SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the Commission Only
(As Permitted by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ROSEDALE DECORATIVE PRODUCTS, LTD.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
ROSEDALE DECORATIVE PRODUCTS LTD.
731 Millway Avenue
Concord, Ontario, Canada L4K 3S8
NOTICE OF ANNUAL AND SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 29, 2002
Concord, Ontario, Canada
October , 2002
The Annual and Special Meeting of Stockholders (the "Annual and Special
Meeting") of Rosedale Decorative Products Ltd., an Ontario, Canada corporation
(the "Company"), will be held at the Holiday Inn, Yorkdale, 3450 Dufferin
Street, Toronto, Ontario, Canada M6A 2V1 on , 2002 at 11:00 a.m. (local time)
for the following purposes:
1. To elect five directors to the Company's Board of Directors, each to
hold office until his successor is duly elected and qualified or until his
earlier resignation or removal (Proposal No. 1);
2. To consider and act upon a proposal to sell the Company's wholly-owned
subsidiary, Rosedale Wallcoverings & Fabrics Inc. to Alan Fine, the Company's
Chief Executive Officer and Chairman of the Board (Proposal No. 2);
3. To consider and act upon a proposal to ratify the Board of Directors'
selection of Schwartz Levitsky Feldman as the Company's independent auditors for
the fiscal year ending December 31, 2002 (Proposal No. 3); and
4. To transact such other business as may properly come before the Annual
and Special Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors,
are more fully described in the Proxy Statement which is attached and made a
part of this Notice.
The Board of Directors has fixed the close of business on July 19, 2002
as the record date for determining the stockholders entitled to notice of and to
vote at the Annual and Special Meeting and any adjournment or postponement
thereof.
All stockholders are cordially invited to attend the Annual and Special
Meeting in person. However, whether or not you expect to attend the Annual and
Special Meeting in person, you are urged to mark, date, sign and return the
enclosed proxy card as promptly as possible in the postage-prepaid envelope
provided to ensure your representation and the presence of a quorum at the
Annual and Special Meeting. If you send in your proxy card and then decide to
attend the Annual and Special Meeting to vote your shares in person, you may
still do so. Your proxy is revocable in accordance with the procedures set forth
in the Proxy Statement.
The full text of the special resolution corresponding to Proposal No. 2
is attached to this Notice as Exhibit A. Section 185 of the Business
Corporations Act (Ontario) provides that a stockholder who dissents from the
special resolution corresponding to Proposal No. 2 is entitled to be paid the
fair value of his shares. See "Right to Dissent".
By Order of the Board of Directors,
/s/ SIDNEY ACKERMAN
Sidney Ackerman
President
IMPORTANT
---------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF
RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU
MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
EXHIBIT A TO PROXY NOTICE
Special Resolution to be Submitted to Stockholders at the Annual and
Special Meeting of Stockholders relating to Proposal No. 2
- --------------------------------------------------------------------------------
Be it resolved as a special resolution that:
1. The entering into of a Share Purchase Agreement between the Company and
Alan Fine dated May 14, 2002 ("SPA") relating to the sale by the
Company to Alan Fine of all of the issued and outstanding shares in the
capital of Rosedale Wallcoverings & Fabrics Inc., a copy of which is
appended hereto, and all transactions, proceedings and actions to be
completed thereunder are hereby approved, ratified and adopted; and
2. Any director or officer of the Company be and s/he is hereby authorized
and directed to execute on behalf of the Company any document required
to be delivered pursuant to the SPA.
ROSEDALE DECORATIVE PRODUCTS LTD.
731 Millway Avenue
Concord, Ontario, Canada L4K 3S8
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Rosedale Decorative Products Ltd., an
Ontario, Canada corporation (the "Company"), of proxies in the enclosed form for
use in voting at the Annual and Special Meeting of Stockholders (the "Annual
Meeting") to be held at the Holiday Inn Yorkdale, 3450 Dufferin Street, Toronto,
Ontario, Canada M6A 2V1 on , 2002 at 11:00 a.m. (local time), and any
adjournment or postponement thereof. Only holders of record of the Company's
common stock, no par value per share (the "Common Stock") on July 19, 2002 (the
"Record Date") will be entitled to vote at the Meeting. At the close of business
on the Record Date, the Company had outstanding 2,755,514 shares of Common
Stock.
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to its exercise. Any proxy given is revocable
prior to the Meeting by an instrument revoking it or by a duly executed proxy
bearing a later date delivered to the President of the Company. Such proxy is
also revoked if the stockholder is present at the Meeting and elects to vote in
person.
The Company will bear the entire cost of preparing, assembling,
printing and mailing the proxy materials furnished by the Board of Directors to
stockholders. Copies of the proxy materials will be furnished to brokerage
houses, fiduciaries and custodians to be forwarded to the beneficial owners of
the Common Stock. In addition to the solicitation of proxies by use of the mail,
some of the officers, directors and regular employees of the Company may
(without additional compensation) solicit proxies by telephone or personal
interview, the costs of which the Company will bear.
This Proxy Statement and the accompanying form of proxy is being sent
or given to stockholders on or about , 2002.
Stockholders of the Company's Common Stock are entitled to one vote for
each share held. Such shares may not be voted cumulatively.
Each validly returned proxy (including proxies for which no specific
instruction is given) which is not revoked will be voted "FOR" each of the
proposals as described in this Proxy Statement and, at the proxy holders'
discretion, on such other matters, if any, which may come before the Meeting
(including any proposal to adjourn the Meeting).
Determination of whether a matter specified in the Notice of Annual and
Special Meeting of Stockholders has been approved will be determined as follows.
Those persons will be elected directors who receive a plurality of the votes
cast at the Meeting in person or by proxy and entitled to vote on the election.
Accordingly, abstentions or directions to withhold authority will have no effect
on the outcome of the vote. For each other matter specified in the Notice of
Annual and Special Meeting of Stockholders, the affirmative vote of a majority
of the shares of Common Stock present at the Meeting in person or by proxy and
entitled to vote on such matter is required for approval except with respect to
Proposal No. 2 which requires a two-thirds majority of the votes cast at the
Annual and Special Meeting of Stockholders. Abstentions will be considered
shares present in person or by proxy and entitled to vote and, therefore, will
have the effect of a vote against the matter. Broker non-votes will be
considered shares not present for this purpose and will have no effect on the
outcome of the vote. Directions to withhold authority to vote for directors,
abstentions and broker non-votes will be counted for purposes of determining
whether a quorum is present for the Meeting.
1
Summary Term Sheet for Proposal No. 2
In Proposal No. 2, you are being asked to approve the sale of our
wholly-owned subsidiary, Rosedale Wallcoverings & Fabrics Inc. to our Chairman
of the Board and Chief Executive Officer, Alan Fine. The terms of the proposed
transaction are as follows:
o The total purchase price to be paid is $1,224,000 (Cdn.) ($768,458 U.S.).
Such amount will be paid by the assumption of our obligation for severance
obligations to Mr. Fine in the amount of $1,100,250 Cdn ($690,765 U.S.), and a
cash payment of $123,750 Cdn ($77,693 U.S.).
o Upon the closing of the sale, Mr. Fine will resign as an officer and member of
the Board of Directors of Rosedale Decorative Products Ltd.
o The pre-existing inter-company term loan due and owing by Rosedale
Wallcoverings and Fabrics to Rosedale Decorative Products in the principal
amount of approximately $696,000 Cdn ($437,000 U.S.) will be repaid by delivery
of a lump-sum payment on the closing date in full settlement thereof in the
amount of $400,000 Cdn ($251,130 U.S.), being the present value of the term loan
accelerated to the closing date.
o The pre-existing loan due and owing by Rosedale Wallcovering and Fabrics to
Sidney Ackerman in the face amount of approximately $486,000 Cdn ($305,000 U.S.)
will be repaid in full on the closing date;
o The pre-existing loan due and owing by our wholly-owned subsidiary, Ontario
Paint & Wallpaper Limited to Mr. Fine in the face amount of approximately
$250,000 Cdn ($157,000 U.S.) will be repaid in full on the closing date. o In
connection with the sale, Mr. Ackerman has agreed to purchase 375,000 shares of
our common stock from Mr. Fine. As a result of such purchase, Mr. Ackerman will
then be the beneficial owner of 923,781 shares of common stock representing
33.5% of the total shares outstanding.
Reason for the Transaction
The background of the proposed transaction is rooted in disagreements
in the direction of our businesses, growth and development as between Alan Fine
and Sidney Ackerman. As Rosedale Decorative Products was essentially created as
a holding company for its two independently operating subsidiaries, Rosedale
Wallcoverings & Fabrics and Ontario Paint & Wallpaper, with both having
responsibilities to the Board of Directors, it was determined that it was in the
best interest of Rosedale Decorative Products to divest itself of Rosedale
Wallcoverings & Fabrics, which would reduce the debt and also eliminate the
contingent tax liability of approximately $830,000.
Risks
The sale of the Rosedale Wallcoverings and Fabrics to Mr. Fine will
significantly reduce the product lines and lines of business which we conduct.
This decrease in diversification of our business could serve to magnify any
downturns in the remaining business lines. In particular:
o Our ability to adjust to changes in consumer demand or economic shifts could
be materially impacted.
o Based on the year ended December 31, 2001, our revenues would have decreased
to $10,226,630 from $17,781,760 as a result of the sale of Rosedale
Wallcoverings and Fabrics.
o Net losses for the period would have increased to $1,812,953 from
$565,373, which includes a one-time loss on the sale of Rosedale Wallcoverings &
Fabrics in the amount of $1,115,807.
o Although we received an independent evaluation of the value of Rosedale
Wallcoverings and Fabrics, there can be no assurance that the value may not be
higher to other purchasers. We did not seek bids from any purchaser other than
Mr. Fine.
2
Right to Dissent
We are subject to the provisions of the Business Corporations Act
(Ontario)("OBCA"). You will have the right to dissent under section 185 of the
OBCA if you are opposed to the sale of shares of Rosedale Wallcoverings &
Fabrics to Mr. Fine and the sale is approved by a majority of the other
stockholders. A copy of section 185 of the OBCA is annexed hereto as Exhibit B
to which reference is made hereby.
3
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
At the Annual and Special Meeting, the stockholders will elect five (5)
directors to serve until the next Annual Meeting of Stockholders or until their
respective successors are elected and qualified. In the event any nominee is
unable or unwilling to serve as a director at the time of the Annual and Special
Meeting, the proxies may be voted for the balance of those nominees named and
for any substitute nominee designated by the present Board or the proxy holders
to fill such vacancy, or for the balance of the nominees named without
nomination of a substitute, or the size of the Board may be reduced in
accordance with special resolutions of the Company previously approved
authorizing the Board to do so.. The Board has no reason to believe that any of
the persons named below will be unable or unwilling to serve as a nominee or as
a director if elected.
Assuming a quorum is present, the five nominees receiving the highest
number of affirmative votes of shares entitled to be voted for them will be
elected as directors of the Company for the ensuing year. Unless marked
otherwise, proxies received will be voted "FOR" the election of each of the five
nominees named below. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner as will ensure the election of as many of the nominees
listed below as possible, and, in such event, the specific nominees to be voted
for will be determined by the proxy holders. In the event that Proposal No. 2 is
approved, Mr. Fine will resign as a member of the Board, effective as of the
closing of the transaction set forth in Proposal No. 2. In such event, the Board
will appoint another member to fill Mr. Fine's vacancy.
Name Age Position
Alan Fine 56 Chief Executive Officer and Chairman of the Board
Sidney Ackerman 56 President and Director
Norman G. Maxwell 54 Chief Financial Officer, Secretary, Treasurer and Director
Ken Page 40 Director
Janet Hendry 64 Director - Nominee
The following information with respect to the principal occupation or
employment of each nominee for director, the principal business of the Company
or other organization in which such occupation or employment is carried on, and
such nominee's business experience during the past five years, has been
furnished to the Company by the respective director nominees:
Alan Fine has served as the Chief Executive Officer and Chairman of the
Board of the Company since its inception in May 1997. In 1982, Mr. Fine founded
Rosedale Wallcoverings & Fabrics Inc. and has served as the President of
Rosedale Wallcovering & Fabrics Inc. since 1987. Mr. Fine has also served as the
Secretary for Ontario Paint & Wallpaper Ltd. since 1978. From 1972 to 1977, Mr.
Fine was the Manager of Wallpaper Distribution for Ontario Paint & Wallpaper
Ltd.
Sidney Ackerman has served as the President of the Company since its
inception in May 1997. In 1971, Mr. Ackerman was responsible for the development
of Ontario Wallcoverings which became the wallpaper distribution arm of Ontario
Paint & Wallpaper Ltd. In June 1978, Mr. Ackerman was elected Director and
Treasurer of Ontario Paint & Wallpaper Ltd. Since 1994, Mr. Ackerman has served
as the President of Ontario Paint & Wallpaper Ltd.
Norman G. Maxwell has been Chief Financial Officer and Operations
Manager of the Company since its inception in May 1997 and has served as a
director of the Company since May 1997. Prior thereto, since 1992, Mr. Maxwell
has served as the Vice President of Finance with Ontario Paint & Wallpaper Ltd.
From 1989 to 1992, Mr. Maxwell served as the Comptroller of Ontario. Mr. Maxwell
has been in the wallcovering industry for over 20 years and has been a Certified
Management Accountant since 1977.
Ken Page has been a Director of the Company since June 1998. Since 1992,
Mr. Page has been a partner of the law firm of Page Hill in Toronto, Ontario,
Canada. Mr. Page graduated from the University of Western Ontario with an LLB in
1986 and was admitted to the bar in Ontario 1988.
4
Janet Hendry is being nominated as a Director of the Company for the
first time at the 2002 Annual Meeting. Ms. Hendry has been employed as a legal
secretary for a lawyer involved in corporate and securities law for over 30
years. She is currently the Administrative Assistant to a private company
engaged in mortgage financing. She is also the Corporate Secretary of Sterling
Centrecorp Inc., a public company listed for trading on The Toronto Stock
Exchange, involved in real estate investment and management services.
Directors serve until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers serve at the discretion of
the Board of Directors.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 2001, the Board of Directors
of the Company held two meetings and did not act by unanimous written consent.
No director attended fewer than 75% of the total number of meetings of the Board
of Directors during the last fiscal year.
The Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee consists of two directors, Ken Page and
Sidney Ackerman. Mr. Page is an independent director who is not a salaried
officer of the Company. The purpose of the Compensation Committee is to review
the Company's compensation of its executives, to make determinations relative
thereto and to submit recommendations to the Board of Directors with respect
thereto in order to ensure that such officers and directors receive adequate and
fair compensation. The Compensation Committee is also responsible for
administering the Company's 1998 Stock Option Plan. The Compensation Committee
met one time during the last fiscal year.
The Audit Committee will be composed of three directors, Ken Page,
Norman Maxwell, and assuming her election to the Board, Ms. Hendry. Mr. Page and
Ms. Hendry are considered to be independent directors for purposes of their
service on the Audit Committee. The Audit Committee is responsible for the
general oversight of audit, legal compliance and potential conflict of interest
matters, including (a) recommending the engagement and termination of the
independent public accountants to audit the financial statements of the Company,
(b) overseeing the scope of the external audit services, (c) reviewing
adjustments recommended by the independent public accountant and addressing
disagreements between the independent public accountants and management, (d)
reviewing the adequacy of internal controls and management's handling of
identified material inadequacies and reportable conditions in the internal
controls over financial reporting and compliance with laws and regulations, and
(e) supervising the internal audit function, which may include approving the
selection, compensation and termination of internal auditors. The Audit
Committee met one time during the last fiscal year.
Effective as of May 28, 1998, the Board of Directors adopted a charter
for the Audit Committee detailing its duties and powers. A copy of the Audit
Committee charter is included as Exhibit A to this Proxy Statement.
The Audit Committee oversees the financial reporting process for the
Company on behalf of the Board of Directors. In fulfilling its oversight
responsibilities, the Committee reviews the annual financial statements included
in the annual report and filed with the Securities and Exchange Commission, as
well as the unaudited financial statements filed with the Company's quarterly
reports on Form 10-QSB.
In accordance with Statements on Accounting Standards (SAS) No. 61, the
Committee conducted discussions with management and the independent auditor
regarding the acceptability and the quality of the accounting principles used in
the reports. These discussions included the clarity of the disclosures made
therein, the underlying estimates and assumptions used in the financial
reporting and the reasonableness of the significant judgments and management
decisions made in developing the financial statements. In addition, the
Committee has discussed with the independent auditor its independence from the
Company and its management, including the matters in the written disclosures
required by Independence Standards Board Standard No. 1.
The Committee has also met and discussed with management and its
independent auditors issues related to the overall scope and objectives of the
audits conducted, the internal controls used by the Company, and the selection
of the Company's independent auditor. Additional meetings were held with the
independent auditor, with financial management present, to discuss the specific
results of audit investigations and examinations and the auditor's judgments
regarding any and all of the above issues.
5
Pursuant to the reviews and discussions described above, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-KSB for the fiscal year ended December
31, 2001 and 2000 for filing with the Securities and Exchange Commission.
The Board does not have a nominating committee or a committee
performing the functions of a nominating committee. Although there are no formal
procedures for stockholders to nominate persons to serve as directors, the Board
will consider nominations from stockholders, which should be addressed to Norman
Maxwell at the Company's address set forth above.
COMPENSATION OF DIRECTORS
Directors currently receive no cash fees for services provided in that
capacity, but are reimbursed for reasonable out-of-pocket expenses incurred in
connection with attendance at meetings of the Board or any committee thereof
they attend. The Company is currently reviewing its policy on compensation of
outside directors and may pay outside directors in the future.
RECOMMENDATION OF THE BOARD:
---------------------------
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE.
The proxy holders intend to vote the shares represented by proxies for
all of the Board's nominees, except to the extent authority to vote for the
nominees is withheld.
STOCK OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership
of the Company's Common Stock as of the Record Date, by (i) all persons known by
the Company to be beneficial owners of five percent (5%) or more of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the executive officers of the Company, (iv) all directors and executive
officers of the Company as a group.
- -------------------------------------------------------------- ------------------- --------------------------
Shares of Common
Stock Beneficially Approximate Percentage
Owned of Common Stock
Name Outstanding
- -------------------------------------------------------------- ------------------- --------------------------
Sidney Ackerman(2) 516,726 18.7%
Alan Fine (3) 548,781 19.9%
Rosalyn Fine (4) 201,219 7.3%
Janis Ackerman 77,758 2.8%
Robert Ackerman 77,758 2.8%
Lauren Ackerman 77,758 2.8%
All Executive Officers and Directors
as a Group (two persons) 1,065,507 38.7%
- ---------------------
(1) Unless otherwise indicated, the address is c/o Rosedale Decorative
Products Ltd. 731 Millway Avenue, Concord, Ontario,
Canada L4K 3S8.
(2) Does not include 233,274 shares of Common Stock held by the Janis
Ackerman, Robert Ackerman and Lauren Ackerman. Includes 228,574 shares
of Common Stock owned by 1369597 Ontario Inc., which is owned by Sidney
Ackerman, Janis Ackerman, Robert Ackerman and Lauren Ackerman.
6
(3) Includes 404,706.5 shares of Common Stock owned by 1369598
Ontario Inc. of which Alan Fine and Rosalyn Fine are
shareholders.
(4) Includes 57,143.5 shares of Common Stock owned by 1274152 Ontario,
Inc. of which Rosalyn Fine is a 100% owner. Rosalyn Fine
is the former wife of Alan Fine and the sister of Sidney Ackerman.
Voting Agreement
Effective August 16, 1999, Sidney Ackerman, Alan Fine, The Ackerman
Family Trust, 1274152 Ontario Inc., 1324864 Ontario Inc. and 454590 Ontario
Limited (the "Shareholders"), entered into a Common Stock voting agreement.
Pursuant to the terms of the voting agreement, each of the Shareholders agrees
to vote all of their Shares unanimously in respect of any matter to be voted on
at any meeting of the shareholders of the Company. In the event the Shareholders
cannot express unanimity or any of them abstains from voting then the
Shareholders agree to vote all of their Shares against such matter or withhold
all of their votes in respect of such matter as applicable and to so instruct
their proxies. The provisions of the voting agreement shall apply to any shares
in the capital stock of the Company to which voting rights attach which may be
issued to the Shareholders at any time during the term of the voting agreement
and any shares in the capital stock of the Company which are issued in
replacement of any shares or after acquired shares. The voting agreement does
not apply to any shares that are sold or transferred to a Shareholder and does
not apply to any shares that are sold or transferred to a third party in an
arm's-length transaction. The voting agreement terminates upon Sidney Ackerman
or Alan Fine being no longer employed by the Company or any of its subsidiaries
or the date upon which any Shareholder divests itself of all shares in an
arm's-length transaction for fair market consideration, whichever is earlier.
There are 1,298,781 shares controlled by the voting agreement which represents
47.1% of the total shares outstanding.
Information regarding ownership of certain beneficial owners and
management will appear under the caption "Ownership of Securities" in the
Information Statement and is incorporated herein by reference.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information with respect
to the compensation paid to the Company's Chief Executive Officer, and the
Company's President, for services rendered in all capacities to the Company for
the fiscal period ended December 31, 2001. Other than as listed below, the
Company had no executive officers whose total annual salary and bonus exceeded
$100,000 for that fiscal year:
Summary Compensation Table
Long-Term Compensation
Awards Payouts
Securities All
Restricted Underlying Other
Other Stock Options/ LTIP Compen-sation
Compen-sation Award(s) SARs Payouts ($)
Name Position Year (1) Salary Bonus ($) (#)(1)(2) ($)
Alan Fine(1) Chief 2001 $ 198,528 $2,317 ---- ---- ---- ---- ----
Executive 2000 $ 207,043 $5,518 ---- ---- ---- ---- ----
Officer 1999 $ 161,529 $9,541 ---- ---- 25,000 ---- ----
Sidney President 2001 $ 198,528 $4,896 ---- ---- ---- ---- ----
Ackerman(1) 2000 $ 207,043 $8,463 ---- ---- ---- ---- ----
1999 $ 161,529 $18,245 ---- ---- 25,000 ---- ----
- ---------------- ---------- ---------- ----------- ------------ ---------- ----------- ------------ --------- ----------
(1) Reflects total compensation received from both the Company's Ontario and
Rosedale subsidiaries. As the Company is located in Canada, the executives
have been paid salaries of $307,500 Canadian dollar in 2001 ($205,000 U.S.
based on an effective exchange rate of $1.50).
The exchange rate used to calculate the Compensation of Executive
Officers is the average exchange rate for the year 2001, which was $1.5489
Canadian per U.S. dollar.
(2) Options under the 1998 Plan were granted on August 19, 1999 at the most
recent closing price of the Company's shares as traded on NASDAQ,
specifically, $1.00 per share on August 18, 1999.
7
STOCK OPTIONS GRANTS AND EXERCISES
No stock options were granted during the fiscal year ended December
31, 2001.
The following table shows the value at December 31, 2001 of
unexercised options held by the named executive officers:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values
Number of securities Value of unexercised
underlying unexercised in-the-money options at
options at fiscal fiscal year-end ($)
year-end (#)
Name Shares acquired on Value Realized
exercise (#) ($) Exercisable/unexercisable Exercisable/unexercisable
Alan Fine, Chief Executive 0 0 25,000/0 $0/0
Officer
Sidney Ackerman, President 0 0 25,000/0 $0/0
- ---------------------------- --------------------- ---------------- --------------------------- ------------------------------
Employment Agreements
In June 1998, Alan Fine and Sidney Ackerman both entered into five-year
employment agreements with the Company. Alan Fine is retained as Chief Executive
Officer of the Company at an annual salary of $205,000. Sidney Ackerman is
retained as President of the Company at an annual salary of $205,000. The
compensation committee presented to the board an annual salary increase to
$205,000 for both executive officers retroactive to January 1, 2000. The board
unanimously approved the increase.
The employment agreements with Alan Fine and Sidney Ackerman provide
that upon the death of any of the two employees that three years full salary
will be paid to the employee's estate in a lump sum payment. The agreements also
provide for reimbursement of reasonable business expenses.
Alan Fine and Sidney Ackerman are entitled to bonuses of up to $10,000
each based on achieving sales, profitability and management goals as
predetermined by the Board of Directors or compensation committee and other
subjective criteria as determined by the Board of Directors or Compensation
Committee.
Alan Fine and Sidney Ackerman shall each receive $20,000 per year
additional compensation, including car allowance, insurance and retirement
savings with matched contributions by the Company and such other perquisites.
Upon the resignation, or exercise of retirement option upon reaching
the age of 60, the Company shall pay the employee a lump sum resignation
allowance equal to three years salary plus equivalent in benefits. Based upon
any wrongful termination of either Alan Fine or Sidney Ackerman, the Company
shall pay the employee a lump sum resignation allowance of 5 years salary and
equivalent in benefits.
In the event that there is a change in control of the Company, through
an acquisition where any person acquires more than 50% of the shares of the
Company, an amalgamation, consolidation or merger with another corporation
resulting in at least 50% of the voting shares of the surviving corporation
being controlled by a new acquirer or the sale directly or otherwise of all of
the assets of the Company to a third party in a non-distress situation, then the
Company shall pay to Alan Fine and Sidney Ackerman a lump sum payment equal to
the sum of one and one-half times their respective annual salaries paid or
payable in respect of the most recently completed fiscal year.
8
Stock Option Plan
The Company has adopted a Stock Option Plan (the "1998 Plan"), pursuant
to which 750,000 shares of Common Stock are reserved for issuance.
The 1998 Plan is administered by the Compensation Committee or the
board of directors, who determine, among other things, those individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of Common Stock issuable upon the
exercise of the options and the option exercise price.
The 1998 Plan is for a period for ten years. Options may be granted to
officers, directors, consultants, key employees, advisors and similar parties
who provide their skills and expertise to the Company. Options granted under the
1998 Plan may be exercisable for up to ten years, may require vesting, and shall
be at an exercise price all as determined by the board. Options will be
non-transferable except to an option holder's personal holding company or
registered retirement savings plan and are exercisable only by the participant
during his or her lifetime.
If a participant ceases affiliation with the Company by reason of
death, permanent disability or retirement at or after age 70, the option remains
exercisable for three months from such occurrence but not beyond the option's
expiration date. Other termination gives the participant three months to
exercise, except for termination for cause, which results in immediate
termination of the option.
Options granted under the 1998 Plan, at the discretion of the
compensation committee or the board, may be exercised either with cash, Common
Stock having a fair market equal to the cash exercise price, the participant's
personal recourse note, or with an assignment to the Company of sufficient
proceeds from the sale of the Common Stock acquired upon exercise of the Options
with an authorization to the broker or selling agent to pay that amount to the
Company, or any combination of the above.
The exercise price of an option may not be less than the fair market
value per share of Common Stock on the date that the option is granted in order
to receive certain tax benefits under the Income Tax Act (Canada) (the "ITA").
The exercise price of all future options will be at least 85% of the fair market
value of the Common Stock on the date of grant of the options. A benefit equal
to the amount by which the fair market value of the shares at the time the
employee acquires them exceeds the total of the amount paid for the shares or
the amount paid for the right to acquire the shares shall be deemed to be
received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.
Options under the 1998 Plan must be issued within ten years from the
effective date of the 1998 Plan.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the Company become available again for
issuance under the 1998 Plan.
The 1998 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1998 Plan may not be
increased without the consent of the shareholders of the Company.
TRANSACTIONS WITH MANAGEMENT
In 1995, Alan Fine, Chief Executive Officer of the Company and
Sidney Ackerman, President of the Company each loaned funds to the Company's
Ontario and Rosedale subsidiaries. As at December 31, 2001, the outstanding
amounts of loans made by Alan Fine to Ontario and Rosedale were $156,888 and
$381,972, respectively, and the outstanding amount of the loans made by Sidney
Ackerman to Rosedale was $305,185. These loans are secured by a general security
agreement on the personal property of Rosedale and Ontario and bear interest at
a rate equal to the prime rate of interest charged by the National Bank of
Canada plus 1.5% per annum and are payable on demand. Interest was waived for
the year 2001.
9
Alan Fine, Chief Executive Officer of the Company, and Sidney Ackerman,
President of the Company, own all of the issued and outstanding capital stock of
966578 Ontario Inc., 1216748 Ontario Inc. and 976168 Ontario Inc. Sid Ackerman
owns all of the issued and outstanding capital stock of 1369597 Ontario Inc. The
Company leases space for its retail store, located in downtown Toronto, from
966578 Ontario Inc., 1216748 Ontario Inc. and 1369597 Ontario Inc. The leases
call for rental payments in the amount of $15,495 per annum, plus general
property taxes, payable in equal monthly installments of $1,291 for the property
leased from 1216748 Ontario Inc. The lease for 966578 Ontario Inc. calls for
rental payments in the amount of $18,835 per annum plus general property taxes,
payable in equal monthly installments of $1,570. The lease for 1369597 Ontario
Inc. calls for rental payments in the amount of $23,242 per annum plus general
property taxes, payable in equal monthly installments of $1,937. The leases are
for a five-year term.
The Company has second mortgages from two related companies, 1216748
Ontario Inc. and 1217576 Ontario Inc., both of which are 50% owned by Sidney
Ackerman, President and Alan Fine, Chief Executive Officer. The principal amount
of the loans from 1216748 Ontario Inc. and 1217576 Ontario Inc. are $162,464 and
$147,356, respectively. The mortgages are secured by land and buildings and bear
interest at 9% per annum and are payable on demand.
The Company has available credit facilities up to a maximum of
$6,793,000, which bear interest at rates varying between the bank's prime rate
plus 0.25% and prime plus 0.75%. The credit facilities are secured by general
assignments of book debts, pledge of inventory under Section 427 of the Bank Act
of Canada, general security agreements providing a first floating charge over
all assets, guarantees and postponement of claims to a maximum of $1,570,000
from the Company and its subsidiaries, guarantees from affiliated companies up
to $534,000, assignment of life insurance of $1,883,000 on the lives of two key
officers and assignment of fire insurance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on its review of the copies of
such reports received or written representations from certain Reporting Persons
that no other reports were required, the Company believes that during its fiscal
year ended December 31, 2001, all Reporting Persons complied with all applicable
filing requirements.
PROPOSAL NO. 2
APPROVAL OF SALE OF ROSEDALE WALLCOVERINGS & FABRICS INC. TO ALAN FINE, THE
COMPANY'S CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
Proposed Transaction
On May 14, 2002, the Company entered into a share purchase agreement
with Alan Fine, the Company's Chief Executive Officer and Chairman of the Board
(the "Share Purchase Agreement"), pursuant to which the Company agreed to sell
its wholly-owned subsidiary, Rosedale Wallcoverings & Fabrics Inc. (the
"Subsidiary") to Mr. Fine. The Share Purchase Agreement was unanimously approved
by all members of the Company's Board of Directors (Ken Page, Greg Sichenzia and
Norm Maxwell) except Mr. Fine and Mr. Ackerman, each of whom having recused
himself from consideration of the matter. Pursuant to the terms of the Share
Purchase Agreement, the Company and Mr. Fine jointly retained Klein Valuation
Services Inc. ("Klein"), an independent valuation firm, to determine the fair
value of the Subsidiary. Pursuant to its valuation report which is attached
hereto as Exhibit A, Klein determined the fair value of the Subsidiary to be
$1,224,000 Cdn ($768,458 U.S.). Upon the closing of the sale, Mr. Fine will
resign as an officer and member of the Board of Directors of the Company. In
connection with the transaction, the Subsidiary will assume an obligation of the
Company for severance obligations to Mr. Fine in the amount of $1,100,250 Cdn
($690,765 U.S.), thereby reducing the cash purchase price to be paid to the
Company to $123,750 Cdn ($77,693 U.S.). In addition, the Company, the
Subsidiary, Mr. Fine, Sidney Ackerman (the Company's President), and various
persons or entities affiliated with the foregoing parties have agreed to enter
into transactions to further separate the business affairs of the Company and
the Subsidiary. In particular, the parties have agreed to or have agreed to use
their best efforts to eliminate various inter-company loans, guarantees and
similar transactions. Of particular note:
10
o the pre-existing inter-company term loan due and owing by Subsidiary to
the Company in the principal amount of approximately $696,000 Cdn
($437,000 U.S.) shall be repaid by delivery of a lump-sum payment from
Subsidiary to the Company on the closing date in full settlement
thereof in the amount of $400,000 Cdn ($251,130 U.S.), being the
present value of the term loan accelerated to the closing date;
o the pre-existing loan due and owing by Subsidiary to Sidney Ackerman in
the face amount of approximately $486,000 Cdn
($305,000 U.S.) will be repaid in full on the closing date;
o the pre-existing loan due and owing by the Company's wholly-owned
subsidiary, Ontario Paint & Wallpaper Limited ("Ontario")
to Mr. Fine in the face amount of approximately $250,000 Cdn
($157,000 U.S.) will be repaid in full on the closing date.
In connection with the foregoing transactions, Mr. Ackerman
has agreed to purchase 375,000 shares of the Company's common stock
from Mr. Fine. As a result of such purchase, Mr. Ackerman will then be
the beneficial owner of 923,781 shares of common stock representing
33.5% of the total shares outstanding. In addition, Ken Page will also
resign as member of the Board of Directors upon the closing of the sale
due to the change in the structure in the company. Upon his
resignation, his vacancy will be filled by another outside director to
be appointed by the board.
No regulatory requirements must be complied with or approvals
obtained prior to the completion of the sale, other than shareholder
approval.
As a result of the proposed transaction, the Company will use
approximately $768,000 Cdn ($496,000 U.S.) of its losses carried-forward leaving
a balance of approximately $1,723,000 Cdn ($1,082,000 U.S.), which will expire
between 2006 and 2008.
Business of the Company
The Company designs and distributes its owned branded wallcovering and
designer fabric collections, as well as distributing other manufacturers'
wallcoverings on a wholesale basis. Wallcoverings and fabrics sold under Company
brand names are manufactured for the Company on an outsource basis by third
party manufacturers. Design and distribution of Company brand wallcoverings is
accomplished through its Rosedale subsidiary, and to an increasing extent,
through its Ontario subsidiary. Wholesale distribution of other manufacturers'
wallcoverings is accomplished through the Company's Ontario subsidiary.
Sales of Company's name brand wallcoverings account for approximately
62% of the Company's total revenues and wholesale distribution of wallcoverings
under non-company brand names accounts for approximately 18% of the Company's
total revenues. Sales of designer fabrics account for approximately 10% of the
Company's revenues and the Company's retail paint and wallpaper store generates
approximately 10% of the Company's annual revenues.
In 2001, the Company distributed approximately 27 Company brand
wallcovering and fabric collections to approximately 10,000 to 20,000 retail
wallpaper and paint stores worldwide. In addition, in 2001, the Company's
Ontario subsidiary distributed approximately 66 non-Company brand wallcovering
collections to approximately 1,500-2,000 home decorating stores in Canada.
11
Reasons for the Transaction
The background of the proposed transaction is rooted in disagreements in
the direction in the Company's businesses, growth and development as between
Alan Fine and Sidney Ackerman. As the Company was essentially created as a
holding company for its two independently operating subsidiaries, Rosedale
Wallcoverings & Fabrics Inc. ("RWF") and Ontario Paint & Wallpaper Limited
("OPW"), Messrs. Fine and Ackerman began to discuss the possibility of
effectively divesting the Company's interests in RWF in September 2001. The
Company consulted with its auditors in order to analyze the impact of such
divestiture on the Company. Each of the Company, Mr. Ackerman and Mr. Fine
retained independent legal counsel to assist them in such discussions. Following
the completion of the analysis, serious negotiations commenced as between the
Company's independent board members' representative, Norman Maxwell, and Alan
Fine and his advisors. Letters of Intent were executed in December 2001 and such
letters formed the basis of the various agreements, which were executed in May
2002.
Management considered the possibility of putting RWF on the public
auction block but due to the specialized nature of the business that
only companies already in the business (competitors) would be
interested in Rosedale Wallcoverings & Fabrics , management decided
against this for the following reasons:
o The wallcovering industry is extremely competitive; accordingly
protecting the primary assets consisting largely of intellectual
properties is inherently a risk-filled proposition. The Company's
management was extremely concerned that a "public" sale of RWF would
simply lead to competitors engaging in the due diligence process for no
purpose other than to glean confidential information as to graphic
patterns, future plans, employees, etc. Furthermore, the Company felt
that any steps to protect against risks (such as non-disclosure
agreements) would, in all practical terms, provide little security.
o The Company was also of the view that public disclosure of the proposed
sale would lead to key employees becoming unnecessarily concerned and
possibly leaving the Company's subsidiaries to find increased security
elsewhere and in particular, with competitors of both OPW and RWF.
o The Company was well aware of RWF's poor financial performance in
recent years and was of the view that its public sale would fetch a
modest price.
o The price, which is being paid by Alan Fine, is essentially the best
price the Company could reasonably secure in that if an arm's length
buyer were to acquire RWF, the Company would in all instances be
saddled with a substantial severance obligation owed to Mr. Fine. In
the subject transactions, the settlement of such obligation forms a
substantial part of the purchase price.
Following the receipt of the independent valuation, the Company's
independent board representative and counsel, Messrs. Fine and Ackerman
and their respective independent legal counsel participated in the
negotiations leading up to the execution of the definitive agreements.
The terms of the various agreements were negotiated between Mr. Maxwell
(acting for the Company) and Alan Fine on his own behalf. The terms
were negotiated only upon the completion of the independent valuation.
In addition to the considerations outlined above, the independent
directors took the following factors into their deliberations:
o All parties were in agreement that any transaction, which was to be
concluded, would have to lead to the separation of one
of Mr. Ackerman or Mr. Fine from the Company.
o Given the comparative financial performance as between RWF and OPW over
the past several years, it was preferable to have RDP divest itself of
RWF as opposed to OPW.
o The majority of the independent directors were of the view that the
short and long term prospects of OPW were better than those of RWF,
even though on a pro forma basis, the sale of RWF would have increased
the Company's losses for the year ended December 31, 2001 as the one
time loss on the sale of Rosedale Wallcoverings & Fabrics would be
recorded in the amount of $1,115,807.
o The historical evolution of RWF and OPW was such that each such
companies was operated on a day-to-day basis by Mr. Fine and Mr.
Ackerman, respectively, and that a sale of RWF which did not include
Mr. Fine's separation from the Company, would have left him without any
meaningful responsibilities in the Company which is already operated
with a lean complement of human resources in addition to the very
substantial severance package that would have to be ultimately paid.
12
The Board of Directors believes the sale of the Subsidiary to Mr. Fine will
permit the Company to better focus on Ontario, the division which the Board
believes has the best prospects for growth and profitability in the future.
Although the businesses of Ontario and the Subsidiary are interrelated, the
opportunity to specialize in the business lines conducted by Ontario will
sharpen the focus of management, permitting them to more effectively leverage
the strengths of the retail and mass distribution markets. Ontario has already
hired Malcolm Cooper and Shannon Jackman, internationally known designers, to
develop lines for the world market. Malcolm Cooper has been a member of CMG
(Color Marketing Group) since 1984 and has also served on the Board of Directors
of CMG. Shannon Jackman has been a member of CMG since 1993. CMG is the premier
international association for color and design professionals located in
Alexandria, Virginia. Both Malcolm and Shannon are highly respected by their
peers and fellow CMG members. Ontario intends to launch five additional
collections in 2002, which could result in substantial additional sales.
Valuation
In January, 2002, the Company engaged Klein Valuation Services, Inc.
("Klein") to determine the fair value of RWF. Klein, a Toronto, Ontario company,
regularly engages provides independent business valuations and consultation
services for small to mid-sized companies. Since its inception in 1992, Klein
has provided valuations for more than 70 businesses. Klein has no affiliation or
association with the Company or any of its officers or directors. Klein was
chosen by the Company for its expertise in valuing companies of a size similar
to RWF For its services, Klein was paid a fee of $8,000 Cdn ($5,165 U.S.).
The Company instructed Klein to determine the fair value of RWF, using the
most appropriate and accurate method. Klein was provided extensive information
about the Company, RWF and their businesses and operations and financial
information. Klein considered the two generally accepted approaches to value,
the going-concern approach and the liquidation approach. Klein did not consider
a liquidation approach to be applicable in this matter because it only provides
an indication of value where the company's value is related to the disposition
of its assets. The going concern approach is based on the premise that the value
of the company is based on its ability to generate future income. Under a going
concern approach, various valuation techniques can be used such as
capitalization of earnings, capitalization of cash flows and discounting of cash
flows, each of which is appropriate in its own special circumstances.
The capitalization of after tax earnings involves multiplying after tax
normalized earnings from operations by a capitalization rate reflecting the risk
associated with achieving those earnings compared to alternative investments
readily available in the marketplace and adding back any redundant assets. The
capitalization of cash flows technique is a short form discounted cash flow
whereby an appropriate capitalization rate is applied to indicated after-tax
discretionary cash flows from operations. The present value of future tax
savings associated with available capital cost allowances and eligible capital
amounts along with the net realizable value of redundant assets on hand are
added to the capitalized amount to derive an overall value for the business.
Capitalization of after tax earnings was not appropriate in this situation as
there were significant differences between operating cash flow and earnings due
to the existence of significant non-cash expenses and significant annual capital
requirements. Operating cashflow was therefore more representative of the
Company's annual performance than earnings and therefore a better standard upon
which to determine intrinsic value. The discounting of cash flows involves
estimating future net discretionary cash flow on a year-by-year basis and
discounting the cash flow estimates to present value using an appropriate rate
of return. This technique is useful where cash flows are not expected to be
consistent and stable from year to year such that a yearly analysis becomes more
accurate. It attempts to specifically quantify the future prospects over the
discount period through a forecast of prospective operating results, with the
discount rate reflecting the risk of achieving the forecasted results.
Discounted cash flow is traditionally used in companies where there is little
history or there is going to be dramatic growth in the future. Neither were the
case with this Company.
The capitalization of cash flow approach is a more appropriate approach
for the wall coverings and decorative fabrics industry and was used here because
depreciation expense deducted from earnings does not approximate the sustaining
capital reinvestment, which is more accurately deducted under a cash flow
approach. This is to say that on an ongoing annual basis the Company uses more
cash for capital purposes than would be booked as a depreciation expense. The
capitalization of cash flows approach capitalizes maintainable after-tax cash
flows at a rate of return reflecting the appropriate level of risk related
thereto. As detailed in the report, maintainable after-tax cash flow was between
$290,000 and $330,000. The capitalization rate utilized was between 25% and 33%,
which translates to a cashflow multiple of between 3 times and 4 times. Based on
the foregoing, Klein determined the fair value of RWF to be between $1,224,000
(Cdn) and $1,394,000 (Cdn.).
13
Risks
The sale of the Subsidiary to Mr. Fine will reduce the product lines
and lines of business conducted by the Company. This decrease in diversification
of the Company's business could serve to magnify any downturns in the remaining
business lines. In addition, the Company's ability to adjust to changes in
consumer demand or economic shifts could be materially impacted. Based on the
year ended December 31, 2001, the Company's revenues would have decreased to
$10,226,630 from $17,781,760 as a result of the sale of the Subsidiary. Net
losses for the period would have increased to $1,812,953 from $565,373 which
includes a one time loss of $1,115,807 on the sale of Rosedale Wallcoverings &
Fabrics.. The decrease in the size of the Company may also limit other
opportunities otherwise available. Finally, although the Company received an
independent evaluation of the value of the Subsidiary, there can be no assurance
that the value may not be higher to other purchasers. The Company did not seek
bids from any purchaser other than Mr. Fine.
Right to Dissent
The Company is subject to the provisions of the Business Corporations
Act (Ontario) ("OBCA"). Stockholders will have the right to dissent under
section 185 of the OBCA if they are opposed to the sale of all of the issued and
outstanding shares of Rosedale Wallcoverings & Fabrics Inc. to Alan Fine (the
"Sale"). A copy of section 185 of the OBCA is annexed hereto as Exhibit B to
which reference is made hereby. It is recommended that shareholders who wish to
pursue their rights of dissent consult with their own legal advisors with
respect to the procedures to be followed.
Stockholders are entitled to dissent to the proposed Sale in accordance
with the provisions of section 185 of the OBCA and to be paid the fair value of
such shares if the Sale becomes effective.
A stockholder may dissent only with respect to all of the shares of the
Company held by such stockholder on behalf of any one beneficial owner and
registered in the stockholder's name. A stockholder is not entitled to dissent
with respect to shares of the Company if the stockholder votes any of such
shares in favor of the Sale special resolution.
In order for a stockholder to avail himself of the dissent rights set
forth in section 185 of the OBCA, a stockholder must carefully comply therewith.
A summary of such provisions follow but each stockholder is strongly recommended
to review Exhibit B which contains the exact text of such provision.
A dissenting stockholder must:
a. Send to the Company at 731 Millway Avenue, Concord, Ontario, Canada
L4K 3S8 before the meeting or deliver to the Company at the meeting,
a written objection to the Sale (the execution or exercise of a proxy
does not constitute a written objection thereto);
b. Within 20 days after receipt from the Company that the special
resolution authorizing the Sale (the "Sale Resolution") has
been approved or, if the stockholder does not receive such
notice within 20 days after learning that the Sale Resolution
has been approved, send to the Company a written notice
containing:
i. The stockholder's name and address;
ii. The number of the Company's common shares in respect of which
the stockholder dissents; and
iii. A demand for payment of the fair value of such shares; and
c. Within 30 days thereafter, send to the Company the
certificates representing such shares. A dissenting
stockholder, on sending the notice containing the demand for
payment, ceases to have any other rights as a holder of such
shares except where the dissenting stockholder withdraws such
notice before the Company makes an offer to pay for such
shares, or the Company fails to make such an offer and the
dissenting stockholder withdraws the notice, or the directors
revoke the Sale Resolution, in which case, the dissenting
stockholder's rights are reinstated as the day on which the
notice was sent demanding payment.
The Company must, within 10 days after the Sale Resolution is approved,
send to each holder of the Company's shares, who have filed the written
objection referred to above, notice that the Sale Resolution has been approved.
14
The Company must also send an offer to the dissenting stockholder to pay for the
his/its shares in an amount considered by the directors of the Company to be the
fair value thereof not more than 7 days after the later of the effective date or
the date of receipt of the dissenting stockholder's demand for payment. If such
offer is accepted, payment must be made within 10 days after acceptance. Any
such offer lapses if not accepted within 30 days after it is made. If the
Company fails to make such an offer, or if the dissenting stockholder fails to
accept the offer, the Company may, within 50 days after the effective date, or
such further period as the court may allow, apply to the court to fix a fair
value for the shares of the dissenting stockholder. If the Company fails to make
such application, the dissenting stockholder may make a similar applications
within a further period of 20 days or such further period as the court may
allow.
A stockholder who complies strictly with each of the steps required to
dissent effectively is entitled to be paid the fair value of the common shares
of the Company in respect of which he/it dissents, determined as of the close of
business on the day prior to the Sale Resolution is approved by the stockholders
of the Company.
The foregoing is a summary only of the principal provisions of section
185 of the OBCA referred to above; the full text of which is set forth as
Exhibit B to this proxy statement. Any stockholder desiring to exercise the
right to dissent should seek legal advice since failure to strictly comply with
such legislation may prejudice the rights of such stockholder.
Votes Required
Approval of the Sale of Rosedale Wallcoverings & Fabrics Inc. by the
Company to Alan Fine will require affirmation by not less than two thirds of the
votes cast by holders of the Company's shares (including any shares held by Mr.
Fine and his affiliates and associates). Notwithstanding securing the requisite
approval, the directors of the Company may unilaterally terminate the Sale prior
to it becoming effective.
The Company's Board of Directors has carefully considered the foregoing
factors and believes that the transaction is in the best interest of the
Company's stockholders. The Board believes that the purchase price is fair and
reasonable under the circumstances and in the current economic climate.
For further information, see the pro forma financial information
attached hereto as Exhibit C.
Adoption of Special Resolution
In addition to generally approving the Sale of the Subsidiary as set
forth above, the stockholders are being asked to approve the following
resolutions:
Be it resolved as a special resolution that:
1. The entering into of a Share Purchase Agreement between the Company and
Alan Fine dated May 14, 2002 ("SPA") relating to the sale by the Company to
Alan Fine of all of the issued and outstanding shares in the capital of
Rosedale Wallcoverings & Fabrics Inc., a copy of which is appended hereto,
and all transactions, proceedings and actions to be completed thereunder
are hereby approved, ratified and adopted; and
2. Any director or officer of the Company be and s/he is hereby authorized
and directed to execute on behalf of the Company any document required to
be delivered pursuant to the SPA.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF SALE OF ROSEDALE
WALLCOVERINGS AND FABRICS INC. TO ALAN FINE, THE COMPANY'S CHIEF EXECUTIVE
OFFICER AND CHAIRMAN OF THE BOARD.
15
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Schwartz Levitsky Feldman, Chartered Accountants, has served as the
operating subsidiaries independent auditors since 1994 and the Company's
independent auditors since its inception in 1997 and has been appointed by the
Board to continue as the Company's independent auditors for the fiscal year
ending December 31, 2002. In the event that ratification of this selection of
auditors is not approved by a majority of the shares of Common Stock voting at
the Annual Meeting in person or by proxy, the Board will reconsider its
selection of auditors. Schwartz Levitsky Feldman has no interest, financial or
otherwise, in the Company.
Audit and Related Fees
Audit Fees. The aggregate fees billed by Schwartz Levitsky
Feldman for professional services rendered for the audit of the Company's annual
financial statements for the year ended December 31, 2001 and for the reviews of
the financial statements included in the Company's Quarterly Reports on Form
10-QSB during that fiscal year were $95,000(Can$) ($61,334 U.S.).
Financial Information Systems Design and Implementation Fees.
The Company did not engage Schwartz Levitsky Feldman to provide professional
services to the Company regarding financial information systems design and
implementation during the fiscal year ended December 31, 2001.
All Other Fees. The aggregate fees billed by Schwartz Levitsky
Feldman for services rendered to the Company, other than the services covered in
"Audit Fees" for the fiscal year ended December 31, 2001 were
$18,725(Can$)($12,089 U.S.) which fees primarily relate to consulting matters.
Representatives from the accounting firm of Schwartz Levitsky Feldman
will be present at the Meeting will be afforded the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
SCHWARTZ LEVITSKY FELDMAN AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2002.
The proxy holders intend to vote the shares represented by proxies to
ratify the appointment of Schwartz Levitsky Feldman as the Company's independent
auditors for the fiscal year ending December 31, 2002, except to the extent
authority to vote for such approval is withheld.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Proposals of stockholders intended to be presented at next year's
Annual Meeting of Stockholders must be received by Norman Maxwell at Rosedale
Decorative Products, Ltd., 731 Millway Avenue, Concord, Ontario, Canada L4K 3S8,
no later than April 1, 2003.
AVAILABILITY OF CERTAIN DOCUMENTS REFERRED TO HEREIN
This proxy statement refers to certain documents of the company that
are not presented herein or delivered herewith. Such documents are available to
any person, including any beneficial owner, to whom this proxy statement is
delivered, upon oral or written request, without charge, directed to Norman
Maxwell, Rosedale Decorative Products, Ltd., 731 Millway Avenue, Concord,
Ontario, Canada l4K 3S8, telephone number (905) 669-8909. In order to ensure
timely delivery of the documents, such requests should be made by August 10,
2002.
16
OTHER MATTERS
The Board of Directors knows of no other business that will be
presented to the Annual and Special Meeting. If any other business is properly
brought before the Annual and Special Meeting, proxies in the enclosed form will
be voted in respect thereof as the proxy holders deem advisable.
It is important that the proxies be returned promptly and that your
shares be represented. Stockholders are urged to mark, date, execute and
promptly return the accompanying proxy card in the enclosed envelope.
The undersigned hereby certifies that the contents of, and the sending
of, this Proxy Statement has been approved by the directors of the Company. The
foregoing contains no untrue statement of material fact and does not omit to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in the light of the circumstances in which it is
made.
By Order of the Board of Directors,
/s/ Sidney Ackerman
Sidney Ackerman
President
Concord, Ontario
Canada
October , 2002
17
PROXY PROXY
ROSEDALE DECORATIVE PRODUCTS LTD.
PROXY FOR ANNUAL AND SPECIAL MEETING TO BE HELD ON AUGUST 29,2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Alan Fine and Sidney Ackerman, or
either of them, as proxies, each with the power to appoint his substitute, to
represent and to vote all the shares of common stock of Rosedale Decorative
Products, Ltd. (the "Company"), which the undersigned would be entitled to vote,
at the Company's Annual and Special Meeting of Stockholders to be held on August
29, 2002 and at any adjournments thereof, subject to the directions indicated on
the reverse side hereof.
In their discretion, the Proxies are authorized to vote upon any other
matter that may properly come before the meeting or any adjournments thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE,
BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
ALL NOMINEES AND FOR THE PROPOSALS LISTED ON THE REVERSE SIDE.
IMPORTANT--This Proxy must be signed and dated on the reverse side.
18
THIS IS YOUR PROXY
YOUR VOTE IS IMPORTANT!
Dear Stockholder:
We cordially invite you to attend the Annual and Special Meeting of
Stockholders of Rosedale Decorative Products, Ltd. to be held at the Holiday Inn
Yorkdale, 3450 Dufferin Street, Toronto, Ontario, Canada M6A 2V1 on , 2002 at
11:00 a.m. (local time).
Please read the proxy statement which describes the proposals and
presents other important information, and complete, sign and return your proxy
promptly in the enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3
1. ELECTION OF DIRECTORS -- For Withhold
Nominees:
Alan Fine [_] [_]
Sidney Ackerman [_] [_]
Norman G. Maxwell [_] [_]
Ken Page [_] [_]
Janet Hendry [_] [_]
For Against Abstain
2. Proposal to approve the sale of [_] [_] [_]
Rosedale Wallcoverings & Fabrics Inc.
to Alan Fine, the Company's Chief Executive
Officer and Chairman of the Board
For Against Abstain
3. Proposal to ratify Schwartz Levitsky [_] [_] [_]
Feldman as independent auditors.
If you plan to attend the Annual Meeting please mark this box [_]
Dated: ______________________, 2002
Signature ______________________________________________________________________
Name (printed) _________________________________________________________________
Title __________________________________________________________________________
Important: Please sign exactly as name appears on this proxy. When signing
as attorney, executor, trustee, guardian, corporate officer, etc., please
indicate full title.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
19
EXHIBIT B
The following pro-forma financial statements depict what the financial position
of the Company will be after the sale of the division as specified in Proposal
2. The pro-forma statements remove all transactions related to the subsidiary
and record the transactions of the actual sale.
Proposal No. 2, relates to the sale of our wholly-owned subsidiary,
Rosedale Wallcoverings & Fabrics Inc. to our Chairman of the Board and Chief
Executive Officer, Alan Fine. The terms of the proposed transaction are as
follows:
o The total purchase price to be paid is $1,224,000 (Cdn.) ($768,458 U.S.).
Such amount will be paid by the assumption of our obligation for severance
obligations to Mr. Fine in the amount of $1,100,250 Cdn ($690,765 U.S.), and a
cash payment of $123,750 Cdn ($77,693 U.S.).
o Upon the closing of the sale, Mr. Fine will resign as an officer and
member of the Board of Directors of Rosedale Decorative Products Ltd.
o The pre-existing inter-company term loan due and owing by Rosedale
Wallcoverings and Fabrics to Rosedale Decorative Products in the principal
amount of approximately $696,000 Cdn ($437,000 U.S.) will be repaid by delivery
of a lump-sum payment on the closing date in full settlement thereof in the
amount of $400,000 Cdn ($251,130 U.S.), being the present value of the term loan
accelerated to the closing date.
o The pre-existing loan due and owing by Rosedale Wallcovering and Fabrics
to Sidney Ackerman in the face amount of approximately $486,000 Cdn ($305,000
U.S.) will be repaid in full on the closing date;
o The pre-existing loan due and owing by our wholly-owned subsidiary,
Ontario Paint & Wallpaper Limited to Mr. Fine in the face amount of
approximately $250,000 Cdn ($157,000 U.S.) will be repaid in full on the closing
date.
20
2001 Adjustment Adjustment Adjustment Adjustment
Audited Number 1 Number 2 Number 3 Number 4
$ $ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
ASSETS
CURRENT ASSETS
Cash 1,897,453 (66,404) - 251,130 77,693
Accounts receivable 4,018,712 (1,903,355) 147,978 - -
Inventory 5,462,180 (2,589,302) 17,125 - -
Prepaid expenses and sundry assets 883,580 (490,849) - - -
Due from Rosedale Wallcoverings and - 437,232 - (437,232) -
Fabrics Inc.
Income taxes recoverable 41,858 11,301 - - -
--------------- ------------- ------------- -------------- --------------
12,303,783 (4,601,378) 165,103 (186,102) 77,693
INVESTMENT IN ROSEDALE WALLCOVERINGS - 1,148,543 14,204 - (1,162,747)
AND FABRICS INC.
DEFERRED PRODUCT COSTS 559,329 (283,299) - - -
DEFERRED INCOME TAXES - 123,807 - - -
MORTGAGES RECEIVABLE 309,820 - - - -
PROPERTY, PLANT AND EQUIPMENT 3,392,450 (1,922,282) - - -
--------------- ------------- ------------- -------------- --------------
16,565,382 (5,534,609) 179,307 (186,102) (1,085,054)
=============== ============= ============= ============== ==============
2001 Adjustment Adjustment Adjustment Adjustment
Audited Number 1 Number 2 Number 3 Number 4
$ $ $ $ $
LIABILITIES (unaudited) (unaudited) (unaudited) (unaudited)
CURRENT LIABILITIES
Bank indebtedness 4,886,846 (2,544,116) - - -
Accounts payable and accrued expenses 4,226,715 (1,910,666) 147,978 - -
--------------- ------------- ------------- -------------- --------------
9,113,561 (4,454,783) 147,978 - -
DUE TO STOCKHOLDERS AND DIRECTORS 1,150,573 (825,318) - - -
DEFERRED INCOME TAXES 281,140 (281,140) - - -
--------------- ------------- ------------- -------------- --------------
10,545,274 (5,561,241) 147,978 - -
--------------- ------------- ------------- -------------- --------------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,029,355 - - - -
ADDITIONAL PAID-IN CAPITAL 142,314 - - - -
ACCUMULATED OTHER COMPREHENSIVE LOSS (589,034) (754) (887) 5,274 30,753
RETAINED EARNINGS 1,437,473 27,386 32,216 (191,376) (1,115,807)
--------------- ------------- ------------- -------------- --------------
6,020,108 26,632 31,329 (186,102) (1,085,054)
--------------- ------------- ------------- -------------- --------------
16,565,382 (5,534,609) 179,307 (186,102) (1,085,054)
=============== ============= ============= ============== ==============
ROSEDALE DECORATIVE PRODUCTS LTD.
Proforma Consolidated Statements of
Operations
For the year ended December 31, 2001
and December 31, 2001 proforma
(Amounts Expressed in US Dollars)
2001 Adjustment Adjustment Adjustment Adjustment
Audited Number 1 Number 2 Number 3 Number 4
$ $ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
SALES 17,781,160 (7,965,232) 410,702 - -
COST OF SALES 10,448,099 (4,801,863) 378,487 - -
--------------- ------------- ------------- -------------- --------------
GROSS PROFIT 7,333,061 (3,163,369) 32,216 - -
--------------- ------------- ------------- -------------- --------------
OPERATING EXPENSES
General and administrative 2,555,952 (772,844) - - -
Selling 3,128,846 (1,361,921) - - -
Design studio 652,072 (395,497) - - -
Book development costs (recovered) (36,941) 260,613 - - -
Amortization 1,086,667 (711,420) - - -
--------------- ------------- ------------- -------------- --------------
TOTAL OPERATING EXPENSES 7,386,596 (2,981,070) - - -
--------------- ------------- ------------- -------------- --------------
OPERATING LOSS (53,535) (182,299) 32,216 - -
Cancellation fee - foreign exchange 214,668 - - - -
Loss on sale of subsidiary - - - 191,376 1,115,807
Interest expense 255,914 (156,071) - - -
Exchange loss on foreign exchange 41,992 (41,992) - - -
contracts
--------------- ------------- ------------- -------------- --------------
LOSS BEFORE INCOME TAXES (566,109) 15,765 32,216 (191,376) (1,115,807)
Income taxes (recovery) (736) (11,621) - - -
--------------- ------------- ------------- -------------- --------------
NET LOSS (565,373) 27,386 32,216 (191,376) (1,115,807)
=============== ============= ============= ============== ==============
===============
Net loss per common share, basic and (0.20)
diluted
===============
Weighted average number of common 2,757,995
shares outstanding
===============
ROSEDALE DECORATIVE PRODUCTS LTD.
Proforma Consolidated Balance Sheets
As of December 31, 2001 and December
31, 2001 proforma
(Amounts Expressed in US Dollars)
Adjustment 2001
Number 5 Proforma
$ $
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS
Cash (156,888) 2,002,984
Accounts receivable - 2,263,335
Inventory - 2,890,003
Prepaid expenses and sundry assets - 392,731
Due from Rosedale Wallcoverings and - -
Fabrics Inc.
Income taxes recoverable - 53,159
-----------------------------------
(156,888) 7,602,212
INVESTMENT IN ROSEDALE WALLCOVERINGS - 0
AND FABRICS INC.
DEFERRED PRODUCT COSTS - 276,030
DEFERRED INCOME TAXES - 123,807
MORTGAGES RECEIVABLE - 309,820
PROPERTY, PLANT AND EQUIPMENT - 1,470,168
-----------------------------------
(156,888) 9,782,038
===================================
Adjustment 2001
Number 5 Proforma
$ $
LIABILITIES (unaudited) (unaudited)
CURRENT LIABILITIES
Bank indebtedness - 2,342,730
Accounts payable and accrued expenses - 2,464,027
-------------- ----------------
- 4,806,757
DUE TO STOCKHOLDERS AND DIRECTORS (156,888) 168,367
DEFERRED INCOME TAXES - -
-------------- ----------------
(156,888) 4,975,124
-------------- ----------------
STOCKHOLDERS' EQUITY
COMMON STOCK - 5,029,355
ADDITIONAL PAID-IN CAPITAL - 142,314
ACCUMULATED OTHER COMPREHENSIVE LOSS - (554,648)
RETAINED EARNINGS - 189,892
-------------- ----------------
- 4,806,913
-------------- ----------------
(156,888) 9,782,037
============== ================
ROSEDALE DECORATIVE PRODUCTS LTD.
Proforma Consolidated Statements of
Operations
For the year ended December 31, 2001
and December 31, 2001 proforma
(Amounts Expressed in US Dollars)
Adjustment 2001
Number 5 Proforma
$ $
(unaudited) (unaudited)
SALES - 10,226,630
COST OF SALES - 6,024,722
-------------- ----------------
GROSS PROFIT - 4,201,908
-------------- ----------------
OPERATING EXPENSES
General and administrative - 1,783,108
Selling - 1,766,925
Design studio - 256,575
Book development costs (recovered) - 223,672
Amortization - 375,247
-------------- ----------------
TOTAL OPERATING EXPENSES - 4,405,526
-------------- ----------------
OPERATING LOSS - (203,618)
Cancellation fee - foreign exchange - 214,668
Loss on sale of subsidiary - 1,307,183
Interest expense - 99,843
Exchange loss on foreign exchange - -
contracts
-------------- ----------------
LOSS BEFORE INCOME TAXES - (1,825,312)
Income taxes (recovery) - (12,357)
-------------- ----------------
NET LOSS - (1,812,954)
============== ================
Net loss per common share, basic and (0.66)
diluted
================
Weighted average number of common 2,757,995
shares outstanding
================
The following is a reconciliation of the pro forma amounts attributable to the
subsidiary that the company plans to sell to the information concerning that
entity in the schedules in the independent appraisal for December 31, 2001. The
reconciliation consists of two adjustments necessary for compliance with US GAAP
as well as the translation to US dollars.
Rosedale Wallcoverings and Fabrics Inc.
Translation and adjustments to US dollars and US GAAP
December 31, 2001
Conversion
Canadian to US Adjustment Adjustment
Dollars Dollars Number 1 Number 2 Total
ASSETS
Current Assets
Cash - - - 66,404 66,404
Accounts Receivables
3,031,664 1,903,355 - - 1,903,355
Inventory
4,124,240 2,589,302 - - 2,589,302
Prepaids Expenses and Sundry Assets
781,825 490,849 - - 490,849
-------------------------------------------------------------------------
Total Current Assets 7,937,729 4,983,506 - 66,404 5,049,910
Deferred Product Costs
451,238 283,299 - - 283,299
Capital Assets
3,061,811 1,922,282 - - 1,922,282
-------------------------------------------------------------------------
$ 11,450,778 $7,189,087 $ - $ 66,404 $ 7,255,491
=========================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Bank Indebtedness
$ 3,946,499 2,477,712 - 66,404 2,544,116
Accounts Payable
2,978,266 1,869,830 40,835 - 1,910,665
Income Taxes Payable
18,000 11,301 - - 11,301
-------------------------------------------------------------------------
Total Current Liabilities 6,942,765 4,358,843 40,835 66,404 4,466,082
Loan From Affiliated Company
220,063 138,161 - - 138,161
Due to Parent Company
696,423 437,232 - - 437,232
Loans From Directors
1,094,504 687,157 - - 687,157
Future Income Taxes
645,000 404,947 - - 404,947
---------------------------------------------------------- ----------------
9,598,755 6,026,340 40,835 66,404 6,133,579
-------------------------------------------------------------------------
Foreign Currency Translation
- (403) 1,157 - 754
Current Period Earnings
22,624 14,606 (41,992) - (27,386)
-------------------------------------------------------------------------
22,624 14,203 40,835 - 26,632
-------------------------------------------------------------------------
Capital Stock
40 25 - - 25
Opening Retained Earnings
1,829,359 1,148,518 - - 1,148,518
-------------------------------------------------------------------------
1,829,399 1,148,543 - - 1,148,543
-------------------------------------------------------------------------
$ 11,450,778 $7,189,087 $ 0 $66,404 $7,255,491
=========================================================================
Conversion
to US Adjustment
12/31/2001 Dollars Number 1 Total
Sales $12,337,348 7,965,232 - 7,965,232
Cost of Sales
7,437,606 4,801,863 - 4,801,863
-------------------------------------------------------------
Gross Profit
4,899,742 3,163,369 - 3,163,369
Book Development Income, Net
403,663 260,613 - 260,613
-------------------------------------------------------------
Gross Earnings
5,303,405 3,423,982 - 3,423,982
-------------------------------------------------------------
Selling
Commissions
318,461 205,605 - 205,605
Travel
203,231 131,210 - 131,210
Warehouse Wages
123,242 79,567 - 79,567
Bin Expense
730,609 471,695 - 471,695
Advertising and Promotion
145,636 94,025 - 94,025
Freight Out and Delivery, Net
154,033 99,447 - 99,447
Sales and Marketing Salaries
270,690 174,763 - 174,763
Automobile
82,779 53,444 - 53,444
Repairs and Maintenance
80,799 52,165 - 52,165
-------------------------------------------------------------
2,109,480 1,361,921 - 1,361,921
-------------------------------------------------------------
Administrative
Administrative and
Management Salaries 388,140 250,591 - 250,591
Rent
294,059 189,850 - 189,850
Management Fees
- - - -
Professional Fees
118,394 76,437 - 76,437
Office and General
84,968 54,857 - 54,857
Insurance and Taxes
66,678 43,049 - 43,049
Telephone and Facsimile
53,453 34,510 - 34,510
Computer
114,832 74,138 - 74,138
Utilities
40,105 25,893 - 25,893
Bad Debts
36,429 23,519 - 23,519
-------------------------------------------------------------
1,197,058 772,844 - 772,844
-------------------------------------------------------------
Design Studio
Salaries
439,478 283,736 - 283,736
Computer
41,370 26,709 - 26,709
Design
73,653 47,552 - 47,552
Advertising and Promotion
- - - -
Travel and Automobile
20,980 13,545 - 13,545
Office and General
29,232 18,873 - 18,873
Telephone and Facsimile
7,872 5,082 - 5,082
Recovery of Expenses
- - - -
-------------------------------------------------------------
612,585 395,497 - 395,497
-------------------------------------------------------------
Interest and Bank Charges
241,739 156,071 - 156,071
Loss on foreign exchange
- - 41,992 41,992
Amortization
1,101,919 711,420 - 711,420
-------------------------------------------------------------
1,343,658 867,492 41,992 909,484
-------------------------------------------------------------
Earnings Before Income Taxes
40,624 26,228 (41,992) (15,764)
Income taxes
18,000 11,621 - 11,621
-------------------------------------------------------------
Net Earnings $ $ -$ -$
22,624 14,606 41,992 27,386
=============================================================
=============================================================
ROSEDALE WALLCOVERINGS AND FABRICS INC.
Adjustments
December 31, 2001
Adjustment Number 1 To recognize
innefective portion of
foreign exchange contract as
required under US GAAP.
Adjustment Number 2 To reallocate cash balances
in accordance with US GAAP.
ROSEDALE DECORATIVE PRODUCTS LTD.
Proforma Consolidated Statements of Operations
For the period ended March 31, 2002 and March 31, 2002 proforma (Amounts
expressed in US dollars)
2002
2002 Proforma Proforma
Unaudited Adjustments Unaudited
(see note 1)
$ $ $
SALES 5,238,400 (2,461,761) 2,776,639
COST OF SALES 3,274,191 (1,546,570) 1,727,621
--------- ----------- ---------
GROSS PROFIT 1,964,209 (915,191) 1,049,018
--------- ----------- ---------
OPERATING EXPENSES
General and administrative 675,883 (306,611) 369,272
Selling 741,392 (335,108) 406,284
Design studio 187,666 (93,386) 94,280
Book development costs (recovered) (9,410) 56,458 47,048
Amortization 286,979 (158,725) 128,254
--------- ----------- ---------
TOTAL OPERATING EXPENSES 1,882,510 (837,372) 1,045,138
--------- ----------- ---------
OPERATING INCOME (LOSS) 81,699 (77,819) 3,880
Interest expense (50,449) 27,439 23,010
Exchange loss on foreign exchange
contracts 31,104 (31,104) -
--------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 62,354 (81,484) (19,130)
Income taxes (recovery) 25,093 (32,621) (7,528)
--------- ----------- ---------
NET INCOME (LOSS) 37,261 (48,863) (11,602)
========= =========== =========
Net earnings per common share,
basic and diluted 0.01 0.00
========= =========
Weighted average number of common
shares outstanding 2,755,514 2,755,514
========= =========
Adjustment: To remove from the consolidated financial statements, the
financial statements of Rosedale Wallcoverings & Fabrics
Inc. as at March 31, 2002.
1. BASIS OF PRESENTATION
The proforma unaudited financial statements reflect the financial
impact on the company which will result from the proposed sale of its
subsidiary, Rosedale Wallcoverings & Fabrics Inc. as detailed in
proposal 2 in the proxy statement.
In addition, as a result of this transaction, the company will no
longer have a contingent liability in the amount of $830,000 with
respect to the tax assessments levied on Rosedale Wallcoverings &
Fabrics Inc. in prior years.