenants, as
applicable, to Trustee as follows:
(a) Authority to Perform. Each of DI and DII is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. Decora has full power and authority to
execute, deliver, and perform this Agreement, including, without limitation, to
issue the Securities to the Trustee and exchange for the consideration described
in Section 2 the Warrants in accordance with the terms hereof, and this
Agreement has been duly authorized and executed by Decora. This Agreement
constitutes the valid and binding obligation of Decora enforceable against
Decora in accordance with its terms.
(b) Agreement Will Not Cause Breach or Violation. The
consummation of the transactions contemplated herein will not result in or
constitute (i) a default or an event that, with notice or lapse of time or both,
would be a default, breach, or violation of any agreement or arrangement to
which Decora is a party or by which it is bound or (ii) a conflict with or a
violation of any provision of the certificate of incorporation or bylaws of
Decora, or (iii) a violation of any law, rule, regulation, rider or decree
(including U.S. federal and state securities laws and regulations of any
securities self-regulatory organizations to which Decora or their respective
securities are subject) applicable to Decora or by which any asset of Decora is
bound or affected.
(c) Litigation. There is no suit, action, or arbitration, or
legal, administrative, or other proceeding, or governmental investigation
pending or, to the best of Decora's knowledge, threatened, that would affect the
transfer of the Warrants as provided for herein either directly or indirectly.
(d) Non-Distributive Intent. Decora is acquiring the
Warrants solely for cancellation.
(e) Issuance of Shares. The Securities are duly authorized,
validly issued, fully paid and non-assessable, and free from all taxes (other
than taxes payable by Decora), liens, claims and encumbrances (other than such
as may arise from obligations or agreements of Trustee) and will not be subject
to preemptive rights or other similar rights of stockholders of Decora and will
not impose personal liability upon the holder thereof as such.
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<PAGE> 7
(f) SEC Documents. DII has delivered to Trustee true and
complete copies of Decora's Form 10-K for the fiscal year ended March 31, 1999
(the "SEC Document"). As of its respective date, the SEC Document complied in
all material respects with all applicable legal requirements at the time it was
filed with the United States Securities and Exchange Commission ("SEC") and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
(g) Absence of Certain Changes. Since the date of the SEC
Document, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of Decora, taken as a
whole, except as disclosed in the SEC Document.
(h) No General Solicitation. Neither Decora nor any
distributor participating on Decora's behalf in the transactions contemplated
hereby (if any) nor any person acting for Decora, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D
("Regulation D") promulgated pursuant to the Act, with respect to any of the
Securities being issued hereby.
(i) No Integrated Offering. Neither Decora, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Act, or cause the issuance of the
Securities to be integrated with any other offering of securities of Decora
(past, current or future) for purposes of any stockholder approval provisions
applicable to DII or its securities.
(j) Brokers. Decora has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by the Trustee relating to this Agreement or the transactions
contemplated hereby.
(k) Form D; Blue Sky Laws. DII agrees, if required, to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to the Trustee promptly after such filing. Decora shall
take such action as Decora shall reasonably determine is necessary to qualify
the Securities for sale to the Trustee pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United States or
obtain exemption therefrom, and shall provide evidence of any such action so
taken to the Trustee.
(l) Reporting Status. DII's Common Stock is registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). So long as the Trustee beneficially owns any of the Securities, DII shall
use its best efforts to timely file all reports required to be filed with the
SEC pursuant to the Exchange Act and DII shall not
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<PAGE> 8
voluntarily terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
(m) Reliance by Trustee. Trustee is authorized to rely on all
of the representations and warranties made by Decora in this Warrant Exchange
Agreement.
(n) Correct and Complete Information. All information which
Decora has provided to Trustee is correct and complete as of the date of
Decora's execution of this Warrant Exchange Agreement. If there should be any
material change in such information prior to execution and delivery of this
Warrant Exchange Agreement by Trustee, Decora will immediately provide such
information to Trustee.
(o) Binding Agreement. Decora understands that this Warrant
Exchange Agreement shall be binding upon Decora's successors and assigns.
7. Indemnification.
(a) Trustee hereby agrees to indemnify and hold harmless
Decora, and all of the directors, officers, agents and controlling persons of
Decora, from any and all damages, losses, costs and expenses (including actual
attorneys' fees) which they may incur: (i) by reason of Trustee's failure to
fulfill any of the terms and conditions of this Warrant Exchange Agreement; and
(ii) by reason of Trustee's breach of any of Trustee's representations,
warranties or agreements contained herein. Trustee further agrees and
acknowledges that these indemnifications shall survive any sale or transfer, or
attempted sale or transfer, of any portion of the Securities, or Trustee's
default under this Warrant Exchange Agreement.
(b) Decora hereby agrees to indemnify and hold harmless
Trustee, and all of the directors, officers, agents and controlling persons of
Trustee, from any and all damages, losses, costs and expenses (including actual
attorneys' fees) which they may incur: (i) by reason of Decora's failure to
fulfill any of the terms and conditions of this Warrant Exchange Agreement; and
(ii) by reason of Decora's breach of any of Decora's representations, warranties
or agreements contained herein.
8. Cooperation. Each party hereby agrees to execute such other
documents as may be necessary or desirable to consummate the transaction
proposed herein, including, but not limited to, regulatory filings which may be
required to be filed in such party's state of domicile. Each party hereto shall
cooperate with the other party in executing all certificates and documents
deemed necessary or desirable to consummate the transactions contemplated
herein.
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<PAGE> 9
9. Effect of Representations, Warranties and Covenants. Except as
specifically provided otherwise herein, the representations, warranties and
covenants contained in this Agreement or in any instrument delivered hereunder
or pursuant hereto shall survive the execution of this Agreement.
10. Notices. Any notice, request, instruction or other document to
be given hereunder by any party hereto to another shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid to
the last known address of the receiving party unless otherwise requested in
writing by said party. Notice shall be deemed given on the date it was
personally delivered or three days after it was so posted.
11. Entire Agreement. The making, execution and delivery of this
Agreement by the parties hereto have not been induced by any representations,
statements, warranties or agreements other than those herein expressed. This
Agreement, including any exhibits hereto, embodies the entire understanding of
the parties with regard to the sale of the Warrants by the Trustee to Decora and
the other transactions referred to herein, and there are no further or other
agreements or understandings, written or oral, in effect between the parties
relating to the subject matter hereof, unless expressly referred to by reference
herein. The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included herein
and may not be contradicted by evidence of any prior or contemporaneous written
or oral representations, agreements or understandings, whether express or
implied. The parties further intend that this Agreement constitutes the complete
and exclusive statement of its terms and that no extrinsic evidence whatsoever
may be introduced in any judicial proceeding, if any, involving this Agreement.
12. Amendment. Except as otherwise required by law, this Agreement
may be amended or modified, and any condition specified herein may be waived, by
mutual consent of all of the parties pursuant to a written instrument executed
on behalf of such parties.
13. Attorneys' Fees. In the event of the bringing of any action,
suit or arbitration by any party hereto against another party hereto, by reason
of any breach of any representation, warranty, covenant or condition on the part
of the other party arising out of this Agreement or any document related hereto,
then and in that event, the prevailing party shall be entitled to have and
recover of and from the other party all costs and expenses thereof, including
reasonable attorneys' fees.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without reference
to its conflict of law principles.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
"DECORA" "TRUSTEE"
DECORA INDUSTRIES, INC., STATE STREET BANK AND TRUST
a Delaware corporation COMPANY, as Trustee for The Textron
Master Trust
By: _______________________ By: __________________________
Its: _______________________ Its: __________________________
DECORA INCORPORATED,
a Delaware corporation
By: _______________________ By: _________________________
Its: _______________________ Its: _________________________
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<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED PAYMENT AND
DEFERRAL AGREEMENT
This Amended and Restated Payment and Deferral Agreement (this
"Agreement") is made as of this 23 day of September, 1999 (the "Effective
Date"), by and among Decora, Incorporated, a Delaware corporation (the
"Company"), Decora Industries, Inc., a Delaware corporation ("Decora"), and each
of the "Holders" identified and listed on Schedule A attached hereto and made a
part hereof, in furtherance of the satisfaction of the obligations of Decora and
the Company to the Holders pursuant to Section 9 of the Exchange Agreement (as
hereinafter defined), and that certain Payment and Deferral Agreement, dated as
of July 9, 1998 and amended by Amendment dated as of June 30, 1999, by and among
the Company, Decora, and the Holders (the "Original Payment and Deferral
Agreement). This Agreement replaces and supercedes the Original Payment and
Deferral Agreement in its entirety; however, except to the extent otherwise
specifically required to give effect to the express terms of this Agreement,
this Agreement does not amend, modify, or alter the terms and conditions of the
Exchange Agreement, which Exchange Agreement remains in full force and effect in
accordance with its terms.
WITNESSETH:
WHEREAS, the Company, Decora, and each of the Holders entered into that
certain Exchange Agreement dated as of March 31, 1996 (the "Exchange
Agreement"), pursuant to which the Holders exchanged warrants held by them to
purchase 250 shares of the common stock of the Company for, among other things,
One Million (1,000,000) shares of the common stock of Decora, which shares were
issued to the Holders on June 28, 1996 in the share amounts listed on Schedule
A. Shares of the common stock of Decora are hereinafter referred to in this
Agreement as "Decora Common Stock".
WHEREAS, as a result of a one-for-five reverse stock split of Decora
Common Stock, which reverse split became effective as of December 29, 1997, the
Holders are the holders of all the beneficial interests in Two Hundred Thousand
(200,000) shares of Decora Common Stock (the "Existing Shares") in the share
amounts listed on Schedule A.
WHEREAS, pursuant to Section 9.1 of the Exchange Agreement, the Company
and Decora covenanted and agreed on the Valuation Date (April 15, 1998, as
defined in the Exchange Agreement) to deliver to the Holders such (i) additional
shares of Decora Common Stock, (ii) cash, or (iii) combination of additional
shares of Decora Common Stock and cash, as would provide the Holders with Decora
Common Stock and/or cash having a Current Market Value (as defined in the
Exchange Agreement) as of the Valuation Date of Three Million Dollars
($3,000,000).
WHEREAS, as of the Valuation Date, the Current Market Value (as defined
in the Exchange Agreement) of the Existing Shares (valued at $5.563 per share)
beneficially held by the Holders was One Million One Hundred Twelve Thousand Six
Hundred Dollars ($1,112,600),
<PAGE> 2
thereby resulting in a Current Market Value shortfall on the Valuation Date of
One Million Eight Hundred Eighty-Seven Thousand Four Hundred Dollars
($1,887,400) (the "Shortfall Amount") or Three Hundred Thirty-Nine Thousand Two
Hundred Seventy-Seven (339,277) shares of Decora Common Stock (the "Shortfall
Stock").
WHEREAS, pursuant to the Exchange Agreement, the Holders were entitled
to payment of the Shortfall Amount or delivery to them of the Shortfall Stock as
of the Valuation Date.
WHEREAS, pursuant to and in accordance with Section 11.2 of the
Exchange Agreement, the Holders have the right to require Decora, at its sole
cost and expense, to effect a registration ( a "Registration") under the
Securities Act of 1933, as amended (the "Securities Act"), of any Shortfall
Stock issued to the Holders in satisfaction of Decora's obligations under
Section 9 of the Exchange Agreement, and in connection therewith to require
Decora to effect a Registration of the Existing Shares.
WHEREAS, the Holders agreed to defer payment of the Shortfall Amount
and/or delivery of the Shortfall Stock required by the terms of the Exchange
Agreement, subject to the terms and conditions set forth in the Original Payment
and Deferral Agreement, which, among other things, (A) adjusted the Shortfall
Amount to $2,226,505 (the "Adjusted Shortfall Amount") to reflect the accrual of
interest on the Shortfall Amount from the Valuation Date to June 3, 1998, the
date on which the parties hereto reached agreement in principle as to the terms
and conditions of the Original Payment and Deferral Agreement, and (2) afforded
the Holders the right to require Decora to effect a Registration of the Existing
Shares in accordance with the provisions of Section 11.2 of the Exchange
Agreement at any time after September 30, 1998.
WHEREAS, after giving effect to the Original Payment and Deferral
Agreement, and after (i) crediting payments made to the Holders thereunder and
(ii) accruing interest at the "Applicable Rate" on the unpaid balance of the
Adjusted Shortfall Amount during the term of the Original Payment and Deferral
Agreement pursuant to its terms, on the June 30, 1999 "Payment Date" under the
Original Payment and Deferral Agreement, the amount owing to the Holders
thereunder (defined thereunder as the "Settlement Amount") was $2,302,610.
WHEREAS, the parties now desire to amend and restate the terms and
conditions of their agreement with respect to payment of the Shortfall Amount
and/or delivery of the Shortfall Stock to the Holders as set forth in the
Original Payment and Deferral Agreement.
NOW, THEREFORE, in consideration of the agreements of the parties set
forth herein, and for other good and valuable consideration, the receipt of
which each of the parties hereby acknowledges, the parties hereto hereby agree
to enter into this Amended and Restated Payment and Deferral Agreement on the
following terms and conditions, and acknowledge and agree that this Agreement
shall, on and after its Effective Date, supercede and replace the Original
Payment and Deferral Agreement:
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<PAGE> 3
AGREEMENT
1. The Settlement Amount of $2,302,610 which remained outstanding under
the Original Payment and Deferral Agreement as of the Payment Date of June 30,
1999 thereunder is hereunder referred to as the "Restated Shortfall Amount", and
represents the cash value of all amounts due and owing by Decora to the Holders
as of June 30, 1999, before giving effect to any accruals of interest or other
charges on account of the Restated Shortfall Amount due hereunder.
2. On the Effective Date of this Agreement, Decora will deliver the sum
of One Hundred Thousand Dollars ($100,000) (the "First Payment") to the Holders
by wire transfer of immediately available funds for the account of the Holders
to:
Chase Manhattan Bank, N.A.
Chase NYC/CTR/
BNF=CIGNA Private Placements/ AC=**********
ABA# *************
The First Payment, minus interest on the Restated Shortfall Amount at the rate
of Thirteen and One-Half Percent (13.5%) per annum (the "New Applicable Rate")
calculated and compounded at one-twelfth (1/12th) of the New Applicable Rate for
each month or portion thereof for the period from July 1, 1999 to the Effective
Date, shall be credited to the Restated Shortfall Amount on the Effective Date
as follows: (a) $50,000 shall be credited as of July 31, 1999, and (b) $50,000
shall be credited as of August 31, 1999. For the avoidance of doubt, the First
Payment is set out on Schedule B attached hereto and made a part hereof as the
sum of the $50,000 payments shown for July 31, 1999 and August 31, 1999).
The balance of the Restated Shortfall Amount remaining after crediting payment
of the First Payment is hereinafter referred to as the "Restated Shortfall
Balance" and is shown on Schedule B attached hereto and made a part hereof.
3. The sum of (i) the Restated Shortfall Balance, plus (ii) interest
accrued on the Restated Shortfall Balance at the Applicable Rate from the
Effective Date until the New Payment Date (as defined in Section 4 below), less
any and all Monthly Payments made by Decora to the Holders pursuant to Section
4.A. of this Agreement, shall equal the "New Settlement Amount". For purposes of
this Section 3, the amount of interest included in the New Settlement Amount
shall be calculated and compounded at one-twelfth (1/12th) of the New Applicable
Rate for each month or portion thereof until payment of the New Settlement
Amount. For the avoidance of doubt, the New Settlement Amount for each month
from the Effective Date through November 30, 1999 (assuming all payments
required to be made to Holders hereunder are made when due) is set out on
Schedule B attached hereto and made a part hereof.
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<PAGE> 4
4. Payments.
A. Decora will pay to the Holders the sum of Fifty Thousand Dollars
($50,000) (herein, the "Monthly Payments") on or before the last day of each of
the months of September and October of 1999 (or until such earlier date as the
New Settlement Amount is paid to the Holders in full) in immediately available
funds in accordance with the instructions for wiring such funds to Holders set
forth in Section 2 hereof.
B. Decora shall pay to the Holders the New Settlement Amount on the
earlier of (x) November 30, 1999, or (y) six (6) Trading Days after any Public
Offering of Decora Common Stock (the "New Payment Date").
The term "Public Offering" as used herein shall mean any sale of
Decora Common Stock in a transaction either registered under, or requiring
registration under, Section 5 of the Securities Act other than a registration of
securities offered pursuant to an employee benefit plan on Form S-8.
The term "Trading Day(s)" as used herein shall mean any trading day
on the market or exchange on which Decora Common Stock is then listed or
admitted to trading.
5. Any payment to the Holders in accordance with Section 4. B. shall be
made as follows:
A. By delivery to the Holders of the New Settlement Amount in
immediately available funds in accordance with the instructions for wiring such
funds to Holders set forth in Section 2 hereof;
B. By delivery to the Holders or their nominees of fully registered
and freely tradeable shares of Decora Common Stock meeting the Registration
requirements of Section 11.2 of the Exchange Agreement, valued, for purposes of
determining the number of shares of Decora Common Stock required to equal the
New Settlement Amount, at the median daily closing price of Decora Common Stock,
as reported on Bloomberg, for the five (5) Trading Days immediately preceding
the delivery of Decora Common Stock to the Holders pursuant to this Section
5.B.; or
C. By delivery to the Holders of a combination of cash and shares of
Decora Common Stock in accordance with subsections A. and B. above totaling the
New Settlement Amount, with each Holder participating pro-rata, to the extent
practicable, in any combination of cash and Decora Common Stock delivered by
Decora in satisfaction of its payment obligations pursuant to Section 4.
In the event that any payment on account of the New Settlement
Amount is not paid when due, or if payment in full of the balance of the New
Settlement Amount is not made on
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<PAGE> 5
or before November 30, 1999, the entire New Settlement Amount shall immediately
become due and payable in the manner set forth in Section 5.A. above only, and
shall thereafter accrue interest until paid at the "Default Rate" (which
"Default Rate" shall be equal to the New Applicable Rate plus Three Percent
(3%).
6. Decora may, at its option, upon notice as provided below, prepay
all, but not less than all, of the New Settlement Amount in accordance with this
Section 6. Decora will give each Holder written notice of any prepayment under
this Section 6 not less than five (5) days and not more than thirty (30) days
prior to the date fixed for prepayment. Such notice shall specify the date of
prepayment (the "Prepayment Date") and the amount of the New Settlement Amount
determined by reference to Schedule B. Payment of the New Settlement Amount to
the Holders on the Prepayment Date may be made by Decora in any manner permitted
pursuant to Section 5 above.
7. The Holders shall have the right to require Decora, at its sole cost
and expense, to effect a Registration of the Existing Shares in accordance with
the provisions of Section 11.2 of the Exchange Agreement at any time. In
addition, by its execution and delivery of this Agreement, Decora agrees that
the restrictions on transfer of the Existing Shares contained in Section 11 of
the Exchange Agreement shall be and hereby are waived pursuant to Section
11.1(v) of the Exchange Agreement for any and all transfers of the Existing
Shares after the Effective Date; provided, that if the opinion of counsel
referenced in Section 11.1(a)(i) of the Exchange Agreement shall be required by
Decora's transfer agent as a condition to transfer of the Existing Shares,
Decora agrees to cooperate in good faith with Holders in providing such opinion
of counsel and to bear all reasonable attorneys fees incurred in providing such
opinion.
8. Miscellaneous Provisions.
8.1. Notices. All communications under this Agreement shall be
delivered (a) to the Holders at the address set forth in Schedule A hereto,
marked for attention as there indicated, or at such other address as any such
Holder shall have furnished to the Company and to Decora in writing, and (b) to
Decora or the Company at the following address, or at such other address as
Decora or the Company shall have furnished to the Holders in writing, and in
each case shall be deemed delivered upon receipt:
Decora, Incorporated
1 Mill Street
Fort Edward, New York 12828
Telecopier: (518) 747-9425
Decora Industries, Inc.
1 Mill Street
Fort Edward, New York 12828
Telecopier: (518) 747-5089
5
<PAGE> 6
8.2. Successors and Assigns. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns, and shall inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns permitted hereunder.
8.3. Amendment and Waiver. This Agreement may be amended or
supplemented, and the observance of any term hereof may be waived, only by the
written agreement of all the parties.
8.4. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.
8.5. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the law
of the State of New York, excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction other
than such State.
8.6. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, each of the parties has executed and delivered
this Agreement as of the Effective Date.
DECORA, INCORPORATED,
a Delaware corporation
By: __________________________
Name: Timothy N. Burditt
Title: Vice President
DECORA INDUSTRIES, INC.,
a Delaware corporation
By: __________________________
Name: Timothy N. Burditt
Title: Executive Vice President
(Signatures continued on next page)
6
<PAGE> 7
CIGNA MEZZANINE
PARTNERS II, L.P.
By CIGNA Investments, Inc., Agent
By: _____________________________
Name: Donald F. Rieger, Jr.
Title: Managing Director
CIGNA PROPERTY AND CASUALTY
INSURANCE COMPANY
By CIGNA Investments, Inc.
By: _____________________________
Name: Donald F. Rieger, Jr.
Title: Managing Director
CENTURY INDEMNITY COMPANY
By CIGNA Investments, Inc.
By: _____________________________
Name: Donald F. Rieger, Jr.
Title: Managing Director
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By CIGNA Investments, Inc.
By: _____________________________
Name: Donald F. Rieger, Jr.
Title: Managing Director
7
<PAGE> 8
SCHEDULE A
(See next 4 pages)
8
<PAGE> 9
MATTER NAME: DECORA Industries, Inc.
Name of Holder CONNECTICUT GENERAL LIFE INSURANCE COMPANY
Name in which shares are CIG & Co.
registered
Share Amount 32,800
Address for Notices CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
FAX: 860-726-7203
Signature Format CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By CIGNA Investments, Inc.
By: _______________________________
Name:
Title:
Tax Identification Number **-*******
9
<PAGE> 10
MATTER NAME: DECORA Industries, Inc.
Name of Holder CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY
Name in which Shares are CIG & Co.
registered
Share Amount 37,600
Address for Notices CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
FAX: 860-726-7203
Signature Format CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY
By CIGNA Investments, Inc.
By: _______________________________
Name:
Title:
Tax Identification Number **-*******
10
<PAGE> 11
MATTER NAME: DECORA Industries, Inc.
Name of Holder CIGNA MEZZANINE PARTNERS II, L.P.
Name in which shares are CIG & Co.
registered
Share Amount 92,000
Address for Notices CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
FAX: 860-726-7203
Signature Page Format CIGNA MEZZANINE PARTNERS III, L.P.
By CIGNA Investments, Inc., Agent
By: _______________________________
Name:
Title:
Tax Identification Number **-*******
11
<PAGE> 12
MATTER NAME: DECORA Industries, Inc.
Name of Holder CENTURY INDEMNITY COMPANY
Name in which share are CIG & Co.
registered
Share Amount 37,600
Address for Notices CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
FAX: 860-726-7203
Signature Format CENTURY INDEMNITY COMPANY
By CIGNA Investments, Inc.
By: _______________________________
Name:
Title:
Tax Identification Number **-*******
12
<PAGE> 13
SCHEDULE B
(See next page)
13
<PAGE> 14
Schedule B
Decora Amortization of Restated Shortfall Amount
<TABLE>
<CAPTION>
Interest Principal
13.50% Payment Balance
-------- ------- ---------
<S> <C> <C> <C>
30-Jun 2,302,610.00 Restated Shortfall Amount
31-Jul 25,904.36 50,000.00 2,278,514.36
31-Aug 25,633.29 50,000.00 2,254,147.65 Restated Shortfall Balance
30-Sep 25,359.16 50,000.00 2,229,506.81*
31-Oct 25,081.95 50,000.00 2,204,588.76*
30-Nov 24,801.62 2,229,390.39*
</TABLE>
*New Settlement Amount
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 975
<SECURITIES> 0
<RECEIVABLES> 38,533
<ALLOWANCES> (2,527)
<INVENTORY> 41,256
<CURRENT-ASSETS> 80,801
<PP&E> 74,926
<DEPRECIATION> (20,593)
<TOTAL-ASSETS> 224,840
<CURRENT-LIABILITIES> 41,838
<BONDS> 154,714
0
0
<COMMON> 74
<OTHER-SE> 18,414
<TOTAL-LIABILITY-AND-EQUITY> 224,840
<SALES> 87,786
<TOTAL-REVENUES> 87,786
<CGS> 56,885
<TOTAL-COSTS> 7,897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,654
<INTEREST-EXPENSE> 7,897
<INCOME-PRETAX> 1,540
<INCOME-TAX> 742
<INCOME-CONTINUING> 798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 582
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
</TABLE>
