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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TAPISTRON INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 3552 58-1684918
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
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6203 Alabama Highway
Ringgold, Georgia 30736
(706) 965-9300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
J. DARWIN POE, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
6203 ALABAMA HIGHWAY
RINGGOLD, GEORGIA 30736
(706) 965-9300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Copy to:
EDWARD H. BROWN, ESQ.
Schreeder, Wheeler & Flint, L.L.P.
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement
as determined by market conditions.
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If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434 of the Securities Act of 1933, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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===========================================================================================================================
TITLE OF EACH CLASS AMOUNT AMOUNT OF
OF SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE (1) FEE
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Common Stock, 16,666,666 shares $5/32 $2,604,166.56 $768.23
$0.0004 par value
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low trading prices of the Common
Stock on the Over The Counter Bulletin Board system on February 3,
1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
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TAPISTRON INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
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ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT PROSPECTUS CAPTION
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1. Forepart of the Registration Statement and Outside Facing Page; Cross-Reference
Sheet; Front Cover Page of Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover
of Prospectus Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of Summary; Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Summary; Use of Proceeds; Consolidated
Capitalization; Management's Discussion
and Analysis of Financial Condition and
Results of Operations
5. Determination of Offering Price Outside Front Cover Page; Plan of
Distribution
6. Dilution Not Applicable
7. Selling Security Holders Principal Stockholders; Registering
Stockholders
8. Plan of Distribution Outside Front Cover Page; Plan of
Distribution
9. Description of Securities to be Registered Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel Experts; Legal Matters
11. Information with Respect to the Registrant Outside and Inside Front Cover Pages of
Prospectus; Summary; Risk Factors; Use of
Proceeds; Common Stock Price Range; Dividend
Policy; Capitalization; Selected Historical
Financial Information of the Company;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Relationships and Related Transactions;
Principal Stockholders; Registering
Stockholders; Description of Capital Stock;
Certain Provisions of Georgia Law and of the
Company's Charter and Bylaws; Shares
Eligible for Future Sale; Plan of
Distribution; Legal Matters; Experts;
Available Information; Index to Financial
Statements
12. Disclosure of Commission Position on Not applicable
Indemnification for Securities Act Liabilities
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 3, 1998
16,666,666 SHARES
[LOGO OF TAPISTRON INTERNATIONAL, INC.]
TAPISTRON INTERNATIONAL, INC.
COMMON STOCK
The shares of Common Stock, par value $0.0004 per share ("Common
Stock"), of Tapistron International, Inc., a Georgia corporation (the "Company"
or "Tapistron"), which may be offered hereby (the "Registered Offering") are
held by certain stockholders of the Company (the "Registering Stockholders").
See "Registering Stockholders." The Company will not receive any of the proceeds
from the sale of any shares offered hereby. The Registering Stockholders
received such shares of Common Stock in a private placement transaction (see
"Recent Developments") and the Company has agreed to file and maintain a shelf
registration statement relating to such shares in order to permit the
Registering Stockholders to resell such shares from time-to-time in public
transactions. In connection with this transaction, the Company will bear
expenses estimated at $______.
The Common Stock is listed on the Over The Counter Bulletin Board (the
"OTCBB") system under the symbol "TAPI." On February 3, 1998, the last
reported sales price for the Company's Common Stock was $5/32 per share. See
"Common Stock Price Range."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Any distribution of the shares covered by this Prospectus may be
effected from time to time in one or more transactions (which may involve block
transactions) on the OTCBB system, in negotiated transactions or in a
combination of such methods of sale, at fixed prices, at prices related to the
prevailing market prices or at negotiated prices. The Registering Stockholders
will effect any such transactions with or through one or more broker-dealers
which may act as agent or principal, and if required by the
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Company, through block trades or offerings through underwriters. Any such
broker-dealer may receive compensation in the form of underwriting discounts,
concessions or commissions from the Registering Stockholders and/or the
purchaser of the shares for whom it may act as agent or to whom it may sell as
principals or both. With respect to any shares sold by a Registering
Stockholder, the Registering Stockholder and/or any broker-dealer effecting the
sales may be deemed to be an "underwriter" within the meaning of Section 2(11)
of the Securities Act of 1933, as amended (the "Securities Act"), and any
commissions received by the broker-dealer and any profit on the resale of shares
as principal may be deemed to be underwriting discounts or commissions under the
Securities Act. Additionally, the Registering Stockholders may pledge or make
gifts of their shares and such shares may also be sold by the pledgees or
transferees. See "Plan of Distribution."
--------------------------
The date of this Prospectus is February ___, 1998
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IN CONNECTION WITH THE REGISTERED OFFERING, UNDERWRITERS MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE OTCBB SYSTEM, ON THE OPEN MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial data,
including the financial statements and notes thereto, included elsewhere in this
Prospectus. Unless the context otherwise indicates, the "Company" means
Tapistron International, Inc. and includes its corporate and partnership
predecessors and wholly-owned subsidiaries and affiliates. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors."
The Company's principal executive offices are located at 6203 Alabama
Highway, Ringgold, Georgia 30736, and its telephone number is (706) 965-9300.
THE COMPANY
Tapistron was organized for the purpose of developing or acquiring
proprietary technologies in the textile industry and commercializing such
technologies on a global basis. The Company was incorporated under the laws of
the State of Georgia on February 7, 1986, under the name of Textile Corporation
of America. On July 19, 1986, the Company exchanged shares of common stock for
all of the outstanding stock of Fabrication Center, Inc. ("FCI") in a
transaction accounted for as a pooling of interests. On July 16, 1991, the name
was changed from Textile Corporation of America to Tapistron International, Inc.
All references to the Company include Fabrication Center, Inc., its wholly owned
subsidiary.
The Company's initial technology has been the development of a
Computerized Yarn Placement ("CYP") machine, for producing tufted carpets and
rugs in highly versatile patterns, colors and textures. The Company believes
that the potential market for its technologically advanced tufting machine lies
with manufacturers that wish to meet the growing demand for patterned products
witnessed in the commercial and residential floor covering markets. Virtually
all existing tufting machines, which produce piled products by inserting tufts
of yarn into a primary backing, are limited in their ability to produce a broad
range of patterned, multi-colored and multi-textured products. Most existing
weaving looms, which create the primary backing in the weaving process, require
an extremely time-consuming and labor intensive process to effect pattern and
color changes. The Company's CYP machine requires only minutes to change
pattern, color, texture and density combinations. Because of its compatibility
with commercially available pattern entry systems, such as those used by many
major textile manufacturers, virtually any hand-drawn, painted, photographed or
scanned image can be reproduced on the finished tufted product. The CYP machine
is not in the same market as, and will not compete with, low end solid color
plain cut pile carpet producing equipment, but is designed to provide an
alternative to current methods of producing patterned products.
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RECENT DEVELOPMENTS
The Company filed a voluntary petition for relief under Chapter 11 of
Title 11 of the United States Code (the "Code") on June 21, 1996 (the "Petition
Date") and operated its business as a debtor-in-possession under the
jurisdiction of the United States Bankruptcy Court for the Northern District of
Georgia, Atlanta Division (the "Court"). On August 18, 1997, the Court confirmed
a reorganization plan. As part of the Company's reorganization, the Company sold
16,666,666 shares of its $.0004 par value common stock for $0.15 per share
pursuant to a private placement memorandum dated March 17, 1997 (the "1997
Private Placement") which shares are being sold hereunder. The Company also
issued 7,592,650 shares of its common stock, in the aggregate, to certain
creditors as part of the reorganization.
THE REGISTERED OFFERING
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Common Stock offered by the Registering Stockholders..................... 16,666,666 shares
Common Stock to be outstanding after the Registered Offering............. 34,785,611 shares(1)
Use of Proceeds.......................................................... The Company will not receive any
proceeds from the sale of
Common Stock by the
Registering Stockholders
in the Registered
Offering. See "Use of
Proceeds."
Over the counter symbol.................................................. "TAPI"
</TABLE>
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(1) Does not include 1,350,000 shares of Common Stock reserved for issuance
upon exercise of options to be granted pursuant to the Company's 1992
Stock Option Plan (as defined). See "MANAGEMENT--Executive
Compensation."
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SUMMARY CONSOLIDATED HISTORICAL
FINANCIAL INFORMATION OF THE COMPANY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for, and as of the end of,
each of the years in the three-year period ended July 31, 1997 are derived from
the Company's Consolidated Financial Statements, which have been audited by
Dudley, Hopton-Jones, Sims & Freeman PLLP, independent certified public
accountants. The selected consolidated financial data for, and as of the end of,
each of the years in the two-year period ended July 31, 1994 are derived from
the Company's Consolidated Financial Statements not included in this Prospectus.
The selected consolidated financial data for the three-months ended October 31,
1997 and 1996 are derived from the unaudited consolidated financial statements
of the Company which, in the opinion of the Company, reflect all adjustments
necessary for a fair presentation of the results for the unaudited periods.
Operating results for the three-month period ending October 31, 1997 are not
necessarily indicative of the results that may be achieved for the fiscal year
ending July 31, 1998. The historical consolidated financial results for the
Company are not comparable from year to year because of the reorganization costs
and loss on disposal of assets during 1997, 1996 and 1995. The selected
financial data should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto, and with Management's Discussion and
Analysis of Financial Condition and Results of Operations also set forth
elsewhere herein.
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL INFORMATION OF THE COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA
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<CAPTION>
Years Ended July 31, Three Months Ended October 31,
----------------------------------------------------------------------- ------------------------------
1997 1996 1995 1994 1993 1997 1996
---- ---- ---- ---- ---- ---- ----
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STATEMENT OF
OPERATIONS DATA:
Sales $ 3,626,092 $ 1,305,499 $ 2,565,544 $ 4,315,060 $ 6,823,721 $ 1,249,830 $ 1,561,874
Cost of sales 2,477,302 1,146,717 1,757,793 2,850,422 3,607,182 833,544 1,107,393
Operating expenses:
Administrative 1,998,245 3,473,581 3,656,532 3,730,194 2,927,558 647,420 340,913
Research and development 10,384 23,473 2,405,438 3,529,906 549,660 -- --
Net income (loss) 316,375 (4,478,096) (6,053,175) (5,840,945) 24,961 (201,409) 78,052
Net income (loss) per share .03 (.49) (.69) (.76) -- (.01) .01
Extraordinary item -- .04 -- -- -- -- --
Shares used in computing
per share amounts 10,526,295 10,012,390 8,761,117 7,726,018 7,756,556 22,137,394 10,012,390
<CAPTION>
As of July 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
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BALANCE SHEET DATA:
Working capital
(deficiency) $ 758,111 $ 1,084,487 $ (907,020) $ 2,649,245 $ 8,570,445 2,466,798 1,378,587
Total Assets 5,267,780 4,016,538 9,655,907 10,982,246 14,733,746 5,935,075 4,326,966
Long-term debt 744 5,060 14,001 1,291,320 50,433 744 4,752
Accumulated deficit (21,918,100) (22,234,475) (17,756,379) (11,703,107) (5,862,162) (22,119,508) (22,156,423)
Stockholders' equity 972,449 656,074 4,839,170 7,653,669 13,332,499 3,271,039 734,126
</TABLE>
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing any of the shares of Common Stock offered
hereby. The Company cautions the reader that this list of risk factors may not
be exhaustive.
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Certain statements in
this Prospectus that are not historical fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Discussions containing such forward-looking statements may be found in
the material set forth under "Summary," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as within the Prospectus generally. In addition, when used
in the Prospectus the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to a number of risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth below and the matters set forth in the Prospectus
generally. The Company undertakes no obligation to publicly release the result
of any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
An investment in the Shares of common stock of the Company offered
hereby involves a substantial degree of risk, and a decision to invest in the
Company through the purchase of its common stock should be made only after a
careful consideration of the risk factors set forth herein. In particular, but
without limitation, persons considering an investment in the Company's Shares
should consider the following:
DEPENDENCE UPON MARKET ACCEPTANCE OF COMPANY PRODUCTS. To date, the
Company has sold 25 CYP machines. The Company's ability to market its CYP
machines successfully will depend upon the willingness of potential customers to
incur substantial purchase costs. Most of the Company's potential customers
already have tufting and/or some form of patterned textile manufacturing
capabilities and may be reluctant to replace or significantly modify their
existing systems. In addition, there can be no assurance that any new products
or technologies developed or acquired by the Company will be accepted by the
textile industry. The Company currently has limited marketing capabilities and
will need to hire additional sales and marketing personnel. There can be no
assurance that any sales and marketing efforts undertaken by the Company will be
successful. See "Business - Sales, Marketing and Servicing."
ESTABLISHMENT OF MANUFACTURING OPERATIONS; RISKS RELATING TO GROWTH AND
EXPANSION. There can be no assurance that the Company's efforts to expand its
manufacturing capabilities will not exceed estimated costs or take longer than
expected or that other unanticipated problems will not arise which will
materially adversely affect the Company's business and prospects. There can be
no assurance that sufficient funds for such purpose will be available to the
Company on acceptable terms. The inability to meet any increased demand for CYP
machines on a timely basis could adversely affect the Company's reputation and
prospects. The Company has also allocated a portion of the proceeds of this
offering to expand sales, marketing and servicing activities. To the extent
these sales and marketing activities are successful in generating sales, the
Company's success will be contingent on its ability to expand its manufacturing
capacity and to provide training, maintenance and other support services for its
customers. Rapid growth may significantly strain the Company's management,
operational and technical resources. Further, many of the expenses arising from
the Company activities to increase sales and support growth will have a negative
impact on operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business - Manufacturing -
Sales, Marketing and Servicing."
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NEED FOR ADDITIONAL FINANCING. Despite the proceeds from the 1997
Private Placement, the Company recently needed additional short-term financing
to enable it to fund its operations for the next 6 months. Following this 6
month period, the Company intends to use cash flow from operations to meet its
working capital needs. However, there can be no assurance that the Company will
have sufficient revenues after 6 months from the consummation of this offering
and additional short-term financing to fund its operating requirements. In such
event, the Company would seek additional financing through bank borrowings, debt
or equity financings or otherwise. There can be no assurance that any such
sources will be available to the Company on acceptable terms, if at all. If
adequate funds are not available from operations or other sources, the Company's
business will be materially adversely affected. If additional funds are raised
by issuing equity securities, further dilution to the then existing stockholders
will result. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON SUPPLIERS. The Company is dependent on various suppliers
for the components of the CYP machines. Although the Company believes that there
are a number of alternative sources for most of these components, certain
components are obtained from a single supplier or a limited number of suppliers.
The loss of any significant supplier, in the absence of a timely and
satisfactory alternative arrangement, could materially adversely affect the
Company. In addition, the Company does not have long-term or volume purchase
agreements with its suppliers, and therefore there can be no assurance that
materials and components needed by the Company will be available in sufficient
quantities, if at all, or that the Company will not be adversely affected by
delays in delivery or in inability to obtain products from suppliers. See
"Business - Suppliers."
COMPETITION. The textile manufacturing equipment industry is intensely
competitive. Among the Company's competitors are two major worldwide suppliers
of weaving looms as well as other national and regional firms engaged in the
design, development and marketing of equipment for producing pattered, fiber
floor coverings. Substantially all of such entities have greater financial,
manufacturing, research and development, marketing, service and support, and
other resources than the Company. There can be no assurance the Company will be
able to compete successfully in the industry in the future, that the Company
will be able to make technological advances necessary to maintain its
competitive position, or that its new products will receive market acceptance.
See "Business - Competition."
POSSIBLE TECHNOLOGICAL OBSOLESCENCE. Although the Company knows of no
developments by others which would increase the likelihood of its CYP machine
technology being rendered technologically obsolete, the Company's CYP machines
may be rendered obsolete by future developments in the textile industry. There
can be no assurance that the Company can achieve similar technological advances.
The failure to achieve these advances could have a material adverse effect on
the Company's business, financial condition and results of operation. See
"Business - Development and Acquisitions."
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company has three
United States patents and 10 foreign patents and has filed additional patent
applications for the United States and 16 foreign countries, all generally
covering the Company's CYP machine technology. The Company believes patents and
proprietary rights have been and will continue to be important in enabling the
Company to compete. However, there is no assurance that the Company's patents
will not be challenged or circumvented or will provide the Company with any
competitive advantages or that any pending patent applications will be issued.
Failure to obtain patents in certain foreign countries may materially adversely
affect the Company's ability to compete effectively in certain international
markets. The Company is undertaking to have its proprietary software
copyrighted. There can be no assurance that any copyright obtained will not be
circumvented or challenged. The Company also relies on trade secrets that it
seeks to protect, in part, through confidentiality agreements with employees and
other parties. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach
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or that the Company's trade secrets will not otherwise become known to or
independently developed by competitors. The Company may be involved from time to
time in litigation to determine the enforceability, scope and validity of
proprietary rights. Any such litigation could result in substantial cost to the
Company and diversion of effort by the Company's management and technical
personnel. See "Business - Patents and Proprietary Rights."
RISK OF FOREIGN SALES. The Company's strategy includes marketing its
products in foreign countries. Although to date the Company has had only limited
sales and has incurred losses from operations, it is expected that a significant
portion of the Company's future sales will be made to entities located in
foreign countries. Accordingly, the Company's business is subject to many of the
risks of international operations, including tariff restrictions, foreign
currency fluctuations and currency control regulations.
See "Business - Sales, Marketing and Servicing."
DEPENDENCE UPON KEY PERSONNEL. The Company is substantially dependent
upon the services of its President and Chief Executive Officer, J. Darwin Poe,
and its Vice President of International Sales/Services, Kim Amos. The loss of
the services of any one of these individuals could have a material adverse
effect on the Company, its operations and its business prospects. The Company's
success is also dependent upon its ability to attract and maintain qualified
development, acquisition, marketing, management, administrative and sales
personnel for which there is keen competition among the Company's competitors.
In addition, the cost of retaining such key personnel could escalate over time.
There can be no assurance that the Company will be successful in attracting
and/or retaining such personnel.
ANTI-TAKEOVER DEVICES. The Company has implemented certain measures
which may serve to prevent hostile takeovers. The Company's Articles of
Incorporation authorizes the issuance of "blank check" preferred stock and
accordingly, the Board of Directors will be empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of Common Stock. In addition, the Board of Directors is
divided into three classes which serve for staggered three-year terms. The
existence of a staggered board, as well as the issuance of preferred stock,
could discourage, delay or prevent a change in control of the Company and could
make it less likely that stockholders would receive a premium for their shares
as a result of any such attempt.
NO ASSURANCE OF PUBLIC MARKET FOR SECURITIES. Prior to this offering
there has been no public market for the Securities. Although the Securities are
quoted on the OTCBB system, there can be no assurance that the Company will be
able to maintain such quotation or that a significant public market will develop
or be sustained.
CHAPTER 11 BANKRUPTCY. The Company filed a Voluntary Petition for a
Chapter 11 Bankruptcy on June 21, 1996. The original Plan of Reorganization of
Tapistron International, Inc. was filed with the Court on November 21, 1996 (the
"Plan"). An Amended and Restated Plan of Reorganization of Tapistron
International, Inc. was filed with the Bankruptcy Court on March 14, 1997 (the
"Amended Plan") and confirmed on August 18, 1997. The Amended Plan, as confirmed
by the Bankruptcy Court, is included herein as Exhibit 2.1.
TRADING MARKET FOR THE COMPANY'S STOCK. There is a limited public
trading market for Shares of the Company's stock. The Company's common stock and
certain redeemable warrants were originally listed on NASDAQ. The Company
consented to the delisting of its warrants from the NASDAQ effective August 20,
1996 due to the lack of any significant trading activity in the warrants and
because there were no market makers for the warrants as required by NASDAQ
rules. NASDAQ subsequently deleted the
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Company from the NASDAQ Stock Market effective August 29, 1996. The Company's
common stock continues to be traded as on the OTCBB system as a bulletin board
stock.
DIVIDEND POLICY. The Company has not paid any dividends on its common
stock in the preceding five years. The Company currently intends to retain
future earnings to finance its operations. Any payment of future dividends will
be at the discretion of the Company's Board of Directors. The Company does not
anticipate paying any dividends in the foreseeable future. The ability to pay
dividends may be limited under the Georgia Business Corporation Code. Further,
the Company may be subject to restrictions under the covenants of debt
instruments or other agreements to which the Company is or may become bound,
restricting its ability to pay dividends.
LIQUIDITY. As a result of significant operation losses and costs
incurred to restructure operations, the Company has limited cash resources
available to maintain its existing operations. In addition, sales, customer
deposits for machinery orders and existing cash reserves will fund short-term
liquidity needs of the Company. There is no assurance these sources will provide
the necessary liquidity to permit operations.
BUSINESS OF THE COMPANY FOLLOWING REORGANIZATION. The Company operates
and plans to operate in highly competitive markets, competing with other
companies having considerably greater financial, technical and marketing
resources. The carpet industry is undergoing, and is expected to continue to
undergo, rapid and significant technological change. The Company expects
competition to intensify as technical advances in the field are made and become
more widely known. There can be no assurance that developments by its
competitors will not render the Company's products or technology obsolete or
non-competitive.
The Company's ability to compete with other companies will depend in
part on maintaining the proprietary nature of its technologies. Since the
Company relies in part upon unpatented proprietary and trade secret technology,
no assurance can be given that other will not independently develop
substantially equivalent technology or otherwise gain access to the Company's
trade secrets or proprietary information. The Company also has been granted
certain patents and has applied for foreign registration of patents relating to
its technology and products. There can be no assurance that the patents for
which the Company has applied will be issued or that any issued patents will
provide adequate protection for the Company's products and processes or be of
commercial benefit to the Company. In the absence of such patented protection,
the Company may be vulnerable to competitors imitating its development and
manufacturing techniques and processes. Moreover, since the Company's machines
are marketed internationally, there is the risk its technology could be
exploited in a country where effective patent protection is unavailable or has
not been obtained.
The Company's capital requirements and expenditures will vary as a
result of the progress and success of its product development efforts. The
expansion of its marketing efforts and the timing of the increase, if any, of
its product sales revenues. Funding to date has been provided primarily through
private credit facilities in addition to the proceeds of the Company's initial
public offering. If the Company needs to raise additional capital, no assurance
can be given that funding will be available on favorable terms, if at all. The
Company has had limited success in obtaining customer deposits to fund the
substantial start-up costs for manufacture of CYP machines, and there can be no
assurance that funding from customer deposits will continue.
An inherent risk of the Company's business is exposure to product
liability claims brought by users of its products or others. While the Company
will continue to attempt to take appropriate precautions, there can be no
assurance that it will avoid significant product liability exposures. The
11
<PAGE> 12
Company currently has limited liability insurance. There can be no assurance
that it will be able to retain its existing coverage or that such coverage will
be adequate or cost-justified.
The Company's current and future products for sale in the international
trade are subject to potential tariffs and import/export restrictions. In
addition, from time to time, governmental authorities review the need for
additional laws and regulations for international trade that could, if adopted,
apply to the business of the Company. The Company is unable to predict whether
any such new regulations will be adopted or whether, if adopted, such
regulations will adversely affect its business. (See the Amended and Restated
Plan of Reorganization included herein as Appendix B).
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of substantial amounts of
Common Stock, or the potential for such sales, could adversely affect prevailing
market prices. The shares of Common Stock issued in the 1997 Private Placement
are subject to the limitations of Rule 144 of the Securities Act ("Rule 144").
The holders of the shares issued in the 1997 Private Placement have been granted
certain registration rights pursuant to which the Company has agreed to file the
shelf registration statement of which this Prospectus is a part with the
Commission for the purpose of registering the sale of such shares of Common
Stock. Sales of substantial amounts of the Company's Common Stock pursuant to
this Prospectus could adversely affect prevailing market prices.
As of the date of this Prospectus, there were 1,350,000 shares of
Common Stock reserved for issuance upon exercise of options to be granted to
executive officers, other key employees, independent directors and independent
contractors of the Company under the 1992 Stock Option Plan.
USE OF PROCEEDS
The Company will not receive any of the proceeds of the sale of Common
Stock by the Registering Stockholders. In connection with the filing of the
shelf registration of which this Prospectus is a part, the Company will bear the
estimated expenses set forth on the cover of this Prospectus.
COMMON STOCK PRICE RANGE
On June 24, 1992, the Securities and Exchange Commission declared
effective the Company's Registration Statement with respect to an initial public
offering of 2,250,000 shares of Common Stock and 2,637,500 Redeemable Warrants
(including 337,500 Redeemable Warrants exercised under the Underwriter's over
allotment option). The Company consented to the de-listing of its warrants from
the NASDAQ Stock Market effective as of August 20, 1996 due to the lack of any
significant trading activity in the warrants and because there were no market
makers for the warrants as required by NASDAQ rules. NASDAQ deleted the Company
from the NASDAQ Stock Market effective August 29, 1996, as a result of the
Company's non-compliance with the quantitative maintenance criteria for
continued listing on the NASDAQ Stock Market. The Company's stock will continue
to be traded as an OTCBB stock. The Common Stock and the Redeemable Warrants
were listed on NASDAQ under the symbols TAPI and TAPIW, respectively.
The following tables set forth, for the periods indicated, the high and
low bid prices for the Company's Common Stock and Redeemable Warrants as
reported by the NASDAQ system (or the OTCBB system, as the case may be). Prices
represent actual transactions, but do not reflect adjustments for retail
markups, markdowns or commissions.
12
<PAGE> 13
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Common Stock
1995: First Quarter (August 1, 1994 - October 31, 1994) $4 1/2 $2 13/32
Second Quarter (November 1, 1994 - January 31, 1995) 3 7/8 2 1/4
Third Quarter (February 1, 1995 - April 30, 1995) 3 1/4 1 7/16
Fourth Quarter (May 1, 1995 - July 31, 1995) 2 1/8 5/8
1996: First Quarter (August 1, 1995 - October 31, 1995) 1 3/8 13/16
Second Quarter (November 1, 1995 - January 31, 1996) 1 1/16 1/4
Third Quarter (February 1, 1996 - April 30, 1996) 25/32 3/8
Fourth Quarter (May 1, 1996 - July 31, 1996) 5/8 1/4
1997: First Quarter (August 1, 1996 - October 31, 1996)* 9/32 1/100
Second Quarter (November 1, 1996 - January 31, 1997)* 3/8 1/100
Third Quarter (February 1, 1997 - April 30, 1997)* 5/8 1/8
Fourth Quarter (May 1, 1997 - July 31, 1997)* 3/8 1/8
1998: First Quarter (August 1, 1997 - October 31, 1997)* 5/8 9/32
Second Quarter (November 1, 1997 - January 31, 1998)* 13/32 7/32
Redeemable Warrants
1995: First Quarter (August 1, 1994 - October 31, 1994) 11/16 3/8
Second Quarter (November 1, 1994 - January 31, 1995) 1/2 1/4
Third Quarter (February 1, 1995 - April 30, 1995) 3/8 3/32
Fourth Quarter (May 1, 1995 - July 31, 1995) 1/4 3/32
1996: First Quarter (August 1, 1995 - October 31, 1995) 3/16 3/16
Second Quarter (November 1, 1995 - January 31, 1996) 3/16 3/16
Third Quarter (February 1, 1996 - April 30, 1996) 3/16 3/16
Fourth Quarter (May 1, 1996 - July 31, 1996) 3/16 3/16
1997: First Quarter (August 1, 1996 - October 31, 1996)* N/A N/A
Second Quarter (November 1, 1996 - January 31, 1997)* N/A N/A
Third Quarter (February 1, 1997 - April 30, 1997)* N/A N/A
Fourth Quarter (May 1, 1997 - July 31, 1997)* 1/100 1/100
1998: First Quarter (August 1, 1997 - October 31, 1997)*
Second Quarter (November 1, 1997 - January 31, 1998)* 1/8 4/100
5/64 3/100
</TABLE>
* The high and low bid prices for the Company's Common Stock and
Redeemable Warrants as reported by the OTCBB system.
At December 31, 1997, there were approximately 500 shareholders of
record, and as of that date, the Company estimates there were approximately
1,500 beneficial owners holding stock in nominee or "street" name. The Company
has not paid any cash dividends and does not anticipate paying any cash
dividends in the foreseeable future.
13
<PAGE> 14
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
capital stock. Any payment of future dividends will be at the discretion of the
Board of Directors of the Company and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect of the payment of dividends
and other factors that the Company's Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of the
Company as of October 31, 1997. The shares of common stock which may be
offered in connection with the Registered Offering are held by certain
shareholders of the Company. The Company will not receive any of the proceeds
from the sale of any shares offered hereby. The Registering Stockholders
received such shares of common stock in a private placement transaction.
Therefore, the capitalization of the Company will not be affected by the
Registered Offering.
<TABLE>
<CAPTION>
October 31, 1997
----------------
Historical
----------
<S> <C>
LIABILITIES SUBJECT TO SETTLEMENT UNDER
REORGANIZATION PROCEEDINGS $ 1,915,041
------------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value - 2,000,000 shares
authorized; no shares issued and outstanding --
Common stock - $.0004 par value - 100,000,000
shares authorized; 27,248,479 issued 10,899
Additional paid-in capital 25,392,441
Accumulated deficit (22,119,509)
Treasury stock - 55,518 shares outstanding, at cost ( 12,792)
------------
Total stockholders' equity 3,271,039
------------
TOTAL CAPITALIZATION $ 5,186,080
============
</TABLE>
14
<PAGE> 15
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL INFORMATION OF THE COMPANY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for, and as of the end of,
each of the years in the three-year period ended July 31, 1997 are derived from
the Company's Consolidated Financial Statements, which have been audited by
Dudley, Hopton-Jones, Sims & Freeman PLLP, independent certified public
accountants. The selected consolidated financial data for, and as of the end of,
each of the years in the two-year period ended July 31, 1994 are derived from
the Company's Consolidated Financial Statements not included in this Prospectus.
The selected consolidated financial data for the three-months ended October 31,
1997 and 1996 are derived from the unaudited consolidated financial statements
of the Company which, in the opinion of the Company, reflect all adjustments
necessary for a fair presentation of the results for the unaudited periods.
Operating results for the three-month period ending October 31, 1997 are not
necessarily indicative of the results that may be achieved for the fiscal year
ending July 31, 1998. The historical consolidated financial results for the
Company are not comparable from year to year because of the reorganization costs
and loss on disposal of assets during 1997, 1996 and 1995. The selected
financial data should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto, and with Management's Discussion and
Analysis of Financial Condition and Results of Operations also set forth
elsewhere herein.
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL INFORMATION OF THE COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended July 31, Three Months Ended October 31,
--------------------------------------------------------------------------- ------------------------------
1997 1996 1995 1994 1993 1997 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Sales $ 3,626,092 $ 1,305,499 $ 2,565,544 $ 4,315,060 $ 6,823,721 $ 1,249,830 $ 1,561,874
Cost of sales 2,477,302 1,146,717 1,757,793 2,850,422 3,607,182 833,544 1,107,393
Operating expenses:
Administrative 1,998,245 3,473,581 3,656,532 3,730,194 2,927,558 647,420 340,913
Research and
development 10,384 23,473 2,405,438 3,529,906 549,660 -- --
Net income (loss) 316,375 (4,478,096) (6,053,175) (5,840,945) 24,961 (201,409) 78,052
Net income (loss)
per share .03 (.49) (.69) (.76) -- (.01) .01
Extraordinary item -- .04 -- -- -- -- --
Shares used in
computing per
share amounts 10,526,295 10,012,390 8,761,117 7,726,018 7,756,556 22,137,394 10,012,390
<CAPTION>
As of July 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) $ 758,111 $ 1,084,487 $ (907,020) $ 2,649,245 $ 8,570,445 2,466,798 1,378,587
Total Assets 5,267,780 4,016,538 9,655,907 10,982,246 14,733,746 5,935,075 4,326,966
Long-term debt 744 5,060 14,001 1,291,320 50,433 744 4,752
Accumulated deficit (21,918,100) (22,234,475) (17,756,379) (11,703,107) (5,862,162) (22,119,508) (22,156,423)
Stockholders' equity 972,449 656,074 4,839,170 7,653,669 13,332,499 3,271,039 734,126
</TABLE>
15
<PAGE> 16
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL INFORMATION OF THE COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended July 31, Three Months Ended October 31,
--------------------------------------------------------------------------- ------------------------------
1997 1996 1995 1994 1993 1997 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Sales $ 3,626,092 $ 1,305,499 $ 2,565,544 $ 4,315,060 $ 6,823,721 $ 1,249,830 $ 1,561,874
Cost of sales 2,477,302 1,146,717 1,757,793 2,850,422 3,607,182 833,544 1,107,393
Operating expenses:
Administrative 1,998,245 3,473,581 3,656,532 3,730,194 2,927,558 647,420 340,913
Research and
development 10,384 23,473 2,405,438 3,529,906 549,660 -- --
Net income (loss) 316,375 (4,478,096) (6,053,175) (5,840,945) 24,961 (201,409) 78,052
Net income (loss)
per share .03 (.49) (.69) (.76) -- (.01) .01
Extraordinary item -- .04 -- -- -- -- --
Shares used in
computing per
share amounts 10,526,295 10,012,390 8,761,117 7,726,018 7,756,556 22,137,394 10,012,390
<CAPTION>
As of July 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) $ 758,111 $ 1,084,487 $ (907,020) $ 2,649,245 $ 8,570,445 2,466,798 1,378,587
Total Assets 5,267,780 4,016,538 9,655,907 10,982,246 14,733,746 5,935,075 4,326,966
Long-term debt 744 5,060 14,001 1,291,320 50,433 744 4,752
Accumulated deficit (21,918,100) (22,234,475) (17,756,379) (11,703,107) (5,862,162) (22,119,508) (22,156,423)
Stockholders' equity 972,449 656,074 4,839,170 7,653,669 13,332,499 3,271,039 734,126
</TABLE>
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Risk Factors."
OVERVIEW
The Company manufactures and sells machines for producing tufted carpets
and rugs in patterns, colors and textures. The Company's market line, sold both
domestically and in international markets, generally includes two basic products
based upon size. The Company derives its revenue from three principal sources:
machine sales; replacement parts; and maintenance and service fees. Principal
recurring expenses include administrative expenses and research and development
costs.
RESULTS OF OPERATIONS
Years Ended July 31, 1997 and July 31, 1996
Revenues for the year ended July 31, 1997 ("Fiscal 1997") were $3,626,092
as compared to revenues of $1,305,499 for the year ended July 31, 1996 ("Fiscal
1996"). The increase in revenues is primarily due to the increase in the number
of machines sold for the year. Management believes the increase in machines sold
is a result of an increased interest in the patterned carpet industry, improved
operating efficiencies and continuing enhancements in machine technology.
Cost of sales for July 31, 1997 were $2,477,302 as compared to $1,146,717
for July 31, 1996. The increase in cost of sales is due to increased machine
revenues. The cost of sales as a percentage of sales decreased to approximately
68% in Fiscal 1997 from 88% in Fiscal 1996. This decrease is the direct result
of the increase in the number of machines sold.
Operating expenses consist of administrative expenses and research and
development expenses. Administrative expenses decreased from $3,473,581 in
Fiscal 1996 to $1,998,245 in Fiscal 1997, a decrease of approximately 42%. This
decrease reflects the allowances related to obsolete inventory and bad debt
expense recognized in Fiscal 1996. The remainder of the decrease relates to a
reduction of legal and other professional fees totaling $499,000. Management
anticipates operating expenses to increase in the future as they expand the
international marketing plan. Furthermore, the Company expects to spend more on
research and development to provide customers with the most current technologies
available.
Legal, accounting, and other professional fees in connection with
reorganization proceedings totaled $793,631. Interest expense decreased to
$30,269 in Fiscal 1997 from $314,611 in Fiscal 1996. The decrease was a result
of being able to operate under court protection which allowed no interest to
accrue on prior debt.
Years Ended July 31, 1996 and July 31, 1995
Revenues for the year ended July 31, 1996 ("Fiscal 1996") were $1,305,499
as compared to revenues of $2,565,544 for the year ended July 31, 1995
("Fiscal 1995") resulting from the sale of one CYP machines in Fiscal 1996 as
compared to two CYP machines in Fiscal 1995. The decrease was primarily due to
the fact that potential customers delayed placing orders due to the perception
that the Company did not have sufficient cash to support operations and
technical support of the CYP machines. Cost of sales decreased to $1,146,717 in
Fiscal 1996 from $1,757,793 in Fiscal 1995 as a result of the decrease in the
16
<PAGE> 18
number of machines sold. Cost of sales as a percentage of sales increased to
approximately 88% in Fiscal 1996 from 68% in Fiscal 1995. This increase is the
result of CYP machines being sold at a lower margin in order to generate cash.
Operating expenses consist of administrative expenses and research and
development expenses. Administrative expenses decreased to $3,473,581 in Fiscal
1996 from $3,656,532 in Fiscal 1995, a decrease of approximately 5%.
Material changes in administrative expense include a decrease in salary
expense of $447,798 due to a reduction in the work force. Consulting expense
decreased $307,371 due to a contract cancellation by the Company. Other
professional fees increased $333,077 due to expense of Chapter 11 filing. Also
included in the administrative expenses is a $500,000 allowance for
noncollectible long-term receivable related to machine sales. Also included in
the administrative expenses of Fiscal 1996 and 1995 is a $547,441 and $474, 215
allowance for obsolete raw materials inventory which resulted primarily from
enhancements to the existing CYP machine technology as well as the
discontinuation of the new model CYP machine. The Company has implemented
several cost control measures designed to maintain administrative expenses at an
acceptable level. The cost control measures include a reduction in the work
force and cross training of employees. Expenses such as telephone expense,
health insurance and building maintenance will be reduced due to overall
down-sizing and changing to a scaled down version of the former contracts.
Research and development expenses decreased to $23,473 in Fiscal 1996
from $2,405,438 in Fiscal 1995, a 99% decrease. This decrease reflects the
Company's substantially decreased development activities relating to the new
model of the CYP machine, the enhancement of the existing CYP machine and the
discontinuation of the dye processes.
Interest expense increased to $314,611 in Fiscal 1996 from $248,594 in
Fiscal 1995, a 27% increase. This increase is the result of the Company securing
additional short-term financing during Fiscal 1996 which totaled approximately
$1,351,000. Interest income decreased to $26,292 in Fiscal 1996 from $42,529 in
Fiscal 1995.
Loss on disposal of assets increased to $1,022,505 in Fiscal 1996 from
$592,891 in Fiscal 1995, a 72% increase. This increase is the result of sale of
the main production facility building and another facility at a different
location.
The results of the forgiveness of debt by two creditors, one for
accounting services and the other for research and development consulting,
totaling $420,150 equals the reported extraordinary item. Reorganization items
totaling $249,150 are entirely comprised of attorneys' fees paid to two law
firms.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1997, the Company had working capital of $758,111, a
$326,376 decrease from July 31, 1996. This decrease is primarily a result of the
Company's reduction in inventory. As of July 31, 1997, the Company had total
cash of $27,946, up from $17,149 at July 31, 1996. Cash provided by operations
was $446,248 in 1997 compared to cash used in operations of $1,001,970 and
$3,608,283 in 1996 and 1995, respectively. Investing activities used $26,756 in
cash during 1997, compared to cash provided of $2,173,085 in 1996, and cash
consumed of $564,755 in 1995. The proceeds from the sale-leaseback of the
Company's main facility provided $1,900,000 of investing proceeds in 1996. The
Company used $408,695 for financing activities in 1997 compared to $1,253,392 in
1996. Cash provided by financing in 1995 was $3,559,751. Financing activities
for 1997 included $1,008,665 of principal
17
<PAGE> 19
payments on debt and $599,970 proceeds from issuance of debt. Financing
activities for 1996 included $2,372,678 of principal payments on debt subject to
settlement under a plan of reorganization; and $1,210,495 proceeds from issuance
of debt.
At July 31, 1997, the Company had $22.8 million of net operating losses
available to offset future taxable income for federal and state income tax
purposes. The loss carryforwards expire in various years through 2010.
Realization of deferred tax assets associated with the net operating loss
carryforwards and reversals of the temporary differences is dependent upon
generating sufficient taxable income prior to expiration of the NOL
carryforwards. Even though the Company has incurred tax losses for seven of the
past nine fiscal years, management believes that it is more likely than not it
will generate taxable income sufficient to realize a portion of the tax benefit
associated with future deductible temporary differences and NOL carryforwards
prior to their expiration. This belief is based upon, among other factors,
changes in operations that have occurred during the last two years.
Specifically, cost savings by bringing research and development in house and by
better usage of just-in-time inventory control. The Company has assessed the
trends regarding patterned carpet and with consideration of its current
marketing strategies, anticipates a continued improvement in operating results.
Management believes that a valuation allowance is appropriate given the current
estimates of future taxable income. If the Company is unable to generate
sufficient taxable income in the future through operating results, an increase
in the valuation allowance will be required through a charge to expense.
However, if the Company achieves sufficient profitability to utilize a greater
portion of the deferred tax asset, the valuation allowance will be reduced
through a credit to income.
On June 21, 1996, the Company filed a voluntary petition for protection
under Chapter 11 of the Federal bankruptcy code. The Company was allowed to
continue to operate under the supervision of the bankruptcy court and was given
a limited amount of time free from creditors' collection efforts in order to
restructure its finances. The Company's Amended Plan was filed on March 14, 1997
in the U.S. Bankruptcy Court Northern District, Atlanta Division. On March 28,
1997, the Company filed the Debtors Amended and Restated Disclosure Statement.
As a subsequent event, the Company's Amended Plan provided that the
Company would do a private placement for $2,500,000. As of August 6, 1997, the
private placement was completed. As a result, the bankruptcy court confirmed the
Amended Plan on August 18, 1997, the Amended Plan became effective as of August
29, 1997.
Quarters Ended October 31, 1997 and October 31, 1996
Revenues for the three months ended October 31, 1997 ("Quarter 1997")
were $1,249,830 as compared to revenues of $1,561,874 for the three months ended
October 31, 1996 ("Quarter 1996"). The decrease in revenues is due to the
cyclical nature of the business.
Cost of sales for the three months ended October 31, 1997 were $833,544
as compared to $1,107,393 for October 31, 1996. Cost of sales as a percentage of
sales decreased to 66.7% for Quarter 1997 from 70.9% for Quarter 1996. The
decrease in cost of sales is a result of the Company's continuing efforts to
reduce and contain costs in the manufacture of CYP machines.
Operating expenses consist of administrative expenses and research and
development expenses. Administrative expenses increased from $340,913 in Quarter
1996 to $647,420 in Quarter 1997, an 89.9% increase. This increase reflects the
Company expanding its sales and marketing efforts, as well as an increase in
research and development expenses for the CYP machine.
18
<PAGE> 20
Interest expense decreased to $0 in Quarter 1997 from $35,518 in Quarter
1996. Interest income increased to $29,725 for the Quarter 1997 from $2 for the
Quarter 1996 as the Company invested the proceeds of the 1997 Private Placement.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1997, the Company had working capital of $2,466,798, an
increase of $1,708,687. This increase is primarily a result of the $2,500,000
proceeds the Company received from the 1997 Private Placement. As of October 31,
1997, the Company had total cash of $543,858, up from $27,946 at July 31, 1997
and $537,589 at October 31, 1996. Cash used in operations was $1,962,920 in
Quarter 1997, compared to cash provided by operation of $423,490 in Quarter
1996. The Company reduced its liabilities subject to the Amended Plan by
$605,516, in addition to administrative claims of $279,299. Cash used in
investing activities during Quarter 1997 was $21,168, compared to $2,033 in
Quarter 1996. Cash provided by financing in Quarter 1997 was $2,500,000,
compared to $98,983 in Quarter 1996. Financing activities cash for Quarter 1997
came from the 1997 Private Placement.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets", at July 31, 1997.
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This Statement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
this accounting standard had no effect on the Company's financial statements.
At July 31, 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". This Statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Examples are
stock purchase plans, stock options, restricted stock, and stock appreciation
rights. This Statement also applies to transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. Those
transactions must be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. The adoption of this accounting standard had no effect on
the Company's financial statements.
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings Per Share", which establishes standards for computing
and presenting earnings per share. This Statement simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15. The
adoption of this Statement is required in fiscal year ending July 31, 1998. The
Company anticipates that the impact of adoption will be immaterial.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This Statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The adoption of this Statement is required in fiscal year
ending July 31, 1998. The Company anticipates that the impact of adoption will
be immaterial.
IMPACT OF INFLATION
19
<PAGE> 21
Management does not believe that inflation has a material impact on the
Company's results of operations. Management believes that it is able to reflect
inflationary cost increases in its prices to customers.
BUSINESS
GENERAL
The Company was organized for the purpose of developing or acquiring
proprietary technologies in the textile industry and commercializing such
technologies on a global basis. The Company was incorporated under the laws of
the State of Georgia on February 7, 1986, under the name of Textile Corporation
of America. On July 19, 1986, the Company exchanged shares of common stock for
all of the outstanding stock of Fabrication Center, Inc. ("FCI") in a
transaction accounted for as a pooling of interests. On July 17, 1991, the name
was changed from Textile Corporation of America to Tapistron International, Inc.
On June 2, 1992, the Company amended its Articles of Incorporation (the
"Restated and Amended Articles"). All references to the Company include
Fabrication Center, Inc., its wholly owned subsidiary.
The Company's initial technology has been the development of a
Computerized Yarn Placement ("CYP") machine, for producing tufted carpets and
rugs in highly versatile patterns, colors and textures. The Company believes
that the potential market for its technologically advanced tufting machine lies
with manufacturers that wish to meet the growing demand for patterned products
witnessed in the commercial and residential floor covering markets. Virtually
all existing tufting machines, which produce piled products by inserting tufts
of yarn into a primary backing, are limited in their ability to produce a broad
range of patterned, multi-colored and multi-textured products. Most existing
weaving looms, which create the primary backing in the weaving process, require
an extremely time-consuming and labor intensive process to effect pattern and
color changes. The Company's CYP machine requires only minutes to change
pattern, color, texture and density combinations. Because of its compatibility
with commercially available pattern entry systems, such as those used by many
major textile manufacturers, virtually any hand-drawn, painted, photographed or
scanned image can be reproduced on the finished tufted product. The CYP machine
is not in the same market as, and will not compete with, low end solid color
plain cut pile carpet producing equipment, but is designed to provide an
alternative to current methods of producing patterned products.
The Company filed a voluntary petition for relief under Chapter 11 of
Title 11 of the Code on June 21, 1996 under the jurisdiction of the Court for
the Northern District of Georgia. The Company's Amended Plan was confirmed by
the Court on August 18, 1997. Under the terms of the Amended Plan, Classes 1
through 5 and 8 received payment in full. Class 6 had its Claim satisfied by
issuance of Debtor's common stock. Class 7, unsecured creditors, were paid in
full, unless they voluntarily agreed to accept a lesser sum, through a
combination of stock and cash in satisfaction of their Allowed Claims or to the
extent that they receive payment as a Convenience Claim on the Distribution
Date. The Debtor's shareholders retained their interests subject to dilution for
the Debtor's common stock to be issued pursuant to the Plan. Debtor's option
holders had their options cancelled. As part of the Company's negotiations with
its creditors under the Amended Plan, the Company sold 16,666,666 shares of its
$.0004 par value common stock for $0.15 per share and issued 7,592,650 shares
of its common stock, in the aggregate, to certain creditors. All claim
objections filed by the debtors have been resolved. Therefore, the Amended Plan
has been substantially consummated.
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<PAGE> 22
INDUSTRY
The textile industry is one of the major industrial classifications in
the United States economy. Total annual dollars spent in 1995, based on D.O.C.
office of Textiles and Apparel, was over $86 billion. Many of the individual
segments within the textile industry are themselves considered separate
industries. The existing technologies of the Company focus on the carpet
industry.
Carpet Industry
The domestic carpet industry as we know it today, is a major subset of
the textile industry and dates back to the development of the tufting machine in
the 1950's. While there are a variety of techniques for the production of carpet
and other fabric floor coverings, the dominant means of production today is
machine tufting. Tufting is a process whereby tufts of yarn are inserted into a
sheet of fabric called a primary backing. The tufts, which are closely spaced to
form the pile, are inserted into the backing by vertical, reciprocating needles
similar to those of a conventional sewing machine. Modern tufting machines
consist of one or more rows or "bars" of hundreds of threaded needles across the
width of the machine which insert the tufts as the primary backing is fed
through the machine beneath the needle-bars. The yarn is fed to the needles from
cones of yarn arranged in racks known as a creel. The advantage of machine
tufting is that it produces relatively low-cost, durable carpet in large
production runs when compared with hand tufted and hand and machine woven
products. However, because of mechanical and other limitations associated with
existing tufting technology machinery, tufting offers limited versatility in
pattern style.
During recent years, carpet manufacturers in the United States have
experienced a substantial increase in demand for patterned carpets, particularly
in the commercial carpet market. During 1988, 23% of the carpet styles being
produced in the United States for the commercial market (comprised of broadloom
and modular products) incorporated some sort of pattern. Currently this figure
has risen to approximately 36%. The residential carpet market has also witnessed
an increased demand for patterned styles. Furthermore, industry statistics
reveal that the demand for patterned carpets and rugs are significant in Europe,
the Pacific Rim and other countries throughout the world.
There are currently three principal methods of manufacturing patterned,
machine-made, pile-faced floor coverings. The first method is the traditional
weaving process utilizing either of two basic types of looms: the Axminster,
which traces its origins back to the 1800s, or the Wilton, the dominant weaving
machine used in the United Kingdom and Europe which was first introduced in the
early 1800s. A second method involves printing or dyeing finished carpeting
using either a jet spray technique or flat bed screening. The third method
involves modifications to conventional tufting machinery to produce carpets with
high/low pile and/or geometric patterns. These include (i) single or double
shifting needle bars, which are mechanically controlled devices for producing
geometrics and small pattern repeats, (ii) scroll patterning attachments which
create pattern through high/low pile configurations by varying the speed at
which yarn is fed into each needle and (iii) individual controlled needles
(ICN), a method of creating pattern by "over-tufting" - implanting extra yarn
into a plain, previously tufted carpet. An enhanced version of the ICN
technology, the Colortec, is probably the CYP machine's closest competitor. The
range of patterns capable of being produced by such modifications to
conventional tufting machines is restricted, however, because of mechanical
limitations associated with these technologies. Although the CYP machine is not
in the same market as, and will not compete with, solid color carpet producing
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<PAGE> 23
equipment, the Company believes its CYP machine offers numerous advantages over
existing methods of producing patterned, machine-made, pile-faced floor
coverings in terms of time and cost efficiencies, versatility of pattern, color
and texture and ease of changing design parameters without the disadvantages
associated with conventional methods. Such disadvantages include the limited
pattern flexibility of existing tufting machines and the limited textures or
density characteristics associated with weaving looms, and the large creel loads
of yarn required to make a given pattern.
PRODUCT OVERVIEW
The CYP Machine
The CYP machine is a patented process designed for the manufacture of
patterned tufted floor coverings with greater flexibility than conventional
tufting machines currently on the market. The CYP machine incorporates an
innovative technology for computerized yarn placement, whereby up to six colors
and/or types of yarn per needle are electro-mechanically selected, placed into
position within the machine's unique needle configuration and then injected into
a primary backing as directed by a computer utilizing the Company's proprietary
software. While the CYP machine needle-bar is stationary from side to side, the
primary backing can be shifted laterally as it is fed through the machine,
enabling the machine to produce products with more tufts per square inch
(resulting in greater density) than any other mechanical method currently
available.
The Company believes its CYP machine technology will enable carpet
manufacturers to meet the growing demand for patterned floor coverings by
offering them a means of producing high quality tufted carpeting in patterns.
The Company's proprietary technology provides designers and stylists with almost
complete versatility in styling and construction of tufted fabrics. The CYP
machine, used in conjunction with commercially available pattern entry systems,
enables the user to reproduce almost any scanned image or hand-drawn or painted
pattern and allows the creation of fabrics incorporating yarns with different
textures, luster levels and wear (i.e. gauge and pile) characteristics. In
effect, the designer or stylist has control of both aesthetics and quality in
the creation of the product, particularly in the critical areas of pattern,
color and texture.
A primary advantage of the CYP machine over conventional machine tufting
and weaving methods is the minimal amount of time required to change pattern,
color, texture and construction combinations. Whereas several hours to several
days are required to set up conventional machines to create certain construction
combinations, affecting a construction change with a CYP machine requires only
the touching of a computer screen - approximately a thirty second operation. The
touch screen system controls all of the machine's parameters with the exception
of pile height, which is adjusted manually. Set-up of a CYP machine can be
accomplished in less time than it takes competitive machines to set up. This
characteristic of the CYP machine allows manufacturers to economically undertake
short production runs in order to meet customer needs and specifications. It
also offers a means of supplying salespeople with a wide variety of sample
products to meet the particular interests of potential customers within a matter
of days.
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<PAGE> 24
Patterns in the CYP machine products can be created by using a variety of
yarn systems, including pre-dyed/solution-dyed BCF (bulked continuous filament)
or spun yarn, rather than injecting color onto an already tufted piece of
carpet.
The CYP machine also offers greater textural capabilities than other
existing carpet manufacturing methods. On a CYP machine, different types of yarn
can be placed in a variety of patterns according to the designer's preference.
The resulting carpet contains a textural design which is not easily obtainable
by other methods.
The CYP machine is compatible with a commercially available computerized
pattern entry system. A typical pattern entry system enables a designer to
create designs or patterns efficiently on a computer screen and quickly modify
or rearrange colors or other aspects of the design or pattern. Such pattern
entry systems are widely used in the carpet industry.
MANUFACTURING
CYP Machines
The Company's facilities are located in Ringgold, Georgia. The Company
manufactures two sizes of the CYP machine at its manufacturing facility
completed in July 1993. The manufacturing facility is capable of supporting
manufacturing requirements for the foreseeable future.
SUPPLIERS
The Company purchases the frames for its existing CYP machine from local
tool and die manufacturers which fabricate the frames in accordance with Company
specifications. The Company purchases the motors and other various mechanical
components of the existing CYP machine as custom-made or stock components from
unaffiliated outside suppliers. The Company believes that alternative sources or
substitutes of most of the components for both CYP machines can be developed, if
necessary. To date, the Company has not experienced any delays in delivery of
components. The Company does not expect to maintain large inventories and will
generally order required components as it receives customer orders. Accordingly,
any delay or difficulties in developing such alternatives or substitutes could
result in shipment delays, which would adversely affect the Company's
operations.
SALES, MARKETING AND SERVICING
The CYP Machine
The Company intends to market its CYP machines initially to textile
industry concerns engaged in the manufacture of commercial carpeting and
residential floor coverings. Customers may choose to
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<PAGE> 25
purchase an entire CYP machine system from the Company or only certain
components thereof, obtaining the remaining components (such as the creel, the
compressor, or the pattern entry system) from alternate suppliers. The purchase
price of the CYP machine systems varies based on the configuration chosen.
The Company's ability to market CYP machines successfully will depend
upon the willingness of potential customers to incur substantial cost and expend
the time and effort involved in the development of these products, particularly
because many of such customers may be reluctant to replace or significantly
modify their existing manufacturing methods. The Company offers a limited
warranty on the CYP machine system and provides training, maintenance and
support to customers following the installation of the CYP machine system.
To date, the Company's marketing efforts have been focused primarily
overseas. However, the Company is currently expanding its efforts in the
domestic market, increasingly providing a greater concentration of resources on
the United States. Marketing efforts in the United States are conducted by the
Company's internal marketing personnel. In the international arena, the
Company's marketing personnel are assisted by independent agents throughout the
world who represent Tapistron in their respective countries.
DEVELOPMENT AND ACQUISITIONS
Research and development activities are being conducted by the Company's
in-house engineering staff to provide continual enhancements to the CYP
technology. It is anticipated that these in-house efforts will result in
major improvements during the next few years. Although well underway, it is
premature to discuss the objectives or completion dates.
COMPETITION
The CYP Machine
The Company competes with entities engaged in the design, development and
marketing of equipment for the three existing methods of manufacturing
machine-made, patterned fiber floor coverings. In the area of traditional
weaving, the Company's product competes with Axminster and Wilton type looms,
the dominant manufacturers of which are Crabtree Ltd. of the United Kingdom and
Michel Van De Wiele of Belgium, respectively. In addition, there are other
smaller national and regional firms which manufacture weaving looms. CYP
machines also face competition from jet spray dyeing techniques such as the
Millitron process utilized by Milliken & Company and screen printing
apparatuses. CYP machines also compete with technologies which enhance the
traditional pattern tufting processes, such as shifting needle bars, scroll
patterning attachments, individual controlled needles, and the Colortec machine,
developed and marketed by the major U. S. tufting machine manufacturers,
including Card-Monroe Corporation, Cobble Tufting Machine Company, Inc. and
Tuftco Corporation. All entities with which the Company competes have
substantially greater financial, manufacturing and other resources than the
Company.
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<PAGE> 26
The Company will compete on the basis of pattern, color, texture and
density flexibility afforded by the CYP machine technology. The CYP machine
offers manufacturers a means of economically producing high quality, machine
tufted floor coverings in patterns and colors which to date have been
unavailable or too costly to produce in tufted carpet. The Company believes that
its CYP machines will compete favorably with existing manufacturing methods on
the basis of cost efficiencies for labor, materials and space, rather than
price. CYP machines offer the advantages of (i) smaller creel means reduced
changeover and space requirements; (ii) simple set-up and manipulation of
pattern, color, texture and construction at the machine; (iii) short production
runs and customized strikeoffs can be done more economically than with other
methods; and (iv) more flexibility for the designer. In addition, because of the
minimal time required to change pattern, texture, density and color, the CYP
machines allow for the production of short-run, custom orders to meet customer
specifications.
Competition to Date
In 1992, the Company faced the inherent difficulties of the introduction
of a new product that was competing with traditional technology in an
established industry. Not only did the machine need to be proven to the carpet
industry, but the product from the machine had to be proven in the marketplace.
Initial sales to established companies were promising; however, the year after
its introduction onto the market, when sales should be building, a premature
announcement was made of a revolutionary second generation CYP Machine with
improved production speed - R&D which was eventually discontinued. This
information dramatically decreased the interest of potential buyers in the
current machine and created a substantial obstacle to sales initiatives. The
result of fewer machine sales at such an early period in the machine's history
meant a reduced chance for the machine to be proven as a production machine to
carpet manufacturers, and less CYP product from the machine in the market to
create an interest in the machine and a niche for itself.
Although all of the earlier mentioned technologies compete with the CYP
Machine in the general area of patterned carpet, all are limited by either
pattern capability or by gauge. CYP product is unique. The closest competitor is
another advanced patterned tufting machine, the Colortec machine, which has the
advantages of being based on accepted technology already in the industry and
being manufactured by an established tufting machine manufacturer. Even so, it
also had a much slower start than anticipated. Against even this close
competitor though, the CYP Machine with its variable gauge has an advantage. The
overall flexibility of the CYP Machine makes it ideal for the creation of unique
and distinction products which expand the options of the carpet manufacturer.
PATENTS AND PROPRIETARY RIGHTS
The CYP Machine
The Company has seven United States patents and 10 foreign patents and
anticipates filing additional patent applications, all generally covering the
technology incorporated in the Company's CYP product. The Company believes its
patents and proprietary rights have been and will continue to be important in
enabling the Company to compete with respect to the CYP technology. Failure to
obtain patents in certain foreign countries may materially adversely affect the
Company's ability to compete effectively in certain
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<PAGE> 27
international markets. The Company also relies on trade secrets that it seeks to
protect, in part, through confidentiality agreements with employees and other
parties.
FINANCIAL INFORMATION REGARDING FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
During its last three fiscal years, the Company has generated substantial
revenue from foreign sales. Revenue from foreign sales to unaffiliated customers
totalled $2,584,903 in Fiscal 1997, compared to $105,177 in Fiscal 1996 and
$905,616 in Fiscal 1995. The Company has no identifiable assets specifically
attributable to foreign sales during the periods presented. The Company intends
to expand its marketing efforts to generate additional export sales in future
years. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations."
EMPLOYEES
As of October 31, 1997, the Company had 27 full-time employees and 1
part-time employee. The Company considers its relations with its employees to be
satisfactory.
INSURANCE
The Company carries comprehensive liability, fire, storm, earthquake and
business interruption insurance, with policy specifications, insured limits and
deductibles customarily carried for similar companies which the Company believes
are adequate.
DESCRIPTION OF PROPERTIES
The Company maintains its headquarters in Ringgold, Georgia, where it
leases an aggregate of approximately 50,000 square feet under a lease expiring
in May 2001. The lease presently requires monthly rental payments of $26,250.00
through May 1998, $27,562.50 through May 1999, $28,940.63 through May 2000, and
$30,387.66 through the lease termination date. General and administrative,
manufacturing, marketing, product development and customer support and service
operations are located in this space. The Company believes its facilities are in
good condition and adequate for present needs.
LEGAL PROCEEDINGS
The Company filed a voluntary petition for relief under Chapter 11 of
Title 11 of the Code on June 21, 1996 and operated its business as a
debtor-in-possession under the jurisdiction of the Court. On August 18, 1997 the
Court confirmed the Amended Plan. As part of the Company's negotiations, the
Company sold 16,666,666 shares of its $.0004 par value common stock for $0.15
per share which shares are being sold hereunder. The Company also issued
7,592,650 shares of its common stock, in the aggregate, to certain creditors as
part of the Amended Plan.
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<PAGE> 28
With the exception of the foregoing, the Company is not currently subject
to litigation and claims respecting employment, tort, contract, construction and
commissions, disputes, among others. In the judgment of management, claims
against the Company are likely to have a material adverse effect on the Company
or its business.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of the date of
this Prospectus, concerning each person who is a director or executive officer
of the Company.
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Kim Amos 40 Vice President of International
Sales/Services and Director
Gary L. Coulter 51 Corporate Secretary and Director
Floyd S. Koegler, Jr. 54 Vice President and Chief Financial
Officer
J. Darwin Poe 52 President, Chief Executive Officer
and Vice Chairman of the Board of
Directors
Reg Burnett 63 Chairman of the Board of Directors
Rodney C. Hardeman, Jr. 51 Director
</TABLE>
KIM AMOS has been a Director since February 1996. Since July 1990 Mr.
Amos has been employed by the Company, serving in various capacities within
engineering and operations. He is currently Vice President of International
Sales and Services. Mr. Amos was employed by SWI - Cobble Division, a leading
manufacturer of tufting machinery and peripheral tufting equipment.
GARY L. COULTER, has been a Director since April 1996. He presently
serves as Corporate Secretary. He is also Chairman of the Board and CEO of
Spintek Gaming Technologies, Inc., a publicly-held reporting company, and a
partner of Coulter & Davenport, a law firm. Mr. Coulter's experience includes:
President, COO and Director of Private Biological Corporation, a developer of
biological products and treatments for cancer, from 1994 to 1996; CEO of Omega
International, Inc., developer of natural products for the treatment of AIDS,
from 1992 to 1994; and President, COO and Director of Woodruff Investment Co., a
developer, manager and financier of real estate investments, from 1986 to 1996.
Mr. Coulter received his undergraduate degree from Emory University, his J.D.
degree from the University of Georgia School of Law, and his L.L.M. in Taxation
from New York University School of Law.
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<PAGE> 29
FLOYD S. KOEGLER, JR. has served as a Vice President and CFO of Tapistron
since September 1996. He is a certified public accountant with an MBA from
Brenau University in Gainesville, Georgia. He has an extensive background in
corporate finance, which includes auditing and financial information analysis
for Aladdin Mills from 1994 until joining Tapistron. From 1990 to 1994, Mr.
Koegler held controller positions at a Crown America/Texture-Tex, Inc. and
Citizens Federal Savings and Loan. In addition, he served as CFO of the fiber
spinning operations of Integrated Products, Inc. In Rome, Georgia and he was a
cost analyst for dyes and chemicals for American Emulsions and Coronet
Industries.
J. DARWIN POE came to Tapistron in July 1995 and became President of the
Company in February 1996. Mr. Poe, has served on Tapistron's Board of
Directors since July 1995, has spent his entire professional career in the
U.S. textile industry. From 1993 to 1995, he served as Technical Director of
Prince Street Technologies, and from 1985 to 1993, he was an Account Executive
at Amoco Fabrics and Fibers Company. Mr. Poe also served as COO of Desoto
Falls, Inc. Of Dalton, Georgia, and has held various management positions with
other industry leaders such as the Bibb Company and West Point Pepperell. Mr.
Poe is a graduate of Auburn University with a degree in Textile Engineering
and an MBA from Brenau University in Gainesville, Georgia.
REG BURNETT has served as a Director since January 1998. He is the
founder RBI International Carpet Consultants which was originated in 1967, and
continues to operate as the President and Senior Consultant. Mr. Burnett was
educated at Bradford Textile College, now a division of Leeds University. He is
recognized throughout the world as one of the most knowledgeable individuals in
the carpet industry. Mr. Burnett has lectured on all aspects of carpet fibers,
carpet yarn spinning, and the carpet industry in general at North Carolina State
University; Auburn University; Kidder Minster College, England; Intercarpet in
Austria; TIFCON in Blackpool, England; The Japanese Carpet Institute; The
Australian Carpet Institute; in China and at many other carpet conventions and
technical conferences throughout the world.
RODNEY C. HARDEMAN, JR. has served as a Director since January 1998.
From 1982 to present, Mr. Hardeman has been the President of Roga
International - Division of EX-IM Marketing International, Inc. He received
his degree in Business from Shorter College, Rome, Georgia. Since 1991, he
has served as a member the Board for Shorter College and is also a board
member for Admiral Travel Inc., Atlanta, Georgia. Since 1994 Mr. Hardeman has
served as a partner for the Chattanooga firm of Manner Technologies, L.L.C.
and Vice President of Redux and Again, Inc., Rome, Georgia. Mr. Hardeman
specializes in International Sales and Marketing.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an audit committee (the "Audit
Committee"), which consists of Messrs. Coulter and Hardeman. The Audit
Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls. The Board of
Directors has also established a compensation committee (the "Compensation
Committee"), which
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consists of Messrs. Burnett, Coulter and Hardeman, to determine compensation for
the Company's senior executive officers and determine awards under the Company's
1992 Stock Option Plan.
The Board of Directors of the Company does not have a nominating
committee.
COMPENSATION OF DIRECTORS
The Company does not pay its directors any fee for attending meetings of
the Board of Directors or any committee thereof (including telephonic meetings)
for their service as directors. Directors are reimbursed for expenses of
attending each meeting of the Board of Directors. Officers of the Company who
are directors have not been paid any director fees but have been reimbursed for
expenses of attending meetings of the Board of Directors.
Directors may receive remuneration in the future.
DIRECTORS AND OFFICERS INSURANCE
The Company has purchased a directors and officers liability insurance
policy with coverage typical for a public company. The directors and officers
liability insurance policy insures (i) the officers and directors of the Company
from any claim arising out of an alleged wrongful act by such person while
acting as officers and directors of the Company, (ii) the Company to the extent
it has indemnified the officers and directors for such loss and (iii) the
Company for losses incurred in connection with claims made against the Company
for covered wrongful acts.
INDEMNIFICATION
The Charter provides for the indemnification of the Company's officers
and directors against certain liabilities to the fullest extent permitted under
applicable law. The Charter also provides that the directors and officers of the
Company be exculpated from monetary damages to the fullest extent permitted
under applicable law. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the Company has
been informed it is the opinion of the Securities and Exchange Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and therefore unenforceable.
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<PAGE> 31
EXECUTIVE COMPENSATION
Cash Compensation
The following table shows the aggregate cash compensation paid during the
fiscal year ended July 31, 1997 to the Company's Chief Executive Officer. No
other executive officers of the Company received cash compensation in excess of
$100,000 in fiscal 1997. No stock options were granted or exercised by any
employees in fiscal 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term
Annual Compensation Compensation Potential
------------------- ------------
Fiscal Other Annual Securities Underlying Realizable
Name and Position Year Salary ($) Bonus ($) Compensation ($) Options/SAR (#) Value
- ----------------- ------ ---------- --------- ---------------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
J. Darwin Poe, 1997 $ 101,238 -0- -0- - 0 - N/A
President, Chief 1996 $ 58,077 -0- -0- - 0 - N/A (1)
Executive Officer 1995 $ 1,923(2) -0- -0- - 0 - N/A
and Vice Chairman
of the Board of Directors
</TABLE>
- ---------------------
(1) Mr. Poe was granted options to acquire 150,000 shares of common stock
during fiscal year 1996 but has agreed that the options will be
cancelled pursuant to the Company's Amended Plan confirmed by the Court
August 18, 1997 pursuant to Chapter 11 of the United States Bankruptcy
Code.
(2) Mr. Poe joined the Company in July 1995.
The Board's executive compensation policies are designed to provide
competitive levels of compensation that integrate pay with the Company's annual
and long-term performance goals, reward above-average corporate performance,
recognize individual initiative and achievements, and enable the Company to
attract and retain qualified executives. Target levels of overall executive
compensation are intended to be consistent with those of others in the Company's
industry, but are increasingly being weighted toward corporate performance in
accordance with the Company's long-term strategic plan.
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<PAGE> 32
The Company's executive officer compensation program is comprised of base
salary, cash incentive bonus compensation, long-term incentive compensation in
the form of stock options, and various benefits, including medical plans
generally available to all employees of the Company.
Base Salary. Base salary levels for the Company's executive officers
together with option grants and benefits are intended to be competitively set
relative to companies of comparable size and stage of development within the
high-technology industries in the Company's geographic area. In determining base
salaries the Compensation committee also takes into account individual
experience and performance as well as specific issues relating to the Company.
Incentive Bonus Compensation. The Board of Directors may periodically
award bonuses to executives in order to provide a direct financial incentive, in
the form of a cash bonus, to executives to achieve individual and Company
objectives. The amount of the bonus is determined based upon the Board's
evaluation of each executive's performance and in accordance with employment
agreements with certain executives. No cash bonuses were awarded during the year
ended July 31, 1997.
Stock Option Program. The 1992 Stock Option Plan is the Company's
long-term incentive plan for executive officers, directors and other selected
employees. The objective of the program is to retain and motivate executives to
improve long-term stock performance. Stock options are generally granted at the
prevailing market value and will only have value if the Company's stock
increases. Generally, grants vest in equal amounts over three years for
non-executives, with executives' grants generally vesting over a shorter period
of time. No options were granted during the fiscal year ended July 31, 1997, and
no options are currently outstanding under this plan.
Directors' Compensation. Directors receive no cash compensation for
serving on the Board. However, non-employee directors are eligible to
participate in the Company's 1992 Stock Option Plan. No grants of options were
made to any directors during fiscal year ended July 31, 1997.
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<PAGE> 33
Performance Graph
The following graph compares the percentage change in the Company's
cumulative total shareholder return with returns based on the Nasdaq Stock
Market (U.S. companies) Index and a peer group index, consisting of companies
reporting under the Standard Industrial Classification Code 355 (Special
Industry Machinery, Except Metalworking Machinery).
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
TAPISTRON INTERNATIONAL, INC.
Prepared by the Center for Research in Security Prices
Produced on 11/4/97 including data to 07/31/97
<TABLE>
<CAPTION>
CRSP Total Return Index for: 07/31/92 07/30/93 07/29/94 07/31/95 07/31/96 07/31/97
- --------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Tapistron International, Inc 100.0 124.4 48.9 24.4 3.3 3.3
Nasdaq Stock Market (US Companies) 100.0 121.6 125.1 175.7 191.4 282.5
NASDAQ Stocks (SIC 3550-3559 US Companies) 100.0 242.2 313.9 733.4 382.3 1041.8
Special Industry Machinery, Except Metalworking Machinery
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The Indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 07/31/92.
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<PAGE> 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the three years ended July 31, 1996, the Company borrowed various
amounts from a principal shareholder and former director of the Company and his
family members, who are also shareholders. The shareholder was a director during
the year ended July 31, 1996. As of July 31, 1997, the Company was indebted to
this shareholder in the amount of $613,894.
During the year ended July 31, 1996, the Company expensed $219,000 in
consulting, legal, and administrative fees owed to a principal shareholder. The
Company was also indebted to this shareholder's law firm for $174,000 for legal
fees in association with the reorganization.
During the year ended July 31, 1994, the Company contracted with an
engineering consulting firm, whose Chief Executive Officer and President was
also a director of the Company, to develop a new model of the CYP machine.
During the years ended July 31, 1994, 1995, and 1996, the Company incurred
approximately $2,733,000, $2,643,000 and $0, respectively, in fees to this firm.
During the year ended July 31, 1996, consulting fees of $50,000 were paid
to a capital company whose chairman is a former director of the Company. Also
during the year ended July 31, 1996, $50,000 was borrowed from this capital
company.
During the year ended July 31, 1996, the Company borrowed approximately
$16,000 from an officer of the Company. The amount was also paid back to the
officer during the year.
During the year ended July 31, 1996, 200,000 shares of the Company's
common stock were issued to two former directors in consideration for services
rendered to the Company.
During the year ended July 31, 1997, there were no related party
transactions.
All transactions involving related parties must be approved by a majority
of the disinterested members of the Company's Board of Directors. The Company
has, and expects to have, transactions in the ordinary course of its business
with directors and officers of the Company and their affiliates, including
members of their families or corporations, partnerships or other organizations
in which such officers or directors have a controlling interest, on
substantially the same terms (including price, or interest rates and collateral)
as those prevailing at the time for comparable transactions with unrelated
parties.
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<PAGE> 35
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to all
persons, or group of persons known by the Company (i) to own beneficially more
than five percent of the Common Stock of the Company, and (ii) as to the
beneficial ownership thereof of the directors and executive officers of the
Company, individually and as a group, all as at November 25, 1997:
<TABLE>
<CAPTION>
Name and Address Shares Percentage
of Beneficial Owner (a) Beneficially Owned Ownership
----------------------- ------------------ ---------
<S> <C> <C>
Tristram Colket, Jr. (b).............................. 3,333,333 9.6%
J. Darwin Poe (c)..................................... 1,681,439 4.8%
Gary L. Coulter(d).................................... 1,577,887 4.5%
Reg Burnett .......................................... 1,333,500 3.8%
Kim Amos (e).......................................... 20,586 0.1%
Floyd S. Koegler, Jr. ................................ -0- 0.0%
Rodney C. Hardeman, Jr. .............................. -0- 0.0%
All Directors and Executive Officers
as a group (six persons)
(c)(d)(e)*............................................ 4,613,412 13.3%
</TABLE>
- --------------------------
(a) Addresses are shown only for the beneficial owners of at least five
percent of the class of security shown. Except as otherwise noted, all
of the shares and options reflected in this table are owned with sole
investment and voting power.
(b) The address of the stockholder is 500 Chester Field Parkway, #170,
Melvern, Pennsylvania 19508.
(c) Includes 500,000 shares held as trustee for the benefit of certain
Company employees.
(d) Includes 500,000 shares held as trustee for the benefit of certain
Company employees.
(e) Mr. Amos directly owns 3,286 shares and his spouse owns 17,300 shares.
- ---------------------------
34
<PAGE> 36
REGISTERING STOCKHOLDERS
All shares indicated below have been registered pursuant to the Company's
previously announced obligations under registration rights agreements entered
into in connection with the sale of the shares. An aggregate of 16,666,666
shares of Common Stock may be offered by the Registering Stockholders from
time-to-time. The following table sets forth, as of the date of this Prospectus,
the name of each Registering Stockholder, and for each, the number of shares of
Common Stock which may be offered for sale and, unless otherwise indicated, the
number of shares to be owned beneficially after the Registered Offering (assumes
all shares available for offer will be sold). Applicable percentage ownership is
based on 18,118,945 shares of Common Stock outstanding immediately prior to the
offering and 34,785,611 shares of Common Stock outstanding as of the date of
this Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
AFTER THE SHARES PRIOR TO
REGISTERED OFFERING REGISTERED REGISTERED OFFERING
- ---------------------------------------------------------------------------------------------------------------------
SHAREHOLDER NAME Shares % SHARES %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ABW Trading, NFC, Ltd. 866,487 2.5 866,487 0 0
Asahi Trading Co., Ltd 1,080,000 3.1 1,080,000 0 0
Robert C. Allphin, Jr 34,000 * 34,000 0 0
Mercer Barrows 100,000 * 100,000 0 0
Robert L. Bast 100,000 * 100,000 0 0
Bay Export Services 100,000 * 100,000 0 0
Scott L. Blackett 167,000 * 167,000 0 0
David E. Blake 148,600 * 143,000 5,600 *
Charles L. Bolling 100,000 * 100,000 0 0
G.D. Booth 95,000 * 95,000 0 0
John W. Boyd, MD 84,169 * 66,667 17,502 *
John Michael & Charlene Branch 500 * 500 0 0
G.W. Brooks 10,000 * 10,000 0 0
Piet M. Brouwer 100,000 * 100,000 0 0
Leo M. Brown 66,667 * 66,667 0 0
Reg Burnett (a) 1,333,500 3.8 1,333,500 0 0
Hugh R. Caldwell, Jr 14,468 * 10,000 4,468 *
Izabelle Carlson 50,000 * 50,000 0 0
Zoe Carlson 50,000 * 50,000 0 0
Houston H. Carr 3,000 * 3,000 0 0
Leon H. Chandler, Jr 167,000 * 167,000 0 0
Tristram Colket, Jr 3,333,333 9.6 3,333,333 0 0
Malcolm C. Davenport, Jr 170,200 * 100,000 70,200 *
Malcolm C. Davenport, V 348,217 1.0 166,667 181,550 *
Arthur DeMoss Foundation, Inc. 1,666,667 4.8 1,666,667 0 0
T.G. DeMoss 12,000 * 12,000 0 0
Foreman H. Dowling 20,000 * 20,000 0 0
Gene C. Duff 7,000 * 7,000 0 0
Fallen Angels Fund, L.P. 666,667 1.9 666,667 0 0
Thomas F. & Martha B. Forkner
Revocable Trust 333,333 * 333,333 0 0
Fred T. Franzia 200,000 * 200,000 0 0
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
AFTER THE SHARES PRIOR TO
REGISTERED OFFERING REGISTERED REGISTERED OFFERING
- ---------------------------------------------------------------------------------------------------------------------
SHAREHOLDER NAME SHARES % SHARES %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maxwell Freeman 200,000 * 200,000 0 0
Larry & Tina Frey 40,000 * 40,000 0 0
Norbert Friedman 33,333 * 33,333 0 0
A. Downing Gray & Co. Pension Trust 100,000 * 100,000 0 0
William F. Harrity 200,000 * 200,000 0 0
William F. Harrity, IRA 200,000 * 200,000 0 0
Virginia W. Harrity 30,000 * 30,000 0 0
Richard L. Haydon 167,000 * 167,000 0 0
Robert & Tamara Jo Huggins JTWROS 20,000 * 20,000 0 0
George S. Hundt 100,000 * 100,000 0 0
Robert H. Jaffe 140,000 * 100,000 40,000 *
Edward A. Jarvis 400 * 400 0 0
Horace C. Jones 100,000 * 100,000 0 0
Judy Karabin 1,500 * 1,500 0 0
Kenmar Investment Partners, G.P 166,666 * 166,666 0 0
Jean Kline 74,500 * 74,500 0 0
Robert Klinger 100,000 * 100,000 0 0
Glodine Klinger 50,000 * 50,000 0 0
Thierry Kobes 50,000 * 50,000 0 0
Robert A. & Susan LaCroce, JTWROS 200,000 * 200,000 0 0
Daniel J. Leonard 100,000 * 100,000 0 0
Peter S. Manown 60,000 * 60,000 0 0
Gerard K. Mazza 11,000 * 11,000 0 0
Dwayne McClendon 500,000 1.4 500,000 0 0
Charles H. McCain 30,000 * 30,000 0 0
McGowan Properties, Inc. PS Plan 40,334 * 33,333 7,001 *
Mercer Investments 333,333 * 333,333 0 0
Gerald Morrison 150,667 * 150,667 0 0
Adrian C. Mosley 39,173 * 39,173 0 0
Joel V. O'Neal, Jr 66,000 * 66,000 0 0
Claude A. Parker, II 10,000 * 10,000 0 0
The Patriot Group 300,000 * 300,000 0 0
Darwin Poe (a) (c) 1,681,439 4.8 181,439 0 0
Grace L. Poe (b) 173,333 * 173,333 0 0
Arlice E. Rains 100,000 * 100,000 0 0
RJR Development, Inc. Pension Plans 100,000 * 100,000 0 0
F.S. & Elaine Robinson 160,000 * 160,000 0 0
Mark R. & Fenis S. Robinson 23,000 * 23,000 0 0
Eric Rubenstein IRA 66,667 * 66,667 0 0
Marvin Schaffer 133,333 * 133,333 0 0
Patrick Schmit 30,000 * 30,000 0 0
Bruce A. Shear 40,000 * 40,000 0 0
Charles G. Smith 200,000 * 200,000 0 0
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
AFTER THE SHARES PRIOR TO
REGISTERED OFFERING REGISTERED REGISTERED OFFERING
- ---------------------------------------------------------------------------------------------------------------------
SHAREHOLDER NAME Shares % SHARES %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Freeman Smith 20,000 * 20,000 0 0
Lawrence A. Smith 66,667 * 66,667 0 0
E. Newbold Smith 100,000 * 100,000 0 0
Todd R. Smith 66,666 * 66,666 0 0
Charles A. & Margrit L. Snyder JTWROS 100,000 * 100,000 0 0
Mary Anne Spencer 13,335 * 13,335 0 0
Springle Properties, Inc. 10,000 * 10,000 0 0
L. Hudon & Ruby M. Tatum JTWROS 16,500 * 16,500 0 0
David L. Thurman 25,840 * 25,000 840 *
Dr. Simon W. Trenchuck 30,000 * 30,000 0 0
Stephen W. Turner IRA 10,000 * 10,000 0 0
Fred G. Welch 2,000 * 2,000 0 0
Millicent Witkin 33,333 * 33,333 0 0
David Wong 100,000 * 100,000 0 0
Stephen A. Young 150,000 * 150,000 0 0
--------- --- --------- ------ ------
</TABLE>
* less than 1.00% of total
(a) Such person is a director or executive officer of the Company. See
"Management - Directors and Executive Officers" and "Principal
Stockholders".
(b) The mother of J. Darwin Poe, a director and executive officer of the
Company, not residing in the same home.
(c) Includes 500,000 shares held as trustee for the benefit of certain
Company employees.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 100,000,000
shares of Common Stock, par value $0.0004 per share, 34,785,611 shares of which
are outstanding as of the date of this Prospectus and (ii) 2,000,000 shares of
Preferred Stock, par value $0.001 per share, none of which will be outstanding
after the Registered Offering. The following summary description of the capital
stock of the Company is qualified in its entirety by reference to the Charter
and Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and, except
as otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of Preferred Stock establishing the
designation, powers, preferences and relative, participating, option or other
special rights and powers of such series of Preferred Stock, the holders of
shares of Common Stock exclusively possess all voting power. The Articles do not
provide for cumulative voting in the election of directors. Subject to any
37
<PAGE> 39
preferential rights of any outstanding series of Preferred Stock, the holders of
Common Stock are entitled to such distributions as may be declared from time to
time by the Board of Directors from funds available therefor, and upon
liquidation are entitled to receive pro rata all assets of the Company available
for distribution to such holders. All shares of Common Stock issued in the
Offering will be fully paid and nonassessable and the holders thereof will not
have preemptive rights.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes,
as authorized by the Board of Directors. Prior to issuance of shares of each
class, the Board of Directors is required by the Georgia Business Corporation
Code (the "GBCC") and the Company's Articles to fix for each such class, the
terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption, as are permitted by Georgia law. The Board of
Directors could authorize the issuance of Preferred Stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction which holders of some, or a majority, of the Company's outstanding
shares might believe to be in their best interests or in which holders of some,
or a majority, of shares might receive a premium for their shares over the
market price of such shares.
TRANSFER AGENT AND REGISTRAR
The Company has appointed Continental Stock Transfer and Trust Company as
its transfer agent and registrar.
CERTAIN PROVISIONS OF GEORGIA LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Georgia law and
the Company's Charter and Bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Company's
Charter and Bylaws, copies of which are exhibits to the Registration Statement
of which this Prospectus is a part, as described in "Additional Information,"
and to Georgia law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Articles provides that the number of directors of the
Company shall be established by the Bylaws but shall not be less than the
minimum number required by the GBCC, which in the case of the Company is three.
The Bylaws currently provide that the Board of Directors will consist of not
fewer than 6 nor more than 9 members. Any vacancy on the Board of Directors will
be filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority
38
<PAGE> 40
of the entire board of directors. The Articles provide for a staggered Board of
Directors consisting of three classes as nearly equal in size as practicable.
One class will hold office initially for a term expiring at the annual meeting
of stockholders to be held in 1998, another class will hold office initially for
a term expiring at the annual meeting of stockholders to be held in 1999 and
another class will hold office initially for a term expiring at the annual
meeting of stockholders to be held in 2000. As the term of each class expires,
directors in that class will be elected for a term of three years and until
their successors are duly elected and qualify. The Company believes that
classification of the Board of Directors will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
Holders of shares of Common Stock will have no right to cumulative voting for
the elections of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of outstanding shares of Common Stock
will be able to elect all of the successors of the class of directors whose term
expires at that meeting.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed with or without cause
by the affirmative vote of at least two-thirds of the votes entitled to be cast
in the election of directors, and by the vote required to elect a director, the
stockholders may fill a vacancy on the Board of Directors resulting from
removal. This provision, when coupled with the provision in the Bylaws
authorizing the Board of Directors to fill vacant directorships, could preclude
stockholders from removing incumbent directors except upon a substantial
affirmative vote and filling the vacancies created by such removal with their
own nominees.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
The Company's Restated and Amended Articles and Bylaws provide for a six
member Board of Directors to be elected to staggered one, two and three year
terms and, thereafter, for successive three year terms. In addition, directors
may only be removed from office for cause upon a vote of 70% of the Common Stock
outstanding. The Articles of Incorporation and Bylaws also provide that they may
not be amended in certain respects except pursuant to the vote of 70% of the
Common Stock outstanding. These provisions of the Articles of Incorporation and
Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company.
39
<PAGE> 41
GEORGIA ANTI-TAKEOVER STATUTES
The Georgia Business Combination Code restricts certain business
combinations with "interested shareholders" and contains fair price requirements
applicable to certain mergers with certain "interested shareholders" that are
summarized below. The restrictions imposed by these statutes will not apply to a
corporation unless it elects to be governed by these statutes. The Company has
elected to be covered by such restrictions.
The Georgia business combination statute regulates business combinations
such as mergers, consolidations, share exchanges and asset purchases where the
acquired business has at least 100 shareholders residing in Georgia and has its
principal office in Georgia, and where the acquiror became an "interested
shareholder" of the corporation, unless either (i) the transaction resulting in
such acquiror becoming an "interested shareholder" or the business combination
received the approval of the corporation's board of directors prior to the date
on which the acquiror became an "interested shareholder," or (ii) the acquiror
became the owner of at least 90% of the outstanding voting stock of the
corporation (excluding shares held by directors, officers and affiliates of the
corporation and shares held by certain other persons) in the same transaction in
which the acquiror became an "interested shareholder." For purposes of this
statute, an "interested shareholder" generally is any person who directly or
indirectly, alone or in concert with others, beneficially owns or controls 10%
or more of the voting power of the outstanding voting shares of the corporation.
The statute prohibits business combinations with an unapproved "interested
shareholder" for a period of five years after the date on which such person
became an "interested shareholder." The statute restricting business
combinations is broad in its scope and is designed to inhibit unfriendly
acquisitions.
The Georgia fair price statute prohibits certain business combinations
between a Georgia business corporation and an "interested shareholder" unless
(i) certain "fair price" criteria are satisfied, (ii) the business combination
is unanimously approved by the continuing directors, (iii) the business
combination is recommended by at least two-thirds of the continuing directors
and approved by a majority of the votes entitled to be cast by holders of voting
shares, other than voting shares beneficially owned by the "interested
shareholder," or (iv) the interested shareholder has been such for at least
three years and has not increased his ownership position in such three-year
period by more than one percent in any twelve-month period. The fair price
statute is designed to inhibit unfriendly acquisitions that do not satisfy the
specified "fair price" requirements.
AMENDMENT TO THE COMPANY'S CHARTER AND BYLAWS
The Company's Articles, including its provisions on classification of the
Board of Directors and removal of directors, may be amended only by the
affirmative vote of the holders of at least 66 2/3% of the capital stock
entitled to vote. The Company's Bylaws may be amended by the affirmative vote of
holders of at least 66 2/3% of the capital stock entitled to vote on the matter.
Subject to the right of stockholders to adopt, alter and repeal the Bylaws, the
Board of Directors is authorized to adopt, alter or repeal the Bylaws.
40
<PAGE> 42
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (a) pursuant to the Company's notice of the meeting, (b) by the Board
of Directors, or (c) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and
(ii) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders, or provided that the Board of Directors has determined that
directors shall be elected at such meeting, nominations of persons for election
to the Board of Directors may be brought by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice provisions set
forth in the Bylaws.
STOCKHOLDER MEETINGS AND ACTION BY WRITTEN CONSENT
In order for stockholders to call special meetings, the Bylaws require
the written request of holders of shares entitled to cast not less than 25% of
all votes entitled to be cast at such meeting. Such provisions do not, however,
affect the ability of stockholders to submit a proposal to the vote of all
stockholders of the Company in accordance with the Bylaws, which provide for the
additional notice requirements for stockholder nominations and proposals at the
annual meetings of stockholders as described above. The Bylaws provide that any
action required or permitted to be taken at a meeting of stockholders may be
taken without a meeting by unanimous written consent, if such consent sets forth
such action and is signed by each stockholder entitled to vote on the matter and
a written waiver of any right to dissent is signed by each stockholders entitled
to notice of the meeting but not entitled to vote at it.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles limits the liability of the Company's directors
and officers to the Company and its stockholders to the fullest extent permitted
from time to time by Georgia law. Georgia law presently permits the liability of
directors and officers to a corporation or its stockholders for money damages to
be limited, except (i) to the extent that it is proved that the director or
officer actually received an improper benefit or profit, or (ii) if a judgment
or other final adjudication is entered in a preceding based on a finding that
the director's or officers' action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. This provision does not limit the ability of the Company or its
stockholders to obtain other relief, such as an injunction or rescission.
The Company's Articles and Bylaws require the Company to indemnify its
directors, officers and certain other parties to the fullest extent permitted
from time to time by Georgia law. The GBCC presently permits a corporation to
indemnify its directors, officers and certain other parties against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service to the corporation, unless it is established that (i) the act or
omission of the indemnified party was material to the matter giving rise to the
proceeding, and (1) was committed in bad faith or (2) was the result of active
and deliberate dishonest;
41
<PAGE> 43
or (ii) the indemnified party actually received an improper personal benefit in
money, property or services; or (iii) in the case of any criminal proceeding,
the indemnified party had reasonable cause to believe that the act or omission
was unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction, or upon a plea of nolo contendere
or its equivalent, or an entry of any order of probation prior to judgment,
creates a rebuttable presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted. The
Company has directors and officers insurance which became effective.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote
of holders of not less than a majority of all of the votes entitled to be cast
on the matter.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 34,785,611 shares of Common Stock. Of these
shares, 11,686,889 are freely tradable in the public market without restriction
or further registration under the Securities Act.
All 16,666,666 shares of Common Stock issued pursuant to the 1997 Private
Placement are "restricted securities" as that term is defined under Rule 144 and
may be sold only pursuant to registration under the Securities Act or pursuant
to an exemption therefrom, such as that provided by Rule 144. In general, under
Rule 144 as currently in effect, if one year has elapsed since the later of the
date of acquisition of shares of Common Stock from the Company or the date of
acquisition of shares of Common Stock from any "affiliate" of the Company, as
that term is defined under the Securities Act, the acquiror or subsequent holder
is entitled to sell within any three-month period a number of shares of Common
Stock that do not exceed the greater of 1% of the then-outstanding shares of
Common Stock or the average weekly trading volume of shares of Common Stock on
all exchanges and reported through the automated quotation system of a
registered securities association during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Sales under Rule
144 are also subject to certain restrictions on the manner of sales, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the date of acquisition of shares of
Common Stock from the Company or from any "affiliate" of the Company, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate of
the company at any time during the 90 days preceding a sale, such person would
be entitled to sell such shares of Common Stock in the public market under Rule
144(i) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
42
<PAGE> 44
Pursuant to a Registration Rights Agreement between the Company and
certain of the Registering Stockholders (the "Registration Rights Agreement")
the Company has agreed to file and use its best efforts to have the shelf
registration of which this Prospectus is a part be declared and remain effective
for a period of two years with respect to the shares of Common Stock issued upon
consummation of the 1997 Private Placement that continue to be "restricted
securities" (the "Registrable Shares"). The Company will bear the expenses
incident to the registration requirements of the Registrable Shares, except that
such expenses shall not include any underwriting discounts or commissions or
transfer taxes relating to such shares.
Under the Registration Rights Agreement, the holders of the Registrable
Shares will also be entitled to include within any registration statement under
the Securities Act filed by the Company with respect to any underwritten public
offering of Common Stock (either of its own account or the account of other
security holders) at any time within two years following the issue date, which
occurred on November 12, 1997 and November 24, 1997, the Registrable Shares held
by such holders, subject to certain conditions and restrictions. The existence
of the Registration Rights Agreement may adversely affect the terms upon which
the Company can obtain additional equity financing in the future.
The Company may require that the Registrable Shares be sold in block
trades through underwriters or broker-dealers or that the Registrable Shares be
underwritten by investment banking firms selected by the Company.
There had been no public market for the Common Stock and the effect, if
any, that future market sales of Common Stock or the availability of such Common
Stock for sale will have on the market price of the Common Stock prevailing from
time to time cannot be predicted. Nevertheless, sales of substantial amounts of
Common Stock in the public market (or the perception that such sales could
occur) might adversely affect market prices for the Common Stock.
Additionally, there are no outstanding stock options to purchase Common
Stock which have been granted to executive officers, other key employees,
Independent Directors and consultants of the Company under the 1992 Stock Option
Plan.
PLAN OF DISTRIBUTION
The Company is registering the shares of Common Stock offered hereby
pursuant to the Registration Rights Agreement. Any distribution of the shares
covered by this Prospectus may be effected from time to time in one or more
transactions (which may involve block transactions) on the OTCBB system, in
negotiated transactions or in a combination of such methods of sale, at fixed
prices, at market prices prevailing at the time of sale, at prices related to
the prevailing market prices or at negotiated prices. The Registering
Stockholders will effect any such transactions with or through one or more
broker-dealers which may act as agent or principal, and if required by the
Company, through block trades or offerings through underwriters. Any such
broker-dealer may receive compensation in the form of underwriting discounts,
concessions or commissions from the Registering Stockholders and/or the
purchaser of the shares for whom it may act as agent or to whom it may sell as
principals or both. With respect to any shares sold by a Registering
Stockholder, the Registering Stockholder and/or any broker-dealer effecting
43
<PAGE> 45
the sales may be deemed to be an "underwriter" within the meaning of Section
2(11) of the Securities Act, and any commissions received by the broker-dealer
and any profit on the resale of shares as principal may be deemed to be
underwriting discounts or commissions under the Securities Act. Additionally,
the Registering Stockholders may pledge or make gifts of their shares and the
shares may also be sold by the pledgee or transferees.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.
LEGAL MATTERS
The validity of the Common Stock offered hereby and other legal matters
will be passed upon for the Company by Schreeder, Wheeler & Flint, LLP 1600
Candler Building, 127 Peachtree Street, N.E., Atlanta, Georgia 30303.
EXPERTS
The consolidated financial statements as of July 31, 1997 and 1996 and
for each of the three years in the period ended July 31, 1997 included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been audited by Dudley, Jones-Hopton, Sims &
Freeman, PLLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to such Registration Statement
and the exhibits and schedules thereto. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete and in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Company is also subject
to the informational requirements of the Exchange Act, and in accordance
therewith files reports and other information with the Commission. Copies of the
Registration Statement and reports, proxy statements and other information
concerning the Company may be obtained from the Commission's principal office at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Seven World Trade Center, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the public
44
<PAGE> 46
reference section of the Commission at its Washington address upon payment of
the fees prescribed by the Commission or may be examined without charge at the
offices of the Commission. Electronic filings made through the Electronic Data
Gathering Analysis and Retrieval System are publicly available through the
Commission's website (http://www.sec.gov).
The Company intends to furnish its stockholders with annual reports
containing combined financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited combined financial information.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
[TO BE INSERTED]
<PAGE> 48
Report of Independent Auditors
Board of Directors and Stockholders
Tapistron International, Inc.
Ringgold, Georgia
We have audited the accompanying consolidated balance sheets of Tapistron
International, Inc. and subsidiary as of July 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended July 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Tapistron International, Inc. and subsidiary as of July 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended July 31, 1997, in conformity with generally accepted
accounting principles.
DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
Birmingham, Alabama
September 26, 1997
F-1
<PAGE> 49
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
July 31, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 27,946 $ 17,149
Receivables, net of allowance of
$39,905 as of July 31, 1997
and 1996, respectively 720,740 119,872
Note receivable 350,000 600,000
Inventory 1,231,002 2,082,495
Prepayments 102,453 20,707
Deferred income taxes 100,000 --
---------- ----------
Total current assets 2,532,141 2,840,223
---------- ----------
PROPERTY AND EQUIPMENT, NET 564,324 877,269
---------- ----------
OTHER ASSETS
Long-term receivables, net allowance
of $500,000 as of July 31, 1997 and
1996, respectively -- --
Patents and patent license 263,068 286,160
Deferred income taxes 1,900,000 --
Other 8,247 12,886
---------- ----------
Total other assets 2,171,315 299,046
---------- ----------
TOTAL $5,267,780 $4,016,538
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-2
<PAGE> 50
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Short-term debt $ - $ 1,028,687
Current portion of long-term debt 4,315 4,729
Accounts payable 178,068 33,970
Accrued expenses 655,621 408,350
Customer deposits 936,026 280,000
------------ ------------
Total current liabilities 1,774,030 1,755,736
------------ ------------
LIABILITIES SUBJECT TO SETTLEMENT UNDER
REORGANIZATION PROCEEDINGS 2,520,557 1,599,668
------------ ------------
LONG-TERM DEBT 744 5,060
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value -
2,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock - $.0004 par value -
100,000,000 shares authorized;
and 10,581,813 shares issued 4,233 4,233
Additional paid-in-capital 22,899,108 22,899,108
Accumulated deficit (21,918,100) (22,234,475)
Treasury stock - 55,518 shares
outstanding as of July 31, 1997
and 1996, at cost (12,792) (12,792)
------------ ------------
Total stockholders' equity 972,449 656,074
------------ ------------
TOTAL $ 5,267,780 $ 4,016,538
============ ============
</TABLE>
F-4
<PAGE> 51
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
SALES $ 3,626,092 $ 1,305,499 $ 2,565,544
COST OF SALES 2,477,302 1,146,717 1,757,793
------------ ------------ ------------
Gross profit 1,148,790 158,782 807,751
------------ ------------ ------------
OPERATING EXPENSES
Administrative expenses 1,998,245 3,473,581 3,656,532
Research and development 10,384 23,473 2,405,438
------------ ------------ ------------
2,008,629 3,497,054 6,061,970
------------ ------------ ------------
OPERATING LOSS (859,839) (3,338,272) (5,254,219)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (30,269) (314,611) (248,594)
Interest income 114 26,292 42,529
Loss on disposal of assets -- (1,022,505) (592,891)
------------ ------------ ------------
Other income (expense) (30,155) (1,310,824) (798,956)
------------ ------------ ------------
Loss before reorganization
items, income tax benefit
and extraordinary item (889,994) (4,649,096) (6,053,175)
REORGANIZATION ITEMS (793,631) (249,150) --
------------ ------------ ------------
Loss before income tax benefit
and extraordinary item (1,683,625) (4,898,246) (6,053,175)
INCOME TAX BENEFIT (2,000,000) -- --
------------ ------------ ------------
Income (loss) before
extraordinary tem 316,375 (4,898,246) (6,053,175)
EXTRAORDINARY ITEM
Gain from extinguishment of debt -- 420,150 --
------------ ------------ ------------
NET INCOME (LOSS) $ 316,375 $ (4,478,096) $ (6,053,175)
============ ============ ============
EARNINGS PER SHARE
Income (loss) before
extraordinary item $ 0.03 $ (0.49) $ (0.69)
Extraordinary item -- 0.04 --
Net income (loss) $ 0.03 $ (0.45) (0.69)
------------ ------------ ------------
Weighted average number of
shares outstanding $ 10,526,295 $ 10,012,390 $ 8,761,117
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE> 52
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
------------------- Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
------ ------ ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - 8-1-94 7,737,013 $ 3,095 $ 19,366,473 $(11,703,107) $(12,792) $ 7,653,669
Issuance of new shares 1,944,800 778 3,237,995 -- -- 3,238,773
Other R/E transaction -- -- -- (97) -- (97)
Net loss -- -- -- (6,053,175) -- (6,053,175)
---------- ------- ------------ ------------ -------- ------------
BALANCE - 7-31-95 9,681,813 3,873 22,604,468 (17,756,379) (12,792) 4,839,170
Issuance of new shares 900,000 360 294,640 -- -- 295,000
Net loss -- -- -- (4,478,096) -- (4,478,096)
---------- ------- ------------ ------------ -------- ------------
BALANCE - 7-31-96 10,581,813 4,233 22,899,108 (22,234,475) (12,792) 656,074
Issuance of new shares -- -- -- -- -- --
Net income -- -- -- 316,375 -- 316,375
---------- ------- ------------ ------------ -------- ------------
BALANCE - 7-31-97 10,581,813 $ 4,233 $ 22,899,108 $(21,918,100) $(12,792) $ 972,449
========== ======= ============ ============ ======== ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE> 53
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 316,375 $(4,478,096) $(6,053,175)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 207,934 414,992 484,315
Loss on sales of property, plant and equipment -- 1,022,504 592,891
Issuance of stock in lieu of compensation -- 145,000 --
Changes in operating assets and liabilities:
Decrease (increase) in receivables (350,868) 328,097 (369,731)
Decrease (increase) in prepayments (81,746) 76,439 93,782
Decrease in inventory 1,014,763 1,009,497 453,448
Decrease in long-term receivables -- 500,000 --
Decrease in other assets 1,644 170,933 --
Decrease in noncompete agreements -- 11,545 23,091
(Increase) in notes receivable -- (150,000) --
(Increase) in deferred income taxes (2,000,000) -- --
Increase in accounts payable and
accrued expenses 391,369 123,060 982,096
Increase (decrease) in accounts payable and
accrued expenses, which are subject to
settlement under a plan of reorganization 290,751 (170,941) --
Increase (decrease) in customer deposits 656,026 (5,000) 185,000
----------- ----------- -----------
Net cash provided by (used in) operating
activities 446,248 (1,001,970) (3,608,283)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of property and equipment -- 2,187,500 201,250
Capital expenditures and retirements (15,407) -- (560,805)
Payment for patents (11,349) (14,415) (67,575)
Investment in other assets -- -- (137,625)
----------- ----------- -----------
Net cash provided by (used in) investing
activities (26,756) 2,173,085 (564,755)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE> 54
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 599,970 1,210,495 1,320,000
Principal payments of debt (1,008,665) (381,809) (998,926)
Proceeds from issuance of debt which is subject to
settlement under a plan of reorganization -- 140,600 --
Principal payments of debt which is subject to
settlement under a plan of reorganization -- (2,372,678) --
Proceeds from issuance of common stock -- 150,000 3,238,677
----------- ----------- -----------
Net cash provided by (used in) financing
activities (408,695) (1,253,392) 3,559,751
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 10,797 (82,277) (613,287)
Cash and cash equivalents - beginning of year 17,149 99,426 712,713
----------- ----------- -----------
Cash and cash equivalents - end of year $ 27,946 $ 17,149 $ 99,426
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 19,569 $ 34,532 $ 252,471
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Equipment reclassified to inventory $ 163,270 $ 290,817 $ --
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE> 55
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - REORGANIZATION AND LEGAL MATTERS
Tapistron International, Inc. (the "Company") filed a voluntary petition for
relief under Chapter 11 of title 11 of the United States Code (the "Code") on
June 21, 1996 (the "petition date"). The Company is currently operating its
business as a debtor-in-possession under the jurisdiction of the United States
Bankruptcy Court for the Northern District of Georgia (the "Court"). The
Company's liabilities as of the petition date are generally subject to
settlement in a plan of reorganization, which must be voted on by certain of
its creditors and confirmed by the Court. Until a reorganization plan has been
confirmed, the Company is prevented from making payments on pre-petition debt
unless permitted by the Code or approved by the Court. Certain contracts and
leases existing at the petition date have been rejected or assumed with the
approval of the Court. The Company continues to review all other unexpired
pre-petition executory contracts and leases to determine whether they should be
assumed or rejected. Parties affected by the rejection of contracts and leases
may file claims against the Company.
The consolidated financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates continuity of operations
and the realization of assets and the satisfaction of liabilities in the normal
course of business. The chapter 11 filing, the Company's leveraged financial
structure, and recurring net losses raise a question about the Company's
ability to continue as a going concern. A plan of reorganization may materially
change the amounts reported in the consolidated financial statements (which do
not give effect to adjustments to the carrying values of assets and liabilities
which may be necessary as a consequence of a plan of reorganization). The
continuation of the Company's business as a going concern is contingent upon,
among other things, the ability to (1) formulate a plan of reorganization that
will be confirmed by the court, (2) achieve satisfactory levels of future
profitable operations, (3) maintain adequate financing, and (4) provide
sufficient cash from operations to meet future obligations.
The Company is anticipating increased sales, as marketing efforts are increased
and as customers regain confidence in the financial stability of the Company.
The Company has been focused on establishing and improving customer
relationships, and ongoing research and development projects are building on
current proven CYP technology at a steady pace.
Immediate emphasis will be placed on actively promoting the CYP machine in the
domestic market, which will be handled by the Company's internal sales and
marketing department. The primary markets outside the U.S. are in the Pacific
Rim and Europe, and foreign sales efforts will be maintained by outside
representatives.
Due to a number of domestic CYP machine installations over the past three years,
CYP product has been able to find some market areas for which it is well suited,
the primary one being commercial/hospitality broadloom. This market, along with
the rug market and residential broadloom, will be prime applications for the CYP
machine. The CYP machine is not in the same market with low-end solid color
carpet tufting machines, and our focus will continue to be on the manufacturers
of high-end carpet, which is a value-added product market. So, as there has been
an increasing trend toward product differentiation in the carpet industry, the
future is continually looking brighter for this machine and for patterned
tufting in general.
The Company filed a plan of reorganization on March 14, 1997, which was amended
on July 18, 1997. (See Note 16 - Subsequent events).
F-8
<PAGE> 56
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by Tapistron
International, Inc. (the "Company") and its subsidiary are as follows:
Description of Business
The Company is in the business of developing or acquiring proprietary
technologies in the textile industry. To date, the Company's efforts have been
focused on the continued development, production and marketing of the
computerized yarn placement (CYP) machine and the exploration of a second
technology involving the dyeing of textile materials.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Fabrication Center, Inc. ("FCI"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The Company maintains
at various financial institutions cash and cash equivalent accounts which may
exceed federally insured amounts at times.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred and additions and improvements
that significantly extend the lives of assets are capitalized. Upon sale or
other retirement of depreciable property, the cost and accumulated depreciation
are removed from the related accounts and any gain or loss is reflected in
operations. Depreciation is provided using the straight-line method over the
estimated useful lives of the depreciable assets.
Intangible Assets
Intangible assets are stated at their unamortized cost and are amortized on the
straight-line method over their estimated useful lives. The estimated useful
lives of the Company's noncompete agreements range from 2 to 9 years and the
estimated useful lives of the Company's patents and licenses range from 7 to 17
years.
Earnings (Net Loss) Per Share
Earnings (net loss) per share is computed using the weighted average number of
shares of common stock outstanding.
Revenue Recognition
Sales and related cost of sales are recognized primarily at the time of shipment
of the product. Sales and cost of sales may be recognized when the product is
complete and ready for shipment if the customer requests the Company to hold the
product and there are no uncertainties as to the consummation of the sale. Upon
recognition of sales, a reserve for estimated warranty and other related
expenses is established. The reserve is periodically evaluated as to its
adequacy for the anticipated expenses to be incurred during the limited warranty
period.
F-9
<PAGE> 57
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income Taxes
Income taxes are computed based on the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Deferred
tax assets and liabilities are recognized for the estimated future tax effects
attributed to temporary differences between the book and tax bases of assets and
liabilities and for carryforward items. The measurement of current and deferred
tax assets and liabilities is based on enacted tax law. Deferred tax assets are
reduced, if necessary, by a valuation allowance for the amount of tax benefits
that may not be realized.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain Significant Estimates
At July 31, 1997, the Company had significant deferred tax assets related to
operating losses available for carryforward. These deferred tax assets have been
recorded under the guidelines of SFAS No. 109, Accounting for Income Taxes, on
the premise that future taxable income will more likely than not be adequate to
realize future tax benefits of the available net operating loss carryforwards.
Under tax regulations, realization of tax benefits per period will be limited
and full realization will depend on future taxable income over a number of
years.
Reclassifications
Certain reclassifications have been made in the previously reported financial
statements to make prior year amounts comparable to those of the current year.
Such reclassifications had no effect on previously reported net loss or
shareholders' equity.
Disclosures About Fair Values of Financial Instruments
In the year ended July 31, 1996, the Company adopted Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments (SFAS 107), which requires companies to disclose fair value
information about certain financial instruments. SFAS 107 defines fair value as
the quoted market prices for those instruments that are actively traded in
financial markets. In cases where quoted market prices are not available, fair
values are estimated using present value or other valuation techniques. The fair
value estimates are made at a specific point in time, based on available market
information and judgments about the financial instrument, such as estimates of
timing and amount of expected future cash flows. Such estimates do not reflect
any premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument, nor do they
consider the tax impact of the realization of unrealized gains or losses.
In many cases, the fair value estimates cannot be substantiated by comparison to
independent markets, nor can the disclosed value be realized in immediate
settlement of the instrument.
SFAS 107 excludes certain financial instruments, particularly trade accounts
receivable and payable, from its disclosure requirements.
The fair values of cash and cash equivalents approximate their carrying amounts
as reflected in the balance sheet due to their short-term availability or
maturity.
F-10
<PAGE> 58
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Disclosures About Fair Values of Financial Instruments - Continued
The fair values of notes receivable approximate their carrying amounts as
reflected in the balance sheet due to interest rates that are similar to current
rates.
The fair values of notes payable also approximate their carrying amounts as
reflected in the balance sheet due to interest rates that are similar to current
rates.
NOTE 3 - ORGANIZATION
The Company was incorporated on February 7, 1986, under the laws of the State of
Georgia under the name Textile Corporation of America. The Company was formed to
acquire FCI and to develop or acquire proprietary technologies in the textile
industry. On July 29, 1986, the Company exchanged 2,800,426 shares of common
stock for all of the outstanding stock of FCI having a net book value of
$342,608 in a transaction accounted for as a pooling of interests. FCI was
organized on August 19, 1981, under the laws of the State of Georgia and
commenced operations on August 1, 1983. FCI was formed for the purpose of
engaging in the research, development, production and marketing of a CYP machine
for the manufacturing of rugs and carpets. On July 16, 1991, the directors
changed the name of the Company to Tapistron International, Inc. Reference
herein to the "Company" includes Tapistron International, Inc. and FCI. The
Company was a development stage enterprise until January 1992 when the Company
realized revenues from the sale of its first CYP machine.
NOTE 4 - INVENTORY
Inventory consists of the following components:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 437,215 $ 1,413,531
Work in process 793,788 1,636,530
Finished goods -- 11,090
------------- -------------
1,231,003 3,061,151
Allowance for obsolete inventory -- (978,656)
------------- -------------
$ 1,231,003 $ 2,082,495
============= =============
</TABLE>
The Company recognized a loss related to obsolete inventory of $-0- for the year
ended July 31, 1997 and $504,441 for the year ended July 31, 1996.
F-11
<PAGE> 59
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following major classifications:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ --------------------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Office furniture, fixtures and
equipment $ 501,435 $ 382,696 $ 501,435 $ 306,490
Machinery and equipment 826,956 383,060 1,167,365 490,114
Vehicles 16,914 15,224 16,914 11,841
------------- ----------- ------------- -------------
$ 1,345,305 $ 780,980 $ 1,685,714 $ 808,445
============= =========== ============= =============
</TABLE>
Depreciation expense totaled $462,534 for 1995, $390,125 for 1996 and $171,642
for 1997.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Trade accounts payable $ 178,069 $ 33,970
Reserve for product warranties 10,000 10,000
Other 645,621 398,350
------------- ------------
$ 833,690 $ 442,320
============= ============
</TABLE>
NOTE 7 - LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION PROCEEDINGS
If it is probable that the collateral value related to pre-petition secured
liabilities exceeds the amount of the obligation, such liabilities are included
in short-term debt.
The remainder of the pre-petition liabilities (including situations where it
cannot be determined whether the collateral value exceeds the amount of the
obligation)are:
<TABLE>
<CAPTION>
June 21, 1996
-------------
<S> <C>
Accounts payable $ 1,742,982
Unsecured term notes 777,575
-------------
Total liabilities subject to settlement under reorganization proceedings $ 2,520,557
=============
</TABLE>
A plan of reorganization may materially change the amount and terms of these
pre-petition liabilities.
The portions of debt contractually due within one year following each respective
balance sheet date are not classified in current liabilities because such
amounts will be settled under a plan of reorganization.
F-12
<PAGE> 60
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LEASES
In June, 1996, the Company completed the refinancing of its main facility under
a sale/leaseback arrangement. The facility was sold for $1.9 million, $1.86
million of which was used to pay off the existing mortgage. The Company then
entered into an operating lease for a term of five years. The lease requires
minimum annual rental payments of $302,500 in 1997, $317,625 in 1998, $333,506
in 1999, $350,182 in 2000, and $303,877 in 2001. The Company has the option to
purchase the property at any time during the lease term.
The Company also leases office space, warehouse space, and equipment under
short-term operating leases. Rental expense under all operating leases totaled
$50,941 for 1995, $52,442 for 1996 and $244,143 for 1997.
NOTE 9 - DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
9.3% Promissory note, maturing in January 2002, payable $1,200
annually, unsecured and subject to settlement under a plan of
reorganization $ -- $ 4,869
5.8% Promissory note, maturing September 9, 1998, payable $375
monthly including interest, collateralized by equipment 5,060 9,788
--------- ----------
5,060 14,657
Less: Current portion 4,316 4,729
Current portion subject to settlement under a plan of reorganization -- 748
--------- ----------
$ 744 $ 9,180
========= ==========
</TABLE>
Aggregate maturities of long-term debt for the five years subsequent to July 31,
1997, are as follows:
<TABLE>
<S> <C>
July 31, 1998 $ 4,316
July 31, 1999 744
July 31, 2000 -
July 31, 2001 -
July 31, 2002 -
Thereafter -
</TABLE>
As of July 31, 1996 short-term debt consists of a line of credit agreement
bearing interest at 10% and various promissory notes bearing interest at rates
varying from 6% to 13%. A significant portion of the short-term debt is
collateralized by CYP machines.
Interest expense on debt totaled $248,594 for 1995, $314,611 for 1996 and
$30,269 for 1997.
F-13
<PAGE> 61
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS
In April 1992, the Company adopted the 1992 qualified employee stock option plan
(the "1992 Plan") which provided for the granting of options to employees for
the purchase of up to 350,000 shares of common stock of the Company at a price
not less than fair market value on the date the options are granted. The
shareholders of the Company subsequently approved an increase in the number of
shares available for issuance under the 1992 Plan to 1,350,000 shares.
Previously, the Company had a qualified employee stock option plan (the "1989
Plan") which provided for the granting of options to employees for the purchase
of approximately 210,000 shares of which options for approximately 192,500 have
been granted. The 1989 Plan was terminated with the adoption of the 1992 Plan.
In addition, the Company has, at various times, granted options outside of the
Plan to employees and non-employees.
The following table summarized option activity:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- -----------
<S> <C> <C>
Outstanding as of July 31, 1991 554,062 $2.14 - $3.57
Granted 545,528 $5.00 - $6.75
Exercised (86,470) $3.57
Expired (17,512) $3.57
---------
Outstanding as of July 31, 1992 995,608 $3.57 - $6.75
Exercised (209,605) $3.57
Expired (3,500) $5.00
---------
Outstanding as of July 31, 1993 782,503 $2.14 - $3.57
Granted 1,513,000 $2.75 - $7.125
Exercised (25,000) $3.57
Expired (248,000) $6.75 - $7.125
---------
Outstanding as of July 31, 1994 2,022,503 $2.75 - $7.125
Granted 111,000 $1.875 - $2.625
Exercised -- --
Expired (141,500) $2.750 - $7.125
---------
Outstanding as of July 31, 1995 1,992,003 $1.875 - $7.125
Granted 600,000 $.50 - $.87
Exercised -- --
Expired -- --
---------
Outstanding as of July 31, 1996 2,592,003 $.50 - $7.125
Granted -- --
Exercised -- --
Expired -- --
Outstanding as of July 31, 1997 2,592,003 $.50 - $7.125
---------
Exercisable 2,592,003
---------
</TABLE>
Options outstanding as of July 31, 1991, for the purchase of 86 049 shares of
the Company's common stock were exercised during April 1992 by the surrender of
28,502 shares of the Company's common stock.
Options outstanding as of July 31, 1992, for the purchase of 209,605 shares of
the Company's common stock were exercised by and the subscription notes
receivable were paid by the surrender of 95,649 shares of the Company's common
stock.
F-14
<PAGE> 62
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS - CONTINUED
In connection with the initial public offering on June 23, 1992, the Company
issued representative's options to purchase up to an aggregate of 225,000 shares
of the Company's common stock and 225,000 warrants at an initial purchase price
of $11.138 per share of the Company's common stock and $.165 per non-redeemable
warrant. These options are exercisable from June 24, 1993 through September 3,
2003. The non-redeemable warrants issuable upon exercise of the representative's
options are not subject to redemption by the Company. The options also contain
provisions providing for adjustment of the exercise price upon occurrence of
certain events, including the issuance of shares of common stock or other
securities convertible into or exercisable for shares of common stock at a price
per share less than the exercise price or the market price, recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transactions. The representative's options have not been included in the above
table. (See Note 16 - Subsequent Events.)
NOTE 11 - WARRANTS
During the year ended July 31, 1992, the Company issued redeemable warrants to
purchase 2,587,500 shares of common stock of the Company at a purchase price of
$8.10 per share, exercisable from June 24, 1993 through June 23, 1997. During
the year ended July 31, 1992, the Company issued warrants to purchase 45,049
shares of common stock of the Company at $3.93 per share and 34,727 shares at
$5.50 per share expiring at various dates through December 1994. During the year
ended July 31, 1994, warrants for the purchase of 18,550 shares of the Company's
common stock at a purchase price of $3.93 were exercised and warrants for the
purchase of 26,499 shares of the Company's common stock at a purchase price of
$3.93 expired. During the year ended July 31, 1995, warrants for the purchase of
50,000 shares at an exercise price of $1.00 were issued, warrants for the
purchase of 34,727 shares at an exercise price of $5.50 expired, and no warrants
were exercised during the year. Warrants for the purchase of 2,637,500 shares of
the Company's common stock remain outstanding as of July 31,1996 and 1997. (See
Note 16 - Subsequent Events.)
NOTE 12 - RELATED PARTY TRANSACTIONS
During the three years ended July 31, 1996, the Company borrowed various amounts
from a principal shareholder and former director of the Company and his family
members, who are also shareholders. The shareholder was a director during the
year ended July 31, 1996. As of July 31, 1997, the Company was indebted to this
shareholder in the amount of $614,000 through a line-of-credit agreement bearing
interest at 10%.
During the year ended July 31, 1996, the Company expensed $219,000 in consulting
legal, and administrative fees owed to a principal shareholder. The Company was
also indebted to this shareholder's law firm for $174,000 for legal fees in
association with the reorganization.
During the year ended July 31, 1994, the Company contracted with an engineering
consulting firm, whose Chief Executive Officer and President was also a director
of the Company, to develop a new model of the CYP machine. During the years
ended July 31, 1994, 1995, and 1996 the Company incurred approximately
$2,733,000, $2,643,000, and $0, respectively, in fees to this firm.
During the year ended July 31, 1996, consulting fees of $50,000 were paid to a
capital Company whose Chairman is a former director of the Company. Also during
the year ended July 31, 1996, $50,000 was borrowed from this capital Company.
F-15
<PAGE> 63
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - RELATED PARTY TRANSACTIONS - CONTINUED
During the year ended July 31, 1996, the Company borrowed approximately $16,000
from an officer of the Company. The amount was also paid back to the officer
during the year.
During the year ended July 31, 1996, 200,000 shares of the Company's common
stock were issued to two former directors in consideration for services rendered
to the Company.
During the year ended July 31, 1997, no related party transactions occurred.
NOTE 13 - DOMESTIC AND EXPORT SALES
The following table summarizes the sales of the Company:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
North America $ 1,041,189 $ 1,200,322 $ 1,659,928
Asia 56,739 24,822 32,432
Pacific Rim 1,783,241 58,854 38,226
Europe 744,923 21,501 834,958
------------- ------------- -------------
Total sales $ 3,626,092 $ 1,305,499 $ 2,565,544
============= ============= =============
</TABLE>
NOTE 14 - MAJOR CUSTOMERS
Substantially all sales were made to two customers during the year ended July
31, 1995, two customers during the year ended July 31, 1996 and four customers
during the year ended July 31, 1997.
NOTE 15 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the tax bases of those assets and liabilities. Significant
components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Deferred tax assets
Accounts receivable $ 16,000 $ 16,000
Inventory -- 96,000
Accrued expenses and reserves 12,683 14,000
Net operating loss carryforward 8,642,000 8,006,000
Valuation allowance (6,670,683) (8,132,000)
----------- -----------
Net deferred tax assets $ 2,000,000 $ --
=========== ===========
</TABLE>
As of July 31, 1997, the Company had net operating loss carryforwards of
approximately $22,869,000 available to offset future taxable income which will
expire in various years through 2011.
F-16
<PAGE> 64
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES - CONTINUED
Realization of deferred tax assets associated with the net operating loss
carryforwards and reversals of the temporary differences is dependent upon
generating sufficient taxable income prior to expiration of the NOL
carryforwards. Even though the Company has incurred tax losses for seven of the
past nine fiscal years, management believes that it is more likely than not, it
will generate taxable income sufficient to realize a portion of the tax benefit
associated with future deductible temporary differences and NOL carryforwards
prior to their expiration. This belief is based upon, among other factors,
changes in operations that have occurred during the last two years.
Specifically, cost savings by bringing Research and Development in house and by
better usage of just-in-time inventory control. The Company has assessed the
trends regarding patterned carpet and with consideration of its current
marketing strategies, anticipates a continued improvement in operating results.
Management believes that a valuation allowance is appropriate given the current
estimates of future taxable income. If the Company is unable to generate
sufficient taxable income in the future through operating results, increases in
the valuation allowance will be required through a charge to expense. However,
if the Company achieves sufficient profitability to utilize a greater portion of
the deferred tax asset, the valuation allowance will be reduced through a credit
to income.
NOTE 16 - SUBSEQUENT EVENTS
The Company's plan of reorganization was confirmed by the United States
Bankruptcy Court on August 18, 1997. As provided for in the plan of
reorganization, the Company has received the $2,500,000 proceeds from the
Regulation D offering. $500,000 of the proceeds will be applied to satisfy the
Class 7 claims (as indicated in the plan of reorganization) and the remaining
proceeds will be applied to provide operating capital for the continuation of
the Company's business. Upon confirmation of the plan of reorganization, all
outstanding stock options are cancelled; all redeemable warrants are modified to
reduce the exercise price to $1.00 and the exercise period is extended to August
31, 2000. As provided by the plan or reorganization, all Class 8 claims
(convenience class) have been paid in full.
NOTE 17 - ASSETS SUBJECT TO LIENS
The Company has pledged two of its CYP machines as collateral on two customer
deposits. These machines are currently included in work-in-process inventory.
The machines pledged and the related deposit balances are as follows:
<TABLE>
<CAPTION>
Collateral's Work-In
Collateral Process Book Value Deposit Book Balance
Description as of July 31, 1997 as of July 31, 1997
------------ --------------------- --------------------
<S> <C> <C>
4.4 Meter CYP machine $445,000 $200,000
4.4 Meter CYP machine 445,000 200,000
</TABLE>
The Company has pledged one of its notes receivable as collateral on a note
payable. This pledge was subsequently assigned as collateral on an accrued
expense. The note pledged and other related accrued expense balances are as
follows:
<TABLE>
<CAPTION>
Collateral Collateral's Book Value Accrued Expense Balance
Description as of July 31, 1997 as of July 31, 1997
----------- ----------------------- -----------------------
<S> <C> <C>
Note receivable $300,000 $125,263
</TABLE>
F-17
<PAGE> 65
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
SCHEDULE I
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Cost and at End
of Year Expenses Deductions of Year
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
-------------------------------
Year ended July 31, 1997 $ 39,905 $ -- $ -- $ 39,905
---------- ---------- ------------ ---------
Allowance for Obsolete Inventory
--------------------------------
Year ended July 31, 1997 $ 978,656 $ -- $ 978,656 $ --
---------- ---------- ------------ ---------
Allowance for Uncollectible Long-
---------------------------------
Term Receivables
----------------
Year ended July 31, 1997 $ 500,000 $ -- $ -- $ 500,000
---------- ---------- ------------ ---------
</TABLE>
F-18
<PAGE> 66
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED PRO FORMA BALANCE SHEET
(UNAUDITED)
July 31, 1997
ASSETS
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
Balance Sheet (See Note A) Balance Sheet
-------------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 27,946 $ 2,500,000 (a) $
(500,000)(f) 2,027,946
Receivables, net of allowance of $39,905 720,740 720,740
Notes receivable 350,000 350,000
Inventory 1,231,002 1,231,002
Prepayments 102,453 102,453
Deferred income taxes 100,000 100,000
-------------- -------------
Total current assets 2,532,141 4,532,141
PROPERTY AND EQUIPMENT, NET 564,324 564,324
OTHER ASSETS -- --
Long-term receivables, net of allowance
of $500,000 263,068 263,068
Patents and patent license 8,247 8,247
Other 1,900,000 1,900,000
Deferred income taxes -------------- -------------
2,171,315 2,171,315
-------------- -------------
Total other assets
TOTAL $ 5,267,780 $ 7,267,780
============== =============
</TABLE>
See Note to Consolidated Pro Forma Balance Sheet.
F-19
<PAGE> 67
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED PRO FORMA BALANCE SHEET
(UNAUDITED)
July 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
Balance Sheet (See Note A) Balance Sheet
------------- ------------ -------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 4,315 $ $ 4,315
Accounts payable 178,068 178,068
Accrued expenses 655,621 (225,000) (c)
(150,000) (d) 280,621
Customer deposits 936,026 936,026
----------- --------------
Total current liabilities 1,774,030 1,399,030
LIABILITIES SUBJECT TO SETTLEMENT
UNDER REORGANIZATION PROCEEDINGS 2,520,557 (613,894) (b)
(150,000) (e)
(500,000) (f) 1,256,663
LONG-TERM DEBT 744 744
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value - 2,000,000
shares authorized; no shares issued and
outstanding -- --
Common stock - $.0004 par value - 100,000,000
shares authorized; 10,581,813 issued; pro
forma issued 34,841,108 4,233 6,6667 (a)
1,637 (b)
600 (c)
400 (d)
400 (e) 13,937
Additional paid-in capital 22,899,108 2,493,333 (a)
612,257 (b)
224,400 (c)
149,600 (d)
149,600 (e) 26,528,298
Accumulated deficit (21,918,100) (21,918,100)
Treasury stock - 55,518 shares outstanding,
at cost (12,792) (12,792)
----------- --------------
Total stockholders' equity 972,449 4,611,343
----------- --------------
TOTAL $ 5,267,780 $ 7,267,780
=========== ==============
</TABLE>
See Note to Consolidated Pro Forma Balance Sheet
F-20
<PAGE> 68
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTE TO CONSOLIDATED PRO FORMA BALANCE SHEET
(UNAUDITED)
NOTE A - Plan of Reorganization Adjustments
The Company's plan of reorganization was confirmed by the United States
Bankruptcy Court on August 18, 1997.
The plan of reorganization requires the Company to issue 24,259,295 shares of
common stock which will dilute current equity interests.
The following adjustments when applied to the historical balance sheet of the
Company will give the effect of the plan of reorganization.
(a) To record issuance of 16,666,667 shares of Tapistron's common stock at
$.15 per share.
(b) To record settlement of class 6 claims, including discharge of $613,894
in return for the issuance of Tapistron's common stock at the rate of 1
share for every $.15 of allowed claim (4,092,628 sh.).
(c) To record settlement of allowed class 4 claims, including discharge of a
$225,000 administrative claim in return for the issuance of 1,500,000
shares of Tapistron's common stock.
(d) To record settlement of allowed administrative claim of Ameristar
Insurance Services, Inc., including discharge of $150,000 in return for
the issuance of 1,000,000 shares of Tapistron's common stock.
(e) To record issuance of 1,000,000 shares of Tapistron's common stock in
partial payment of allowed class 7 claims, at the rate of $.15 per
share.
(f) To record initial cash payment of allowed class 7 claims, including
prorata distribution of cash in the amount of $500,000.
F-21
<PAGE> 69
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or by any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the registered
securities to which this Prospectus relates or any offer to any person in any
jurisdiction where such an offer would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof.
<PAGE> 70
---------------------------------
TABLE OF CONTENTS
---------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................................................................................................ 5
The Company........................................................................................................ 5
Recent Developments................................................................................................ 6
The Registered Offering............................................................................................ 6
Summary Consolidated Historical Financial Information of the Company............................................... 7
Risk Factors....................................................................................................... 8
Use of Proceeds.................................................................................................... 12
Common Stock Price Range........................................................................................... 12
Dividend Policy.................................................................................................... 14
Capitalization..................................................................................................... 14
Selected Consolidated Historical Financial Information of the Company.............................................. 15
Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 16
Business........................................................................................................... 20
Management......................................................................................................... 27
Certain Relationships and Related Transactions..................................................................... 33
Principal Stockholders............................................................................................. 34
Registering Stockholders........................................................................................... 35
Description of Capital Stock....................................................................................... 37
Certain Provisions of Georgia Law and of the Company's Charter and Bylaws.......................................... 38
Shares Eligible for Future Sale.................................................................................... 42
Plan of Distribution............................................................................................... 43
Legal Matters...................................................................................................... 44
Experts............................................................................................................ 44
Available Information.............................................................................................. 44
Index to Financial Statements...................................................................................... F-1
</TABLE>
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other
than underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby.
<TABLE>
<S> <C>
Commission Registration Fee....................... $ 2,500
Accounting fees and expenses...................... $ *
Blue Sky fees and expenses........................ $ 7,500
Legal fees and expenses........................... $40,000
Printing and engraving expenses................... $ 5,000
Transfer Agent fees............................... $ 2,000
Miscellaneous and other expenses.................. $ 1,000
-------
TOTAL........................................... $ *
=======
</TABLE>
- ------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Georgia corporation. Sections 856 and 857 of the
Georgia Business Corporation Code empowers the Company to indemnify, subject to
the standards set forth therein, any person who is a party in any action in
connection with any action, suit or proceeding brought or threatened by reason
of the fact that the person was a director, officer, employee or agent of such
company, or is or was serving as such with respect to another entity at the
request of such company. The Georgia Business Corporation Code also provides
that the Company may purchase insurance on behalf of any such director, officer,
employee or agent.
The Company's Articles and Bylaws provide in effect for the
indemnification by the Company of each director and officer of the Company to
the fullest extent permitted by applicable law.
<PAGE> 72
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Amended Plan confirmed on August 18, 1997,
former creditors of the Company converted their interests into an aggregate of
7,592,650 shares of the Company's common stock, $.0004 par value. Such sales
were made pursuant to ss. 1145 of the United States Bankruptcy Code.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Unless otherwise indicated, all exhibits have been previously filed.
2.1 First Amended and Restated Plan of Reorganization +
2.2 First Amendment to First Amended and Restated Plan of
Reorganization +
2.3 Order Confirming Debtor's First Amended and Restated Plan of
Reorganization +
3.1 Articles of Incorporation of the Registrant, as amended*
3.2 By-Laws of the Registrant*
3.3 Amendment to Articles of Incorporation*
4.1 Registration Rights Agreement +
4.3 Specimen Common Stock Certificate*
5.1 Opinion of Counsel regarding Legality +
10.1 1992 Stock Option Plan*
10.2 1989 Stock Option Plan*
10.3 Lease for Registrant's Facility*
10.4 Option Agreement to Purchase Technology between the Registrant
and Ful-Dye, Inc.*
10.5 Form of Consulting Agreement with the Representative*
10.6 First Exclusive License Agreement with Ful-Dye, Inc.*
10.8 Exclusive License Agreement with Ful-Dye, Inc.*
10.10 Exclusive Sales Representative Agreement with Asahi* Trading
Co., Ltd.*
13.1 Form 10-Q +
21.1 List of Subsidiaries +
23.1 Consent of Independent Certified Accountants +
23.2 Consent of Legal Counsel +
27 Financial Data Schedule (for SEC use only) ++
<PAGE> 73
- --------------------
* Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Registration Statement on Form S-1, File
Number 33-47759, declared effective by the Securities and Exchange
Commission on June 24, 1992.
** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July
31, 1992.
*** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July
31, 1993.
**** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July
31, 1994.
+ Filed herewith
++ To be filed by amendment
(b) Report on Form 8-K - The Registrant did not file a Form 8-K report
during the last quarter of the period covered by this report.
(c) Exhibits. See (a)3. above.
(d) Financial Statement Schedules. The response to this portion of Item
14, is submitted under Item 14.(a) 1. and 2. above.
- ---------
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions
under which they are required or because the information required by such
omitted schedules is set forth in the financial statements or the notes thereto.
<PAGE> 74
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold as of the termination
of the offering.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A
<PAGE> 75
and contained in a form of prospectus filed by the registrant pursuant to Rule
424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Tapistron International, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, State of Georgia, on February 6, 1998.
TAPISTRON INTERNATIONAL, INC.
By: /s/ J. Darwin Poe
--------------------------------------------
Name: J. Darwin Poe
Title: President, Chief Executive Officer
and Vice Chairman of the Board of
Directors
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints J.
Darwin Poe and Floyd S. Koegler, Jr. and each of them, with full power to act
without the other, such person's true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign this Registration Statement,
and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in- fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 76
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ J. Darwin Poe President, Chief Executive Officer February 4, 1998
- ------------------------------ and Vice Chairman of the --------------------
J. DARWIN POE Board of Directors
/s/ Kim Amos Director February 4, 1998
- ------------------------------ --------------------
KIM AMOS
/s/ Gary L. Coulter Director and Secretary February 4, 1998
- ------------------------------ --------------------
GARY L. COULTER
/s/ Floyd S. Koegler, Jr. Chief Financial Officer February 4, 1998
- ------------------------------ --------------------
FLOYD S. KOEGLER, JR.
Chairman of the
/s/ Reg Burnett Board of Directors February 4, 1998
- ------------------------------ --------------------
REG BURNETT
/s/ Rodney C. Hardeman, Jr. Director February 4, 1998
- ------------------------------ --------------------
RODNEY C. HARDEMAN, JR.
</TABLE>
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
2.1 First Amended and Restated Plan of Reorganization +
2.2 First Amendment to First Amended and Restated Plan of Reorganization +
2.3 Order Confirming Debtor's First Amended and Restated Plan of
Reorganization +
3.1 Articles of Incorporation of the Registrant, as amended*
3.2 By-Laws of the Registrant*
3.3 Amendment to Articles of Incorporation*
4.1 Registration Rights Agreement +
4.3 Specimen Common Stock Certificate*
5.1 Opinion of Counsel regarding Legality +
10.1 1992 Stock Option Plan*
10.2 1989 Stock Option Plan*
10.3 Lease for Registrant's Facility*
10.4 Option Agreement to Purchase Technology between the Registrant and
Ful-Dye, Inc.*
10.5 Form of Consulting Agreement with the Representative*
10.6 First Exclusive License Agreement with Ful-Dye, Inc.*
10.8 Exclusive License Agreement with Ful-Dye, Inc.*
10.10 Exclusive Sales Representative Agreement with Asahi Trading Co., Ltd.*
13.1 Form 10-Q +
21.1 List of Subsidiaries +
23.1 Consent of Independent Certified Accountants +
23.2 Consent of Legal Counsel +
27 Financial Data Schedule (for SEC use only) ++
</TABLE>
- -----------------
* Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Registration Statement on Form S-1, File
Number 33-47759, declared effective by the Securities and Exchange
Commission on June 24, 1992.
** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July
31, 1992.
<PAGE> 78
*** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July
31, 1993.
**** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July
31, 1994.
+ File herewith
++ To be filed by amendment
<PAGE> 1
EXHIBIT 2.1
<PAGE> 2
IN THE UNITED STATES BANKRUPTCY
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: * Case No. 96-69563
*
TAPISTRON INTERNATIONAL, INC., * CHAPTER 11
*
Debtor. * JUDGE MASSEY
*
- --------------------------------------
FIRST AMENDED AND RESTATED
PLAN OF REORGANIZATION OF
TAPISTRON INTERNATIONAL, INC.
Tapistron International, Inc., a Georgia corporation ("DEBTOR"),
proposes the following First Amended and Restated Plan of Reorganization
("Plan") pursuant to the provisions of Chapter 11 of the Bankruptcy Code, 11
U.S.C. Sec. 101, et seq. (the "BANKRUPTCY CODE").
ARTICLE 1
DEFINITIONS
As used in this Debtor's Plan, the following terms shall have the
respective meanings set forth below, and, unless the context requires
otherwise, such meanings shall be equally applicable to the singular and plural
forms of the terms defined. Unless otherwise defined herein, the terms used in
this Debtor's Plan shall have the same meaning ascribed thereto in the
Bankruptcy Code and the Bankruptcy Rules.
1.1 "ADMINISTRATIVE CLAIM" means any Allowed Claim for payment of
any cost or expense of administration of this Bankruptcy Case that has been
allowed pursuant to Sections 503(b) and 507(a)(1) as entitled to priority under
the Bankruptcy Code.
<PAGE> 3
1.2 "ALLOWED CLAIM" means any Claim: (a) based on an application
of a Professional Person to the extent such application is approved by a Final
Order; (b) allowed under this Debtor's Plan; or (c) proof of which was either
timely and properly filed, deemed filed under applicable law or by reason of an
order of the Court or, if no proof of claim was filed or order entered, which
has been or hereafter is listed by the Debtor on its schedules filed under
Section 521(1) of the Bankruptcy Code as liquidated in amount and not disputed
or contingent, provided that a timely filed proof of claim shall supersede any
scheduling of such Claim, and, in either case, a Claim as to which (i) no
objection to the allowance thereof has been within any applicable period of
limitation as may be fixed by the Bankruptcy Code or by an order of the Court,
or (ii) any such objection has been withdrawn pursuant to the provisions of
this Debtor's Plan or has been overruled by a Final Order of the Court.
1.3 "ALLOWED SECURED CLAIM" means that portion of an Allowed Claim
equal to the value, as filed or as determined by the Bankruptcy Court pursuant
to Section 506(a) of the Bankruptcy Code and Rule 3012 of the Bankruptcy Rules,
of the interest of the holder of the Allowed Secured Claim in the property of
the Debtor or of the estate securing such Allowed Claim.
1.4 "ASSETS" means all real and personal property of the Debtor on
the Effective Date including, without limitation, cash and the Causes of Action
of the Debtor.
- 2 -
<PAGE> 4
1.5 "BANKRUPTCY CASE" or "CASE" means this Chapter 11
reorganization case commenced by the filing of a voluntary petition by the
Debtor on June 21, 1996, bearing Case No. 96-69563,now pending in the Court.
1.6 "BANKRUPTCY CODE" means Title 11 of the United States Code.
1.7 "CAUSES OF ACTION" means all claims of the Debtor against
third parties, including, but not limited to, actions for avoidance of
transfers pursuant to Sections 544, 545, 546, 547, 548, 549, and 550 of the
Bankruptcy Code.
1.8 "CLAIM" means a right to payment or to an equitable remedy as
set forth in Section 101(4) of the Bankruptcy Code.
1.9 "CLAIMANT" means the holder of a Claim.
1.10 "CLASS" means a category of holders of Claims as defined in
Section 1122 of the Bankruptcy Code.
1.11 "CONFIRMATION" and "CONFIRMATION DATE" shall refer to the date
of entry of a Final Order confirming this Debtor's Plan pursuant to Section
1129 of the Bankruptcy Code.
1.12 "CONTESTED CLAIM" shall mean a claim (or portion thereof)
which is a Disputed Claim or for which: (a) a proof of claim was or is deemed
filed under applicable law or order of the Bankruptcy Court; (b) an objection
was or is deemed to be timely filed; and (c) such objection is not: (i)
withdrawn or resolved by stipulation with the Debtor pursuant to the Claims
Order or (ii) determined in whole or part by a Final Order. For purposes of
the Debtor's Plan, a Claim shall be considered a Contested Claim, in
- 3 -
<PAGE> 5
whole or in part, as applicable; before the time that an objection is filed,
but only until the expiration of the time for filing objections to claims, if:
(x) the amount or classification of the Claim specified in the proof of claim
exceeds the amount of or differs in classification from any corresponding Claim
scheduled by the Debtor in its Schedules in the case; (y) any corresponding
Claim scheduled by the Debtor is scheduled as disputed, contingent or
unliquidated; or (z) no corresponding Claim is scheduled by the Debtor in its
Schedules for the Case.
1.13 "CONVENIENCE CLAIM" shall mean an Unsecured Claim against the
Debtor in the amount of $1,200 or less and any Unsecured Claim against the
Debtor in excess of $1,200 that is reduced to $1,200 by election of the holder
thereof; provided that, for purposes hereof, all such Unsecured Claims held by
an entity or by any entity and any affiliate of an entity shall be aggregated
and treated as one such Unsecured Claim; and provided further that, for
purposes hereof, if all or any part of an Unsecured Claim was or is assigned,
the Unsecured Claims held by all assignees of such Unsecured Claim shall be
treated as one such Unsecured Claim.
1.14 "COURT" means the United States Bankruptcy Court for the
Northern District of Georgia.
1.15 "CREDITOR" means a Claimant that is the holder of: (a) a Claim
against the Debtor that arose on or before the Petition Date; (b) a Claim
against the Debtor's estate of the kind specified in Sections 502(g), 502(h) or
502(i) of the Bankruptcy Code; or (c) an Administrative Claim.
- 4 -
<PAGE> 6
1.16 "CULBRETH LOAN DOCUMENTS" means the documents and instruments
as amended from time to time evidencing and securing the loan made or credited
extended by Robert E. Culbreth to Debtor prior to commencement of Debtor's
Chapter 11 case. The documents include a UCC Financing Statement filed as No.
###-##-#### on November 11, 1995, in Catoosa County, Georgia.
1.17 "DEBTOR" means Tapistron International, Inc., a Georgia
corporation, and to the extent applicable, includes the said corporation in its
status as a debtor in possession under Sections 1101 and 1107 of the Bankruptcy
Code.
1.18 "DEBTOR'S PLAN" means this Plan of Reorganization and any
modifications or amendments thereto.
1.19 "DEMOSS LOAN DOCUMENTS" means the documents and instruments as
amended from time to time evidencing and securing the loan made or credited
extended by The Arthur S. DeMoss Foundation to Debtor prior to commencement of
Debtor's Chapter 11 case. The documents include an Addendum to Security
Agreement dated August (no day), 1996 that references a security agreement dated
July (no day), 1996.
1.20 "DISBURSING AGENT" means the individual or entity appointed by
agreement of the Debtor and the Creditors' Committee on or before the
Confirmation Date or in the absence of an agreement such individual or entity
appointed by the Court for the purposes of making disbursements to Class 7
creditors pursuant to Section 3.7 of the Plan and administering the Debtor's
obligations pursuant to Section 3.7 of the Plan.
- 5 -
<PAGE> 7
1.21 "DISPUTED CLAIM" means any Claim that has been scheduled by
the Debtor as contingent, unliquidated or disputed, or with respect to which an
objection has been interposed in accordance with the Bankruptcy Code, the
Bankruptcy Rules, this Debtor's Plan or an order of the Bankruptcy Court.
1.22 "DISTRIBUTION DATE" shall mean the date that is as soon as
practicable on or after the later of (a) the Effective Date or (b) the date
upon which the Claim becomes an Allowed Claim or Allowed Administrative Claim;
and for other purposes, the date the initial distributions are made to holders
of Allowed Claims under the Plan.
1.23 "EFFECTIVE DATE" means the eleventh (11th) day after entry of
Order confirming the Debtor's Plan with no appeal pending and all applicable
appeal periods having expired.
1.24 "FACILITY" means the Debtor's office and manufacturing plant
on Alabama Highway in Ringold, Georgia.
1.25 "FINAL ORDER" means an order as to which any appeal that has
been or may be taken has been resolved or as to which the time for appeal has
expired and no appeal has been taken.
1.26 "LANDAV LOAN DOCUMENTS" means the documents and instruments as
amended from time to time evidencing and securing the loan made or credited
extended by Landav, Inc. to Debtor prior to commencement of Debtor's Chapter 11
case. The documents include a UCC Financing Statement filed as No. 023-95-939
on August 24, 1995 in Catoosa County, Georgia and a UCC Financing Statement
filed
- 6 -
<PAGE> 8
as No. 023-96-704 on June 3, 1996, in Catoosa County, Georgia, which references
a security agreement dated July 16, 1996.
1.27 "PETITION DATE" means June 21, 1996, the date on which the
voluntary petition in this Bankruptcy Case was filed.
1.28 "PARKER LOAN DOCUMENTS" means the documents and instruments as
amended from time to time evidencing and securing the loan made or credit
extended by Albert N. Parker to Debtor prior to commencement of Debtor's
Chapter 11 case. The documents include a UCC Financing Statement filed as No.
023-95-397 on August 24, 1995, in Catoosa County, Georgia.
1.29 "PROFESSIONAL PERSONS" means any person or entity employed or
engaged by the Debtor and entitled to compensation pursuant to Section 326,
327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy Code.
1.29 "REORGANIZED DEBTOR" shall mean the Debtor following
Confirmation of the Debtor's Plan.
1.30 "SECURED CLAIM" means a Claim which is secured by property of
the Debtor or of the estate.
1.31 "UNSECURED CLAIM" means a Claim against the Debtor that is
neither a Secured Claim, nor a Claim entitled to priority under Section 507 of
the Bankruptcy Code.
ARTICLE 2
CLASSIFICATION OF CLAIMS AND INTERESTS
2.1 All Claims against the Debtor shall be divided into Classes as
follows:
- 7 -
<PAGE> 9
(a) Class 1 shall consist of all Administrative Claims
allowed under 11 U.S.C. Section 503, including but not limited to compensation
and reimbursement allowed under 11 U.S.C. Section 330 to attorneys for the
Debtor as a debtor in possession and any other Professional Person employed
pursuant to 11 U.S.C. Section 327 and as allowed by the Court except for the
Class 2, 3, and 4 Claimants. Class 1 shall also include all then unpaid
quarterly fees payable to the United States Trustee under 28 U.S.C. Section
1930.
(b) Class 2 shall consist of all Allowed Claims
entitled to priority under 11 U.S.C. Section 507(a)(3) and (4). Debtor
believes that there are no Class 2 Claims.
(c) Class 3 shall consist of all Allowed Claims
entitled to priority under 11 U.S.C. Section 507(a)(8). Debtor believes that
there are no Class 3 Claims.
(d) Class 4: The Allowed Administrative Claim of
Avonwood Capital Corporation as Debtor's investment banker for post-petition
payments due for professional services to Debtor.
(e) Class 5 shall consist of the Allowed Secured Claim
of the holders of the DeMoss Loan Documents and the Culbreth Loan Documents and
the Parker Loan Documents, which are secured by liens upon the Debtor's
personal property plus such other security as may exist under the respective
Loan Documents which is determined to be property of the Debtor.
(f) Class 6 shall consist of the Allowed Claim of the
holders of the Landav Loan Documents.
- 8 -
<PAGE> 10
(g) Class 7 shall consist of all Unsecured Claims,
including Contested Claims.
(h) Class 8 shall consist
of all Convenience Claims.
(i) Class 9 shall consist of the holders of the
outstanding common stock of Debtor.
(j) Class 10 shall consist of the holders of the
outstanding Redeemable Warrants to acquire common stock of Debtor.
(k) Class 11 shall consist of the holders of outstanding
options to acquire common stock of Debtor.
2.2 Unimpaired Classes. Claims of Creditors in Classes 1 through
5 and 8 are not impaired under the provisions of 11 U.S.C. Section 1124, and
Classes 1 through 5 and 8 are therefore deemed to have accepted this Debtor's
Plan, in accordance with the provisions of 11 U.S.C. Section 1126(f).
2.3 Impaired Classes. The Debtor's Plan does not leave unaltered
the legal, equitable and contractual rights of Creditors in Classes 6 and 7 and
interest holders in Classes 9, 10 and 11, and those parties in interest are
impaired under the provisions of Section 1124 of the Bankruptcy Code. Such
parties in interest shall be entitled to vote to accept or reject this Plan.
ARTICLE 3
TREATMENT OF CLASSES AND INTERESTS
The following Classes, in full satisfaction of their Allowed Claims,
shall receive the following:
- 9 -
<PAGE> 11
3.1 The Holders of Allowed Class 1 Claims shall be paid in full on
the Confirmation Date or upon such other payment terms as may be agreed upon by
the holder of any Class 1 Claim. In the event that the Claim of any
Professional Person has not been approved by the Court by the Confirmation
Date, such Claim shall be paid at the time that a Final Order is entered
allowing such Claim.
3.2 Debtor believes that there are no Class 2 Claims. To the
extent that there are any, they will be paid on the Distribution Date.
3.3 Debtor believes that there are no Class 3 Claims. To the
extent that there are any, they will be paid on the Distribution Date.
3.4 The Holder of the Allowed Class 4 Claim shall be satisfied in
accordance with the terms of its employment as approved by the Court on
November 12, 1996 by monthly payments of $3,000 per month for three months and
by the receipt of 1.5 million shares of the common stock of Debtor to be issued
pursuant to Section 5.5 of the Plan and Section 1145 of the Bankruptcy Code
within four (4) months following the Effective Date.
3.5 The Holder of the Allowed Class 5 Claim shall be paid in full
from proceeds of collateral encumbered by their respective Loan Documents as
such collateral is sold. At this time, the claims of Albert Parker and the
DeMoss Foundation have already been paid from the liquidation of their
collateral.
3.6 The Holders of the Allowed Class 6 Claims shall release their
Claims in exchange for the common stock of Debtor to be
- 10 -
<PAGE> 12
issued pursuant to Section 5.5 of this Plan at the rate of one share for each
15c. of the Allowed Claim. Their liens shall be released and cancelled.
3.7 Each holder of an Allowed Class 7 Unsecured Claim shall be
paid in full, unless the creditor elects to accept a discounted amount or the
creditor and the Debtor agree to different terms, with interest from stock and
cash payments as follows:
(a) Each creditor shall receive its pro rata share (based on the
amount of its Allowed Claim compared to the total of Class 7 Allowed Claims) of
(i) cash in the amount of $500,000 plus (ii) its pro rata share of a second
aggregate payment of $500,000 together with interest at the rate of 8.75% per
annum payable based on twelve thirty day months.
(b) Within fifteen (15) days from the Effective Date, the Debtor
shall deposit the sum of $500,000 with the Disbursing Agent who shall on the
Distribution Date disburse such sum pro-rata (based on the amount of a
creditor's Allowed Claim compared to the total of Class 7 Allowed Claims) to
Class 7 creditors in accordance with this Section 3.7 and Section 5.2 of this
Plan.
(c) Within ten (10) days from the date on which the Debtor
receives full or final payment for each new machine sold and shipped by the
Debtor post confirmation, exclusive of any sample machines, the Debtor shall
pay to the Disbursing Agent the sum of $50,000. In addition, the Debtor shall
pay to the Disbursing Agent accrued interest on the outstanding remaining
principal balance of this second $500,000 to the Disbursing Agent on a
quarterly basis
- 11 -
<PAGE> 13
within fifteen (15) days of the end of each fiscal quarter for the preceding
quarter or portion thereof in the case of the first fiscal quarter after the
Confirmation Date. Within thirty (30) days of the end of each fiscal quarter
and provided that the Disbursing Agent holds at least $100,000 unless it is the
last disbursement, the Disbursing Agent shall disburse such sums deposited with
it pro-rata (based on the amount of a creditor's Allowed Claim compared to the
total of Class 7 Allowed Claims) to Class 7 creditors in accordance with this
Section 3.7 and Section 5.2 of this Plan. If any payment due hereunder remains
unpaid for more than thirty (30) days after the Debtor's receipt of written
notice from the Chairperson of the Creditor's Oversight Committee ("Oversight
Committee") constituted pursuant to Section 3.7(e), then all remaining amounts
due pursuant to this Section 3.7(c) together with the actual reasonable
attorney's fees for collection shall become immediately due and payable and the
Oversight Committee may, as the representative of all Class 7 creditors,
commence such action as is necessary to recover such remaining amounts for the
benefit of Class 7 creditors and any amounts recovered by it shall first be
applied to the costs of collection and thereafter to distribution to Class 7
creditors in the manner provided for in this Section 3.7(c).
(d) The balance of the claims of Class 7 creditors, the total
amount of Allowed Class 7 claims less $1,000,000, shall be paid as follows. On
or before the Confirmation Date, a Class 7 creditor may elect in writing one of
the following two options with respect
- 12 -
<PAGE> 14
to the payment of the balance of its claim. The election shall be irrevocable
and shall be made on a form to be supplied by the Debtor with the ballot in
this case and filed with the Bankruptcy Court. Any creditor who fails to file
a ballot or to elect Option 1 shall be deemed to have elected Option 2. A
Class 7 creditor may elect to receive:
OPTION 1: the sum of 15% of the balance of its claim (its Allowed
Claim less the amounts due to it pursuant to Sections 3.7(b) and (c) in cash in
full and complete satisfaction of the remaining portion of its claim to be paid
with the payment made pursuant to Section 3.7(b) of this Plan. This option
shall be limited to the holders of the first $750,000 of Allowed Claims which
make this election, although the Debtor shall have the sole and exclusive
option to increase this amount; or
OPTION 2: on the Distribution Date its pro rata share (based on the
amount of its Allowed Claim compared to the total of Class 7 Allowed Claims) of
1,000,000 shares of common stock issued by the Debtor pursuant to Article 5.4
of the Plan provided that there shall be no fractional shares. At any time on
or prior to September 30, 2000 ("Final Settlement Date"), each Class 7 creditor
shall, at the sole and exclusive option of the Debtor, receive an additional
cash payment or additional shares of common stock based on the average of the
closing prices of the Debtor's common stock for the period that is not less
than five (5) nor more than thirty-five (35) trading days prior to the Final
Settlement Date such that the total amount received by Class 7 creditors
pursuant to this
- 13 -
<PAGE> 15
Option 2, either in additional stock or cash, equals its prorata share of the
difference between the total amount of Allowed Class 7 claims less all
principal amounts to be paid pursuant to Section 3.7(b) and (c) ("Final Payment
Amount") together with interest at the rate of 8.75% per annum from the
Effective Date of the Plan through the Final Settlement Date. If between the
Effective Date of the Plan and the Final Settlement Date the average of the
closing prices of the Debtor's common stock for any five (5) consecutive
trading day period multiplied by 1,000,000 exceeds the Final Payment Amount
multiplied by the factor for the end of the month in which such event occurs as
set forth in Exhibit "1" attached hereto or if any Class 7 creditor shall
sell, pledge or trade the stock, directly or indirectly, issued to it on the
Distribution Date pursuant to this Section 3.7(b), then such creditors shall no
longer be entitled to any further distribution on the Final Settlement Date.
All stock issued to Class 7 creditors shall be freely tradable stock. In the
event a closing price of the Reorganized Debtor's stock for any day is not
available, then the average of the closing bid and asked price for that day
shall be used and considered the closing price for that day.
(e) While there remains any amounts outstanding pursuant to
Section 3.7(c), there shall exist a Creditor's Oversight Committee. The
Committee shall be appointed by the Bankruptcy Court at the
- ---------------------------
(1) For the purposes of Exhibit "1", month one shall be the first
calendar month following the Confirmation Date of the Plan.
- 14 -
<PAGE> 16
Confirmation Hearing and shall be comprised of those members of the Official
Committee of Unsecured Creditors who wish to serve. While there remains any
amounts outstanding pursuant to Section 3.7(c), the Debtor shall provide the
members of the Oversight Committee within thirty (30) days of the end of fiscal
quarter with a quarterly operating statement and balance sheet together with a
sales report of machines sold during the preceding fiscal quarter, the machines
expected to be delivered during the subsequent fiscal quarter and the machines
for which payment has been received in full during the previous fiscal quarter.
This post confirmation committee shall be entitled to retain such professionals
as it deems necessary to assist it in analyzing financial information and in
enforcing the provisions of Section 3.7(c) of the Plan and the Debtor shall
reimburse the Creditor's Oversight Committee for up to $12,000 of such
reasonable and necessary expenses upon presentation of invoices and other
documentation substantiating those charges. Upon the Debtor's payment of all
amounts due pursuant to Section 3.7(c), the Committee shall automatically
dissolve.
(f) The Disbursing Agent shall be paid compensation in an
aggregate amount not to exceed $15,000 by the Debtor for its services. $5,000
of the fee shall be paid with the first disbursement pursuant to Section 3.7(c)
and $2,500 paid each time a disbursement is made by the Disbursing Agent to
Class 7 creditors. In the event the Disbursing Agent resigns or is discharged
for cause by the Oversight Committee, then the Debtor
- 15 -
<PAGE> 17
shall assume the role of the Disbursing Agent for the balance of the payments
due pursuant to Section 3.7(c).
3.8 Each holder of an Allowed Class 8 Claim shall receive on the
Distribution Date payment in cash equal to the lesser of $1,200 or the Allowed
amount of such Allowed Convenience Claim. Any holder of an Allowed Unsecured
Claim (or Claims) in excess of $1,200 that desires treatment of such Claim (or
Claims) as a Convenience Claim shall have the right to receive such treatment
by making an irrevocable written election to reduce its Claim (or aggregate
Claims) to $1,200 when ballots on this Plan are due from holders of Unsecured
Claims.
3.9 The Holders of the Class 9 Claims will have their equity
interest in Debtor diluted by the common stock of Debtor issued to implement
this Debtor's Plan pursuant to Sections 5.3 and 5.5 of this Plan and any
existing preemptive rights to acquire, and other rights to limit issuance of,
Debtor's common stock shall be cancelled.
3.10 The Holders of the Class 10 Claims will have their rights to
acquire equity interest modified such that the exercise price of each
Redeemable Warrant shall be reduced to $1.00 and the time period in which to
exercise the Redeemable Warrant shall be extended to the earlier of the last
day of the thirty sixth (36th) month following the Effective Date or August 31,
2000. The first $850,000 in funds received by the Reorganized Debtor from the
exercise of these Redeemable Warrants shall be escrowed by it for payment of
the amounts due to Class 7 creditors on the Final
- 16 -
<PAGE> 18
Settlement Date. In addition, no payments or amounts shall be due or paid to
Josephthal Lyon & Ross Incorporated shall be paid from the proceeds of the
warrants.
3.11 The holders of the Class 11 Claims will have their stock
options cancelled and rejected and shall hold no claim due to the fact that
such options as worthless due to the exercise price being substantially in
excess of the market value of Debtor's common stock.
ARTICLE 4
ANALYSIS OF PLAN
Under the Debtor's Plan, all creditors will be paid as much as or more
than they would receive upon liquidation of the Debtor's assets. Classes 1
through 5 and 8 will receive payment in full. Although Class 6 is to have its
Claim satisfied by issuance of Debtor's common stock, Debtor understands that
the Class 6 Claimant has agreed to such treatment.
Class 7, unsecured creditors, will be paid in full, unless they
voluntarily agree to accept a lesser sum, through a combination of stock and
cash in satisfaction of their Allowed Claims, except to the extent that they
receive payment as a Convenience Claim on the Distribution Date. This class
shall be paid in full, unless a creditor agrees to accept a discounted amount.
As part of this Plan, the Debtor has developed a series of unaudited
projections (the "Projections") attached hereto as
- 17 -
<PAGE> 19
Exhibit "2", which it believes estimates future income and expenses under the
Debtor's Plan. The Projections assume confirmation of the Debtor's Plan and
that all aspects of the Plan will be successful if implemented. The Debtor
believes that the Projections reflect a realistic estimate of its financial
performance under the Debtor's Plan; however, no warranty can be made that
future events will correspond with the Projections.
The Debtor's shareholders will be entitled to retain their interests
subject to dilution for the Debtor's common stock to be issued pursuant to the
Plan. Debtor's option holders will have their options cancelled.
ARTICLE 5
MEANS FOR EXECUTION OF THE DEBTOR'S PLAN
5.1 Continuation of the Debtor's Business. The Confirmation of the
Debtor's Plan shall vest all of the Assets in the Reorganized Debtor. The
Reorganized Debtor shall continue to operate its Facility and shall pay its
operating expenses.
5.2 Contested Claims. Unless otherwise ordered by the Bankruptcy
Court, all objections to Claims shall be filed and served on the applicable
claimant by a date that is no later than 60 days after (i) the Effective Date
or (ii) the date the Claim is filed, whichever is later. After the
Confirmation Date, only the Debtor and Reorganized Debtor shall have the
authority to file, settle, compromise, withdraw, or litigate to judgment
objections to Claims.
- 18 -
<PAGE> 20
(a) Notwithstanding any other provision of the Debtor's
Plan, no payment or distribution shall be made with respect to any Claim to the
extent it is a Contested Claim unless and until such Contested Claim becomes an
Allowed Claim.
(b) Debtor shall withhold from the property (stock or
cash) that would otherwise be distributed to the Class in which a Contested
Claim is classified an amount sufficient to be distributed on account of
Contested Claims in that Class as of the Effective Date and shall place such
withheld property, cash or stock, in a reserve (the "Contested Claims
Reserve").
(c) Payments and distributions by Debtor to each holder
of a Contested Claim, to the extent that such Claim ultimately becomes an
Allowed Claim, shall be made from the Contested Claims Reserve in accordance
with the provisions of the Debtor's Plan governing the Class of Claims to which
the respective holder belongs.
(d) If any of the property withheld for the Contested
Claim Reserve remains after all objections to Contested Claims of a particular
Class have been resolved then such property shall be distributed as soon as
practicable in accordance with the provisions of the Debtor's Plan governing
the Class of Claims to which the Disallowed Claim belonged.
(e) Prior or subsequent to the Effective Date, in order
to effectuate distributions pursuant to Debtor's Plan and avoid undue delay in
the administration of the Case, the Debtor shall have the right to seek an
order of the Bankruptcy Court, pursuant
- 19 -
<PAGE> 21
to section 502(c) of the Bankruptcy Code, after notice and a hearing (which
notice may be limited to the holder of such Contested Claim and which hearing
may be held on an expedited basis), estimating or limiting the amount of
property that must be withheld from distribution on account of Contested
Claims. If the amount of the claim as ultimately allowed exceeds the estimated
amount or should any rejections claims become allowed Class 7 claims, then the
Reorganized Debtor shall have the right to make adjustments to the future
distributions to Class 7 creditors, either in stock or in cash, to account for
the additional distribution arising out of the resolution of the claim
objection.
5.3 Stock Offering. After confirmation, Debtor will proceed with
issuance of the common stock of Debtor at the rate of 15c. per share for a
total of 16,666,667 shares with the assistance of Avonwood Capital Corporation.
Issuance will be pursuant to Section 4(2) of the Securities Act of 1933 and the
provisions of Regulation D promulgated thereunder. The placement shall be
completed prior to the Distribution Date. Avonwood Capital Corporation will
deposit the sum of $2,500,000 with Debtor's counsel on or before the Effective
Date to secure such placement. Proceeds of the placement will be applied to
satisfy the Class 7 Claim and to provide operating funds for the continuation
of Reorganized Debtor's business.
5.4 Section 1145 Stock. Prior to the Distribution Date, Debtor
shall issue its common stock pursuant to Section 1145 of the Bankruptcy Code to
satisfy the administrative claims of the
- 20 -
<PAGE> 22
Avonwood Capital Corporation, the secured claim of the holder of the Landav
Loan Documents, the administrative claim of Ameristar Insurance Services, Inc.
and the distribution of stock to Class 7 creditors.
5.5 Returned Payments. Should any payment due to any Class 7 or 8
creditor hereunder be returned or unclaimed, then such amounts shall revert to
the Debtor upon the final disbursement pursuant to Section 3.7(c) and the
Disbursing Agent shall return such funds to the Debtor within sixty (60) days
from the date of the final disbursement.
ARTICLE 6
PROVISIONS FOR THE ASSUMPTION AND REJECTION
OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
6.1 As of the Confirmation Date, the Reorganized Debtor shall
assume each executory contract and unexpired lease that is identified as being
subject to assumption, unless such executory contract or unexpired lease has
been assumed or rejected by Debtor prior to the Confirmation Date or is the
subject of an application for assumption or rejection filed prior to such date.
Debtor's lease for the Facility and its licensing agreement with Card Monroe
Corporation are assumed and all defaults will be cured by the Distribution
Date. To the extent required or that they are considered executory contracts,
the Debtor also rejects any option agreement included within Class 11.
- 21 -
<PAGE> 23
6.2 Debtor reserves the right to file applications for the
assumption or rejection of any executory contract or unexpired lease at any
time prior to the Confirmation Date.
6.3 Each entity that is a party to an executory contract or
unexpired lease rejected pursuant to this Debtor's Plan shall be entitled to
file, not later than 30 days after the Confirmation Date, or such later date as
specified by the Court in the Confirmation Order or in an order approving such
rejection, a proof of claim for damages alleged to have arisen from the
rejection of the contract or lease to which such entity is a party. Any
Allowed Claim arising from or as a result of the rejection of any executory
contract or unexpired lease shall be a Class 7 Claim and shall be treated in
accordance with the provisions for payment of such Claims, but nothing herein
shall constitute a determination that any rejection gives rise to or results in
an Allowed Claim.
ARTICLE 7
ASSETS OF THE DEBTOR
7.1 Confirmation of the Debtor's Plan shall constitute a
determination that the Reorganized Debtor shall retain the Assets free and
clear of all liens, claims and encumbrances in accordance with 11 U.S.C.
Section 1141.
- 22 -
<PAGE> 24
ARTICLE 8
MODIFICATION OF DEBTOR'S PLAN OF ORGANIZATION
8.1 Modification of the Debtor's Plan may be proposed in writing
by Debtor at any time before entry of a Confirmation Order, provided the
Debtor's Plan, as modified, meets the requirements of Sections 1122 and 1123 of
the Bankruptcy Code and Debtor shall have complied with Section 1125 of the
Bankruptcy Code.
8.2 The Debtor's Plan may be modified at any time after entry of a
Confirmation Order and before its substantial consummation, provided that such
Plan, as modified, meets the requirements of Sections 1122 and 1123 of the
Bankruptcy Code and the Court, after notice and a hearing, confirms such Plan,
as modified, under Section 1125 of the Bankruptcy Code and the circumstances
warrant such modification.
8.3 Effect of Modification on Balloting. A holder of a claim or
interest that has accepted or rejected the Debtor's Plan and whose interests
are materially and adversely affected by the proposed modifications shall be
deemed to have accepted or rejected, as the case may be, such Plan as modified,
unless, within the time fixed by the Court, the holder changes its previous
acceptance or rejection.
- 23 -
<PAGE> 25
ARTICLE 9
DISCHARGE OF CLAIMS
9.1 Except as provided for herein, in accordance with 11 U.S.C.
Section Section 105 and 1141, all indebtedness, claims and litigation by any
person, creditor, interest holder or other party in interest against Debtor,
which existed or accrued on or before the Confirmation Date, including, but not
limited to, all fraudulent conveyance, preference or avoidable transfer
actions, whether or not contingent, unliquidated, unmatured, legal or
equitable, shall be discharged, regardless of whether the holder of any such
claim has accepted or rejected the Debtor's Plan.
ARTICLE 10
RETENTION OF JURISDICTION
10.1 Notwithstanding entry of a Confirmation Order, the Court shall
retain jurisdiction over the Case for the following purposes:
(a) To consider any modification of this Debtor's Plan
under Section 1127 of the Bankruptcy Code;
(b) To determine any and all objections to the allowance
of Claims;
(c) To determine any and all pending applications for
assumption or rejection of executory
contracts or unexpired leases;
(d) To determine and fix all Claims arising from the
rejection of any executory contract or unexpired lease;
- 24 -
<PAGE> 26
(e) To hear and determine all controversies, suits and
disputes that may arise in connection with the interpretation or enforcement of
this Debtor's Plan;
(f) To enter and implement such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
reversed, revoked or vacated;
(g) To hear and determine all requests for compensation
or reimbursement of expenses that may be made after the Confirmation Date;
(h) To hear and determine all controversies, suits and
disputes, including the Causes of Action, that may be pending at or initiated
after the Confirmation Date;
(i) To consider and act on a compromise and settlement of
any Claim or any Cause of Action on behalf of the Debtor;
(j) To liquidate or estimate damages or determine the
manner and time for such liquidation or estimation in connection with any
disputed, contingent or unliquidated Claim;
(k) To correct any defect, cure any omission or reconcile
any inconsistency in the Debtor's Plan or in the order of the Court confirming
the Debtor's Plan as may be necessary to carry out the purpose and intent of
this Debtor's Plan; and
(l) To enter a Final Order closing the Bankruptcy Case.
- 25 -
<PAGE> 27
ARTICLE 11
GENERAL PROVISIONS
11.1 The Reorganized Debtor shall continue its existence subsequent
to the Confirmation Date and shall perform all acts necessary to remain a
business corporation in good standing in the State of Georgia. The directors
of the Reorganized Debtor and the Chief Executive Officer and Chief Financial
Officer and their compensation will be determined and disclosed prior to
Confirmation of the Debtor's Plan.
11.2 Confirmation of the Debtor's Plan shall bind the Reorganized
Debtor and every Creditor of the Debtor whether or not the Claim of such
Creditor, is impaired under the Debtor's Plan and whether or not such Creditor
has accepted the Debtor's Plan.
11.3 Notwithstanding any other provision of this Debtor's Plan,
each Claim shall be paid only after it has been allowed in accordance with the
Bankruptcy Code.
11.4 At the option of the Debtor, this Debtor's Plan may be
withdrawn at any time prior to the Effective Date of the Debtor's Plan. Such
option shall be exercised by the filing in the Case of a notice of withdrawal
and mailing a copy of such notice to all Creditors and persons specially
requesting all notices in this case. If such option is timely and properly
exercised, the Case shall continue and be administered as if the Debtor's Plan
had been withdrawn prior to the Confirmation.
- 26 -
<PAGE> 28
11.5 Pursuant to Section 1123(b)(3)(B) of the Bankruptcy Code, the
Reorganized Debtor shall retain each and every Claim, Demand or Cause of Action
whatsoever which the Debtor or debtor in possession had or had power to assert
immediately prior to Confirmation of the Debtor's Plan, including without
limitation actions for avoidance and recovery of transfers pursuant to Section
550 of the Bankruptcy Code, or transfers avoidable by reason of Sections 544,
545, 547, 548, 549 or 553(b) of the Bankruptcy Code, and may commence or
continue in any appropriate court or tribunal any suit or other proceeding for
the enforcement of same.
11.6 In order for all creditors and other interest holders and
other parties in interest to fully comprehend and analyze the provisions of
this Plan, it is necessary to analyze the financial condition of Debtor as
referenced in the schedules and reports filed with the Court.
11.7 Each creditor should consult with its own legal, tax and
financial adviser as it deems necessary in order to evaluate the effect of the
Plan on them. Debtor has the right to modify the Plan at any time in order to
obtain acceptances and shall do so if modification can be agreed upon between
Debtor and claim holders affected by the modification in order to secure their
acceptance of the Plan.
- 27 -
<PAGE> 29
Dated this 14th day of March, 1997.
TAPISTRON INTERNATIONAL, INC.
By: /s/ Darwin Poe
-----------------------
Darwin Poe, President
PREPARED AND SUBMITTED BY:
/s/ John A. Christy
- ---------------------------------
JOHN A. CHRISTY, ESQ.
Georgia Bar No. 125518
Schreeder, Wheeler, & Flint, LLP
127 Peachtree Street, N.E.
16th Floor, The Candler Building
Atlanta, Georgia 30303-1845
(404) 681-3450
- 28 -
<PAGE> 1
EXHIBIT 2.2
<PAGE> 2
IN THE UNITED STATES BANKRUPTCY
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: * CASE NO. 96-69563
*
TAPISTRON INTERNATIONAL, INC., * CHAPTER 11
*
DEBTOR. * JUDGE MASSEY
*
- -------------------------------------
FIRST AMENDMENT TO FIRST AMENDED
AND RESTATED PLAN OF REORGANIZATION OF
TAPISTRON INTERNATIONAL, INC.
Comes now Debtor, Tapistron International, Inc., a Georgia Corporation
("Debtor") and pursuant to the provisions of 11 U.S.C. ss.1127 and Bankr. Rule
3019 amends its First Amended and Restated Plan of Reorganization of Tapistron
International, Inc. filed on March 14, 1997 ("Plan") to make provision for two
additional classes which shall leave the treatment of its members unimpaired
under the proposed amendment so that they shall be presumed to have accepted the
Plan in accordance with 11 U.S.C. ss.1126(f).
The Debtor amends Article 2.1 of the Plan to add additional Classes 12
and 13 which shall be as follows:
(l) Class 12 shall consist of the holders of outstanding,
non-redeemable, non-public warrants to acquire common stock of the
Debtor.
(m) Class 13 shall consist of the claim of Associates Commercial
Corporation, Inc.
The Debtor amends paragraph 2.2 of the Plan to reflect that Classes 12
and 13 are unimpaired classes as follows:
Section 2.2. Unimpaired Classes:
Classes 1 through 5, 8, 12 and 13 are not impaired under the Plan, and
Classes 1 through 5, 8, 12 and 13 are therefore deemed to have accepted
Debtor's Plan in accordance with the provisions of 11 U.S.C.
ss.1126(f).
<PAGE> 3
The Debtor amends Article 3 to set forth the treatment for Classes 12
and 13 by adding additional Sections 3.12 and 3.13 which shall be as follows:
Section 3.12.
The members in Class 12 shall retain the rights as set forth under the
various representative warrant agreements or other agreements with
respect to non-public, non-redeemable warrants. The Plan leaves
unaltered the legal, equitable and contractual rights of Class 12
members and as a result this Class is unimpaired under the Plan.
Section 3.13
The claim of Associates Commercial Corporation shall be as set forth in
the "Consent Order Allowing Use of Cash Collateral and Providing for
Adequate Protection" entered by this Court on November 12, 1996.
Except as otherwise provided herein, the terms of the Plan shall remain
in full force and effect and unmodified by this amendment.
This the 17th day of July, 1997.
/s/ John A. Christy
------------------------------------
JOHN A. CHRISTY
GA State Bar No. 125518
SCHREEDER, WHEELER & FLINT, LLP
1600 The Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
(404) 681-3450
<PAGE> 1
EXHIBIT 2.3
<PAGE> 2
IN THE UNITED STATES BANKRUPTCY ENTERED ON DOCKET
NORTHERN DISTRICT OF GEORGIA 8/18/97 JD
ATLANTA DIVISION D/ST LIST
IN RE: * Case No. 96-69563
*
TAPISTRON INTERNATIONAL, INC., * CHAPTER 11
*
Debtor * JUDGE MASSEY
*
- ----------------------------------------
ORDER CONFIRMING
DEBTOR'S FIRST AMENDED AND RESTATED PLAN OF REORGANIZATION FILED
MARCH 14, 1997 AS AMENDED BY FIRST AMENDMENT TO FIRST
AMENDED AND RESTATED PLAN OF REORGANIZATION FILED JULY 18, 1997
On May 13, 1997, the Debtor's First Amended and Restated Plan of
Reorganization filed March 14, 1997 ("Plan") came on for hearing before the
Court upon notice to all creditors and parties in interest.
All creditors and equity security holders were given the opportunity to
cast ballots to accept or reject the Plan. Debtor's counsel reported the
results of voting on the Plan to the Court which reflected that: Classes 1, 2,
3, 4, 5 and 8 were not impaired and were deemed to accepted the Plan in
accordance with 11 U.S.C. section 1126(f). Classes 6, 7, 9 and 10 voted to
accept the Plan. No ballots were cast by the members of Class 11 and no
holders of any interests that are junior to the interests of Class 11 members
will receive or retain any property on account of the Plan.
On July 18, 1997, subsequent to the confirmation hearing, the Debtor filed
its "First Amendment to First Amended and Restated Plan of Reorganization"
("First Amendment"). The First Amendment added two additional classes of
creditors, Classes 12 and 13, whose treatment was unimpaired. The First
Amendment did not affect any
<PAGE> 3
other party or creditor in his case other to provide for the treatment of the
members of Classes 12 and 13. A copy of the First Amendment was served on the
members of Classes 12 and 13. No objection has been filed to the first
Amendment by any member of Classes 12 or 13.
The Plan together with the First Amendment shall be hereinafter referred
to as the "Amended Plan". Based upon the foregoing, the Court makes the
following findings of facts and conclusions of law:
1.
The Amended Plan does not fail to meet the requirements of 11 U.S.C.
section 1122 and 1123. Thus, the Amended Plan complies with applicable
provisions of Title 11 so that the Amended Plan will be considered for
confirmation.
2.
The First Amendment does not adversely change the treatment of the claim of
any creditor who has not accepted in writing the modifications, and therefore
all previous acceptances for the Plan shall be deemed acceptances for the Plan
as modified by the First and Second Amendment. 11 U.S.C. section 1127; Bankr.
3019. The Court finds that the Amendment Plan has been accepted in writing by
the creditors and equity security holders whose acceptance is required by law.
Since the First Amendment leaves the treatment of the members of Classes 12 and
13 unimpaired, both Classes are deemed
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<PAGE> 4
to have accepted the Amended Plan in accordance with 11 U.S.C. section 1126(f);
and
3.
The Amended Plan and the proponent thereof have complied with applicable
provisions of the Bankruptcy Code; and
4.
The Amended Plan has been proposed in good faith and not by any means
forbidden by law; and
5.
Each holder of a claim or interest either has accepted the Amended Plan or
will receive or retain at least the liquidation value of its claim or interest
thereunder; and
6.
Each class of claims or interests either has accepted the Amended Plan or
is not impaired thereunder, or the Court has determined that the Amended Plan
does not discriminate unfairly and is fair and equitable with respect to each
class of claims of interests that is impaired under and which has not accepted
the Amended Plan, as contemplated by 11 U.S.C. section 1129(b); and
7.
All payments made or promised by the Debtor, by persons issuing securities
or acquiring property under the Amended Plan, by any other person for services
or for costs and expenses in, or in connection with, the Amended Plan and
incident to the case, have been fully disclosed to the court and are
reasonable; and
-3-
<PAGE> 5
8.
The identity, qualifications, and affiliations of the persons who are to
be directors or officers, or voting trustees, if any, of the Debtor after
confirmation of the Amended Plan, have been fully disclosed, and the
appointment of such persons to such offices, or their continuance therein, is
equitable, and consistent with the interests of the creditors and equity
security holders and with public policy; and
9.
The identity of an insider that will be employed or retained by the Debtor
and his compensation have been fully disclosed; and
10.
All fees payable under U.S.C. Section 1930 have been paid or the Amended
Plan provides for the payment of same on the effective date of the Amended Plan.
Based upon the foregoing findings of fact and conclusions of law, it is
hereby
ORDERED, ADJUDGED AND DECREED that Debtor's "First Amended and Restated
Plan of Reorganization" filed March 14, 1997, a copy of which is attached
hereto as Exhibit "A", as amended by the First Amendment to First Amended and
Restated Plan of Reorganization" filed July 18, 1997 attached hereto as Exhibit
"B", is hereby CONFIRMED in accordance with 11 U.S.C. Section 1129; except that
notwithstanding any language in the Amended Plan to the contrary, this Court
will retain only such jurisdiction in this case as it is
- 4 -
<PAGE> 6
required to retain under the Bankruptcy Code and Rules and as specifically set
forth in the Amended Plan. All provisions of the Amended Plan, as confirmed,
shall bind the Debtor and any entity issuing securities under the Amended Plan,
any entity acquiring property under the Amended Plan, any creditor, equity
security holder of the Debtor, whether or not the claim or interest of such
creditor, equity security holder or limited or general partner is impaired
under the Amended Plan, and whether or not such creditor, equity security
holder or limited or general partner has accepted the Amended Plan, and any
successor and assigns of the foregoing, including, but not limited to, any
trustee, or other representative who qualifies in a case under the Bankruptcy
Code;
IT IS FURTHER ORDERED, that pursuant to the provisions of 11 U.S.C.
Section 1123 and Section 3.7(f) of the Amended Plan, William G. Hays, Jr. and
William G. Hays & Associates, Inc. is appointed the Disbursing Agent and
pursuant to 11 U.S.C. Section 1123 and Section 3.7(e) of the Amended Plan, the
existing members of the Creditor's Committee who are willing to serve are hereby
authorized and appointed as the Creditor Oversight Committee. Counsel for the
Creditor's Committee shall poll the existing members of the Committee with
twenty (20) days from the entry of this Order and file a pleading with the Court
identifying those members of the Creditor's Committee willing to serve.;
IT IS FURTHER ORDERED, that as of the date of entry of this Order, the
automatic stay of 11 U.S.C. Section 362 shall terminate as
- 5 -
<PAGE> 7
provided in 11 U.S.C. 362(c) and all property of the estate shall vest in the
Debtor and shall be dealt with free and clear of all liens, claims and
interests of creditors, equity security holders and of the general partners of
the Debtor, except as otherwise provided in the Amended Plan for Allowed Claims
or in this Order confirming the Amended Plan;
IT IS FURTHER ORDERED, as required by the Amended Plan, that the Debtor,
all creditors and equity security holders and limited and general partners of
the Debtor shall execute, deliver and join in the execution and delivery of all
instruments required to effect and consummate the Amended Plan and to perform
any other act, including the satisfaction of any lien that is necessary for the
consummation of the Amended Plan, and to the extent that any such creditor,
equity security holder, or limited or general partner shall fail or refuse to
execute, deliver or cooperate in the execution and delivery of any instrument
required to consummate and implement this Amended Plan, then pursuant to 11
U.S.C. Section 1142, the Debtor is authorized to move this Court for an order,
upon such notice as the Court may direct, authorizing it to execute and
deliver any necessary instrument on behalf of such non-cooperating party.
IT IS FURTHER ORDERED that within 60 days from the date of this Order,
the Debtor shall file a report with the court concerning the action taken
toward substantial consummation of the Amended Plan; and within 90 days from
the date of this order the proponent shall file a report showing substantial
consummation of
- 6 -
<PAGE> 8
the Amended Plan together with an application for a final decree.
SO ORDERED AT ATLANTA, GEORGIA this 18th day of August, 1997.
/s/ James E. Massey
-----------------------------------
JAMES E. MASSEY
UNITED STATES BANKRUPTCY COURT
JUDGE, NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
PRESENTED BY:
/s/ John A. Christy
- -------------------------------------
JOHN A. CHRISTY,
Georgia Bar No. 125518
SCHREEDER, WHEELER & FLINT, L.L.P.
127 Peachtree Street, N.E.
1600 Candler Building
Atlanta, Georgia 30303-1845
(404) 681-3450
Attorney for Debtor
cc: Distribution List
-7-
<PAGE> 9
IN THE UNITED STATES BANKRUPTCY
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: * Case No. 96-69563
*
TAPISTRON INTERNATIONAL, INC., * CHAPTER 11
*
Debtor. * JUDGE MASSEY
*
FIRST AMENDED AND RESTATED
PLAN OF REORGANIZATION OF
TAPISTRON INTERNATIONAL, INC.
Tapistron International, Inc., a Georgia corporation ("DEBTOR"),
proposes the following First Amended and Restated Plan of Reorganization
("Plan") pursuant to the provisions of Chapter 11 of the Bankruptcy Code, 11
U.S.C. Sec. 101, et seq. (the "BANKRUPTCY CODE").
ARTICLE 1
DEFINITIONS
As used in this Debtor's Plan, the following terms shall have the
respective meanings set forth below, and, unless the context requires otherwise,
such meanings shall be equally applicable to the singular and plural forms of
the terms defined. Unless otherwise defined herein, the terms used in this
Debtor's Plan shall have the same meaning ascribed thereto in the Bankruptcy
Code and the Bankruptcy Rules.
1.1 "ADMINISTRATIVE CLAIM" means any Allowed Claim for payment of any
cost or expense of administration of this Bankruptcy Case that has been allowed
pursuant to Sections 503(b) and 507(a)(1) as entitled to priority under the
Bankruptcy Code.
<PAGE> 10
1.2 "ALLOWED CLAIM" means any Claim: (a) based on an application of a
Professional Person to the extent such application is approved by a Final Order;
(b) allowed under this Debtor's Plan; or (c) proof of which was either timely
and properly filed, deemed filed under applicable law or by reason of an order
of the Court or, if no proof of claim was filed or order entered, which has been
or hereafter is listed by the Debtor on its schedules filed under Section 521(1)
of the Bankruptcy Code as liquidated in amount and not disputed or contingent,
provided that a timely filed proof of claim shall supersede any scheduling of
such Claim, and, in either case, a Claim as to which (i) no objection to the
allowance thereof has been within any applicable period of limitation as may be
fixed by the Bankruptcy Code or by an order of the Court, or (ii) any such
objection has been withdrawn pursuant to the provisions of this Debtor's Plan or
has been overruled by a Final Order of the Court.
1.3 "ALLOWED SECURED CLAIM" means that portion of an Allowed Claim
equal to the value, as filed or as determined by the Bankruptcy Court pursuant
to Section 506(a) of the Bankruptcy Code and Rule 3012 of the Bankruptcy Rules,
of the interest of the holder of the Allowed Secured Claim in the property of
the Debtor or of the estate securing such Allowed Claim.
1.4 "ASSETS" means all real and personal property of the Debtor on the
Effective Date including, without limitation, cash and the Causes of Action of
the Debtor.
-2-
<PAGE> 11
1.5 "BANKRUPTCY CASE" or "CASE" means this Chapter 11 reorganization
case commenced by the filing of a voluntary petition by the Debtor on June 21,
1996, bearing Case No. 96-69563,now pending in the Court.
1.6 "BANKRUPTCY CODE" means Title 11 of the United States Code.
1.7 "CAUSES OF ACTION" means all claims of the Debtor against third
parties, including, but not limited to, actions for avoidance of transfers
pursuant to Sections 544, 545, 546, 547, 548, 549, and 550 of the Bankruptcy
Code.
1.8 "CLAIM" means a right to payment or to an equitable remedy as set
forth in Section 101(4) of the Bankruptcy Code.
1.9 "CLAIMANT" means the holder of a Claim.
1.10 "CLASS" means a category of holders of Claims as defined in
Section 1122 of the Bankruptcy Code.
1.11 "CONFIRMATION" and "CONFIRMATION DATE" shall refer to the date of
entry of a Final Order confirming this Debtor's Plan pursuant to Section 1129 of
the Bankruptcy Code.
1.12 "CONTESTED CLAIM" shall mean a claim (or portion thereof) which is
a Disputed Claim or for which: (a) a proof of claim was or is deemed filed under
applicable law or order of the Bankruptcy Court; (b) an objection was or is
deemed to be timely filed; and (c) such objection is not: (i) withdrawn or
resolved by stipulation with the Debtor pursuant to the Claims Order or (ii)
determined in whole or part by a Final Order. For purposes of the Debtor's Plan,
a Claim shall be considered a Contested Claim, in
-3-
<PAGE> 12
whole or in part, as applicable; before the time that an objection is filed, but
only until the expiration of the time for filing objections to claims, if: (x)
the amount or classification of the Claim specified in the proof of claim
exceeds the amount of or differs in classification from any corresponding Claim
scheduled by the Debtor in its Schedules in the case; (y) any corresponding
Claim scheduled by the Debtor is scheduled as disputed, contingent or
unliquidated; or (z) no corresponding Claim is scheduled by the Debtor in its
Schedules for the Case.
1.13 "CONVENIENCE CLAIM" shall mean an Unsecured Claim against the
Debtor in the amount of $1,200 or less and any Unsecured Claim against the
Debtor in excess of $1,200 that is reduced to $1,200 by election of the holder
thereof; provided that, for purposes hereof, all such Unsecured Claims held by
an entity or by any entity and any affiliate of an entity shall be aggregated
and treated as one such Unsecured Claim; and provided further that, for purposes
hereof, if all or any part of an Unsecured Claim was or is assigned, the
Unsecured Claims held by all assignees of such Unsecured Claim shall be treated
as one such Unsecured Claim.
1.14 "COURT" means the United States Bankruptcy Court for the Northern
District of Georgia.
1.15 "CREDITOR" means a Claimant that is the holder of: (a) a Claim
against the Debtor that arose on or before the Petition Date; (b) a Claim
against the Debtor's estate of the kind specified in Sections 502(g), 502(h) or
502(i) of the Bankruptcy Code; or (c) an Administrative Claim.
-4-
<PAGE> 13
1.16 "CULBRETH LOAN DOCUMENTS" means the documents and instruments as
amended from time to time evidencing and securing the loan made or credited
extended by Robert E. Culbreth to Debtor prior to commencement of Debtor's
Chapter 11 case. The documents include a UCC Financing Statement filed as No.
###-##-#### on November 11, 1995, in Catoosa County, Georgia.
1.17 "DEBTOR" means Tapistron International, Inc., a Georgia
corporation, and to the extent applicable, includes the said corporation in its
status as a debtor in possession under Sections 1101 and 1107 of the Bankruptcy
Code.
1.18 "DEBTOR'S PLAN" means this Plan of Reorganization and any
modifications or amendments thereto.
1.19 "DEMOSS LOAN DOCUMENTS" means the documents and instruments as
amended from time to time evidencing and securing the loan made or credited
extended by The Arthur S. DeMoss Foundation to Debtor prior to commencement of
Debtor's Chapter 11 case. The documents include an Addendum to Security
Agreement dated August (no day), 1996 that references a security agreement dated
July (no day), 1996.
1.20 "DISBURSING AGENT" means the individual or entity appointed by
agreement of the Debtor and the Creditors' Committee on or before the
Confirmation Date or in the absence of an agreement such individual or entity
appointed by the Court for the purposes of making disbursements to Class 7
creditors pursuant to Section 3.7 of the Plan and administering the Debtor's
obligations pursuant to Section 3.7 of the Plan.
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1.21 "DISPUTED CLAIM" means any Claim that has been scheduled by the
Debtor as contingent, unliquidated or disputed, or with respect to which an
objection has been interposed in accordance with the Bankruptcy Code, the
Bankruptcy Rules, this Debtor's Plan or an order of the Bankruptcy Court.
1.22 "DISTRIBUTION DATE" shall mean the date that is as soon as
practicable on or after the later of (a) the Effective Date or (b) the date upon
which the Claim becomes an Allowed Claim or Allowed Administrative Claim; and
for other purposes, the date the initial distributions are made to holders of
Allowed Claims under the Plan.
1.23 "EFFECTIVE DATE" means the eleventh (11th) day after entry of
Order confirming the Debtor's Plan with no appeal pending and all applicable
appeal periods having expired.
1.24 "FACILITY" means the Debtor's office and manufacturing plant on
Alabama Highway in Ringold, Georgia.
1.25 "FINAL ORDER" means an order as to which any appeal that has been
or may be taken has been resolved or as to which the time for appeal has expired
and no appeal has been taken.
1.26 "LANDAV LOAN DOCUMENTS" means the documents and instruments as
amended from time to time evidencing and securing the loan made or credited
extended by Landav, Inc. to Debtor prior to commencement of Debtor's Chapter 11
case. The documents include a UCC Financing Statement filed as No. 023-95-939 on
August 24, 1995 in Catoosa County, Georgia and a UCC Financing Statement filed
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as No. 023-96-704 on June 3, 1996, in Catoosa County, Georgia, which references
a security agreement dated July 16, 1996.
1.27 "PETITION DATE" means June 21, 1996, the date on which the
voluntary petition in this Bankruptcy Case was filed.
1.28 "PARKER LOAN DOCUMENTS" means the documents and instruments as
amended from time to time evidencing and securing the loan made or credit
extended by Albert N. Parker to Debtor prior to commencement of Debtor's Chapter
11 case. The documents include a UCC Financing Statement filed as No. 023-95-397
on August 24, 1995, in Catoosa County, Georgia.
1.29 "PROFESSIONAL PERSONS" means any person or entity employed or
engaged by the Debtor and entitled to compensation pursuant to Section 326, 327,
328, 330, 331, 503(b) or 1103 of the Bankruptcy Code.
1.29 "REORGANIZED DEBTOR" shall mean the Debtor following Confirmation
of the Debtor's Plan.
1.30 "SECURED CLAIM" means a Claim which is secured by property of the
Debtor or of the estate.
1.31 "UNSECURED CLAIM" means a Claim against the Debtor that is neither
a Secured Claim, nor a Claim entitled to priority under Section 507 of the
Bankruptcy Code.
ARTICLE 2
CLASSIFICATION OF CLAIMS AND INTERESTS
2.1 All Claims against the Debtor shall be divided into Classes as
follows:
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(a) Class 1 shall consist of all Administrative Claims allowed
under 11 U.S.C. ss. 503, including but not limited to compensation and
reimbursement allowed under 11 U.S.C. ss. 330 to attorneys for the Debtor as a
debtor in possession and any other Professional Person employed pursuant to 11
U.S.C. ss. 327 and as allowed by the Court except for the Class 2, 3, and 4
Claimants. Class 1 shall also include all then unpaid quarterly fees payable to
the United States Trustee under 28 U.S.C. ss. 1930.
(b) Class 2 shall consist of all Allowed Claims entitled to
priority under 11 U.S.C. ss. 507(a)(3) and (4). Debtor believes that there are
no Class 2 Claims.
(c) Class 3 shall consist of all Allowed Claims entitled to
priority under 11 U.S.C. ss. 507(a)(8). Debtor believes that there are no Class
3 Claims.
(d) Class 4: The Allowed Administrative Claim of Avonwood
Capital Corporation as Debtor's investment banker for post-petition payments due
for professional services to Debtor.
(e) Class 5 shall consist of the Allowed Secured Claim of the
holders of the DeMoss Loan Documents and the Culbreth Loan Documents and the
Parker Loan Documents, which are secured by liens upon the Debtor's personal
property plus such other security as may exist under the respective Loan
Documents which is determined to be property of the Debtor.
(f) Class 6 shall consist of the Allowed Claim of the holders
of the Landav Loan Documents.
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(g) Class 7 shall consist of all Unsecured Claims, including
Contested Claims.
(h) Class 8 shall consist of all Convenience Claims.
(i) Class 9 shall consist of the holders of the outstanding
common stock of Debtor.
(j) Class 10 shall consist of the holders of the outstanding
Redeemable Warrants to acquire common stock of Debtor.
(k) Class 11 shall consist of the holders of outstanding
options to acquire common stock of Debtor.
2.2 Unimpaired Classes.
Claims of Creditors in Classes 1 through 5 and 8 are not impaired under
the provisions of 11 U.S.C. ss. 1124, and Classes 1 through 5 and 8 are
therefore deemed to have accepted this Debtor's Plan, in accordance with the
provisions of 11 U.S.C. ss. 1126(f).
2.3 Impaired Classes.
The Debtor's Plan does not leave unaltered the legal, equitable and
contractual rights of Creditors in Classes 6 and 7 and interest holders in
Classes 9, 10 and 11, and those parties in interest are impaired under the
provisions of ss. 1124 of the Bankruptcy Code. Such parties in interest shall be
entitled to vote to accept or reject this Plan.
ARTICLE 3
TREATMENT OF CLASSES AND INTERESTS
The following Classes, in full satisfaction of their Allowed Claims,
shall receive the following:
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3.1 The Holders of Allowed Class 1 Claims shall be paid in full on the
Confirmation Date or upon such other payment terms as may be agreed upon by the
holder of any Class 1 Claim. In the event that the Claim of any Professional
Person has not been approved by the Court by the Confirmation Date, such Claim
shall be paid at the time that a Final Order is entered allowing such Claim.
3.2 Debtor believes that there are no Class 2 Claims. To the extent
that there are any, they will be paid on the Distribution Date.
3.3 Debtor believes that there are no Class 3 Claims. To the extent
that there are any, they will be paid on the Distribution Date.
3.4 The Holder of the Allowed Class 4 Claim shall be satisfied in
accordance with the terms of its employment as approved by the Court on November
12, 1996 by monthly payments of $3,000 per month for three months and by the
receipt of 1.5 million shares of the common stock of Debtor to be issued
pursuant to Section 5.5 of the Plan and Section 1145 of the Bankruptcy Code
within four (4) months following the Effective Date.
3.5 The Holder of the Allowed Class 5 Claim shall be paid in full from
proceeds of collateral encumbered by their respective Loan Documents as such
collateral is sold. At this time, the claims of Albert Parker and the DeMoss
Foundation have already been paid from the liquidation of their collateral.
3.6 The Holders of the Allowed Class 6 Claims shall release their
Claims in exchange for the common stock of Debtor to be
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issued pursuant to Section 5.5 of this Plan at the rate of one share for each
15(cent) of the Allowed Claim. Their liens shall be released and cancelled.
3.7 Each holder of an Allowed Class 7 Unsecured Claim shall be paid in
full, unless the creditor elects to accept a discounted amount or the creditor
and the Debtor agree to different terms, with interest from stock and cash
payments as follows:
(a) Each creditor shall receive its pro rata share (based on the amount
of its Allowed Claim compared to the total of Class 7 Allowed Claims) of (i)
cash in the amount of $500,000 plus (ii) its pro rata share of a second
aggregate payment of $500,000 together with interest at the rate of 8.75% per
annum payable based on twelve thirty day months.
(b) Within fifteen (15) days from the Effective Date, the Debtor shall
deposit the sum of $500,000 with the Disbursing Agent who shall on the
Distribution Date disburse such sum pro-rata (based on the amount of a
creditor's Allowed Claim compared to the total of Class 7 Allowed Claims) to
Class 7 creditors in accordance with this Section 3.7 and Section 5.2 of this
Plan.
(c) Within ten (10) days from the date on which the Debtor receives
full or final payment for each new machine sold and shipped by the Debtor post
confirmation, exclusive of any sample
machines, the Debtor shall pay to the Disbursing Agent the sum of $50,000. In
addition, the Debtor shall pay to the Disbursing Agent accrued interest on the
outstanding remaining principal balance of this second $500,000 to the
Disbursing Agent on a quarterly basis
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within fifteen (15) days of the end of each fiscal quarter for the preceding
quarter or portion thereof in the case of the first fiscal quarter after the
Confirmation Date. Within thirty (30) days of the end of each fiscal quarter and
provided that the Disbursing Agent holds at least $100,000 unless it is the last
disbursement, the Disbursing Agent shall disburse such sums deposited with it
pro-rata (based on the amount of a creditor's Allowed Claim compared to the
total of Class 7 Allowed Claims) to Class 7 creditors in accordance with this
Section 3.7 and Section 5.2 of this Plan. If any payment due hereunder remains
unpaid for more than thirty (30) days after the Debtor's receipt of written
notice from the Chairperson of the Creditor's Oversight Committee ("Oversight
Committee") constituted pursuant to Section 3.7(e), then all remaining amounts
due pursuant to this Section 3.7(c) together with the actual reasonable
attorney's fees for collection shall become immediately due and payable and the
Oversight Committee may, as the representative of all Class 7 creditors,
commence such action as is necessary to recover such remaining amounts for the
benefit of Class 7 creditors and any amounts recovered by it shall first be
applied to the costs of collection and thereafter to distribution to Class 7
creditors in the manner provided for in this Section 3.7(c).
(d) The balance of the claims of Class 7 creditors, the total amount of
Allowed Class 7 claims less $1,000,000, shall be paid as follows. On or before
the Confirmation Date, a Class 7 creditor may elect in writing one of the
following two options with respect
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to the payment of the balance of its claim. The election shall be irrevocable
and shall be made on a form to be supplied by the Debtor with the ballot in this
case and filed with the Bankruptcy Court. Any creditor who fails to file a
ballot or to elect Option 1 shall be deemed to have elected Option 2. A Class 7
creditor may elect to receive:
OPTION 1: the sum of 15% of the balance of its claim (its Allowed Claim
less the amounts due to it pursuant to Sections 3.7(b) and (c) in cash in full
and complete satisfaction of the remaining portion of its claim to be paid with
the payment made pursuant to Section 3.7(b) of this Plan. This option shall be
limited to the holders of the first $750,000 of Allowed Claims which make this
election, although the Debtor shall have the sole and exclusive option to
increase this amount; or
OPTION 2: on the Distribution Date its pro rata share (based on the
amount of its Allowed Claim compared to the total of Class 7 Allowed Claims) of
1,000,000 shares of common stock issued by the Debtor pursuant to Article 5.4 of
the Plan provided that there shall be no fractional shares. At any time on or
prior to September 30, 2000 ("Final Settlement Date"), each Class 7 creditor
shall, at the sole and exclusive option of the Debtor, receive an additional
cash payment or additional shares of common stock based on the average of the
closing prices of the Debtor's common stock for the period that is not less than
five (5) nor more than thirty-five (35) trading days prior to the Final
Settlement Date such that the total amount received by Class 7 creditors
pursuant to this
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Option 2, either in additional stock or cash, equals its prorata share of the
difference between the total amount of Allowed Class 7 claims less all principal
amounts to be paid pursuant to Section 3.7(b) and (c) ("Final Payment Amount")
together with interest at the rate of 8.75% per annum from the Effective Date of
the Plan through the Final Settlement Date. If between the Effective Date of the
Plan and the Final Settlement Date the average of the closing prices of the
Debtor's common stock for any five (5) consecutive trading day period multiplied
by 1,000,000 exceeds the Final Payment Amount multiplied by the factor for the
end of the month in which such event occurs as set forth in Exhibit "1"(1)
attached hereto or if any Class 7 creditor shall sell, pledge or trade the
stock, directly or indirectly, issued to it on the Distribution Date pursuant to
this Section 3.7(b), then such creditors shall no longer be entitled to any
further distribution on the Final Settlement Date. All stock issued to Class 7
creditors shall be freely tradable stock. In the event a closing price of the
Reorganized Debtor's stock for any day is not available, then the average of the
closing bid and asked price for that day shall be used and considered the
closing price for that day.
(e) While there remains any amounts outstanding pursuant to Section
3.7(c), there shall exist a Creditor's Oversight Committee. The Committee shall
be appointed by the Bankruptcy Court at the
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(1) For the purposes of Exhibit "1", month one shall be the first calendar
month following the Confirmation Date of the Plan.
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Confirmation Hearing and shall be comprised of those members of the Official
Committee of Unsecured Creditors who wish to serve. While there remains any
amounts outstanding pursuant to Section 3.7(c), the Debtor shall provide the
members of the Oversight Committee within thirty (30) days of the end of fiscal
quarter with a quarterly operating statement and balance sheet together with a
sales report of machines sold during the preceding fiscal quarter, the machines
expected to be delivered during the subsequent fiscal quarter and the machines
for which payment has been received in full during the previous fiscal quarter.
This post confirmation committee shall be entitled to retain such professionals
as it deems necessary to assist it in analyzing financial information and in
enforcing the provisions of Section 3.7(c) of the Plan and the Debtor shall
reimburse the Creditor's Oversight Committee for up to $12,000 of such
reasonable and necessary expenses upon presentation of invoices and other
documentation substantiating those charges. Upon the Debtor's payment of all
amounts due pursuant to Section 3.7(c), the Committee shall automatically
dissolve.
(f) The Disbursing Agent shall be paid compensation in an aggregate
amount not to exceed $15,000 by the Debtor for its services. $5,000 of the fee
shall be paid with the first disbursement pursuant to Section 3.7(c) and $2,500
paid each time a disbursement is made by the Disbursing Agent to Class 7
creditors. In the event the Disbursing Agent resigns or is discharged for cause
by the Oversight Committee, then the Debtor
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shall assume the role of the Disbursing Agent for the balance of the payments
due pursuant to Section 3.7(c).
3.8 Each holder of an Allowed Class 8 Claim shall receive on the
Distribution Date payment in cash equal to the lesser of $1,200 or the Allowed
amount of such Allowed Convenience Claim. Any holder of an Allowed Unsecured
Claim (or Claims) in excess of $1,200 that desires treatment of such Claim (or
Claims) as a Convenience Claim shall have the right to receive such treatment by
making an irrevocable written election to reduce its Claim (or aggregate Claims)
to $1,200 when ballots on this Plan are due from holders of Unsecured Claims.
3.9 The Holders of the Class 9 Claims will have their equity interest
in Debtor diluted by the common stock of Debtor issued to implement this
Debtor's Plan pursuant to Sections 5.3 and 5.5 of this Plan and any existing
preemptive rights to acquire, and other rights to limit issuance of, Debtor's
common stock shall be cancelled.
3.10 The Holders of the Class 10 Claims will have their rights to
acquire equity interest modified such that the exercise price of each Redeemable
Warrant shall be reduced to $1.00 and the time period in which to exercise the
Redeemable Warrant shall be extended to the earlier of the last day of the
thirty sixth (36th) month following the Effective Date or August 31, 2000. The
first $850,000 in funds received by the Reorganized Debtor from the exercise of
these Redeemable Warrants shall be escrowed by it for payment of the amounts due
to Class 7 creditors on the Final
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Settlement Date. In addition, no payments or amounts shall be due or paid to
Josephthal Lyon & Ross Incorporated shall be paid from the proceeds of the
warrants.
3.11 The holders of the Class 11 Claims will have their stock options
cancelled and rejected and shall hold no claim due to the fact that such options
as worthless due to the exercise price being substantially in excess of the
market value of Debtor's common stock.
ARTICLE 4
ANALYSIS OF PLAN
Under the Debtor's Plan, all creditors will be paid as much as or more
than they would receive upon liquidation of the Debtor's assets. Classes 1
through 5 and 8 will receive payment in full. Although Class 6 is to have its
Claim satisfied by issuance of Debtor's common stock, Debtor understands that
the Class 6 Claimant has agreed to such treatment.
Class 7, unsecured creditors, will be paid in full, unless they
voluntarily agree to accept a lesser sum, through a combination of stock and
cash in satisfaction of their Allowed Claims, except to the extent that they
receive payment as a Convenience Claim on the Distribution Date. This class
shall be paid in full, unless a creditor agrees to accept a discounted amount.
As part of this Plan, the Debtor has developed a series of unaudited
projections (the "Projections") attached hereto as
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Exhibit "2", which it believes estimates future income and expenses under the
Debtor's Plan. The Projections assume confirmation of the Debtor's Plan and that
all aspects of the Plan will be successful if implemented. The Debtor believes
that the Projections reflect a realistic estimate of its financial performance
under the Debtor's Plan; however, no warranty can be made that future events
will correspond with the Projections.
The Debtor's shareholders will be entitled to retain their interests
subject to dilution for the Debtor's common stock to be issued pursuant to the
Plan. Debtor's option holders will have their options cancelled.
ARTICLE 5
MEANS FOR EXECUTION OF THE DEBTOR'S PLAN
5.1 Continuation of the Debtor's Business. The Confirmation of the
Debtor's Plan shall vest all of the Assets in the Reorganized Debtor. The
Reorganized Debtor shall continue to operate its Facility and shall pay its
operating expenses.
5.2 Contested Claims. Unless otherwise ordered by the Bankruptcy Court,
all objections to Claims shall be filed and served on the applicable claimant by
a date that is no later than 60 days after (i) the Effective Date or (ii) the
date the Claim is filed, whichever is later. After the Confirmation Date, only
the Debtor and Reorganized Debtor shall have the authority to file, settle,
compromise, withdraw, or litigate to judgment objections to Claims.
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(a) Notwithstanding any other provision of the Debtor's Plan,
no payment or distribution shall be made with respect to any Claim to the extent
it is a Contested Claim unless and until such Contested Claim becomes an Allowed
Claim.
(b) Debtor shall withhold from the property (stock or cash)
that would otherwise be distributed to the Class in which a Contested Claim is
classified an amount sufficient to be distributed on account of Contested Claims
in that Class as of the Effective Date and shall place such withheld property,
cash or stock, in a reserve (the "Contested Claims Reserve").
(c) Payments and distributions by Debtor to each holder of a
Contested Claim, to the extent that such Claim ultimately becomes an Allowed
Claim, shall be made from the Contested Claims Reserve in accordance with the
provisions of the Debtor's Plan governing the Class of Claims to which the
respective holder belongs.
(d) If any of the property withheld for the Contested Claim
Reserve remains after all objections to Contested Claims of a particular Class
have been resolved then such property shall be distributed as soon as
practicable in accordance with the provisions of the Debtor's Plan governing the
Class of Claims to which the Disallowed Claim belonged.
(e) Prior or subsequent to the Effective Date, in order to
effectuate distributions pursuant to Debtor's Plan and avoid undue delay in the
administration of the Case, the Debtor shall have the right to seek an order of
the Bankruptcy Court, pursuant
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to section 502(c) of the Bankruptcy Code, after notice and a hearing (which
notice may be limited to the holder of such Contested Claim and which hearing
may be held on an expedited basis), estimating or limiting the amount of
property that must be withheld from distribution on account of Contested Claims.
If the amount of the claim as ultimately allowed exceeds the estimated amount or
should any rejections claims become allowed Class 7 claims, then the Reorganized
Debtor shall have the right to make adjustments to the future distributions to
Class 7 creditors, either in stock or in cash, to account for the additional
distribution arising out of the resolution of the claim objection.
5.3 Stock Offering. After confirmation, Debtor will proceed with
issuance of the common stock of Debtor at the rate of 15(cent) per share for a
total of 16,666,667 shares with the assistance of Avonwood Capital Corporation.
Issuance will be pursuant to Section 4(2) of the Securities Act of 1933 and the
provisions of Regulation D promulgated thereunder. The placement shall be
completed prior to the Distribution Date. Avonwood Capital Corporation will
deposit the sum of $2,500,000 with Debtor's counsel on or before the Effective
Date to secure such placement. Proceeds of the placement will be applied to
satisfy the Class 7 Claim and to provide operating funds for the continuation of
Reorganized Debtor's business.
5.4 Section 1145 Stock. Prior to the Distribution Date, Debtor shall
issue its common stock pursuant to Section 1145 of the Bankruptcy Code to
satisfy the administrative claims of the
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Avonwood Capital Corporation, the secured claim of the holder of the Landav Loan
Documents, the administrative claim of Ameristar Insurance Services, Inc. and
the distribution of stock to Class 7 creditors.
5.5 Returned Payments. Should any payment due to any Class 7 or 8
creditor hereunder be returned or unclaimed, then such amounts shall revert to
the Debtor upon the final disbursement pursuant to Section 3.7(c) and the
Disbursing Agent shall return such funds to the Debtor within sixty (60) days
from the date of the final disbursement.
ARTICLE 6
PROVISIONS FOR THE ASSUMPTION AND REJECTION
OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
6.1 As of the Confirmation Date, the Reorganized Debtor shall assume
each executory contract and unexpired lease that is identified as being subject
to assumption, unless such executory contract or unexpired lease has been
assumed or rejected by Debtor prior to the Confirmation Date or is the subject
of an application for assumption or rejection filed prior to such date. Debtor's
lease for the Facility and its licensing agreement with Card Monroe Corporation
are assumed and all defaults will be cured by the Distribution Date. To the
extent required or that they are considered executory contracts, the Debtor also
rejects any option agreement included within Class 11.
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6.2 Debtor reserves the right to file applications for the assumption
or rejection of any executory contract or unexpired lease at any time prior to
the Confirmation Date.
6.3 Each entity that is a party to an executory contract or unexpired
lease rejected pursuant to this Debtor's Plan shall be entitled to file, not
later than 30 days after the Confirmation Date, or such later date as specified
by the Court in the Confirmation Order or in an order approving such rejection,
a proof of claim for damages alleged to have arisen from the rejection of the
contract or lease to which such entity is a party. Any Allowed Claim arising
from or as a result of the rejection of any executory contract or unexpired
lease shall be a Class 7 Claim and shall be treated in accordance with the
provisions for payment of such Claims, but nothing herein shall constitute a
determination that any rejection gives rise to or results in an Allowed Claim.
ARTICLE 7
ASSETS OF THE DEBTOR
7.1 Confirmation of the Debtor's Plan shall constitute a determination
that the Reorganized Debtor shall retain the Assets free and clear of all liens,
claims and encumbrances in accordance with 11 U.S.C. ss. 1141.
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ARTICLE 8
MODIFICATION OF DEBTOR'S PLAN OF ORGANIZATION
8.1 Modification of the Debtor's Plan may be proposed in writing by
Debtor at any time before entry of a Confirmation Order, provided the Debtor's
Plan, as modified, meets the requirements of Sections 1122 and 1123 of the
Bankruptcy Code and Debtor shall have complied with Section 1125 of the
Bankruptcy Code.
8.2 The Debtor's Plan may be modified at any time after entry of a
Confirmation Order and before its substantial consummation, provided that such
Plan, as modified, meets the requirements of Sections 1122 and 1123 of the
Bankruptcy Code and the Court, after notice and a hearing, confirms such Plan,
as modified, under Section 1125 of the Bankruptcy Code and the circumstances
warrant such modification.
8.3 Effect of Modification on Balloting. A holder of a claim or
interest that has accepted or rejected the Debtor's Plan and whose interests are
materially and adversely affected by the proposed modifications shall be deemed
to have accepted or rejected, as the case may be, such Plan as modified, unless,
within the time fixed by the Court, the holder changes its previous acceptance
or rejection.
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ARTICLE 9
DISCHARGE OF CLAIMS
9.1 Except as provided for herein, in accordance with 11 U.S.C.
ss.ss.105 and 1141, all indebtedness, claims and litigation by any person,
creditor, interest holder or other party in interest against Debtor, which
existed or accrued on or before the Confirmation Date, including, but not
limited to, all fraudulent conveyance, preference or avoidable transfer actions,
whether or not contingent, unliquidated, unmatured, legal or equitable, shall be
discharged, regardless of whether the holder of any such claim has accepted or
rejected the Debtor's Plan.
ARTICLE 10
RETENTION OF JURISDICTION
10.1 Notwithstanding entry of a Confirmation Order, the Court shall
retain jurisdiction over the Case for the following purposes:
(a) To consider any modification of this Debtor's Plan under
Section 1127 of the Bankruptcy Code;
(b) To determine any and all objections to the allowance of
Claims;
(c) To determine any and all pending applications for
assumption or rejection of executory contracts or unexpired leases;
(d) To determine and fix all Claims arising from the rejection
of any executory contract or unexpired lease;
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(e) To hear and determine all controversies, suits and
disputes that may arise in connection with the interpretation or enforcement of
this Debtor's Plan;
(f) To enter and implement such orders as may be appropriate
in the event the Confirmation Order is for any reason stayed, reversed, revoked
or vacated;
(g) To hear and determine all requests for compensation or
reimbursement of expenses that may be made after the Confirmation Date;
(h) To hear and determine all controversies, suits and
disputes, including the Causes of Action, that may be pending at or initiated
after the Confirmation Date;
(i) To consider and act on a compromise and settlement of any
Claim or any Cause of Action on behalf of the Debtor;
(j) To liquidate or estimate damages or determine the manner
and time for such liquidation or estimation in connection with any disputed,
contingent or unliquidated Claim;
(k) To correct any defect, cure any omission or reconcile any
inconsistency in the Debtor's Plan or in the order of the Court confirming the
Debtor's Plan as may be necessary to carry out the purpose and intent of this
Debtor's Plan; and
(l) To enter a Final Order closing the Bankruptcy Case.
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ARTICLE 11
GENERAL PROVISIONS
11.1 The Reorganized Debtor shall continue its existence subsequent to
the Confirmation Date and shall perform all acts necessary to remain a business
corporation in good standing in the State of Georgia. The directors of the
Reorganized Debtor and the Chief Executive Officer and Chief Financial Officer
and their compensation will be determined and disclosed prior to Confirmation of
the Debtor's Plan.
11.2 Confirmation of the Debtor's Plan shall bind the Reorganized
Debtor and every Creditor of the Debtor whether or not the Claim of such
Creditor, is impaired under the Debtor's Plan and whether or not such Creditor
has accepted the Debtor's Plan.
11.3 Notwithstanding any other provision of this Debtor's Plan, each
Claim shall be paid only after it has been allowed in accordance with the
Bankruptcy Code.
11.4 At the option of the Debtor, this Debtor's Plan may be withdrawn
at any time prior to the Effective Date of the Debtor's Plan. Such option shall
be exercised by the filing in the Case of a notice of withdrawal and mailing a
copy of such notice to all Creditors and persons specially requesting all
notices in this case. If such option is timely and properly exercised, the Case
shall continue and be administered as if the Debtor's Plan had been withdrawn
prior to the Confirmation.
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11.5 Pursuant to Section 1123(b)(3)(B) of the Bankruptcy Code, the
Reorganized Debtor shall retain each and every Claim, Demand or Cause of Action
whatsoever which the Debtor or debtor in possession had or had power to assert
immediately prior to Confirmation of the Debtor's Plan, including without
limitation actions for avoidance and recovery of transfers pursuant to Section
550 of the Bankruptcy Code, or transfers avoidable by reason of Sections 544,
545, 547, 548, 549 or 553(b) of the Bankruptcy Code, and may commence or
continue in any appropriate court or tribunal any suit or other proceeding for
the enforcement of same.
11.6 In order for all creditors and other interest holders and other
parties in interest to fully comprehend and analyze the provisions of this Plan,
it is necessary to analyze the financial condition of Debtor as referenced in
the schedules and reports filed with the Court.
11.7 Each creditor should consult with its own legal, tax and financial
adviser as it deems necessary in order to evaluate the effect of the Plan on
them. Debtor has the right to modify the Plan at any time in order to obtain
acceptances and shall do so if modification can be agreed upon between Debtor
and claim holders affected by the modification in order to secure their
acceptance of the Plan.
-27-
<PAGE> 36
Dated this 14th day of March, 1997.
TAPISTRON INTERNATIONAL, INC.
By: /s/ Darwin Poe
--------------------------------
Darwin Poe, President
PREPARED AND SUBMITTED BY:
/s/ John A. Christy
- --------------------------
JOHN A. CHRISTY, ESQ.
Georgia Bar No. 125518
Schreeder, Wheeler, & Flint, LLP
127 Peachtree Street, N.E.
16th Floor, The Candler Building
Atlanta, Georgia 30303-1845
(404) 681-3450
-28-
<PAGE> 37
TAPISTRON INTERNATIONAL INC
COMPOUNDED MONTHLY AMOUNT WHEN PRINCIPAL IS 1
ANNUAL INTEREST RATE OF 8.75%
FEBRUARY 13, 1997
<TABLE>
<CAPTION>
n
s=(1 + i)
n COMPOUND FACTOR
- - ---------------
<S> <C>
1 1.00729200
2 1.01463717
3 1.02203591
4 1.02948859
5 1.03699562
6 1.04455740
7 1.05217431
8 1.05984676
9 1.06757517
10 1.07535992
11 1.08320145
12 1.09110015
13 1.09905646
14 1.10707078
15 1.11514354
16 1.12327516
17 1.13146609
18 1.13971674
19 1.14802755
20 1.15639897
21 1.16483143
22 1.17332538
23 1.18188127
24 1.19049955
25 1.19918067
26 1.20792509
27 1.21673328
28 1.22560570
29 1.23454282
30 1.24354511
31 1.25261304
32 1.26174709
33 1.27094775
34 1.28021550
35 1.28955083
36 1.29895424
37 1.30842621
38 1.31796726
39 1.32757787
40 1.33725857
41 1.34700986
42 1.35683226
43 1.36672628
</TABLE>
EXHIBIT 1
<PAGE> 38
TAPISTRON INTERNATIONAL INC. OPTION 1
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
B C D E F G H I J K L
- ----------------------------------------------------------------------------------------------------------------------------------
5 QUARTER ENDING 1/31/97 4/30/97 7/31/97 10/31/97 1/31/98 4/30/98 7/31/98 10/31/98 1/31/99
- ----------------------------------------------------------------------------------------------------------------------------------
6 170,000 636,625 1,219,197 1,451,584 1,085,763 755,264 (88,002) 272,639 46,278
7 BEG CASH
8 INCOME
9
10 Machine Sales 1996:
11 Machine 403 (gtc) 105,000 115,000 15,000 15,000 15,000 15,000
12 Machine 412 (burton) 80,000 60,000 50,000
13 Machine 104 (strikeoff)
14 Machine 111 (asahi)
15 Machine 112 (asahi)
16
17 Projections 1997:
18 Machine 414 (Daigo) 70,000
19 Machine 415 700,000
20 Machine 416 800,000
21 Machine 113 (asahi/acako) 528,000
22 Machine 114 (asahi/duskin+dep) 550,000
23 Machine 115 (asahi/duskin+dep) 550,000
24
25 Projection 1998:
26 Machine 417 800,000
27 Machine 418 (Int) 800,000
28 Machine 419 800,000
29 Machine 420 800,000
30 Machine 421 (Int) 800,000
31 Machine 422 (Int) 800,000
32 Machine 423 800,000
33 Machine 424 300,000
34 Machine 425 (Intl)
35
36 Debt Adj, LC Finance, etc. 470,000
37 INFLUX 2,500,000
38 Part Sales 2,325 30,225 32,550 30,225 33,100 37,700 37,700 37,700 37,700
39 Design/Samples 200 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600
40 Burtco power/Rent 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000
41 Service 100 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300
42 EXPENSES
43 Payroll (260,000) (350,000) (370,000) (340,000) (420,000) (360,000) (420,000) (360,000)
44 Payroll Taxes (104,000) (140,000) (148,000) (136,000) (168,000) (144,000) (168,000) (144,000)
45 Utilities:
46 Gas (900) (900) (900) (900) (900) (900) (900) (900)
47 Electric (27,000) (27,000) (27,000) (27,000) (27,000) (27,000) (27,000) (27,000)
48 Telephone (2,700) (2,700) (2,700) (2,700) (2,700) (2,700) (2,700) (2,700)
49 Water/Mics. (300) (300) (300) (300) (300) (300) (300) (300)
50 Long Distance (900) (900) (900) (900) (900) (900) (900) (900)
51 Insurance:
52 Building (8,733) (8,733) (8,733) (8,733) (8,733) (8,733) (8,733) (8,733)
53 Health (33,750) (33,750) (33,750) (33,750) (33,750) (33,750) (33,750) (33,750)
54 Workers Comp. (10,500) (10,500) (10,500) (10,500) (10,500) (10,500) (10,500) (10,500)
55 COGS:
56 2 METER
57 Machine 112
58 Machine 113 (210,268) (75,134)
59 Machine 114 (119,000) (170,000)
60 Machine 115 (55,000) (237,500)
61 4 METER
62 Machine 414 (5,000)
63 Machine 415 (147,000)
64 Machine 416 (329,902)
65 Machine 417 (268,500) (141,400)
66 Machine 418 (85,700) (324,200)
67 Machine 419 (268,500) (141,400)
68 Machine 420 (85,700) (324,200)
69 Machine 421 (268,500) (141,400)
70 Machine 422 (131,400) (278,500)
71 Machine 423 (85,700) (214,200) (110,000)
72 Machine 424 (222,800) (187,100)
73 Machine 425 (85,700) (107,471)
74 Misc. expense/freight (105,000) (105,000) (105,000) (105,000) (105,000) (105,000) (105,000) (105,000)
75 Minor expense report (900) (900) (900) (900) (900) (900) (900) (900)
76 Office supplies (61,500) (4,000) (2,000) (3,000) (4,000) (3,000) (2,000) (2,000)
77 Sales/Marketing: (1,000) (13,000) (28,000) (13,000) (13,000) (13,000) (28,000) (13,000) (13,000)
78 Royalty Payments: (6,000) (6,000) (6,000) (6,000) (3,000) (6,000) (6,000) (3,000)
79 R&D: (42,500) (30,000) (30,000) (30,000) (30,000) (30,000) (30,000) (30,000)
80 Building: (75,000) (75,000) (75,000) (75,000) (75,000) (75,000) (75,000) (75,000)
81 Professional Fees (100,000) (100,000)
82 Warranty/Installations (15,600) (28,600) (16,000) (20,500) (18,000) (6,500) (20,500) (15,500)
83 Debt Adj, LC Finance, etc. (470,000)
84 PAYMENT TO CREDITORS (500,000) (114,646) (111,563) (107,516) (53,083) (103,276) (50,578)
85
86 SECURED/PRIORITY DEBT
87 Parker (160,000)
88 Lawyer (150,000)
89 CPA (110,000)
- -----------------------------------------------------------------------------------------------------------------------------------
90 END.CASH 636,625 1,219,197 1,451,584 1,085,763 755,264 (88,002) 272,639 46,278 (40,876)
===================================================================================================================================
</TABLE>
EXHIBIT 2
<PAGE> 39
IN THE UNITED STATES BANKRUPTCY
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: * CASE NO. 96-69563
*
TAPISTRON INTERNATIONAL, INC., * CHAPTER 11
*
DEBTOR. * JUDGE MASSEY
*
FIRST AMENDMENT TO FIRST AMENDED
AND RESTATED PLAN OF REORGANIZATION OF
TAPISTRON INTERNATIONAL, INC.
Comes now Debtor, Tapistron International, Inc., a Georgia Corporation
("Debtor") and pursuant to the provisions of 11 U.S.C. ss.1127 and Bankr. Rule
3019 amends its First Amended and Restated Plan of Reorganization of Tapistron
International, Inc. filed on March 14, 1997 ("Plan") to make provision for two
additional classes which shall leave the treatment of its members unimpaired
under the proposed amendment so that they shall be presumed to have accepted the
Plan in accordance with 11 U.S.C. ss.1126(f).
The Debtor amends Article 2.1 of the Plan to add additional Classes 12
and 13 which shall be as follows:
(l) Class 12 shall consist of the holders of outstanding,
non-redeemable, non-public warrants to acquire common stock of the
Debtor.
(m) Class 13 shall consist of the claim of Associates Commercial
Corporation, Inc.
The Debtor amends paragraph 2.2 of the Plan to reflect that Classes 12
and 13 are unimpaired classes as follows:
Section 2.2. Unimpaired Classes:
Classes 1 through 5, 8, 12 and 13 are not impaired under the Plan, and
Classes 1 through 5, 8, 12 and 13 are therefore deemed to have accepted
Debtor's Plan in accordance with the provisions of 11 U.S.C.
ss.1126(f).
<PAGE> 40
The Debtor amends Article 3 to set forth the treatment for Classes 12
and 13 by adding additional Sections 3.12 and 3.13 which shall be as follows:
Section 3.12.
The members in Class 12 shall retain the rights as set forth under the
various representative warrant agreements or other agreements with
respect to non-public, non-redeemable warrants. The Plan leaves
unaltered the legal, equitable and contractual rights of Class 12
members and as a result this Class is unimpaired under the Plan.
Section 3.13
The claim of Associates Commercial Corporation shall be as set forth in
the "Consent Order Allowing Use of Cash Collateral and Providing for
Adequate Protection" entered by this Court on November 12, 1996.
Except as otherwise provided herein, the terms of the Plan shall remain
in full force and effect and unmodified by this amendment.
This the 17th day of July, 1997.
/s/ John A. Christy
--------------------------------------------
JOHN A. CHRISTY
GA State Bar No. 125518
SCHREEDER, WHEELER & FLINT, LLP
1600 The Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
(404) 681-3450
<PAGE> 1
EXHIBIT 4.1
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into effective as of the _____ day of __________, 1997, by and among
Tapistron International, Inc., a Georgia corporation ("Company"), and
___________________, a shareholder of the Company acquiring shares pursuant to
an offering dated _____________, 1997 (the "Purchaser").
W I T N E S S E T H:
THAT FOR AND IN CONSIDERATION of the premises and the mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which is hereby acknowledged by all of
the parties hereto, the parties, intending to be legally bound, agree as
follows:
WHEREAS, the Company has offered for sale a maximum of 16,666,666
shares of its common stock, $.0004 par value at a purchase price of $.15 per
share (the "Shares").
WHEREAS, the Purchaser has purchased the Shares pursuant to the
Offering by the Company.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises and the
mutual promises and covenants contained herein, and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" or "Holders" shall mean the Purchaser which holds Registrable
Securities or Shares and any person holding Registrable Securities or Shares to
whom the rights under this Section 8 have been transferred in accordance with
Section 1.10 hereof.
"Initiating Holders" shall mean Purchaser or transferees of Purchaser
under Section 1.10 hereof who in the aggregate are Holders of not less than 30%
of the Registrable Securities in the event of a registration pursuant to
Section 1.2 hereof, or not less than 15% of the Registrable Securities in the
event of a registration pursuant to Section 1.4 hereof.
<PAGE> 3
"Registrable Securities" means all shares of Common Stock of the
Company which any Holder shall acquire at any time.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with he Commission a registration
statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except Selling
Expenses as defined below, incurred by the Company in complying with Sections
1.5, 1.6 and 1.7 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company) and the reasonable fees and disbursements
of counsel for the Holders.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth in the definition of Registration
Expenses, all reasonable fees and disbursements of counsel for any Holder.
1.2 Requested Registration.
(a) Request for Registration. In case the Company shall receive from
Initiating Holders a written request that the Company effect a registration
under the Securities Act with respect to not less then 20% of the Registrable
Securities, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other
Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration (including, without limitation, appropriate
qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable
Securities as are specified
- 2 -
<PAGE> 4
in such request, together will all or such portion of the
Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received
by the Company within 20 days after receipt of such written
notice from the Company;
Provided, however, that the Company shall not be obligated to
take any action to effect any such registration,
qualification or compliance pursuant to this Section 1.2:
(A) Prior to three months after the effective date of the
Company's first registered public offering of its stock; or
at any time prior to the third anniversary of this Agreement;
(B) If the Company has effected a registration pursuant to
this subparagraph 1.2(a) or subparagraph 1.4(a) within the
previous 12 month period, and such registration has been
declared or ordered effective;
(C) If the Company, within ten (10) days of the receipt of
the request of the Initiating Holders, gives notice of its
bona fide intention to effect the filing of a registration
statement with the Commission within ninety (90) days of
receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which
is not appropriate for the registration of Registrable
Securities), in which case the Holders will have their rights
to join in such registration pursuant to Section 1.3 hereof;
or
(D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of
the Company it would be seriously detrimental to the Company
or its shareholders for a registration statement to be filed
in the near future, in which case the Company's obligation to
use its best efforts to register, qualify or comply under
this Section 1.2 shall be deferred for a period not to exceed
120 days from the date of receipt of the written request from
the Initiating Holders.
Subject to the foregoing clauses (A) through (D), the Company
shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as
practicable after receipt of the request or requests of the
Initiating Holders.
- 3 -
<PAGE> 5
(b) Underwriting. In the event that a registration pursuant to this
Section 1.2 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.2(a)(i). In such event, the right of any Holder to registration
pursuant to this Section 1.2 shall be conditioned upon such Holder's
participation in the underwriting arrangements required by this Section 1.2,
and the inclusion of such Holder's Registrable Securities in the underwriting
to the extent requested shall be limited as provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the managing underwriter(s) selected for such
underwriting by a majority in interest of the Initiating Holders, but subject
to the Company's reasonable approval. Notwithstanding any other provision of
this Section 1.2, if the managing underwriter(s) advise(s) the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Company shall so advise all Holders
participating and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing
the registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriters' marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
If any Holder disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the Initiating Holders. The Registrable Securities so
withdrawn shall also be withdrawn from registration, and such Registrable
Securities shall not be transferred in a public distribution prior to 90 days
after the effective date of such registration, or such other shorter period of
time as the underwriters may require. The Company may include shares of Common
Stock held by shareholders other than Holders in a registration statement
pursuant to Section 1.2 or 1.3 if, and to the extent that, the amount of
Registrable Securities otherwise includible in such registration statement
would not thereby be diminished.
1.3 Company Registration.
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or
- 4 -
<PAGE> 6
holders, other than (i) a registration relating solely to employee benefit
plans or (ii) a registration relating solely to a Commission Rule 145
transaction, or (iii) any other registration which is not appropriate for the
registration for the Registerable Securities for sale to the public, the
Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and
in any underwriting involved therein, all the Registrable
Securities specified in written request or requests, made
within 20 days after receipt of such written notice from the
Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company and any other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company. Notwithstanding any other provision of this Section 1.3, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the registration statement. Under no
circumstances, however, may the underwriter limit the amount of Registrable
Securities included in such registration and underwriting to less than an
amount equal to 20% of the amount of all the Company's securities included
within such registration and underwriting in the case of the Company's first
registered offering of securities, or to less than an amount equal to 35% of
the Company's securities included in any subsequent registration and
underwriting. To facilitate the allocation of shares in accordance with the
above provisions, the Company may round the number of shares allocated to any
Holder or other shareholder to the nearest 100 shares. If any Holder or other
shareholder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn
- 5 -
<PAGE> 7
from such underwriting shall be withdrawn from such registration, and sell not
be transferred in a public distribution prior to 90 days after the effective
date of the registration statement relating thereto, or such other shorter
period of time as the underwriters may require. The Company may include shares
of Common Stock held by shareholders other than Holders in a registration
statement pursuant to Section 1.2 or 1.3 if, and to the extent that, the amount
of Registrable Securities otherwise includible in such registration statement
would not thereby be diminished.
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section
1.3 prior to the effectiveness of such registration whether or not any Holder
has elected to include securities in such registration.
1.4 Registration on Form S-3.
(a) If any Initiating Holder requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of the Registrable Securities the reasonably anticipated
aggregate price to the public of which, net of underwriting discounts and
commissions, would exceed $250,000, and the Company is then entitled to use
Form S-3 under applicable Commission rules to register the Registrable
Securities for such an offering, the Company shall use its best efforts to
cause such Registrable Securities to be registered for the offering on such
form and to cause such Registrable Securities to be qualified in such
jurisdictions as the Holder or Holders may reasonably request. The substantive
provisions of Section 1.2(b) shall be applicable to each registration initiated
under this Section 1.4.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.7: (i) if the Company, within ten
(10) days of the receipt of the request of the Initiating Holders, gives notice
of its bona fide intention to effect the filing of a registration statement
with the Commission within ninety (90) days of receipt of such request (other
than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable Securities); (ii) during
the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following, the effective date of any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule
145 transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or (iii) if the Company shall
furnish to such Holder a certificate signed by the President
- 6 -
<PAGE> 8
of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its shareholders
for registration statements to be filed in the near future, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed 120 days from the receipt of the request to
file such registration by such Holder.
1.5 Limitations on Subsequent Registration Rights. From and after the
Closing Date, the Company shall not enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless (i) such new registration rights,
including standoff obligations, are either subordinate to or on a pari passu
basis with those rights of the Holders hereunder; and (ii) such new
registration rights, including standoff obligations, are approved by the
Holders of not less than two-thirds of the Registrable Securities.
1.6 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company; provided however that the Company
shall not be required to pay for expenses of any registration begun pursuant to
Section 1.2 or Section 1.4 hereof in which case the expenses shall be shared,
pro rata, by the shareholders participating in such registration. Further, the
Company shall not be required to pay any Selling Expenses.
1.7 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 8,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Cause such registration to remain effective for one hundred eighty
(180) days or until the Holders have completed the distribution described in
the registration statement relating thereto, whichever occurs first;
(b) Enter into a written underwriting agreement in customary form and
substance reasonably satisfactory to the Company, the Holders and the managing
underwriter or underwriters of the public offering of such securities, if the
offering is to be underwritten in whole or in part;
(c) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents
- 7 -
<PAGE> 9
as such underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) Use its best efforts to register or qualify the securities covered
by such registration statement under such state securities or blue sky laws of
such jurisdictions as such participating Holders may reasonably request within
ten (10) days prior to the original filing of such registration statement,
except that the Company shall not for any purpose be required to execute a
general consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction where it is not so qualified;
(e) Notify the Holders (or if they have appointed an attorney-in-fact,
such attorney-in-fact) participating in such registration, promptly after it
shall receive notice thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(f) Notify such Holders or their attorney-in-fact promptly of any
request by the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information;
(g) For a period of one hundred eighty (180) days following the
effective date of such Registration Statement, prepare and file with the
Commission promptly upon the request of any such Holders, any amendments or
supplements to such registration statement or prospectus which, in the
reasonable opinion of counsel for such Holders, is required under the
Securities Act or the rules and regulations thereunder in connection with the
distribution of the Registrable Securities by such Holders;
(h) For a period of one hundred eighty (180) days following the
effective date of such Registration Statement, prepare and promptly file with
the Commission, and promptly notify such Holders or their attorney-in-fact of
the filing of, such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions if, at
the time when a prospectus relating to such securities is required to be
delivered under the Securities Act, any event has occurred as the result of
which any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in light of the
circumstances in which they were made;
(i) For a period of one hundred eighty (180) days following the
effective date of such Registration Statement, in case any such Holders or any
underwriter for any such Holders is required to
- 8 -
<PAGE> 10
deliver a prospectus at a time when the prospectus then in effect may no longer
be used under the Securities act, prepare promptly upon request such amendment
or amendments to such registration statement and such prospectuses as may be
necessary to permit compliance with the requirements of the Securities Act;
(j) Advise such Holders or their attorney-in-fact, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that purpose
and promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued; and
(k) At the request of any such Holder, furnish on the effective date
of the registration statement and, if such registration includes an
underwritten public offering, at the closing provided for in the underwriting
agreement, an opinion, dated each such date, of the counsel representing the
Company for the purposes of such registration, addressed to the underwriters,
if any, and to the Holder or Holders making such request, covering such matters
with respect to the registration statement, the prospectus and each amendment
or supplement thereto, proceedings under state and federal securities laws,
other matters relating to the Company, the securities being registered and the
offer and sale of such securities as are customarily the subject of opinions of
issuer's counsel provided to underwriters in underwritten public offerings, and
(ii) to the extent the Company's accounting firm is willing to do so, a letter
dated each such date, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to the Holder or Holders
making such request, stating that they are independent certified public
accountants within the meaning of the Securities Act and that in the opinion of
such accountants the financial statements and other financial data of the
company included in the registration statement or the prospectus or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act, and additionally
covering such other financial matters, including information as to the period
ending not more than five (5) business days prior to the date of such letter
with respect to the registration statement and prospectus, as the underwriters
or such requesting Holder or HOlders may reasonably request.
1.8 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall promptly furnish the Company such
information regarding such Holder or Holders, the Registrable Securities held
by them and the distribution proposed by such Holder or Holders as the Company
may request in writing and as shall be required in connection with any
- 9 -
<PAGE> 11
registration, qualification or compliance referred to in this Section 1.
1.9 Indemnification.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 8, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, or any violation by the Company of the Securities Act or
any rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or action in respect
thereof) arising out
- 10 -
<PAGE> 12
of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; or (ii) any violation by such Holder
of the Securities Act or any rule or regulation promulgated under the
Securities Act applicable to Holder in connection with any such registration,
qualification or compliance. Notwithstanding the foregoing, the liability of
each Holder under this subsection (b) shall be limited to an amount equal to
the initial public offering price of the shares sold by such Holder, unless
such liability arises out of or is based on willful conduct by such Holder.
(c) Each party entitled to indemnification under this Section 1.9 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Part, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8 unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's
ability to defend such action and provided further, that the Indemnifying Party
shall not assume the defense for matters as to which there is a conflict of
interest or separate and different defenses. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include saw an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
- 11 -
<PAGE> 13
1.10 Transfer of Registration Rights. The rights to cause the Company
to register securities granted Purchaser under Sections 1.2, 1.3 and 1.4 may be
assigned to a transferee or assignee reasonably acceptable to the company in
connection with any transfer or assignment of Registrable Securities by
Purchaser provided that: (i) such transfer may otherwise be effected in
accordance with applicable securities laws, and (ii) such assignee or
transferee acquires at least 10% of the Registrable Securities. Notwithstanding
the foregoing, the rights to cause the Company to register securities may be
assigned to any constituent partner of Purchaser without compliance with item
(ii) above, provided written notice thereof is promptly given to the Company.
1.11 Standoff Agreement. Each Holder agrees, so long as such Holder
holds at least five percent (5%) of the Company's outstanding voting equity
securities, in connection with the initial public offering of the Company's
securities that, upon request of the Company or the underwriters managing an
underwritten offering, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such
period of time (not to exceed one hundred eighty (180) days) from the effective
date of such registration as may be requested by the underwriters; provided,
that the officers and directors of the Company who own stock of the Company
also agree to such restrictions.
1.12 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1.4. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities (other than
(i) transfers not involving a change in beneficial ownership or (ii)
transactions involving the distribution without consideration of Restricted
Securities by any of the Purchasers to any of its partners, or retired
partners, or to the estate of any of its partners or retired partners), unless
there is in effect a registration statement under the Securities Act covering
the proposed transfer, the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer, sale, assignment or
pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall
be accompanied, at such holder's expense by either (i) an unqualified written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in
- 12 -
<PAGE> 14
a recommendation by the staff of the Commission that action be taken with
respect thereto, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. Each certificate evidencing
the Restricted Securities Transferred as above provided shall bear, except if
such transfer is made pursuant to Rule 144, the appropriate restrictive legend
set forth in Section 1.3 above, except that such certificate shall not bear
such restrictive legend if in the opinion of counsel for such holder and the
Company such legend is not required in order to establish compliance with any
provision of the Securities Act. Notwithstanding the foregoing, each Purchaser
agrees that it will not request that a transfer of the Restricted Securities be
made (or that the legend described in Section 1.3 be removed from the
certificate evidencing the Restricted Securities) solely in reliance on Rule
144(k) under the Securities Act until the Company has been subject to the
reporting requirements under the Exchange Act for a period of 90 days.
2.1 Miscellaneous.
(a) Prior Agreements. This Agreement shall supersede all
other understandings or agreements, written or oral, among the parties hereto
with respect to the subject matter hereof.
(b) Expenses. All fees, commissions and expenses incurred by
the Company in connection with the Offering or the negotiation of this
Agreement and the consummation of the transactions contemplated herein,
including the fees and expenses of counsel, shall be borne by Purchaser.
(c) Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns.
(d) Amendment. This Agreement may be amended or modified only
by an instrument in writing signed by all of the parties hereto. The parties
may, by written agreement signed by the parties hereto, or in the case of a
waiver, by the parties waiving compliance, (i) terminate or extend the time for
the performance of any of the obligations or other acts of the parties hereto,
or (ii) waive compliance with or modify any of the provisions of this
Agreement. No modification of this Agreement or waiver of any provision hereof
or default hereunder shall affect the right of any party thereafter to enforce
any other provision or to exercise any right or remedy in the event of any
default, whether or not similar.
- 13 -
<PAGE> 15
(e) Governing Law. This Agreement and the legal relationships
among the parties hereto shall be governed by and construed in accordance with
the laws of the State of Georgia.
(f) Headings. The headings of the sections and subparagraphs
contained in this Agreement are for the convenience of reference only and do
not form a part hereof and in no way modify the meaning of such sections or
subparagraphs. Any number of counterparts of this Agreement may be signed and
delivered and each shall be considered an original and together shall
constitute one agreement. All information given by any party hereto to any
other party, unless otherwise publicly available, shall be considered
confidential and shall be used only for the purpose intended. Variations among
pronouns shall not be relied upon in the interpretation of this Agreement and
the singular number shall include the plural, and each gender shall include the
other or neuter, as the context may require.
(g) Notices. All notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed to have been
properly given or served by personal delivery or by depositing with Federal
Express or in the U.S. Mail, postage prepaid, and addressed to the appropriate
addressee set forth below. Each notice shall be effective upon being personally
delivered to Federal Express or upon being deposited in the U.S. Mail. By
giving prior written notice thereof, any party shall have the right from time
to time and at any time to change its respective address.
TO THE COMPANY:
Mr. Gary L. Coulter, Secretary
Tapistron International, Inc.
With a copy to:
Mr. Chester J. Hosch
Schreeder, Wheeler & Flint
127 Peachtree Street, N.E.
Suite 1600
Atlanta, GA 30303
TO PURCHASER:
------------------------
------------------------
------------------------
(h) Assignment. Purchaser shall have the right to assign its
interest in this contract to another party only with the express written
consent of the Company.
- 14 -
<PAGE> 16
(i) Consents to be Obtained. Each of the parties hereto agree
that they will use their best efforts to obtain all consents, certificates,
permits, actions and approvals of all third parties required as conditions to
or otherwise to carry out the transactions contemplated in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
COMPANY:
TAPISTRON INTERNATIONAL, INC.
BY:
----------------------------------
J. Darwin Poe
President/CEO
ATTEST: ----------------------------------
Gary L. Coulter
Secretary [Corporate Seal]
PURCHASER:
----------------------------------
Sworn to and subscribed before
me this ____ day of _______, 1997.
- ------------------------------
NOTARY PUBLIC
- 15 -
<PAGE> 1
EXHIBIT 5.1
<PAGE> 2
[FORM OF OPINION]
[SCHREEDER, WHEELER & FLINT, LLP LETTERHEAD]
February ___, 1998
Tapistron International, Inc.
6203 Alabama Highway
Ringgold, Georgia 30736
RE: Tapistron International, Inc., a Georgia corporation (the
"Company") - Registration Statement on Form S-1 (File No.
333-_____)
Ladies and Gentlemen:
In connection with the registration of 16,666,666 shares of the
Company's Common Stock, par value $0.0004 per share (the "Shares"), under the
Securities and Exchange Commission (the "Commission") on or about February __,
1998 (the "Registration Statement"), you have requested our opinion with respect
to the matters set forth below.
We have acted as special corporate counsel for the Company in
connection with the matters described herein. In our capacity as special Georgia
corporation counsel to the Company, we have reviewed and are familiar with
proceedings taken and proposed to be taken by the Company in connection with the
authorization, issuance and sale of the Shares, and for purposes of this opinion
have assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have relied upon certification and advice from the
officers of the Company upon which we believe we are justified in relying and on
various certificates from, and the documents recorded with, the Secretary of
State of Georgia, including the Amendment to Articles of Incorporation filed
with the Secretary of State of Georgia on June 2, 1992. We have also examined
the Restated Bylaws of the Company adopted as of April 2, 1992 (the "Bylaws")
and Resolutions of the Board of Directors of the Company adopted on or before
June 18, 1992 and in full force and effect on February __, 1998; and such laws,
records, documents, certificates, opinions and instruments as we deem necessary
to render this opinion.
We have assumed the genuineness of all signatures and the authenticity
of all documents submitted to us as originals and the conformity to the
originals of all documents submitted to us as certified, photostatic or
conformed copies. In addition, we have assumed that each person executing any
instrument, document or certificate referred to herein on behalf of any party is
duly authorized to do so.
Based on the foregoing, and subject to the assumptions and
qualifications set forth herein, it is our opinion that, as of the
<PAGE> 3
date of this letter, the Shares have been duly authorized by all necessary
corporation action on the part of the Company, and the Shares will, upon
issuance and delivery in accordance with the terms and conditions described in
the Registration Statement, be validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and further consent to the filing of this opinion as an
exhibit to the applications to securities commissions for the various states of
the United States for registration of the Shares. We also consent to the
identification of our firm as special corporate counsel to the Company in the
section of the Prospectus (which is part of the Registration Statement)
entitled "Legal Matters."
The opinions expressed herein are limited to the laws of the State of
Georgia and we express no opinion concerning any laws other than the laws of
the State of Georgia. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
The opinions expressed in this letter are solely for your use and may
not be relied upon by any other person without our prior written consent.
Very truly yours,
SCHREEDER, WHEELER & FLINT, LLP
By: /s/ Schreeder, Wheeler, & Flint, LLP
----------------------------------------
<PAGE> 1
EXHIBIT 13.1
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________________
Commission file number 0-20309
-------
TAPISTRON INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1684918
------- ----------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
6203 Alabama Highway
P.O. Box 1067
Ringgold, Georgia
-----------------
(Address of principal executive offices)
30736-1067
----------
(Zip Code)
(706) 965-9300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most recent practicable date.
<TABLE>
<CAPTION>
Class Outstanding at December 8, 1997
----------------------------- -------------------------------
<S> <C>
Common Stock $.0004 Par Value 34,785,611
</TABLE>
<PAGE> 3
TAPISTRON INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of July 31, 1997
and October 31, 1997 1
Condensed Consolidated Statements of Operations for the Three Months
Ended October 31, 1996 and 1997 2
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended October 31, 1996 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 5
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 5
SIGNATURE 6
</TABLE>
<PAGE> 4
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
Condensed from
Audited Financial
Statements Unaudited
July 31, 1997 October 31, 1997
----------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash equivalents $ 27,946 $ 543,858
Receivables, net of allowances of
$39,905 as of July 31, 1997
and October 31, 1997 720,740 414,810
Notes Receivable 350,000 250,000
Inventory 1,231,002 1,783,788
Prepayments 102,453 122,593
Deferred income taxes 100,000 100,000
------------ ------------
Total current assets 2,532,141 3,215,049
PROPERTY AND EQUIPMENT, NET 564,324 531,858
OTHER ASSETS
Long-term receivables, net of
allowances of $500,000 as of
July 31, 1997 and October 31, 1997 -- --
Patents and patent license 263,068 280,446
Deferred income taxes 1,900,000 1,900,000
Other 8,247 7,722
------------ ------------
Total other assets 2,171,315 2,188,168
------------ ------------
TOTAL $ 5,267,780 $ 5,935,076
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 0 $ 0
Current Portion of long-term debt 4,315 3,192
Accounts payable 178,068 71,393
Accrued expenses 655,621 535,680
Customer deposits 936,026 137,987
------------ ------------
Total current liabilities 1,774,030 748,251
LIABILITIES SUBJECT TO SETTLEMENT UNDER
REORGANIZATION PROCEEDINGS 2,520,557 1,915,041
LONG-TERM DEBT 744 744
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value - 2,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock - $.0004 par value - 100,000,000 shares
authorized; 10,581,813 outstanding as of July 31, 1997
and 27,248,479 outstanding as of October 31, 1997 4,233 10,899
Additional paid-in capital 22,899,108 25,392,441
Accumulated deficit (21,918,100) (22,119,509)
Treasury stock - 55,518 shares outstanding, at cost (12,792) (12,792)
------------ ------------
Total stockholders' equity 972,449 3,271,039
TOTAL $ 5,267,780 $ 5,935,076
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 5
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended
October 31,1996 October 31, 1997
------------------ ------------------
<S> <C> <C>
SALES $ 1,561,874 $ 1,249,830
COST OF SALES 1,107,393 833,544
------------ ------------
Gross profit 454,481 416,286
OPERATING EXPENSES
Administrative expenses 340,913 647,420
------------ ------------
340,913 647,420
------------ ------------
OPERATING INCOME (LOSS) 113,568 (231,134)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (35,518) 0
Interest income 2 29,725
------------ ------------
Other income (expense) (35,516) 29,725
------------ ------------
NET INCOME (LOSS) $ 78,052 $ (201,409)
EARNINGS PER SHARE
Net income (loss) 0.01 (0.01)
Weighted average number of
shares outstanding 10,012,390 22,137,394
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 6
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended October 31,
------------------------------
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 78,052 $ (201,409)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 50,070 36,781
Changes in operating assets and liabilities:
(Increase) decrease in receivables (708,833) 405,930
(Increase) decrease in prepayments (4,401) (20,140)
(Increase) decrease in inventory 875,207 (552,786)
Increase (Decrease) in accounts payable and accrued expenses 133,395 (227,739)
Increase (Decrease) in customer deposits 0 (798,039)
Increase (Decrease) in accounts payable and accrued expenses,
which are subject to settlement under a plan of reorganization 0 (605,516)
----------- -----------
Net cash provided by (used in) operating activities 423,490 (1,962,920)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for other assets 0 (18,238)
Capital expenditures (2,033) (2,930)
----------- -----------
Net cash (used in) investing activities (2,033) (21,168)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 99,970 0
Proceeds from issuance of common stock 0 2,500,000
Principal payments of debt (987) 0
----------- -----------
Net cash provided by financing activities 98,983 2,500,000
----------- -----------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS: 520,440 515,912
Cash and cash equivalents - beginning of period 17,149 27,946
----------- -----------
Cash and cash equivalents - end of period $ 537,589 $ 543,858
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 137 $ 0
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from Fixed Assets to Inventory $ 163,270 $ 0
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 7
TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management of Tapistron International, Inc. ("Tapistron")
and Fabrication Center, Inc. ("FCI"), a wholly-owned subsidiary of Tapistron,
the accompanying unaudited condensed consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments, except as
noted elsewhere in the notes to the condensed consolidated financial statements)
necessary to present fairly its financial position as of October 31, 1997 and
the results of its operations for the three months ended October 31, 1996 and
1997, and cash flows for the three months ended October 31, 1996 and 1997. These
statements are condensed and therefore do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The statements should be read in conjunction with the
consolidated financial statements and footnotes included in the Company's Annual
Report on Form 10-K for the year ended July 31, 1997. The results of operations
for the three months ended October 31, 1997 are not necessarily indicative of
the results to be expected for the full year.
NOTE 2 - EARNINGS PER SHARE
Earnings per common share is computed based on the weighted average number of
common shares and, when dilutive, common equivalent shares (stock options and
warrants) outstanding during each of the periods.
NOTE 3 - INVENTORY
Inventory at October 31, 1997 consists of the following:
<TABLE>
<S> <C>
Raw Material $ 651,494
Work in Process 1,132,293
----------
$1,783,788
</TABLE>
4
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended October 31, 1996 and 1997
Revenues for the three months ended October 31, 1997 ("1997 Three Months") were
$1,249,830 as compared to $1,561,874 for the three months ended October 31, 1996
("1996 Three Months"), a decrease of 20.0%. This decrease in sales is due to the
cyclical nature of the business and the Company expects overall sales for the
fiscal year to exceed the previous years sales.
Cost of sales as a percentage of sales decreased to 66.7% for the 1997 Three
Months from 70.9% for the 1996 Three Months. This decrease is result of
continuing efforts to reduce and contain costs in the manufacturing of CYP
machines.
Operating expenses consist of administrative expenses. Administrative expenses
increased to $647,420 in the 1997 Three Months from $340,913 in the 1996 Three
Months, a 89.9% increase. This increase is a result of the Company expanding its
manufacturing, and sales and marketing efforts, and to further develop the
technologies of the CYP machine.
Interest expense decreased to $0 for the 1997 Three Months from $35,518 for the
1996 Three Months. Interest income increased to $29,725 for the 1997 Three
Months from $2 for the 1996 Three Months as the Company invested the proceeds
from its private placement.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1997, the Company had working capital of $2,466,798, an
increase of $1,708,687. This increase is primarily a result of the $2,500,000
proceeds that the Company received from a private placement. As of October 31,
1997, the Company had total cash of $543,858, up from $27,946 at July 31, 1997.
Cash used in operations was $1,962,920. The Company reduced its liabilities
which are subject to the Plan of Reorganization by $605,516, in addition to
administrative claims of $279,299.Cash used in investing activities was $21,168.
Cash provided by financing activities was $2,500,000. Financing activities
included proceeds of $2,500,000 from the issuance of the Company's common stock.
Management believes the existing cash and anticipated cash generated from
operations will be sufficient to satisfy the Company's future cash requirements.
PART II. OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no Exhibits filed with this report.
(b) No reports on Form 8-K were filed by Registrant during the quarterly period
ended October 31, 1997.
5
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized,
Tapistron International, Inc.
-----------------------------
(Registrant)
Date: 12-8-97 /s/ J. Darwin Poe
- ----------------------- -----------------
J. Darwin Poe
(Signing on behalf of the registrant
as President and Chief Executive Officer)
6
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION TAX IDENTIFICATION NO.
- ---- ---------------------- ----------------------
<S> <C> <C>
Fabrication Center, Inc. Georgia EIN 58-1523947
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
We hereby consent to the use in this Form S-1, Registration Statement under the
Securities Act of 1933 (the "Registration Statement"), and in the Prospectus
which forms a part of that Registration Statement, of our report dated September
26, 1997 relating to the Financial Statements, and the accompanying Notes
thereto, of Tapistron International, Inc. and the reference of our firm name
under the caption "Experts" in the Prospectus. We further acknowledge awareness
of and consent to the use in the Registration Statement and in the Prospectus of
the use of a report on unaudited interim financial information.
Dudley, Hopton-Jones, Sims & Freeman, PLLP
/s/ Dudley, Hopton-Jones, Sims & Freeman, PLLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF EXPERT
We hereby consent to the use of our opinion letter dated February 6,
1998 to the Registrant regarding the legality of the Common Stock to be offered
in connection with the Form S-1, Registration Statement under the Securities Act
of 1933 (Reg. No. 333-_____), under the caption "Experts" for the registration
of the shares of common stock of Tapistron International, Inc.
SCHREEDER, WHEELER & FLINT, LLP
/s/ Schreeder, Wheeler & Flint, LLP
