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 FEBRUARY__, 2003
Concord, Ontario, Canada
January , 2003
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 , 2003 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 January *, 2003
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 THE NOTICE OF
ANNUAL AND SPECIAL MEETING OF STOCKHOLDERS
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;
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; and
3. The board of directors is hereby authorized to terminate the sale
transactions contemplated under the SPA if, in its discretion, it concludes that
it is in the best interests of the Company to do so.
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 , 2003 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 January *, 2003
(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 , 2003.
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. The persons named in the enclosed
form of proxy, who are directors or officers of the Corporation, will vote or
withhold from voting the Common Stock in respect of which they are appointed in
accordance with the direction of shareholders appointing them. In the absence of
such direction, such shares shall be VOTED FOR for the matters described in the
accompanying Notice of 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 Rosedale
Wallcoverings & Fabrics Inc. 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 & Fabrics
Inc. to Sidney Ackerman in the face amount of approximately $486,000 Cdn
($305,000 U.S.) will be repaid in full by Rosedale Wallcoverings & Fabrics Inc.
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 by Ontario Paint &
Wallpaper Limited 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 Ltd.was essentially created as
a holding company for its two independently operating subsidiaries, Rosedale
Wallcoverings & Fabrics Inc.and Ontario Paint & Wallpaper Limited, 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 & Fabrics Inc. 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 & Fabrics Inc..
o Net losses for the period would have decreased to $829,865 from $889,464,
which excludes a one-time loss on the sale of Rosedale Wallcoverings & Fabrics
Inc. in the amount of $1,210,341.
o Although we received an independent evaluation of the value of Rosedale
Wallcoverings & Fabrics Inc., 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
The Company is subject to the provisions of the Business Corporations Act
(Ontario)("OBCA")and therefore,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 Inc.to Mr. Fine and the sale is approved by a two-thirds
majority of the votes cast by 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 57 Chief Executive Officer and Chairman of the Board
Sidney Ackerman 57 President and Director
Norman G. Maxwell 54 Chief Financial Officer, Secretary,
Treasurer, Operations Manager 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.
4
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.
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.
7
(2) Options under the 1998 Plan were granted on August 19, 1999 at the then
most recent closing price of the Company's shares as traded on NASDAQ,
specifically, $1.00 per share on August 18, 1999.
STOCK OPTIONS GRANTS AND EXERCISES
No stock options were granted during the fiscal year ended December 31,
2001.
The following table shows the value at December 31, 2001 of unexercised
options held by the named executive officers:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-end Option Values
Number of securities Value of unexercised
underlying unexercised in-the-money options at
options at fiscal fiscal year-end ($)
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
9
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.
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 1217576 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.);
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 by Ontarioin 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 RWF
, 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.
o The historical evolution of RWF and OPW was such that each of 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 has launched in 2002 five additional
collections and plans to launch four additional collections in 2003, 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 Board of Directors of 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 decreased to $829,865 from $889,464 which
excludes a one time loss of $1,210,341 on the sale of Rosedale Wallcoverings &
Fabrics Inc. 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 (Attention: Norman G. Maxwell, Secretary)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.
14
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.
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;
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; and
3. The board of directors is hereby authorized to terminate the sale
transactions contemplated under the SPA if, in its discretion, it concludes that
it is in the best interests of the Company to do so.
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.
16
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 February 10,
2003.
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
January , 2003
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 February ,
2003 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.
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 , 2003 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: ______________________, 2003
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
EXHIBIT "A"
SECTION 185 OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
185. (1) Rights of dissenting shareholders. - Subject to subsection
(3) and to section 186 and 248, if a corporation resolves to,
(a) amend its articles under section 168 to add, remove or
change restrictions on the issue, transfer or ownership of
shares of a class or series of the shares of the
corporation;
(b) amend its articles under section 168 to add, remove or
change any restriction upon the business or businesses that
the corporation may carry on or upon the powers that the
corporation may exercise;
(c) amalgamate with another corporation under section 175 and
176;
(d) be continued under the laws of another jurisdiction under
section 181; or
(e) sell, lease or exchange all or substantially all its
property under subsection 184(3): a holder of shares of any
class or series entitled to vote on the resolution may
dissent.
(2) Idem. - If a corporation resolves to amend its articles in a
manner referred to in subsection 170(1), a holder of shares of
any class or series entitled to vote on the amendment under
section 168 or 170 may dissent, except in respect of an
amendment referred to in,
(a) clause 170(1)(a), (b) or (e) where the articles provide
that the holders of shares of such class or
series are not entitled to dissent; or
(b) subsection 170(5) or (6).
(3) Exception. - A shareholder of a corporation incorporated before
the 29th day of July, 1983 is not entitled to dissent under this
section in respect of an amendment of the articles of the
corporation to the extent that the amendment,
(a) amends the express terms of any provision of the articles
of the corporation to conform to the terms of
the provision as deemed to be amended by section 277; or
(b) deletes from the articles of the corporation all of the
objects of the corporation set out in its articles, provided
that the deletion is made by the 29th day of July, 1986.
(4) Shareholder's right to be paid fair value. - In addition to any
other right the shareholder may have, but subject to subsection
(30), a shareholder who complies with this section is entitled,
when the action approved by the resolution from which the
shareholder dissents becomes effective, to be paid by the
corporation the fair value of the shares held by the shareholder
in respect of which the shareholder dissents, determined as of
the close of business on the day before the resolution was
adopted.
(5) No partial dissent. - A dissenting shareholder may only claim
under this section with respect to all the shares of a class
held by the dissenting shareholder on behalf of any one
beneficial owner and registered in the name of the dissenting
shareholder.
(6) Objection. - A dissenting shareholder shall send to the
corporation, at or before any meeting of shareholders at which a
resolution referred to in subsection (1) or (2) is to be voted
on, a written objection to the resolution, unless the
corporation did not give notice to the shareholder of the
purpose of the meeting or of the shareholder's right to dissent.
(7) Idem. - The execution or exercise of a proxy does not
constitute a written objection for purposes of
subsection (6).
(8) Notice of adoption of resolution. - The corporation shall,
within ten days after the shareholders adopt the resolution,
send to each shareholder who has filed the objection referred to
in subsection (6) notice that the resolution has been adopted,
but such notice is not required to be sent to any shareholder
who voted for the resolution or who has withdrawn the objection.
(9) Idem. - A notice sent under subsection (8) shall set out the
rights of the dissenting shareholder and the procedures to be
followed to exercise those rights.
(10) Demand for payment of fair value. - A dissenting shareholder
entitled to received notice under subsection (8) shall, within
twenty days after receiving such notice, or, if the shareholder
does not receive such notice, within twenty days after learning
that the resolution has been adopted, send to the corporation a
written notice containing,
(a) the shareholder's name and address;
(b) the number and class of shares in respect of which the
shareholder dissents; and
(c) a demand for payment of the fair value of such shares.
(11) Certificates to be sent in. - Not later than the thirtieth day
after the sending of a notice under subsection (10), a
dissenting shareholder shall send the certificates representing
the shares in respect of which the shareholder dissents to the
corporation or its transfer agent.
(12) Idem. - A dissenting shareholder who fails to comply with
subsections (6), (10) and (11) has no right to
make a claim under this section.
(13) Endorsement on certificate. - A corporation or its transfer
agent shall endorse on any share certificate received under
subsection (11) a notice that the holder is a dissenting
shareholder under this section and shall return forthwith the
share certificates to the dissenting shareholder.
(14) Rights of dissenting shareholder. - On sending a notice under
subsection (10), a dissenting shareholder ceases to have any
rights as a shareholder other than the right to be paid the fair
value of the shares as determined under this section except
where,
(a) the dissenting shareholder withdraws notice before the
corporation makes an offer under subsection (15);
(b) the corporation fails to make an offer in accordance with
subsection (15) and the dissenting shareholder
withdraws notice; or
(c) the directors revoke a resolution to amend the articles
under subsection 168(3), terminate an amalgamation agreement
under subsection 176(5) or an application for continuance
under subsection 181(5), or abandon a sale, lease or
exchange under subsection 184(8);
in which case the dissenting shareholder's rights are
reinstated as of the date the dissenting shareholder sent
the notice referred to in subsection (10), and the
dissenting shareholder is entitled, upon presentation and
surrender to the corporation or its transfer agent of any
certificate representing the shares that has been endorsed
in accordance with subsection (13), to be issued a new
certificate representing the same number of shares as the
certificate so presented, without payment of any fee.
(15) Offer to pay. - A corporation shall, not later than seven days
after the later of the day on which the action approved by the
resolution is effective or the day the corporation received the
notice referred to in subsection (10), send to each dissenting
shareholder who has sent such notice,
(a) a written offer to pay for the dissenting shareholder's
shares in an amount considered by the directors of the
corporation to be the fair value thereof, accompanied by a
statement showing how the fair value was determined; or
(b) if subsection (30) applies, a notification that it is
unable lawfully to pay dissenting shareholders for
their shares.
(16) Idem. - Every offer made under subsection (15) for shares of
the same class or series shall be on the same terms.
(17) Idem. - Subject to subsection (30), a corporation shall pay for
the shares of a dissenting shareholder within ten days after an
offer made under subsection (15) has been accepted, but any such
offer lapses if the corporation does not receive an acceptance
thereof within thirty days after the offer has been made.
(18) Application to court to fix fair value. - Where a corporation
fails to make an offer under subsection (15) or if a dissenting
shareholder fails to accept an offer, the corporation may,
within fifty days after the action approved by the resolution is
effective or within such further period as the court may allow,
apply to the court to fix a fair value for the shares of any
dissenting shareholder.
(19) Idem. - If a corporation fails to apply to the court under
subsection (18), a dissenting shareholder may apply to the court
for the same purpose within a further period of twenty days or
within such further period as the court may allow.
(20) Idem. - A dissenting shareholder is not required to give
security for costs in an application made under
subsection (18) or (19).
(21) Costs. - If a corporation fails to comply with subsection (15),
then the costs of a shareholder application under subsection
(19) are to be borne by the corporation unless the court
otherwise orders.
(22) Notice to shareholders. - Before making application to the court
under subsection (18) or not later than seven days after
receiving notice of an application to the court under subsection
(19), as the case may be, a corporation shall give notice to
each dissenting shareholder who at the date upon which the
notice is given,
(a) has sent to the corporation the notice referred to in
subsection (10); and
(b) has not accepted an offer made by the corporation under
subsection (15), if such an offer was made,
of the date, place and consequences of the application and
of the dissenting shareholder's right to appear and be heard
in person or by counsel, and a similar notice shall be given
to each dissenting shareholder who, after the date of such
first mentioned notice and before termination of the
proceedings commenced by the application, satisfies the
conditions set out in clauses (a) and (b) within three days
after the dissenting shareholder satisfies such conditions.
(23) Parties joined. - All dissenting shareholders who satisfy the
conditions set out in clauses (22)(a) and (b) shall be deemed to
be joined as parties to an application under subsection (18) or
(19) on the later of the date upon which the application is
brought and the date upon which they satisfy the conditions, and
shall be bound by the decision rendered by the court in the
proceedings commenced by the application.
(24) Idem. - Upon an application to the court under subsection (18)
or (19), the court may determine whether any other person is a
dissenting shareholder who should be joined as a party, and the
court shall fix a fair value for the shares of all dissenting
shareholders.
(25) Appraisers. - The court may in its discretion appoint one or
more appraisers to assist the court to fix
a fair value for the shares of the dissenting shareholders.
(26) Final Order. - The final order of the court in the proceedings
commenced by an application under subsection (18) or (19) shall
be rendered against the corporation and in favour of each
dissenting shareholder who, whether before or after the date of
the order, complies with the conditions set out in clauses
(22)(a) and (b).
(27) Interest. - The court may in its discretion allow a reasonable
rate of interest on the amount payable to each dissenting
shareholder from the date the action approved by the resolution
is effective until the date of payment.
(28) Where corporation unable to pay. - Where subsection (30)
applies, the corporation shall, within ten days after the
pronouncement of an order under subsection (26), notify each
dissenting shareholder that is unable lawfully to pay dissenting
shareholders for their shares.
(29) Idem. - Where subsection (30) applies, a dissenting
shareholder, by written notice sent to the
corporation within thirty days after receiving a notice under
subsection (28), may,
(a) withdraw a notice of dissent, in which case the corporation
is deemed to consent to the withdrawal and
the shareholder's full rights are reinstated; or
(b) retain a status as a claimant against the corporation, to be
paid as soon as the corporation is lawfully able to do so
or, in a liquidation, to be ranked subordinate to the rights
of creditors of the corporation but in priority to its
shareholders.
(30) Idem. - A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds
for believing that,
(a) the corporation is or, after the payment, would be unable to
pay its liabilities as they become due; or
(b) the realizable value of the corporation's assets would
thereby be less than the aggregate of its liabilities.
(31) Court order. - Upon application by a corporation that proposes
to take any of the action referred to in subsection (1) or
(2), the court may, if satisfied that the proposed action
is not in all the circumstances one that should give rise to
rights arising under subsection (4), by order declare that
those rights will not arise upon the taking of the proposed
action, and the order may be subject to compliance upon
such terms and conditions as the court thinks fit and,
if the corporation is an offering corporation, notice of
any such application and a copy of any order made by the court
upon such application shall be served upon the Commission.
(32) Commission may appear. - The Commission may appoint counsel to
assist the court upon the hearing of an application under
subsection (31), if the corporation is an offering corporation.
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 by Mr. Fine 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 Rosedale
Wallcoverings & Fabrics Inc. 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 by Rosedale Wallcoverings & Fabrics Inc. 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 by Ontario
Paint & Wallpaper on the closing date.
ROSEDALE DECORATIVE PRODUCTS LTD.
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Amounts Expressed in US Dollars)
(Unaudited)
ROSEDALE DECORATIVE PRODUCTS LTD.
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Amounts Expressed in US Dollars)
(Unaudited)
TABLE OF CONTENTS
Pro-forma Consolidated Balance Sheets 1
Pro-forma Consolidated Statements of Operations 2
Notes to Pro-forma Consolidated Financial Statements 3 - 4
ROSEDALE DECORATIVE PRODUCTS LTD.
Pro-Forma Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 2001 and December 31, 2001 Pro-forma
(Amounts Expressed in US Dollars)
(Unaudited)
2001 Pro-forma 2001
Audited (note 2) Adjustments Pro-forma
$ $ $
(restated)
ASSETS
CURRENT ASSETS
Cash 1,897,453 a) (66,404) 2,002,984
c) 251,130
d) 77,693
e) (156,888)
Accounts receivable 3,811,530 a) (1,903,355) 2,056,153
b) 147,978
Inventory 5,616,597 a) (2,743,719) 2,890,003
b) 17,125
Prepaid expenses and
sundry assets 368,719 a) (242,259) 126,460
Due from Rosedale
Wallcoverings and
Fabrics Inc. - a) 437,232 -
c) (437,232)
Income taxes recoverable 41,858 a) 11,301 53,159
11,736,157 (4,607,398) 7,128,759
INVESTMENT IN ROSEDALE
WALLCOVERINGS AND
FABRICS INC. - a) 1,054,370 -
b) 14,204
d) (1,068,574)
DEFERRED INCOME TAXES - a) 123,807 123,807
MORTGAGES RECEIVABLE 309,820 - 309,820
PROPERTY, PLANT AND
EQUIPMENT 3,675,749 a) (2,205,581) 1,470,168
15,721,726 (6,689,172) 9,032,554
ROSEDALE DECORATIVE PRODUCTS LTD.
Pro-Forma Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 2001 and December 31, 2001 Pro-forma
(Amounts Expressed in US Dollars)
(Unaudited)
2001 Pro-forma 2001
Audited (note 2) Adjustments Pro-forma
$ $ $
(restated)
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 4,886,846 a) (2,544,116) 2,342,730
Accounts payable and
accrued expenses 4,226,715 a) (1,910,666) 2,464,027
b) 147,978 -
Due to stockholders
and directors 1,150,573 a) (825,318) 168,367
e) (156,888)
10,264,134 (5,289,010) 4,975,124
DEFERRED INCOME TAXES 281,140 a) (281,140) -
10,545,274 (5,570,150) 4,975,124
STOCKHOLDERS' EQUITY
COMMON STOCK 5,029,355 - 5,029,355
ADDITIONAL PAID-IN CAPITAL 142,314 - 142,314
ACCUMULATED OTHER
COMPREHENSIVE LOSSES (509,109) a) (754) (477,392)
b) (887)
c) 5,274
d) 28,084
RETAINED EARNINGS (DEFICIT) 513,892 a) 27,386 (636,847)
b) 32,216
c) (191,376)
d) (1,018,965)
5,176,452 (1,119,022) 4,057,430
15,721,726 (6,689,172) 9,032,554
1
ROSEDALE DECORATIVE PRODUCTS LTD.
Pro-Forma Consolidated Statements of Operations
For the year ended December 31, 2001 and December 31, 2001 Pro-forma
(Amounts Expressed in US Dollars)
(Unaudited)
2001 Pro-forma 2001
Audited (note 2) Adjustments Pro-forma
$ $ $
(restated)
SALES 17,781,160 a) (7,965,232) 10,226,630
b) 410,702
COST OF SALES 10,495,673 a) (4,801,863) 6,072,297
b) 378,487
GROSS PROFIT 7,285,487 (3,131,154) 4,154,333
OPERATING EXPENSES
General and administrative 2,769,075 a) (772,916) 1,996,159
Selling 3,128,846 a) (1,361,921) 1,766,925
Design studio 700,689 a) (395,497) 305,192
Book development costs
(recovered) (22,164) a) 260,685 238,521
Amortization 1,086,667 a) (711,420) 375,247
TOTAL OPERATING EXPENSES 7,663,113 (2,981,069) 4,682,044
OPERATING LOSS (377,626) (150,085) (527,711)
Cancellation of foreign
exchange contracts 214,668 - 214,668
Interest expense 255,914 a) (156,071) 99,843
Exchange loss on foreign
exchange contracts 41,992 a) (41,992) -
LOSS BEFORE INCOME TAXES (890,200) 47,978 (842,222)
Income taxes (recovery) (736) a) (11,621) (12,357)
NET LOSS (889,464) (59,599) (829,865)
Net loss per common share,
basic and diluted (0.32) (0.30)
Weighted average number
of common shares
outstanding 2,757,995 2,757,995
2
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Pro-Forma Consolidated Financial Statements
December 31, 2001
(Unaudited)
(Amounts Expressed in US Dollars)
1. BASIS OF PRESENTATION
The accompanying unaudited pro-forma consolidated balance sheet has been
prepared by management in accordance with generally accepted accounting
principles in the United States of America. It has been prepared from
information derived from the audited restated consolidated financial statements
of Rosedale Decorative Products Ltd. ("the Company") and Rosedale Wallcoverings
and Fabrics Inc. ("Rosedale") as at December 31, 2001, together with other
information available to the corporations. In the opinion of management, these
unaudited pro-forma consolidated financial statements includes all adjustments
necessary for fair presentation of the proposed adjustments described below.
The unaudited pro-forma consolidated balance sheet should be read in
conjunction with the audited restated consolidated financial statements of the
Company as at December 31, 2001.
2. PRO-FORMA ADJUSTMENTS
The unaudited pro-forma consolidated balance sheet includes the following
pro-forma adjustments reflecting transactions as disclosed in the Schedule 14A.
The loss on sale of Rosedale of $1,210,341 (consisting of loss on settlement of
loan of $191,376 and loss on sale to Alan Fine of $1,018,965) has not been
included in the pro-forma consolidated statements of operations.
a) This adjustment removes all of the assets, liabilities, equity,
revenue and expenses relating to Rosedale from the consolidated financial
statements.
b) This adjustment removes all consolidation entries including
intercompany balances and inter-company sales.
c) This adjustment reflects the proposed settlement of the loan due
from Rosedale as follows:
Cash proceeds ............. $ 251,130
Total loan ................ (437,232)
Foreign exchange adjustment (5,274)
Loss on settlement ... (191,376)
3
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Pro-Forma Consolidated Financial Statements
December 31, 2001
(Unaudited)
(Amounts Expressed in US Dollars)
2. PRO-FORMA ADJUSTMENTS (cont'd)
d) This adjustment reflects the sale of Rosedale to Alan Fine as
follows:
Selling price ................ $ 768,458
Obligation assumed by Rosedale (690,765)
Net cash proceeds ............ 77,693
Cost of investment ........... (1,068,574)
Foreign exchange adjustment .. (28,084)
Loss on sale ................. $(1,018,965)
e) This adjustment reflects the repayment of Alan Fine's director loan
by Ontario Paint & Wallpaper Limited.
There are no additional adjustments required to eliminate the
allocation of common costs as Rosedale operated independently from the
Company and was therefore not allocated any additional costs.
3. FOREIGN CURRENCY TRANSLATION
The company is a foreign private issuer and maintains its books and records
in Canadian dollars, its functional currency. The financial statements are
converted to US dollars as the company has elected to report in US dollars
consistent with regulation S-X, Rule 3-20. The translation method used is the
current rate method which is the method mandated by SFAS 52 where the functional
currency is the foreign currency. Under the current method all assets and
liabilities are translated at the current rate, stockholders' equity accounts
are translated at historical rates and revenues and expenses are translated at
average rates for the year.
Due to the fact that items in the financial statements are being translated
at different rates according to their nature, a translation adjustment is
created. This translation adjustment has been included in accumulated other
comprehensive income.
4
ROSEDALE WALLCOVERINGS AND FABRICS INC.
FAIR MARKET VALUE AT JANUARY 1, 2002
ROSEDALE WALLCOVERINGS AND FABRICS INC.
FAIR MARKET VALUE AT JANUARY 1, 2002
TABLE OF CONTENTS
INTRODUCTION 1
INDEPENDENCE 2
CONCLUSION 2
DEFINITIONS 3
SCOPE OF ANALYSIS 4
ASSUMPTIONS 5
BACKGROUND 6
The Company 6
Business Strategy 8
Marketing Overview 21
Management 22
Operations and Technology 23
Financial Analysis/Review of Projections 24
The Industry 24
The Economy 28
COMPETITION 30
BASIS OF VALUATION - VALUATION APPROACH AND TECHNIQUES 37
Going Concern Approach 37
Capitalization of Cash Flow 38
Conclusion 40
MANAGEMENT REPRESENTATIONS 41
RESTRICTIONS 42
SCHEDULES
RESUME
February 28, 2002
Private & Confidential
ROSEDALE DECORATIVE PRODUCTS LTD.
731 Millway Ave.
Concord, Ontario
L4K 3S8
Attention Mr. N. G. Maxwell
Re: Valuation of Rosedale Wallcoverings And Fabrics Inc.
("Rosedale" or the "Company")
INTRODUCTION
In accordance with your request, I have prepared the accompanying report and
schedules setting out our opinion of the en bloc fair market value of all the
issued and outstanding shares of Rosedale Wallcoverings And Fabrics Inc.
("Rosedale" or the "Company") as at January 1, 2002 (the "Valuation Date"). We
understand that the purpose of this report is to assist you in effecting a
transaction between Rosedale Decorative Products Ltd. and Alan Fine, President
of Rosedale Wallcoverings and Fabrics Inc. This valuation report may not be
circulated for any other purpose than that indicated, without the writer's prior
written consent.
INDEPENDENCE
The reported analyses, opinions and conclusions are limited only by the
indicated key assumptions and restrictions and are Klein Valuation Services
Inc.'s ("Klein Valuation") personal, professional analyses, opinions and
conclusions.
Klein Valuation has no direct or indirect, present or prospective interest in
Rosedale. Klein Valuation has no personal interest in the parties involved, and
has received no instructions and was subject to no limitations imposed by any
party. Klein Valuation's compensation is not contingent on any action or event
resulting from analyses, opinions or conclusions in, or the use of, this
valuation report.
Klein Valuation's conclusions were developed, and this valuation report has been
prepared, in conformity with the Standards of the Canadian Institute of
Chartered Business Valuators.
CONCLUSION
Subject to the assumptions, restrictions and the scope of our work as set out
herein, in our opinion, the fair market value of all the issued and outstanding
shares of Rosedale Wallcoverings and Fabrics Inc. at January 1, 2002 was between
$1,224,000 and $1,394,000.
Should you have any comments or questions with respect to the above, please do
not hesitate to contact me.
Yours very truly,
/s/ ERIC R. KLEIN
Eric R. Klein, CA, CBV
Klein Valuation Services Inc.
DEFINITIONS
Fair market value is defined as the highest price available in an open and
unrestricted market between informed, prudent parties acting at arm's length and
under no compulsion to act, expressed in terms of money or money's worth.
Goodwill is defined in accounting terminology as an intangible asset of a
business when the business has value in excess of its net identifiable assets.
Simply put, goodwill is the difference between the fair market value of a
business and its adjusted book value.
Adjusted book value is defined as the equity that results when intangible assets
are removed from an unadjusted balance sheet and all other assets and
liabilities are restated to fair market value.
Redundant assets are assets not required in the operations of a business in
order to achieve its current level of profitability and, therefore, these assets
are considered to be in excess of the value of the operating assets of the
business.
SCOPE OF ANALYSIS
In preparing this report, Klein Valuation has reviewed and relied, in part, upon
the following:
1. The audited financial statements of the Company for the years ended December 31, 1999 through December
31, 2001;
2. The unaudited financial statements of the Company for the years ended December 31, 1997 and December 31,
1998;
3. Annual report of Rosedale Decorative Products Ltd. for the year ended December 31, 2000.
4. Federal and Ontario corporate income tax returns of the Company for the year ended December 31, 2000;
5. Schedules of shareholder loans, management salaries, estimated capital expenditures, sales to 10 largest
customers and significant fixed assets prepared by management;
6. Signed letter of intent to purchase 100% of the shares of the Company, dated December 17, 2001;
7. Cash flow projections for the year ending December 31, 2002, prepared by management;
8. Organization chart;
9. Articles of Incorporation, Desart Wallcoverings Inc., dated April 7, 1981;
10. Articles of Amendment, Desart Wallcoverings Inc., dated August 16, 1988, changing name to Rosedale
Wallcoverings Inc.;
11. Articles of Amendment, Rosedale Wallcoverings Inc., dated November 8, 1993, decreasing the number of
directors;
12. Articles of Amendment, Rosedale Wallcoverings Inc., dated February 6, 1995, changing name to Rosedale
Wallcoverings & Fabrics Inc.;
13. Articles of Amendment, Rosedale Wallcoverings & Fabrics Inc., dated January 1, 2000, amalgamating the
Company with its parent, 521305 Ontario Inc;
14. Independent research on the industry and competitors; and
15. Discussions with and information provided by:
- Alan Fine, President, Rosedale Wallcoverings & Fabrics Inc.; and
- Norm Maxwell, Chief Financial Officer of Rosedale Decorative Products Ltd. and Vice President
Finance, Ontario Paint and Wallpaper.
ASSUMPTIONS
Fair market value has been determined based on a notional marketplace. The
actual price at which a sale of the Company could take place in the open market
may be higher or lower than a notional value, and only when a business interest
is exposed for sale can the price be quantified with any degree of certainty.
The valuation applies only to the date indicated. If the Company were to be
valued at a date other than that indicated, a different conclusion as to fair
market value could be reached.
No special purchasers, other than Alan Fine, have been identified in the
marketplace, being those purchasers who, for their own particular economic
reasons, would be prepared to pay a higher price for all the shares of the
Company than would otherwise be available in the marketplace.
The Company has no significant or undisclosed liabilities, contingent
liabilities, contractual obligations, substantial commitments or litigation
pending or threatened at the valuation date or at present, other than those
previously disclosed, and that would be expected to arise in the ordinary course
of business.
Klein Valuation has made many assumptions with respect to the industry, business
and economy and other matters in preparing this valuation. Although believed to
be appropriate in the circumstances, because of the inherent nature of these
assumptions some or all of them may prove to differ from those actually
experienced by Rosedale in the future.
This valuation report assumes that should a transaction be effected, the Company
will operate as a private entity in the future.
Unless otherwise specified, all figures are in Canadian dollars.
BACKGROUND
The Company
Rosedale is a fully owned subsidiary of Rosedale Decorative Products Ltd.,
a public company whose shares are traded on the Over the Counter Bulletin Board,
most recently at $.32 per share. Rosedale Decorative Products Ltd. also owns
100% of Ontario Paint & Wallpaper which is one of Rosedale's major customers.
Ontario Paint & Wallpaper was founded by the Ackerman family in 1913 and
incorporated in 1971. In 1973, Sid Ackerman and Alan Fine joined the company and
started a wholesale division, Ontario Wall Coverings and by 1977 they had
purchased the company from Sid's father. In 1982, Alan Fine founded Rosedale
Inc. and in 1998 they went public. Rosedale currently has two major product
lines - wallpaper (approximately 75% of the business) and decorative fabrics for
drapery and bedding (approximately 25% of the business). Approximately 700 new
designs are created annually and sold mainly in the United States (approximately
80% of wallpaper sales and 95% of fabric sales) and Canada.
Business Strategy
Rosedale's strategy is to increase market share by being more creative than its
competitors in the areas of color and design. To that end, the Company has a
considerable investment in its design studio. Deborah Edwards, the Vice
President Design, has been with Rosedale for over 15 years and has developed the
design studio to its current, state of the art, level.
In order to maintain the ability to analyze trends and determine market demand,
market research is a top priority for the Company. Therefore, attendance at
trade shows, visiting customers and their customers, and maintaining membership
in a marketing group are important market research strategies.
Through sales representatives, trade shows and wallpaper books, Rosedale plans
to increase sales and earnings of its creative designs by actively pursuing
growth through existing core business customers and by developing new customers
in both Canada and the US.
Marketing Overview
Rosedale uses various strategies to market its wallpaper and decorative fabrics.
For the wallpaper line, the Company has a sales representative in Virginia who
calls on distributors. The wallpaper is marketed under two trademark names -
Cambridge Studios and Rosedale Wall Coverings. Each line has different designs
and is sold to different distributors in order to give the distributors
exclusive rights. In addition, sales are made directly to a few major chains.
For the fabric line, marketed under the name "Kingsway", Rosedale has 10
commission sales representatives in the US who sell directly to retail stores.
They report to the Canadian sales representative, Cathy Shearson, Vice President
Kingsway Fabrics.
In addition, Rosedale maintains its market presence by attending trade shows and
leasing a showroom in North Carolina. Its key sales tool is its wallpaper books
from which it derives both customers for its products and incidental sales from
the books themselves.
Management
Alan Fine, President
Mr. Fine has been with the Company and its predecessors since 1973. The vice
presidents of design and fabrics report to him as well as do the CFO, the export
manager, and the US sales manager. In addition, he oversees sample book
production.
Other Senior Management
The other members of the senior management team have been with the Company for
10 to 21 years, except for the Vice President Kingsway Fabrics who has been
there for 3 years, nearly since the inception of the product line.
Operations and Technology
Rosedale uses a sophisticated computer system for its design work. Designs are
etched onto print cylinders at various engraving houses and are then used to
print wallpapers and fabrics on web presses. While Rosedale owns the
intellectual property on the cylinders, manufacturing of designs is out-sourced
to mills throughout the world that own the cylinders themselves.
Financial Analysis
Rosedale, as the subsidiary of a public company, has been in operation since
1998, but its predecessor businesses have been in existence since 1913. The
company has been increasingly profitable but revenues and profits have
fluctuated with the economy. For the year ended December 31, 2001, revenues have
grown to almost $12,400,000. The Company's balance sheet as at December 31, 2001
is presented in Schedule 4 and a history of financial operations is presented in
Schedule 5. Selected financial ratios are presented in Schedule 7.
The Industry
Wallpaper and fabrics are part of the household goods industry, which is
extremely competitive in both the number of competitors and the prices, which
they charge. The ability to analyze and predict trends in design and color is a
key industry success factor. While the industry is affected by fluctuations in
the economy, customers are always looking to make changes to their decor to keep
up with fashion trends. Although the market for the wallpaper industry has
declined steeply as a whole over the last 10 years, it is poised for a rebound,
particularly as the economy is turning around and some rationalization has taken
place during the downturn.
Being capital intensive, the industry is difficult to penetrate for start up
operations, especially if they do not have excellent designers.
The North American Economy
Most of the world's major economies are following the US lead, with the economic
climate deteriorating substantially in both Canada and Mexico. Industrial
production has been declining steadily in the US, down 6% over the past year,
and is weakening in all G7 countries. The downstroke in American industrial
output should end over the winter, with the US leading world activity into a
recovery phase. However, the pace of revival will initially be tempered by
lethargy in the service sector. Overall, growth in 2002 is likely to be back-end
loaded, with a more durable and balanced global expansion not fully emerging
until 2003. The sharp drop in foreign trade and investment that has accompanied
the US setback has been an increasing drag on business conditions around the
globe. World trade flows decelerated sharply in 2001 and have actually declined
on a year-over-year basis in most industrial nations. Severe profit compression
and rising excess capacity have also undercut business confidence and triggered
widespread cutbacks in capital spending plans and job creation.
These powerful global forces will be slow to reverse. The inability to pass on
price increases points to a lengthy convalescence for profitability and
investments. The lingering effects of industry consolidation and downsizing will
probably keep business capital spending - which helped to ignite the US
expansion in the 1990's - in the slow lane until 2003. As in the US, the
consumer has provided an important cushion from deteriorating industrial
conditions. This has been particularly evident in Canada and the UK. Low
interest rates, heavy price discounting and the sharp drop in energy costs have
cushioned purchasing power and provided an incentive to keep spending.
Nevertheless, with employment growth grinding to a halt, unemployment rates have
begun to edge off their lows in Europe and have risen significantly in the US
and Canada. Heightened job uncertainty and softening income growth are bound to
dampen household spending in these countries over the winter. Barring a major
setback in the war on terrorism, consumer confidence should begin to rebound in
the spring as layoffs recede and labour market conditions brighten. However,
with little pent-up demand for motor vehicles and other "big-ticket" items,
heavily indebted households may focus on balance sheet repair before embarking
on another big shopping spree. Even with a moderate revival, consumer spending
will help lead the global economy onto a stronger growth trajectory in the
second half of 2002.
In recent years, the powerful deflationary forces associated with globalization,
technology change and industrial restructuring -with its emphasis on reducing
costs - have been offset by buoyant economic conditions. However, the global
slump has now aligned cyclical and secular forces in favour of very low
inflation. Lingering softness in commodities and excess capacity in product and
labour markets should keep inflation below 2% in most industrial nations in 2002
and comfortably within central bank tolerance bounds into 2003. In fact, at
trend to even lower inflation would be evident without the persistence of price
pressures in the health care, housing, education and security/defense sectors.
Government policies throughout the G7 will retain a pro-growth bias. With
minimal inflation, monetary policy settings will also remain geared to
rekindling growth through 2002. However, after decreasing interest rates to a
low of 1.75%, the lowest level in a generation, the Federal Reserve may only be
25 basis points away from the end of its easing cycle. Europe, and to a lesser
extent Canada, are playing catch up and may cut rates another half percentage
point over the winter before they finish easing.
Bond markets have become increasingly nervous about the longer-term inflationary
potential of recent heavy weight monetary and fiscal stimulus. The late year
revival in equities, the surprising resilience of the US housing market and
perennial fears of a big dollar correction have added to the bearishness.
Persistent economic weakness is expected to reverse part of the run-up in yields
over the winter, particularly if disappointing profit news causes a temporary
setback in equity markets. However, gathering signs of an economic revival in
the spring are bound to put upward pressure on yields even if inflation remains
historically low.
While the US dollar is a wild card in the outlook, there is a good chance that
it will stay stronger, longer. Despite domestic security concerns, the American
currency retains a substantial liquidity and safe-haven premium in a highly
uncertain international environment. The performance of US markets generally has
been favourable relative to offshore alternatives, particularly when expressed
in common currency terms. With the US economy first into the economic slump, and
generally expected to be first out as well, global investors may want to
reposition assets to take advantage of this revival. Moreover, investors have
long memories - those who bet on other currencies against the US dollar have
frequently lost money over the past decade.
The Canadian dollar is vulnerable to soft commodity prices, a reduction in its
trade surplus and deterioration in its fiscal prospects, particularly given its
second-tier status on international exchange markets.
Both in North America and abroad, low interest rates and a big dose of fiscal
stimulus are not sufficient to kick-start the recovery. A revival in consumer
and business confidence is required to provide the traction for higher spending
and investment. While confidence should begin to return - first for consumers,
then for businesses - in the second half of the year, North American growth in
2003 will probably fall short of the stellar performance at the turn of this
decade. September 11th and subsequent events have added a deep layer of
uncertainty and caution to the global environment, boosting safety and security
costs and probably dampening productivity gains. It will also take time to
absorb excess capacity in product and labour markets and repair the damage
inflicted by the deep and protracted compression of business earnings. The net
result - the upstroke of this elongated U-shaped setback is likely to be more
gradual that the initial drop.
The slump in corporate profitability has yet to let up, with rising security,
insurance and health costs bumping up against aggressive price discounting. In
the United States, additional cost-cutting and investment deferrals are still in
the works. Mounting job layoffs and a sharply slower pace of income gains point
to a pullback in the strong pace of consumer expenditures that has aggravated
already strained household balance sheets. These developments will likely extend
the US slowdown through the first half of 2002. However, the shift from
inventory liquidation to restocking should give a boost to US production by
mid-year. Accelerated government spending bolstered by the ramping up of
military and security expenditures, will also help to reinvigorate growth. High
tech eventually will become high growth again, though that will probably be a
story for 2003 when business investment gets rolling.
The Canadian economy initially held up better than the US, reflecting strong
business investment, particularly in the energy sector. Yet, the plunge in
exports, exacerbated by the decline in commodity prices, has pushed Canada into
recession. Shipments of manufactured goods have slumped to their lowest level in
almost two years. This retrenchment will likely continue, with new and unfilled
orders running well below year-ago levels, finished product inventories staying
persistently high and capital spending plans being slashed alongside the
turndown in capacity utilization. As office vacancy rates edge higher,
commercial projects will be increasingly deferred.
Canadian consumers have become more cautious spenders, with overall purchases
registering little growth since early 2001. Household expenditures are likely to
remain on the softer side into the spring, with the unrelenting squeeze on
earning forcing businesses to reduce full-time employment. Residential
construction and renovation have been largely immune from the spreading economic
weakness, with historically low mortgage rates, tight rental markets and low
inventories of completed but unoccupied units supporting activity. While this
sector enters 2002 with considerable momentum, rising unemployment and weaker
income growth will likely moderate housing demand by mid-year. Improving
economic prospects for Canada hinge on a rebound in American industrial
activity, a development that should resuscitate southbound exports and commodity
prices. A revival in trade flows also requires relatively unfettered border
access to the large US market. Ottawa's December budget authorized various new
security measures to help expedite cross-border trade and travel, though it will
take time to implement, as well as harmonize, the new bilateral initiatives.
(Global Economic Research, Scotiabank Group, "Global Outlook - January 2002")
COMPETITION
The household goods industry, of which wallpaper and decor fabrics are a part,
is vast and includes many large and small companies. Although we were unable to
obtain information on private company competitors, based on information from the
Sedar database, we have identified the following public company competitor:
Norwall Group Inc.
Norwall (TSE - NGI.TO) is a leading independent Canadian manufacturer and
distributor of residential wall coverings. It produces vinyl-coated wall
coverings, which are sold either directly to retailers or through distributors
in North America and overseas. Currently, 600 home centers, such as Lowe's, and
7,500 specialty stores handle Norwall's product, which sell at retail prices
ranging from $10 to $22 per roll, primarily the low to mid market area.
Norwall owns all of the outstanding shares of its operating subsidiary, Patton
Wallcoverings Inc. In 2000, Norwall manufactured approximately 52 million meters
of wall coverings at its 200,000 square foot facility in Brampton, Ontario.
Patton is the American distributor of products manufactured by Norwall, and
Patton sells, in addition, wall coverings produced by other manufacturers.
Norwall shares most recently sold for $4.80 per share with a P/E ratio of 14.03
and we estimate its market capitalization at $30,320,000.
BASIS OF VALUATION - VALUATION APPROACH AND TECHNIQUES
There are two generally accepted approaches to value, the going-concern approach
and the liquidation approach.
We do 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.
Going Concern Approach
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. 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.
The capitalization of cash flow approach is a more appropriate approach for the
wall coverings and decorative fabrics industry because depreciation expense
deducted from earnings does not approximate the sustaining capital reinvestment,
which is more accurately deducted under a cash flow approach. 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.
Capitalization of Cash Flow
The capitalization of cash flow technique is premised on:
1. A realization of redundant assets on hand at the beginning of the cash flow
period. Based on an analysis of the Company's balance sheet and income
statement, Rosedale does not appear to have any redundant assets.
2. A determination of the indicated after-tax maintainable cash flow. In
Schedule 5 we have reproduced the Company's income statement for the years
1997 through 2001, and the incomes before income taxes are then used in
Schedule 2 for the determination of indicated after-tax maintainable cash
flow, which is equal to its cash flow normalized or adjusted to reflect
non-recurring or non-business expenses on an after-tax basis. In arriving
at maintainable cash flow, the following adjustments were then made:
o Management salaries were adjusted to economic levels;
o Amortization of goodwill and deferred charges and depreciation of
capital assets were added back as they are items not requiring cash
outflow;
o Professional fees were adjusted to normal levels;
o Non-recurring bin expenses and advertising and promotion related to the
design studio were added back; o Interest on shareholder loans was
imputed for 2001;
o Interest on insurance policy loans was added back as the policies have
been transferred to another company;
o A non-recurring expense recovery was deducted reflecting the
reallocation of design development expenses to deferred development
costs;
o A simple average weighting of 1999, 2000 and 2001 results to reflect
the economic cycle. 1997 and 1998 were omitted as they did not include
full years of operation for the decorative fabrics line;
o Income taxes were deducted using private company rates of 19.62% for
taxable income up to $200,000 subject to the small business deduction
and 42.12% on income over $200,000; and
o Sustaining capital reinvestment was estimated to be approximately
$825,000 per year or approximately $546,000 after deducting the tax
shield thereon;
3. The application of a discount rate to indicated after-tax maintainable cash
flow to determine a capitalized value. In the capitalization of cash flow
calculations (Schedule 1), capitalization rates of 25% to 33% (multiples of
3.0 to 4.0, respectively) were used to reflect the risks attaching to the
Company and its cash flow, and prevailing interest rates, economic factors
and inflation rates. Specifically, in arriving at these rates, the
following factors were considered:
Positive Factors:
o The length of time the Company has been in operations and its continued
profitability and expected sustainable growth;
o Strong and experienced management team, including their quality and
their past experience in product development;
o Low employee turnover;
o Reputation in the industry;
o Though only 4 years old, the decorative fabric line has become quickly
established;
o Extensive customer base with repeat business as fashions change;
o Capital intensive nature of industry creates barrier to new
competition;
o Industry rationalization in the last 10 years has already squeezed out
competitors;
o Manufacturing is out-sourced therefore no investment in manufacturing
equipment required;
o Ability to hedge US dollars to avoid significant foreign exchange
exposure;
o State-of-the-art design software;
o Ability to predict color and design and analyze trends;
o Creativity and intuition regarding customer demand;
o While demand for wallpaper has been in a steep decline over the last 10
years, the market is poised for recovery; and
o Employees are non-unionized.
Negative Factors
o Lack of depth of top management team;
o Business is heavily tied to economic cycles;
o Inventory obsolescence and the high cost of shelving unsold quantities
due to need to purchase minimum quantities from the mills;
o Industry is highly competitive with a strong emphasis on pricing;
o Possible unfavorable outcome of issues with Canada Customs and Revenue
Agency;
o Seasonality of business with spring being the big season and summer the
weakest; and
o Wallpaper demand has been in a steep decline over the last 10 years.
Neutral Factors
o Risk free rates of return on alternative investments (Schedule 8);
o Economic conditions on or about the Valuation Date; and
o Prevailing stock and money market conditions on or about the Valuation
Date.
Adjusted Book Value
Adjusted book value is based on the value of the Company with all tangible
assets and liabilities adjusted to their fair market values. In Schedule 3,
adjustments made include:
o to adjust loans from affiliated and parent companies to their fair
values;
o Include a portion of future taxes as equity;
o Include the estimated value of the tax loss carry forwards;
o Writedown deferred product costs to their estimated realizeable value;
o Allow for a portion of the contingent tax liability.
As detailed in Schedule 3, the adjusted book value of the Company is
approximately $1,047,000, based on the assumption that the fair market values of
the capital assets and financial instruments other than loans from the
affiliated and parent companies, are approximated by their book values. We have
further assumed all nonarms length loans to be true liabilities of the Company.
As a result of this calculation, it can be determined that the maximum inherent
goodwill of the Company is $347,000, also shown in Schedule 3.
CONCLUSION
Based on the attached schedules, the indicated en bloc fair market value of the
Company's issued and outstanding shares is between $1,224,000 and $1,394,000 as
at January 1, 2002.
The indicated amount of goodwill is between approximately $177,000 and $347,000
as at January 1, 2002.
MANAGEMENT REPRESENTATIONS
Klein Valuation has received a letter of representation dated as of the date
hereof, from the senior management of Rosedale Wallcoverings and Fabrics Inc.
attesting to, among others, the accuracy and completeness of the information
provided to Klein Valuation. They have attested that they are not aware of any
facts not disclosed to Klein Valuation that would reasonably be expected to
materially affect the valuation herein. Management of Rosedale have also
represented to Klein Valuation that, since the date of delivery of any
information by the Company, there has been no material change or material fact
that has developed, relating to any of the information provided to Klein
Valuation, by or on behalf of the Company, that has not been disclosed to Klein
Valuation and which would reasonably be expected to have a material effect on
the valuation.
RESTRICTIONS
This report is not intended for general circulation or publication nor is it to
be reproduced or used for any purpose other than that outlined herein without
our written permission in each specific instance. We do not assume any
responsibility or liability for losses occasioned to you, the Company or any
third parties as a result of the circulation, publication, reproduction or use
of our report contrary to the provisions of this paragraph.
Klein Valuation has based its calculations on certain statements, estimates and
financial projections concerning the anticipated future revenues and expenses of
Rosedale and makes no representation as to the accuracy or completeness thereof.
Such statements, estimates and financial projections reflect various assumptions
made by management concerning anticipated results and planned courses of action.
The actual results of operations will be different, and these differences may be
material. The financial projections remain the responsibility of management.
Klein Valuation reserves the right, but will be under no obligation, to review
all calculations included or referred to in this report and, if considered
necessary, to revise this report in light of any information existing at the
Valuation Date that becomes known to Klein Valuation after the date of this
report.
Klein Valuation has relied upon and has not verified independently or audited
any of the information, date, advice, opinions or representations provided
herein or contained in any relevant document and offer no assurances with
respect thereto.
The valuation conclusion reached herein is based, in part, on the ability of
Rosedale to achieve the financial forecasts as set out in the projections.
ROSEDALE WALLCOVERINGS AND FABRICS INC. SCHEDULE 1
FAIR MARKET VALUE
JANUARY 1, 1999
LOW HIGH
Maintainable cash flow (per Schedule 2) 290,000 TO 330,000
Cash flow multiple (25% to 33%) 4.00 TO 3.00
Capitalized value of operations 1,160,000 TO 990,000
Add: Value of loss carry forwards 234,325 234,325
Fair Market Value Range of Shares 1,394,325 TO 1,224,325
=============== ================
Rounded $1,394,000 $ 1,224,000
=============== ================
NOTES
ROSEDALE WALLCOVERINGS AND FABRICS INC. SCHEDULE 2
MAINTAINABLE EARNINGS
11/30/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001
-------------- -------------- -------------- -------------- --------------
Earnings Before Taxes Per Schedule 5 $ 890,477 $ 912,181 $(212,866) $ 480,768 $ 40,624
-------------- -------------- -------------- -------------- --------------
Add Back:
Depreciation and Amortization 426,873 671,146 834,094 966,144 1,101,919
Bin Expense - - - 346,968 730,609
Professional Fees 168,361 137,823 98,740 81,201 118,394
Management Fees 233,894 300,000 240,000 240,000 -
Design Advertising and Promotion 40,520 - - - -
Interest on Key Man Insurance Loans (note 1) 127,512 110,148 89,990 -
Interest on Shareholder Loans - 38,700
-------------- -------------- -------------- -------------- --------------
1,760,125 2,148,662 1,070,116 2,205,071 2,030,246
-------------- -------------- -------------- -------------- --------------
Deduct:
Recovery of Expenses - 364,600 - -
Economic Management Salary 300,000 300,000 300,000 300,000 300,000
Normal Professional Fees 60,000 60,000 60,000 60,000 60,000
-------------- -------------- -------------- -------------- --------------
360,000 724,600 360,000 360,000 360,000
-------------- -------------- -------------- -------------- --------------
Adjusted cash flow from operations $1,400,125 $1,424,062 $ 710,116 $1,845,071 $1,670,246
------------------------------------------------------------- --------------
Weighting 0 0 1 1 1
Average Adjusted Pre-Tax Cash Flow From Operations $1,408,478
Income taxes 548,251
--------------
After-tax cash flow from operations 860,227
Sustaining capital reinvestment 825,000
(net of tax shield thereon) 278,668 546,332
-------------- --------------
Maintainable cash flow 313,895
==============
Rounded $ 290,000 TO $ 330,000
============== ==============
NOTE
(1) Information unavailable but no effect on value.
ROSEDALE WALLCOVERINGS AND FABRICS INC. SCHEDULE 3
ADJUSTED BOOK VALUE OF OPERATIONS AND GOODWILL
JANUARY 1, 2002
Adjusted Book Value of Operations
Book Value Per Financial Statements
December 31, 2001 $ 1,852,023
Adjustments to Fair Market Value Per Notes to Financial Statements:
Loan From Affiliated Company $ 14,397
Due to Parent Company $ 45,560
$ 1,911,980
Add: Future taxes 322,500
Value of loss carryforwards 234,325
Deduct: Deferred Product costs (451,238)
Writedown of loans (516,486)
Contingent tax liabilty (454,000)
Off balance sheet liability -
Adjusted Book Value of Operations $ 1,047,081
=============
Rounded $ 1,047,000
=============
-----------------
Goodwill
LOW HIGH
---------------------------------------------------
Fair Market Value (Schedule 1) 1,224,000 1,394,000
Adjusted Book Value of Operations 1,047,000 1,047,000
----------------- -----------------
Goodwill $ 177,000 $ 347,000
========== =========
----------------- -----------------
Average $ 262,000
=========
ROSEDALE WALLCOVERINGS AND FABRICS INC. SCHEDULE 4
BALANCE SHEET
AS AT DECEMBER 31, 2001
ASSETS
Current Assets
Accounts Receivables $ 3,031,664
Inventory 4,124,240
Prepaids Expenses and Sundry Assets 781,825
----------------
Total Current Assets 7,937,729
Deferred Product Costs 451,238
Capital Assets 3,061,811
----------------
----------------
$11,450,778
================
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Bank Indebtedness $ 3,946,499
Accounts Payable 2,978,266
Income Taxes Payable 18,000
----------------
Total Current Liabilities 6,942,765
Loan From Affiliated Company 220,063
Due to Parent Company 696,423
Loans From Directors 1,094,504
Future Income Taxes 645,000
----------------
9,598,755
----------------
Capital Stock 40
Retained Earnings 1,851,983
----------------
----------------
1,852,023
----------------
$11,450,778
================
ROSEDALE WALLCOVERINGS AND FABRICS INC. SCHEDULE 5
SUMMARY OF INCOME STATEMENTS
1997 TO 2001
11/30/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001
Sales ....................$ 16,383,966 100.0% $ 13,670,152 100.0% $ 12,491,438 100.0% $ 15,523,034 100.0% $ 12,337,348 100.0%
Cost of Sales ............ 10,718,139 65.4% 8,298,848 60.7% 8,338,724 66.8% 9,989,957 64.4% 7,437,606 60.3%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
Gross Profit ............. 5,665,827 34.6% 5,371,304 39.3% 4,152,714 33.2% 5,533,077 35.6% 4,899,742 39.7%
Book Development
Income, Net ............. (412,642) -2.5% -- 0.0% 459,383 3.7% 462,657 3.0% 403,663 3.3%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
Gross Earnings ........... 5,253,185 32.1% 5,371,304 39.3% 4,612,097 36.9% 5,995,734 38.6% 5,303,405 43.0%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
Selling
Commissions .............. 572,542 3.5% 392,533 2.9% 310,955 2.5% 333,329 2.1% 318,461 2.6%
Travel ................... 160,717 1.0% 156,042 1.1% 264,067 2.1% 227,107 1.5% 203,231 1.6%
Warehouse Wages .......... 152,711 0.9% 152,465 1.1% 111,181 0.9% 155,279 1.0% 123,242 1.0%
Bin Expense .............. -- 0.0% -- 0.0% -- 0.0% 346,968 2.2% 730,609 5.9%
Advertising and Promotion 112,872 0.7% 138,671 1.0% 223,461 1.8% 287,662 1.9% 145,636 1.2%
Freight Out and Delivery, Net 109,953 0.7% 95,186 0.7% 115,312 0.9% 165,322 1.1% 154,033 1.2%
Sales and Marketing Salaries 102,096 0.6% 105,129 0.8% 225,827 1.8% 228,461 1.5% 270,690 2.2%
Automobile ............... 89,534 0.5% 84,035 0.6% 77,479 0.6% 78,511 0.5% 82,779 0.7%
Repairs and Maintenance .. 75,726 0.5% 65,479 0.5% 56,532 0.5% 112,918 0.7% 80,799 0.7%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
1,376,151 8.4% 1,189,540 8.7% 1,384,814 11.1% 1,935,557 12.5% 2,109,480 17.1%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
Administrative
Administrative and
Management Salaries - 0.0% 628,213 4.6% 298,791 2.4% 334,798 2.2% 388,140 3.1%
Rent ..................... 607,364 3.7% 274,621 2.0% 278,423 2.2% 328,279 2.1% 294,059 2.4%
Management Fees .......... 233,894 1.4% 300,000 2.2% 240,000 1.9% 240,000 1.5% -- 0.0%
Professional Fees ........ 168,361 1.0% 137,823 1.0% 98,740 0.8% 81,201 0.5% 118,394 1.0%
Office and General ....... 76,861 0.5% 64,371 0.5% 78,250 0.6% 90,873 0.6% 84,968 0.7%
Insurance and Taxes ...... 67,089 0.4% 11,372 0.1% 98,365 0.8% 80,764 0.5% 66,678 0.5%
Telephone and Facsimile .. 59,423 0.4% 48,299 0.4% 61,979 0.5% 61,421 0.4% 53,453 0.4%
Computer ................. 46,147 0.3% 50,810 0.4% 61,243 0.5% 112,114 0.7% 114,832 0.9%
Utilities ................ 34,916 0.2% 37,188 0.3% 41,627 0.3% 39,924 0.3% 40,105 0.3%
Bad Debts ................ 98,459 0.6% 13,829 0.1% (2,004) 0.0% 60,323 0.4% 36,429 0.3%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
1,392,514 8.5% 1,566,526 11.5% 1,255,414 10.1% 1,429,697 9.2% 1,197,058 9.7%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
Design Studio
Salaries ................. 485,354 3.0% 616,339 4.5% 602,070 4.8% 486,919 3.1% 439,478 3.6%
Computer ................. 183,204 1.1% 126,906 0.9% 108,084 0.9% 72,036 0.5% 41,370 0.3%
Design ................... 78,118 0.5% 39,747 0.3% 43,304 0.3% 56,077 0.4% 73,653 0.6%
Advertising and Promotion 40,520 0.2% -- 0.0% -- 0.0% -- 0.0% -- 0.0%
Travel and Automobile .... 39,122 0.2% 33,823 0.2% 40,911 0.3% 30,925 0.2% 20,980 0.2%
Office and General ....... 25,557 0.2% 43,169 0.3% 41,878 0.3% 29,426 0.2% 29,232 0.2%
Telephone and Facsimile .. 13,409 0.1% 5,138 0.0% 3,891 0.0% 2,149 0.0% 7,872 0.1%
Recovery of Expenses ..... -- 0.0% (364,600) -2.7% -- 0.0% -- 0.0% -- 0.0%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
865,284 5.3% 500,522 3.7% 840,138 6.7% 677,532 4.4% 612,585 5.0%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
Interest and Bank Charges 301,886 1.8% 531,389 3.9% 510,503 4.1% 506,036 3.3% 241,739 2.0%
Amortization ............. 426,873 2.6% 671,146 4.9% 834,094 6.7% 966,144 6.2% 1,101,919 8.9%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
728,759 4.4% 1,202,535 8.8% 1,344,597 10.8% 1,472,180 9.5% 1,343,658 10.9%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
Earnings Before Income
Taxes ................... 890,477 5.4% 912,181 6.7% (212,866) -1.7% 480,768 3.1% 40,624 0.3%
Income taxes ............. 163,687 1.0% 386,000 2.8% 114,863 0.9% 86,000 0.6% 18,000 0.1%
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
Net Earnings .............$ 726,790 4.4% $ 526,181 3.8% $ (327,729) -2.6% $ 394,768 2.5% $ 22,624 0.2%
=========== ====== =========== ====== =========== ====== =========== ====== =========== ======
ROSEDALE WALLCOVERINGS AND FABRICS INC. SCHEDULE 6
TREND ANALYSIS
1997 TO 2001
Cumulative Average
12/31/1998 12/31/1999 12/31/2000 12/31/2001 Change Yearly
--------- --------- --------- --------- --------------------------
1996
Revenue -16.6% -8.6% 24.3% -20.5% -24.7% -5.4% $ 11,501,244
Cost of Sales -22.6% 0.5% 19.8% -25.5% -30.6% -7.0% 8,347,132
---------
Gross Profit -5.2% -22.7% 33.2% -11.4% -13.5% -1.5% 3,154,112
---------
Book Development Income, Net -100.0% 100.0% 0.7% -12.8% -197.8% -3.0%
Gross Earnings 2.2% -14.1% 30.0% -11.5% 1.0% 1.6% 284,083
Selling 117,749
Commissions -31.4% -20.8% 7.2% -4.5% -44.4% -12.4% 1,089,104
Travel -2.9% 69.2% -14.0% -10.5% 26.5% 10.5% 9,813
Warehouse Wages -0.2% -27.1% 39.7% -20.6% -19.3% -2.1% 162,911
Bin Expense 0.0% 0.0% 100.0% 110.6% 100.0% 52.6% 111,549
Advertising and Promotion 22.9% 61.1% 28.7% -49.4% 29.0% 15.8% 170,033
Freight Out and Delivery, Net -13.4% 21.1% 43.4% -6.8% 40.1% 11.1% 144,509
Sales and Marketing Salaries 3.0% 114.8% 1.2% 18.5% 165.1% 34.4% (91,896)
Automobile -6.1% -7.8% 1.3% 5.4% -7.5% -1.8% 97,779
Repairs and Maintenance -13.5% -13.7% 99.7% -28.4% 6.7% 11.0% 139,163
-13.6% 16.4% 39.8% 9.0% 53.3% 12.9% 15,257
Administrative 78,936
Administrative and Management 100.0%es -52.4% 12.1% 15.9% 100.0% 18.9% 34,250
Rent -54.8% 1.4% 17.9% -10.4% -51.6% -11.5% -
Management Fees 28.3% -20.0% 0.0% -100.0% -100.0% -22.9% 75,301
---------
Professional Fees -18.1% -28.4% -17.8% 45.8% -29.7% -4.6% 2,438,541
---------
Office and General -16.3% 21.6% 16.1% -6.5% 10.5% 3.7%
Insurance and Taxes -83.0% 765.0% -17.9% -17.4% -0.6% 161.6% 715,571
Telephone and Facsimile -18.7% 28.3% -0.9% -13.0% -10.0% -1.1% 308,246
---------
Computer 10.1% 20.5% 83.1% 2.4% 148.8% 29.0% $ 407,325
=========
Utilities 6.5% 11.9% -4.1% 0.5% 14.9% 3.7%
Bad Debts -86.0% -114.5% -3110.1% -39.6% -63.0% -837.5%
12.5% -19.9% 13.9% -16.3% -14.0% -2.4%
Design Studio
Salaries 27.0% -2.3% -19.1% -9.7% -9.5% -1.0%
Computer -30.7% -14.8% -33.4% -42.6% -77.4% -30.4%
Design -49.1% 8.9% 29.5% 31.3% -5.7% 5.2%
Advertising and Promotion -100.0% 0.0% 0.0% 0.0% -100.0% -25.0%
Travel and Automobile -13.5% 21.0% -24.4% -32.2% -46.4% -12.3%
Office and General 68.9% -3.0% -29.7% -0.7% 14.4% 8.9%
Telephone and Facsimile -61.7% -24.3% -44.8% 266.3% -41.3% 33.9%
Recovery of Expenses 100.0% -100.0% 0.0% 0.0% 0.0% 0.0%
-42.2% 67.9% -19.4% -9.6% -29.2% -0.8%
Interest and Bank Charges 76.0% -3.9% -0.9% -52.2% -19.9% 4.7%
Amortization 57.2% 24.3% 15.8% 14.1% 158.1% 27.8%
65.0% 11.8% 9.5% -8.7% 84.4% 19.4%
Earnings Before Income Taxes 2.4% -123.3% -325.9% -91.6% -95.4% -134.6%
Income taxes 135.8% -70.2% -25.1% -79.1% -89.0% -9.7%
Net Earnings -27.6% -162.3% -220.5% -94.3% -96.9% -126.2%
ROSEDALE WALLCOVERINGS AND FABRICS INC. SCHEDULE 7
RATIO ANALYSIS
1997 TO 2001
12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001 Average
Working Capital $1,287,482 $3,466,511 $ 883,751 $1,092,785 $ 994,964 $1,545,099
Current Ratio 1.13 1.44 1.11 1.14 1.14 1.19
Quick Assets $5,354,496 $4,858,395 $3,151,137 $4,048,207 $3,813,489 $4,245,145
Quick Ratio 0.53 0.62 0.40 0.51 0.55 0.52
Days Sales in Accounts Receivable 101.44 125.14 103.86 60.93 83.25 94.92
Fixed Asset Purchases $ 883,458 $1,019,886 $1,206,636 $ 816,111 $1,168,447 $1,018,908
Total Debt to Equity Ratio (note 1) 4.01 3.48 4.03 3.26 2.89 3.53
Total Debt to Total Assets % (note 1) 80.03% 77.70% 80.12% 76.54% 74.27% 77.73%
Long-Term Debt to Equity Ratio (note 1) 0.21 0.98 1.15 0.60 0.53 0.70
Long-Term Debt to Total Assets % (note 1) 4.24% 21.80% 22.91% 14.16% 13.64% 15.35%
Gross profit % 32.06% 39.29% 36.92% 38.62% 42.99% 37.98%
Expenses to sales % 26.63% 32.62% 38.63% 35.53% 42.66% 35.21%
NOTE
(1) Shareholder loans, being in the nature of equity, have been reallocated from
debt to equity.
ROSEDALE WALLCOVERINGS AND FABRICS INC. SCHEDULE 8
CANADIAN ECONOMIC INDICATORS
AS AT JANUARY 1, 2002
Chartered Bank Prime Business Rate 4.00%
Conventional Mortgage Rates:
1 Year 4.60%
5 Years 6.85%
Government Investment Certificates:
1 Year 1.23%
5 Years 3.53%
Treasury Bills:
1 Month 1.98%
3 Months 1.95%
6 Months 1.95%
1 Year 2.20%
Government of Canada Marketable Bonds:
1 - 3 Years 3.28%
3 - 5 Years 4.54%
5 - 10 Years 5.25%
Over 10 Years 5.75%
Source: Bank of Canada, Financial Market Statistics as at December 26, 2001
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