<PAGE>
As filed with the Securities and Exchange Commission on May __, 1996
Registration No. 33-80745
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RAGAR CORP.
(Exact name of registrant as specified in its charter)
New York 2836,2835 11-2925673
(State or other jurisdiction (Primary standard (I.R.S. employer
of incorporation or industrial classification identification no.)
organization) code number)
c/o Branin Investments, Inc.
100 Maiden Lane
New York, NY 10038
(212) 898-8888
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PHILIP A. HERMAN
President and Chief Executive Officer
Ragar Corp.
c/o Branin Investments, Inc.
100 Maiden Lane
New York, NY 10038
--------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
ANDREW J. LEVINSON
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
(212) 758-9500
--------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered 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, 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, 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, please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Amount and Title Proposed
of Each Class of Proposed Maximum
Securities Amount to Maximum Offering Price Aggregate Amount of
to be Registered be Registered Per Security (1) Offering Price Registration Fee(2)
---------------- ------------- ---------------- -------------- -------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par 1,605,716 $3.50 $5,520,006 $1,903.30
value
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) based on the average of the bid and asked price of
the Common Stock on May 24, 1996 (latest date practicable).
(2) Such fee was paid in December 1995 upon the filing of the Registration
Statement.
------------------
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 the Registration Statement
shall become effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
RAGAR CORP.
Cross-Reference Sheet
Showing Location in Prospectus of
Information Required by Items of Form S-1
<TABLE>
<CAPTION>
Registration Statement Item and Heading Caption or Location in Prospectus
--------------------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings Prospectus Summary; Risk Factors
to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page;
Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Principal and Selling Shareholders; Plan of
Distribution
8. Plan of Distribution Outside Front Cover Page; Principal and
Selling Shareholders; Plan of Distribution
9. Description of Securities to be Registered Description of Capital Stock; Dividend
Policy; Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Outside Front Cover Page; Prospectus
Summary; Risk Factors; Dividend Policy;
Selected Historical Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Certain Transactions;
Principal and Selling Shareholders;
Financial Statements
12. Disclosure of Commission Position on Indemnification for Not Applicable
Securities Act Liabilities
<PAGE>
SUBJECT TO COMPLETION, DATED MAY ____, 1996
1,605,716 Shares
Ragar Corp.
Common Stock
This Prospectus relates to the offer and sale by the holders thereof
(the "Selling Shareholders") of 1,605,716 shares of common stock, par value
$.001 per share (the "Common Stock"), of Ragar Corp. (the "Company"). (The
shares of Common Stock offered hereby are sometimes referred to herein as the
"Securities.")
Subject to certain agreed-upon lock-up periods more fully described
herein, the Securities may be sold from time to time by the Selling Shareholders
directly, or through agents designated from time to time or through dealers or
underwriters also to be designated, on terms to be determined at the time of
sale. To the extent required, the specific Securities to be sold, the names of
the Selling Shareholders, the purchase price, the public offering price, the
names of any such agents, dealers or underwriters and any applicable commission
or discount with respect to a particular offer will be set forth in an
accompanying Prospectus supplement (or, if required, a post-effective amendment
to the Registration Statement of which this Prospectus forms a part). The
distribution of the Securities may be effected in one or more transactions that
may take place on the over-the-counter market, including ordinary broker's
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage
fees, commissions or discounts may be paid by the Selling Shareholders in
connection with such sales.
The Selling Shareholders and intermediaries through whom the
Securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Shareholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of
Securities offered hereby. Expenses of this offering, estimated at $200,000, are
payable by the Company. The aggregate proceeds to the Selling Shareholders from
the sale of the Securities will be the purchase price of the Securities sold,
less the aggregate underwriting fees, discounts and commissions, if any. See
"Principal and Selling Shareholders." Prior to this offering, there has been a
limited public market for the Common Stock of the Company.
-------------------------
The Common Stock offered hereby is speculative and involves a high degree
of risk. See "Risk Factors" beginning on Page 6 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.
The date of this Prospectus is ____________, 1996
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and this offering, reference is made to
the Registration Statement, including the exhibits filed therewith, which may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, N.W., Washington, DC 20549. Copies of the Registration Statement may be
obtained from the Commission at its principal office upon payment of prescribed
fees. Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete and, where the contract or other
document has been filed as an exhibit to the Registration Statement, each such
statement is qualified in all respects by reference to the applicable document
filed with the Commission.
The Company is currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith is required to file reports and
other information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at its principal offices.
The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements and an opinion expressed
thereon by the Company's independent certified public accountants.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto) appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety.
The Company
Ragar Corp. (the "Company") was organized under the laws of the State
of New York on July 19, 1988. References to the Company herein shall mean the
Company and its consolidated subsidiaries (including the operations of their
predecessors) except to the extent the context requires otherwise. Ragar Corp.
had no substantial operations prior to the acquisition on June 2, 1995, in a
reverse acquisition, of Carpet Barn Holdings, Inc. ("CBH"), which was organized
under the laws of the State of Delaware on May 26, 1995. CBH and its wholly
owned subsidiary, Carpet Barn, Inc. ("CBI"), a Delaware corporation. CBH and CBI
were formed for the purpose of acquiring the assets and operations of Carpet
Barn, Inc., a Nevada corporation ("Carpet Barn"), a retail carpet sales and
installation outlet located in Las Vegas, Nevada.
The Company believes it is the largest seller and installer of floor
coverings for the residential housing market in Nevada. CBI, as the successor to
CBI, sells carpet, vinyl and ceramic tile floor coverings out of its
approximately 44,000 square foot facility in Las Vegas. Carpet Barn sells
approximately 75% of its products to the new home market through its New Housing
Division and approximately 25% of its products to the retail replacement market
through its Replacement Sales Division. CBI employs approximately 125
people, in addition to its utilization of approximately 300 installers who are
paid on a "per installation" basis.
Ragar Corp. was organized to seek out a suitable business for
acquisition or merger and completed an initial public offering of common stock,
par value $.001 per share (the "Common Stock"), on January 9, 1990. On June 2,
1995, Ragar Corp. acquired all of the common stock of CBH in an exchange (the
"Exchange") for the issuance to the holders of common stock of CBH of an
aggregate of 13,217,750 shares of Common Stock, pursuant to an agreement and
Plan of Exchange, dated as of June 1, 1995 (the "Exchange Agreement"), among
Ragar Corp., CBH and the holders of common stock of CBH . In addition, the
Company completed the acquisition (the "Acquisition") of substantially all of
the assets of Carpet Barn pursuant to the Asset Purchase Agreement, dated as of
June 1, 1995 (the "Purchase Agreement"), between CBI and Carpet Barn. The
current directors and executive officers of the Company replaced the existing
directors and executive officers of the Company in connection with the Exchange.
The Company's principal executive offices are located c/o Branin
Investments, Inc. ("Branin"), 100 Maiden Lane, New York, New York 10038 and its
telephone number is (212) 898-8888.
The Offering
Common Stock offered by
the Selling Shareholders 1,605,716 shares
Common Stock to be outstanding
after this offering(1) 15,135,716 shares
Use of Proceeds The Company will not receive any of the
proceeds from the sale of the Securities
offered hereby.
3
<PAGE>
Risk Factors The Common Stock offered hereby is speculative
and involves a high degree of risk. See "Risk
Factors."
- ---------------------------
(l) Based upon the number of shares of Common Stock outstanding as of
May 17, 1996. See "Capitalization."
4
<PAGE>
Summary Financial Information
The summary financial information set forth below should be read in connection
with the more detailed financial statements and notes thereto included elsewhere
in this Prospectus.
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company(1) Ragar Corp. (1)
Year Ended December 31,
--------------------------------------------------------------------------- --------------
Pro Forma For
the Year
Period Period Ended Ended
Ended June December 31, December 31,
1991 1992 1993 1994 1, 1995(2) 1995(3) 1995(4)
---- ---- ---- ---- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(Unaudited)
Statement of
Operations
Data:
Net sales $26,891,940 $28,993,553 $34,529,604 $42,506,987 $16,362,727 $23,979,879 $40,342,606
Gross profit 7,297,215 8,166,771 9,598,285 10,957,627 5,030,797 6,125,600 11,156,397
Income from
operations 762,590 1,375,243 1,095,788 5,547,771 3,723,657 2,108,953 5,365,943
Income before
income taxes 836,755 925,410 1,113,821 4,888,341 3,737,144 743,955 3,025,131
Net income 836,755 925,410 1,113,821 4,888,341 3,737,144 489,360 1,996,586
Net income
per common
share 8,368 9,254 11,138 48,883 37,371 0.02 0.10
Weighted
average
common
shares
outstanding 100 100 100 100 100 14,583,163 14,583,163
Pro forma
income tax
effect(5) 284,497 314,639 378,699 1,662,036 1,270,629
Pro forma net
income after
taxes(5) 552,258 610,771 735,122 3,226,305 2,466,515
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995
----------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 514,566 $(3,756,613)
Total assets 3,174,141 24,084,491
Long-term debt and capital lease obligations,
less current maturities 173,884 8,811,558
Stockholders' equity 787,780 6,487,334
</TABLE>
- ----------------------------
(1) The results of operations of the Company are not comparable to those of the
Predecessor Company, due primarily to the amortization of intangible assets
and interest expense on the debt incurred in connection with the
Acquisition.
(2) Period refers to period from January 1, 1995 through June 1, 1995.
(3) Period refers to period from June 2, 1995 through December 31, 1995, due
to the Acquisition.
(4) Gives effect to the Acquisition and the Financing (as defined herein) as if
such transactions had occurred on January 1, 1995. See "Financial
Statements."
(5) Predecessor Company elected to be taxed under the S corporation provisions
of the Federal tax law which provide that in lieu of payment of income
taxes at the corporate level the stockholders individually reported their
pro rata share of the Predecessor Company's items of income, deduction,
loss and credit.
5
<PAGE>
<TABLE>
<CAPTION>
Predecessor Company (1) Ragar Corp. (1)
------------------------------ ---------------
Pro forma
for the
Three Months Three Months Three Months
Ended March Ended March Ended March
31, 1995 31, 1995(2) 31, 1996
-------- ----------- --------
<S> <C> <C> <C>
Statement of Operations Data:
Net sales $9,147,284 $9,147,284 $9,764,955
Gross profit 2,850,937 2,850,937 2,677,908
Income from operations 2,017,787 1,684,688 801,468
Income before income taxes 2,021,818 1,274,204 390,984
Net Income 2,021,818 840,975 246,333
Net Income per common share 20,218 0.05 0.01
Weighted average common shares outstanding 100 14,583,163 14,583,163
<CAPTION>
March 31, 1996
--------------
<S> <C>
Balance Sheet Data:
Working capital (deficit) $(4,177,829)
Total assets 23,214,808
Long-term debt and capital lease obligations,
less current maturities 7,853,461
Stockholders' equity 6,624,467
</TABLE>
(1) The results of operations of the Company are not comparable to those of the
Predecessor Company, due primarily to the amortization of intangible assets
and interest expense on the debt incurred in connection with the
Acquisition.
(2) Gives effect to the Acquisition and the Financing (as defined herein) as if
such transactions had occurred on January 1, 1995. See "Financial
Statements."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the shares of Common Stock offered hereby.
Recent Acquisition of Carpet Business
Prior to June 2, 1995, the Company was a development stage
enterprise and its primary activities were limited to locating an acceptable
acquisition candidate. On June 2, 1995, the Company consummated the Acquisition
of Carpet Barn. Accordingly, the Company and its management, other than the
Company's Chief Operating Officer, have no prior experience in the floor
covering business. The likelihood of the Company's success must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the acquisition of a new business and
development of new business and financial strategies. These include, but are not
limited to, competition, the need to develop and expand customer support
capabilities and market expertise, market acceptance and sales and marketing.
There can be no assurance that the Company's revenue will be maintained or that
the Company will maintain profitable operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business,"
"Management - Directors, Executive Officers and Significant Employees" and
"Certain Transactions."
Dependence on Suppliers and Manufacturers
The Company relies primarily on several independent high
volume carpet manufacturers for the production of its floor coverings. Since the
Acquisition, the Company's top six suppliers accounted for 81.7% of the
Company's floor covering purchases. Although these manufacturers have been
reliable, high-quality producers, there can be no assurance that in the future
these manufacturers will be willing or able to meet the Company's requirements
on a timely basis or that their pricing policies will remain competitive. While
the Company believes that there are a number of manufacturers capable of
producing floor covering products, any delays in obtaining such on a timely
basis could have a material adverse effect on the Company's operations. See
"Business - Suppliers."
Dependence on and Relationship with Customers
The Company's top five customers accounted for approximately
35%, 37%, 31% and 36% of the Company's net sales in 1993, 1994, 1995 and the
three months ended March 31, 1996, respectively. To date, most of the Company's
sales have been made to several major Clark County, Nevada homebuilders which
have been customers for many years. There can be no assurance that in the future
these customers will continue to do business with the Company. Loss of any major
customer or a material reduction in a major customer's purchases would have a
material adverse effect upon the Company.
7
<PAGE>
Growth Strategy; Acquisitions; Capital Requirements
To take advantage of the consolidation trend in the floor
covering industry and expand its product and service portfolio, as well as to
achieve geographic diversity, the Company's strategy includes growth through
acquisitions. The Company is subject to various risks associated with an
acquisition growth strategy, including the risk that the Company will be unable
to identify and recruit suitable acquisition candidates in the future or to
integrate and manage them. The Company's expansion strategy may also require
significant capital resources. Branin, a significant stockholder of the Company
and an entity of which the Company's Chairman and President is also President,
entered into a non-binding letter of intent in November 1995 to acquire a single
floor covering retailer with annual net sales in excess of $350 million.
Although such letter of intent expired, the parties are continuing discussions
on the structure and financing of a possible transaction. There can be no
assurance that such mutually agreeable documentation or financing can be
arranged or that Branin would accomplish the acquisition through the Company, or
what fees, if any, Branin would receive. Moreover, Branin may provide services
in connection with other future acquisition candidates and may receive fees in
connection therewith. These fees, if any, may not be negotiated on an
arms-length basis.
Capital is needed not only for acquisitions, but also for the
effective integration, operation and expansion of such businesses. Accordingly,
the Company may need to raise capital through the issuance of long-term or
short-term indebtedness or the issuance of its equity securities in private or
public transactions, which could result in dilution of existing equity
positions, increased interest and amortization expense, or decreased income to
fund future expansion. There can be no assurance that acceptable financing for
future acquisitions or for the integration and expansion of existing business
can be obtained.
Future Capital Needs; Leverage
The Company's future capital requirements will depend on many
factors, including cash flow from operations, competing market developments, the
Company's ability to market its products and services successfully and future
expansion plans. The Company incurred significant indebtedness in connection
with the Acquisition of Carpet Barn. In addition, at March 31, 1996, the Company
had a working capital deficit of $4,172,729. The Company depends significantly
on its credit facility (the "Credit Agreement") with First Source Financial, LLP
("First Source"), an unaffiliated commercial lender, for its working capital and
debt repayment needs. The Credit Agreement contains covenants requiring CBI to
maintain minimum levels of tangible net worth, working capital and various
ratios. As of December 31, 1995, the Company was in violation of the following
financial covenants: adjusted net worth at June 30, 1995, and quarterly and
annual interest coverage ratios during the period from June 2, 1995
(commencement of operations) through December 31, 1995 (the "Operating Period").
On April 15, 1996, First Source waived these covenant violations and agreed to
negotiate in good faith to amend such covenants by June 1, 1996 so that the
Company can reasonably expect to be in compliance with such amended covenants
based on its current operating and cash flow budgets. The Company believes it
can be in compliance with the proposed amended covenants. There can be no
assurance that such amendments will be obtained. As of May 31, 1996, the Company
and First Source have not agreed to the specific covenant revisions. Management
is in the process of negotiating to extend the waiver period beyond June 1, 1996
to allow for the current covenant revision discussions to be consummated. To
date, First Source has given management no indication of their intent to
accelerate the note in the near term, which First Source could do if the waiver
expires without acceptable amendments to the financial covenants. The Company
does not have any arrangements to refinance such note in the event of any
acceleration of such note. While there can be no assurance, management believes
it will be successful in getting the waiver period extended until the covenants
can be revised. Until such covenants are amended, the Company has agreed to
limit certain payments with respect to outstanding securities of the Company.
The Credit Agreement also limits payments from CBI to CBH and limits dividends,
redemptions, and purchases of capital stock of CBI, CBH and the Company. The
Company's growth will be dependent upon its ability to obtain financing under
the Credit Agreement and any successor facility at rates and upon terms
acceptable to the Company. There can be no assurance that the Company will
continue to have sufficient sources
8
<PAGE>
of funds to meet its future financing needs. Any equity financing could result
in dilution to the Company's then existing shareholders, and any financing, if
available at all, may be on terms unfavorable to the Company. If adequate funds
are not available, the Company may be required to curtail its activities
significantly. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
Control of the Company
The Company's directors and executive officers currently own
beneficially approximately 85.8% of the outstanding shares of Common Stock.
Since there are no cumulative voting rights provided for in the Company's
Certificate of Incorporation, these persons are in a position to effectively
control the election of the members of the Board of Directors, control most
corporate actions, including the merger or sale of the Company or its assets,
generally direct the affairs of the Company and prevent a change in control of
the Company. See "Principal and Selling Shareholders."
Dependence on Key Personnel
The success of the Company is largely dependent on the skills,
experience and efforts of its senior management. The loss of the services of
certain members of the Company's senior management could have a material adverse
effect on the Company's business and prospects. The Company believes that its
future success will also depend in part upon its ability to attract, retain and
motivate qualified personnel. Competition for such personnel is intense. There
can be no assurance that the Company will be successful in attracting and
retaining such personnel. See "Management."
Competition
The floor covering market is extremely competitive. The
Company's primary competition offer substantially similar services as the
Company and some may have greater market recognition and greater financial,
technical, marketing and human resources than the Company. There can be no
assurance that the Company will be able to compete successfully against existing
companies or new entrants to the marketplace. See "Business--Competition."
Cyclical Nature of Industry; Single Market
The retail floor covering industry historically has been
cyclical and the overall levels of sales are influenced by a number of factors,
including consumer behavior and confidence in spending for durable goods, the
level of personal discretionary spending, interest rates, turnover in housing,
the condition of the residential and commercial construction industries
(including new housing starts and level of commercial construction) and the
overall strength of the economy. During cyclical economical downturns, the
industry can be expected to experience a general decline in sales and
profitability.
Currently, approximately 75% of the Company's sales are
through its New Housing Division and 25% of sales are through its Replacement
Sales Division. The Company's performance will be dependent to a significant
extent upon the levels of new residential construction, residential replacement
and remodeling spending and non-residential construction, all of which are
affected by such factors as interest rates, inflation and
9
<PAGE>
employment. The level of new residential construction in Clark Country, Nevada,
the Company's sole current market, declined in the year ended December 31, 1995,
as compared to the prior year. Declines in new residential and non-residential
construction and remodeling activity may have a materially adverse effect on the
Company's financial condition and results of operations. See "Business."
Risks Generally Associated With Retailing
The Company is a specialty retailer of floor covering,
primarily through new home builders. As such, the Company is subject to various
business risks generally associated with the retailing industry. Such risks
include changes in consumer tastes, spending habits, national, regional or local
economic conditions and population and traffic patterns, any of which could
adversely affect the Company's future sales, expenses and profitability. There
can be no assurance that the Company will be able to successfully anticipate and
respond to changing conditions affecting consumer acceptance of its merchandise.
See "Business."
Indoor Air Quality
The effect of carpeting and other floor covering products on
indoor air quality has been the subject of debate in recent years. Although
there is some question within the industry as to whether emissions from carpet
pose a health hazard, there can be no assurance that researchers will not detect
hazardous levels of emissions from carpet. The discovery of adverse health
effects resulting from carpeting, or the public perception thereof, could have a
material adverse effect on the Company's operations.
Management Information Systems
The Company is currently implementing computerized management
information systems. Since the Acquisition, the Company has spent approximately
$130,000 implementing and upgrading management information systems. The Company
believes the systems in place at the time of the Acquisition were inadequate.
There can be no assurance that the Company will be able to successfully
implement new management information systems or that such systems will be
adequate.
No Anticipated Dividends
The Company has not previously paid any dividends on its
Common Stock and for the foreseeable future intends to continue its policy of
retaining any earnings to finance the development and expansion of its business.
Furthermore, pursuant to the Credit Agreement, CBH and CBI are prohibited from
declaring dividends or making other distributions on their capital stock, with
certain exceptions. See "Dividend Policy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
No Assurance of Public Market; Volatility of Price
Prior to this offering, there has been a limited public
trading market for the Common Stock. The Common Stock has been traded in the
over-the-counter market in the
10
<PAGE>
"electronic bulletin board" since September 1995. There can be no assurance that
a regular trading market for the Common Stock will develop after this offering
or that, if developed, it will be sustained. In addition, there has been
significant volatility in the market price of securities of emerging companies
that often have been unrelated to the operating performance of such companies.
The Company believes that factors such as failure to meet securities analysts'
performance expectations and quarterly variations in financial results could
cause the market price of the Common Stock to fluctuate substantially. These
market fluctuations may adversely affect the price of and market for the Common
Stock. See "Price Range of Common Stock" and "Plan of Distribution - Nasdaq
Listing."
Shares Eligible for Future Sale; Registration Rights
The Company currently has 15,135,716 shares of Common Stock
outstanding. Of such shares, the shares sold in this offering (other than shares
which may be purchased by "affiliates" of the Company) will be freely tradeable
without restriction or further registration under the Securities Act. In
addition, the 100,000 shares sold by the Company in its initial public offering
in 1990 (other than shares which may be purchased by affiliates of the Company)
are freely tradeable without restriction or further registration under the
Securities Act. The 15,035,716 remaining shares of Common Stock are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act, and may only be sold pursuant to a registration statement under
the Securities Act or an applicable exemption from the registration requirements
of the Securities Act, including Rule 144 and 144A thereunder. Approximately
62,000 shares are eligible for sale pursuant to Rule 144. No predictions can be
made as to the effect, if any, that market sales of shares of existing
shareholders or the availability of such shares for future sale will have on the
market price of shares of Common Stock prevailing from time to time. The
prevailing market price of the Common Stock after the offering could be
adversely affected by future sales of substantial amounts of Common Stock by
existing shareholders. See "Certain Transactions," "Principal and Selling
Shareholders," "Shares Eligible for Future Sale" and "Plan of Distribution."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders".
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the "electronic bulletin
board" operated by the NASD under the symbol "RAGC" since September 1995.
Quotations for periods prior to such time are not available. The following table
sets forth, for the periods indicated, the high and low bid prices of the Common
Stock as reported on the "electronic bulletin board" operated by the NASD. Such
over-the-counter quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
11
<PAGE>
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1996:
First Quarter $5.00 $4.00
Second Quarter (through May 24, 1996)
4.00 3.00
Fiscal 1995:
Third Quarter 3.00 3.00
Fourth Quarter 4.75 3.00
</TABLE>
As of March 26, 1996, there were approximately 312 record
holders of the Common Stock. The last sale price of the Common Stock on May 22,
1996 was $3.00 per share as reported by the Automated Confirmation Transaction
Service.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock to
date. The payment of dividends, if any, in the future is within the discretion
of the Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition. It is the present intention of the Board
of Directors to retain all earnings, if any, for use in the Company's business
operations and, accordingly, the Board of Directors does not expect to declare
or pay any dividends in the foreseeable future. In addition, pursuant to the
Credit Agreement, CBH and CBI are prohibited from declaring dividends or making
other distributions on their capital stock, provided that (x) CBI may pay
dividends needed in order to permit the making by CBH of (i) interest payments
on short-term notes (the "Notes") issued by CBH in a private placement thereof
(the "Note Offering") on June 1, 1995, so long as (A) no default exists under
the Credit Agreement and (B) CBI's net worth (after giving effect to such
payment) is at least equal to its net worth on June 2, 1995; and (ii) principal
payments on the Notes, so long as (A) no default exists under the Credit
Agreement and (B) CBI's net worth (after giving effect to such payment) is at
least $7,000,000; (y) CBI may pay dividends needed in order to permit (i) the
payment by CBH of dividends on its preferred stock, so long as (A) no default
exists under the Credit Agreement and (B) CBI's net worth (after giving effect
to such payment) is at least equal to its net worth on June 2, 1995; and (z) the
redemption by CBH of its preferred stock, so long as (A) no default exists under
the Credit Agreement and (B) CBI's net worth (after giving effect to such
payment) is at least $7,000,000. In conjunction with a covenant waiver obtained,
the Company agreed to limit certain payments with respect to outstanding
securities of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
12
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization
of the Company at March 31, 1996.
<TABLE>
<CAPTION>
March 31, 1996
--------------
<S> <C>
Notes payable and current maturities of long term debt
$6,319,856
Long term debt, less current maturities 7,953,461
---------
Stockholders' equity:
Preferred stock(1), $.01 par value ($1,000
stated value), 12% cumulative; 5,500 shares
authorized; 4,140 shares issued and
outstanding 4,140,000
Discount on Preferred stock (1,283,571)
Common Stock, $.001 par value;
120,000,000 shares authorized;
14,987,145 shares issued and outstanding 14,987
Additional paid-in capital 3,344,953
Retained earnings 408,098
-----------
-----------
Total stockholders' equity 6,624,467
-----------
Total capitalization $23,214,808
-----------
-----------
</TABLE>
- --------------------
(1) As a result of the reverse Acquisition, the preferred stock of CBH is
presented as preferred stock of the Company.
13
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected statement of operations financial data presented below
have been derived from the financial statements of the Company and Carpet Barn.
The Financial Statements of the Company as of December 31, 1995 and for the
period from June 2, 1995 (commencement of operations) through December 31, 1995,
together with the report thereon of McGladrey & Pullen, LLP, independent public
accountants, are included elsewhere in this Prospectus. The Financial Statements
of Carpet Barn as of December 31, 1994 and for the period from January 1, 1995
through June 1, 1995 and for the years ended December 31, 1994 and 1993,
together with the report thereon of McGladrey & Pullen, LLP, independent public
accountants, are included elsewhere in this Prospectus. The selected historical
financial data for the three-month periods ended March 31, 1996 and 1995 have
been derived from unaudited consolidated financial statements and include, in
the opinion of management, all normal recurring adjustments necessary to present
fairly the data for such periods. The operating results for the three-month
periods are not necessarily indicative of the results that may be expected for a
full year. The selected historical financial data below should be read in
conjunction with the Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Predecessor Company (1) Ragar Corp. (1)
Pro Forma
Period For the
Period Ended Year Ended
Ended June December December
1991 1992 1993 1994 1, 1995(2) 31, 1995(3) 31, 1995 (4)
---- ---- ---- ---- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Unaudited)
Statement of
Operations Data:
Net sales $26,891,940 $28,993,553 $34,529,604 $42,506,987 $16,362,727 $23,979,879 $40,342,606
Gross profit 7,297,215 8,166,771 9,598,285 10,957,627 5,030,797 6,125,600 11,156,397
Income from
operations 762,590 1,375,243 1,095,788 5,547,771 3,723,657 2,108,953 5,365,943
Income before
income taxes 836,755 925,410 1,113,821 4,888,341 3,737,144 743,955 3,025,131
Net income 836,755 925,410 1,113,821 4,888,341 3,737,144 489,360 1,996,586
Net income per
common share 8,368 9,254 11,138 48,883 37,371 0.02 0.10
Weighted
average common
shares
outstanding 100 100 100 100 100 14,583,163 14,583,163
Pro forma
income tax
effect(5) 284,497 314,639 378,699 1,662,036 1,270,629
Pro forma net
income after
taxes(5) 552,258 610,771 735,122 3,226,305 2,466,515
<CAPTION>
December 31, 1994 December 31, 1995
----------------- -----------------
<S> <C> <C>
Balance Sheet Data:
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
Working capital (deficit) $ 514,566 $(3,756,613)
Total assets 3,174,141 24,084,491
Long-term debt and capital lease
obligations, less current maturities 173,884 8,811,558
Stockholders' equity 787,780 6,487,334
</TABLE>
- ----------------------------
(1) The results of operations to the Company are not comparable to those of the
Predecessor Company, due primarily to the amortization of intangible assets
and interest expense on the debt incurred in connection with the
Acquisition.
(2) Period refers to period from January 1, 1995 through June 1, 1995.
(3) Period refers to period from June 2, 1995 through December 31, 1995, due
to the Acquisition.
(4) Gives effect to the Acquisition and the Financing (as defined herein) as
if such transactions had occurred on January 1, 1995. See "Financial
Statements."
(5) Predecessor Company elected to be taxed under the S Corporation provisions
of the Federal tax law which provide that in lieu of payment of income
taxes at the corporate level the stockholders individually reported their
pro rata shares of the Predecessor Company; items of income, deduction,
loss and credit.
15
<PAGE>
<TABLE>
<CAPTION>
Predecessor Company (1) Ragar Corp. (1)
Pro forma
for the
Three Months Three Months Three Months
Ended March Ended March Ended March
31, 1995 31, 1995(2) 31, 1996
-------- ----------- --------
<S> <C> <C> <C>
Statement of Operations Data:
Net sales $9,147,284 $9,147,284 $9,764,955
Gross profit 2,850,937 2,850,937 2,677,908
Income from operations 2,017,787 1,684,688 801,468
Income before income taxes 2,021,818 1,274,204 390,984
Net Income 2,021,818 840,975 246,333
Net Income per common share 20,218 0.05 0.01
Weighted average common shares outstanding 100 14,583,163 14,583,163
<CAPTION>
March 31, 1996
--------------
<S> <C>
Balance Sheet Data:
Working capital (deficit) $(4,177,829)
Total assets 23,214,808
Long-term debt and capital lease obligations,
less current maturities 7,853,461
Stockholders' equity 6,624,467
</TABLE>
(1) The results of operations of the Company are not comparable to those
of the Predecessor Company, due primarily to the amortization of intangible
assets and interest expense on the debt incurred in connection with the
Acquisition.
(2) Gives effect to the Acquisition and the Financing (as defined herein) as if
such transactions had occurred on January 1, 1995. See "Financial
Statements."
16
<PAGE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and
results of operations of the Company relates to the fiscal year ended December
31, 1995, 1994 and 1993 and the three month periods ended March 31, 1996 and
1995 and should be read in conjunction with the preceding Selected Financial
Data and the financial statements and notes thereto included elsewhere in this
Prospectus. All references to full years are to the applicable fiscal year of
the Company. All discussion of 1994 and 1993 financial information relates to
financial results of Carpet Barn. Discussion of information for 1995 relates to
the pro forma consolidated financial results of the Company and Carpet Barn for
that period.
Predecessor Company results have been adjusted for comparison
purposes in the following discussions. Compensation to the owner of the
Predecessor Company has been adjusted as the former owner is not involved in the
Successor Company's operations and has been replaced by two individuals with
employment agreements at salaries considerably less than the former owner's
compensation level. Foreign currency contracts are also removed from the
discussion of results from operations as the Predecessor Company speculated in
these contracts only during 1994 and had no positions at either the beginning or
end of the year. The Successor Company is not and has no intention of being
involved in these types of speculative investments. Due to the fact that the
Predecessor Company was a subchapter S corporation, the amount of owner's
compensation and/or dividends were directly related to personal income tax
considerations. Therefore, the amount of compensation and dividends paid each
year varied as his personal earnings increased or decreased.
Results of Operations
Three Months Ended March 31, 1996 and 1995
Total revenues increased by $617,671 to $9,764,955 for the
quarter ended March 31, 1996 from $9,147,284 for the quarter ended March 31,
1995, representing an increase of 6.8%. This increase is attributable to an
increase in new home sales for the first quarter of 1996 over the first quarter
of 1995.
Although total revenues increased, gross margin decreased from
$2,650,937 in 1995 to $2,677,908, representing a decrease of 6.1%. This decrease
is a direct result of price increases from the Company's vendors and an
increase in new home sales which generally have a lower gross margin than
replacement sales.
Selling, general and administrative expenses increased from
$849,703 for the quarter ended March 31, 1995 to $1,559,894 for the quarter
ended March 31, 1996. This increase is due to the following: 1) increases
in salaries and related payroll taxes, 2) an increase in the modification
rate for workers' compensation due to the change in ownership on June 2,
1995, 3) contract labor to upgrade the Company's management information
system, 4) professional expenses associated with the annual audit and
required public filings, 5) other general expenses to upgrade the
operations of the Company.
Operating income decreased by $883,220 from $1,684,688 for the
quarter ended March 31, 1995 to $801,468. Net income decreased from $840,975 for
the quarter ended March 31, 1995 to $246,333 for the quarter ended March 31,
1996. These decreases were due to the above mentioned decreases in gross margin
and increases in selling, general and administrative expenses.
18
<PAGE>
Fiscal Years Ended December 31, 1995 and 1994
Total revenues decreased from $42,506,987 for the year ended
December 31, 1994 to $40,342,606 for the year ended December 31, 1995,
representing a decease of 5.1%. The decrease can be attributed to a decrease in
sales for new tract homes partially offset by an increase in the replacement
sales business. During 1995 it is estimated that new home unit sales volume
decreased by approximately 5.6% in the Las Vegas marketplace.
Although total revenues decreased, gross margin grew from
$10,957,627 in 1994 to $11,156,397 in 1995 due to an increase in gross margin
percentage from 25.8% in 1994 to 27.7% in 1995. This increase in gross margin
percentage can be attributed to an increase in higher margin replacement sales
business.
Operating income reached $5,832,611 in 1995, which represents
an increase of $284,840 over operating income of $5,547,771 in 1994. Adjusted
for compensation paid to the owner of the Predecessor Company of $0 and
$2,030,000 in 1995 and 1994, respectively, operating income decreased by
$1,745,160 from $7,577,771 in 1994 to $5,832,611 in 1995. Adjusted for
compensation paid to the owner of the Predecessor Company, pre tax net income
was $4,481,099 in 1995 as compared to $6,918,341 in 1994, despite a $656,262
non-operating loss on the sale of foreign currency contracts in 1994. A
substantial portion of this decrease is a direct result of the amortization of
intangibles and the increase in interest expense resulting from the Acquisition,
consulting fees paid to related parties, increases in workers' compensation
insurance premiums (resulting from the change in ownership) and salaries paid to
new management. It should be noted that the Predecessor Company was operated as
a subchapter S corporation; therefore, the Predecessor Company's results of
operations do not include deductions for income taxes.
Fiscal Years Ended December 31, 1994 and 1993
Total revenues increased from $34,529,604 for the year ended
December 31, 1993 to $42,506,987 for the year ended December 31, 1994,
representing an increase of 23.1%. Approximately $7.5 million, or 93% of the
increase, can be attributed to sales for new tract homes. During 1994 it is
estimated that new home unit sales volume grew by approximately 33% in the Las
Vegas marketplace.
Gross margin grew from $9,598,265 in 1993 to $10,957,627 in
1994. However, the gross margin percentage decreased from 27.8% in 1993 to 25.8%
of sales in 1994, primarily due to a lower overall percentage of higher margin
replacement sales business.
Operating income reached $5,547,771 in 1994, which represents
an increase of $4,451,983 over operating income of $1,095,788 in 1993. Adjusted
for compensation to the former owner of Carpet Barn of $5,550,000 in 1993 and
$2,030,000 in 1994, operating income increased by $931,983, from $6,645,788 in
1993 to $7,577,771 in 1994.
Net income was $4,888,341 in 1994, despite a $656,262
non-operating loss on the sale of foreign currency contracts. Adjusted for
compensation to the former owner of Carpet Barn, net income was $6,918,341 in
1994 and $6,663,821 in 1993. It should be noted that both 1994 and 1993 net
income (of Predecessor Company) does not include a deduction for income taxes as
Carpet Barn was operated as a subchapter S corporation. Pro forma net income
after taxes would have been $1,996,586, $2,258,492 and $2,091,869 for years
ended 1995, 1994 and 1993, respectively, after adjusting for a decrease in
owner's compensation and increases in interest, amortization and rent expense.
19
<PAGE>
Liquidity and Capital Resources
The Company's cash increased by $367,088 during the quarter
ended March 31, 1996. Cash provided by operating activities was $645,509. At
March 31, 1996, the Company had a working capital deficit of $(4,172,729).
Included in such deficit are short-term notes payable of $2,789,256 and current
maturities of long-term debt of $3,530,000. At March 31, 1996, the Company had
approximately $800,000 of available credit under the Credit Agreement with First
Source. The Credit Agreement contains covenants requiring CBI to maintain
minimum levels of tangible net worth, working capital and various ratios. As of
December 31, 1995, the Company was in violation of the following financial
covenants: adjusted net worth at June 30, 1995, and quarterly and annual
interest coverage ratios during the period from June 2, 1995 (commencement of
operations) through December 31, 1995. On April 15, 1996, First Source waived
these covenant violations and agreed to negotiate in good faith to amend such
covenants by June 1, 1996 so that the Company can reasonably expect to be in
compliance with such amended covenants based on its current operating and cash
flow budgets. The Company believes it can be in compliance with the proposed
amended covenants. There can be no assurance that such amendments will be
obtained. As of May 31, 1996, the Company and First Source have not agreed to
the specific covenant revisions. Management is in the process of negotiating to
extend the waiver period beyond June 1, 1996 to allow for the current covenant
revision discussions to be consummated. To date, First Source has given
management no indication of their intent to accelerate the note in the near
term, which First Source could do if the waiver expires without acceptable
amendments to the financial covenants. The Company does not have any
arrangements to refinance such note in the event of any acceleration of such
note. While there can be no assurance, management believes it will be successful
in getting the waiver period extended until the covenants can be revised. Until
such covenants are amended, the Company has agreed to limit certain payments
with respect to outstanding securities of the Company. The Credit Agreement also
limits payments from CBI to CBH and limits dividends, redemptions, and purchases
of capital stock of CBI, CBH and the Company.
During the three months ended March 31, 1996, cash used in
investing activities was $24,162. Cash used in financing activities during
such period was $988,435, used primarily to make principal payments on the
Credit Agreement and preferred stock dividends.
In June 1995, in order to aid it in consummating its
acquisition of Carpet Barn, the Company, through its indirect subsidiary CBI,
entered into the Credit Agreement with First Source (the "Financing") pursuant
to which First Source advanced to CBI approximately $15,200,000 in term and
revolving loans and CBH pledged to First Source all of the common stock of CBI
to secure CBI's obligations under the Credit Agreement and guaranteed CBI's debt
obligations to First Source under the Credit Agreement. Fees and expenses paid
to First Source amounted to $402,000, in addition to incurring other debt
acquisition fees of $510,619. The Credit Agreement contains covenants that limit
CBI's ability to upstream monies to CBH needed to pay principal and interest on
the 12% subordinated notes issued by CBH in connection with the Acquisition (the
"Notes") and to pay dividends on the preferred stock, par value $.01 per share,
stated value $1,000 per share (the "CBH Preferred Stock"), of CBH. The term
portion of the Credit Agreement is due May 31, 1999 and the revolving portion is
due May 31, 1997, subject to extension in certain circumstances to May 31, 1999.
All borrowings under the Credit Agreement bear interest at the base rate per
annum announced by The First Bank of Chicago (8.25% at March 31, 1996) plus
2.25%, payable monthly. As of March 31, 1996, the Company had approximately
$800,000 available from First Source under a $3,000,000 working capital note and
had no availability from First Source under a $14,000,000 revolving note that
had an outstanding balance and commitment of $11,375,000.
Immediately prior to the consummation of the Exchange and the
Financing, CBH privately sold an aggregate principal amount of $1,940,000 of
Notes in the Note Offering, together with shares of CBH Common Stock, raising
$1,940,000, and privately sold an aggregate of 2,215 shares of CBH Preferred
Stock (the "Preferred Stock Offering"), together with shares of CBH Common
Stock, raising an aggregate of $2,215,000. The Notes bore interest at 12% per
annum payable monthly. The first half of the principal due on November 30, 1995
were satisfied by the Company making principal payments of $560,000 and the
exchange of $820,000 of the Notes for 820 shares of 12% preferred stock of CBH.
In addition,
20
<PAGE>
$1,125,000 was raised in connection with the sale of 1,125 shares of such 12%
preferred stock, ($605,000 of which was raised in November 1995 and $520,000 of
which was raised in May 1996). The proceeds were used to make principal payments
in November 1995 and May 1996. In connection with the issuance of the 1,945
shares of 12% preferred stock, the Company issued 555,713 shares of Common
Stock. The newly issued shares of 12% preferred stock pay cumulative dividends,
payable monthly, at an annual rate of 12% of the stated value thereof and are
redeemable upon a Public Offering by the Company. The 12% preferred stock
issued in November 1995 included a provision requiring the Company to redeem the
stock upon the tenth anniversary of its issuance. Subsequent to December 31,
1995 the redemption provision was rescinded with the approval of the holders of
such stock. Because this redemption provision was rescinded the 12% preferred
stock is classified as stockholders' equity at December 31, 1995. The Company
believes that it has the capacity to obtain additional financing through the
sale of equity securities of the Company. However, there can be no assurance in
this regard. If the Company obtains such financing, the proceeds would more
likely than not be used to pay down any outstanding debt and for general
corporate purposes.
CBH contributed the monies it raised in the Note Offering and
the Preferred Stock Offering to CBI in order for CBI to complete the
Acquisition. In connection with the Preferred Stock Offering and the Financing,
a finder's fee of $445,000 was paid to Michael H. Mindlin, a director of the
Company. Branin, which beneficially owns 1,754,620 shares of Common Stock of the
Company and is controlled by Philip A. Herman, Chairman, President and a
shareholder of the Company, will receive a fee equal to 3% of the aggregate
proceeds from the Note Offering, the Preferred Stock Offering and the Credit
Agreement upon the consummation of a Public Offering. The total of such fees
will be approximately $650,000. There is no guarantee such an offering will be
consummated, therefore the financial statements do not contain any provision or
liability for these fees. In addition, CBI has entered into consulting
arrangements with (a) Branin, pursuant to which CBI pays $35,000 per month to
Branin and (b) PAH Marketing, Inc. ("PAH"), a company controlled by Philip A.
Herman, pursuant to which CBI pays $5,000 per month to PAH. In addition, CBI
entered into a consulting agreement with Capital Vision Group, Inc. ("Capital"),
a company controlled by Lawrence Fleischman, a director and shareholder of the
Company, pursuant to which it paid $5,000 per month to Capital from June 1995
through January 1996. These agreements were entered into for the purpose of
receiving management advisory services in the areas of operations management,
financing and acquisitions.
Immediately following the Exchange, the Company contributed to
CBH approximately $860,000 in cash, net of expenses (constituting substantially
all of its net assets). CBH, in turn, contributed such cash to CBI in order for
CBI to complete the Acquisition (together with funds provided to it in the
Financing and funds provided to it by CBH from funds raised in the Note Offering
and the Preferred Stock Offering). In connection with the Exchange, the Company
agreed to issue to designees of Gro-Vest Management Consultants, Inc. ("G-V") an
aggregate of 145,250 shares of Common Stock (constituting 1% of the outstanding
shares of Common Stock of the Company) as an advisory fee for G-V's role in
facilitating the consummation of the Exchange, conditioned on G-V's obtaining,
by July 31, 1995, lock up agreements limiting sales of Common Stock of the
Company prior to September 23, 1996 from the holders of at least 750,000 shares
of the Common Stock (representing 75% of the 1,000,000 shares of outstanding
Common Stock subject to registration rights granted to such holders on September
23, 1994 in a private offering). As of December 31, 1995, lock-up agreements had
been received from the holders of approximately 907,000 shares of Common Stock
of the Company.
21
<PAGE>
The Company intends to open one or more new locations in Las
Vegas during 1996. The Company anticipates that all capital requirements for any
new locations will be funded in full by its vendors.
The results of operations of the Successor Company are
impacted as a result of the restructuring of the Company after the Acquisition.
The leveraged buyout has resulted in amortization expense and interest expense
of approximately $85,000 and $198,000 per month. Prior to the Acquisition, the
Predecessor Company had a positive tangible net worth in contrast to the
Successor Company, which has a negative tangible net worth due to the increase
in intangibles and debt resulting from the Acquisition.
The Company believes that cash flow generated by operations
will be sufficient for the Company's working capital needs during 1996. Cash
flow from operations will be maintained or enhanced by utilizing the following
strategies:
Continue to Offer Competitive Prices and Enhanced Service. The
Company intends to continue its policy of offering to beat any competitor's
price and to continue to its policy of next-day installation and a lifetime
guarantee on the installation for the original purchaser.
Maintain New Home Market Share; Increase Replacement Sales
Penetration. Although the Company's sales in the new tract homes declined during
1995, this decline is directly attributed to the overall decline in new home
sales throughout Clark County. Estimates for 1996 are for new home sales to
increase by 6.0% over 1995. The Company's sales in the replacement sales market
grew by $715,127 from $9,763,024 in 1994 to $10,478,151 in 1995.
Addition of New Products. The Company has added to its product
offerings window and wall coverings on both the new tract home sales and
replacement sales markets during the last quarter of 1995.
Pursuit of Selective Acquisitions. The Company believes that
selective acquisitions will enable the Company to provide additional quality
products and to spread its general and administrative costs over higher levels
of volume, thereby creating substantial economies of scale. The Company intends
to finance these acquisitions by raising debt and equity funds through
additional offerings.
Effect of Accounting Pronouncements Issued but not Yet Adopted
Accounting for Stock-Based Compensation
In October 1995, the FASB issued Statement No. 123, Accounting
for Stock-Based Compensation. Statement No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans, such as
stock options and stock purchase plans. The statement generally suggests but
does not require stock-based compensation arrangements for employees 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.
Stock-based compensation for nonemployees is required to be accounted for at the
fair value of the instruments issued. Statement No. 123 will first be required
for the Company's year ending December 31, 1996. Companies that do not elect to
change their accounting for stock-based compensation for employees are required
to disclose the effect on net income and earnings per share as if the provision
of Statement No. 123 were applied. The Company has decided not to adopt the
accounting provisions of this statement for employees' stock-based compensation
arrangements.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of
22
<PAGE>
In March 1995, the FASB issued Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long Lived Assets to be
Disposed of. Statement No. 121 establishes accounting standard 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,
certain identifiable intangibles to be disposed of. Statement No. 121 will
first be required for the Company's year ending December 31, 1996. Based on
management's preliminary analysis, the Company does not anticipate that
the adoption of Statement No. 121 will have a material impact on the
consolidated financial statements.
Inflation
The Company believes that its revenues are not materially
affected by inflation and that any increased expenses due to inflationary
pressures will be offset, over time, by corresponding increases in prices it
charges to its customers.
Business
Company
Ragar Corp. was organized under the laws of the State of New
York on July 19, 1988. Ragar Corp. had no substantial operations prior to the
acquisition on June 2, 1995, in a reverse acquisition, of CBH, which was
organized under the laws of the State of Delaware on May 26, 1995. CBH and its
wholly owned subsidiary, CBI, a Delaware corporation, were formed for the
purpose of acquiring the assets and operations of Carpet Barn, a Nevada
corporation, a retail carpet sales and installation outlet located in Las Vegas,
Nevada.
The Company believes it is the largest seller and installer of
floor coverings for the residential housing market in Nevada. CBI, as the
successor to Carpet Barn, sells carpet, vinyl and ceramic tile floor coverings
out of its approximately 44,000 square foot facility in Las Vegas. Carpet Barn
sells approximately 75% of its products to the new home market through its New
Housing Division and approximately 25% of its products to the retail replacement
market through its Replacement Sales Division. Carpet Barn employs approximately
110 people, in addition to its utilization of approximately 300 installers who
are paid on a "per installation" basis.
Ragar Corp. was organized to seek out a suitable business for
acquisition or merger and completed an initial public offering of Common Stock
on January 9, 1990. On June 2, 1995, Ragar Corp. acquired all of the common
stock of CBH in the Exchange for the issuance to the holders of common stock of
CBH of an aggregate of 13,217,750 shares of Common Stock, pursuant to the
Exchange Agreement, among Ragar Corp., CBH and the holders of common stock of
CBH . In addition, the Company completed the Acquisition of substantially all of
the assets of Carpet Barn pursuant to the Purchase Agreement between CBI and
Carpet Barn. The current directors and executive officers of the Company
replaced the existing directors and executive officers of the Company in
connection with the Exchange.
Industry Overview
The retail floor covering industry in the United States (which
includes fixed and non-fixed carpeting and marble, vinyl and wood flooring) is
estimated to have grown from approximately $11 billion in 1989 to approximately
$13 billion in 1994. Despite this growth in size, the industry has remained
fragmented. The Company believes that no single floor covering retailer,
including national and large retailers such as Color Tile, Home Depot and New
York
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Carpet World, accounts for more than ten percent of the total market. The
Company believes that while chains and mass merchandisers do not dominate the
floor covering industry, such companies do influence pricing, product selection
and service innovation. According to the most recent figures available from the
U.S. Department of Commerce, U.S. carpet sales volume reached approximately 1.63
billion square yards in 1994, up 10.6% from the prior year. This volume
represents a market in excess of $9.9 billion at the retail level. According to
Floor Covering Weekly (an industry publication), there are approximately 230
companies engaged in the manufacture and sale of floor covering in the United
States.
The carpet industry's two primary markets are residential and
commercial, with the residential market (the market served by the Company)
accounting for approximately 75% of industry sales in 1994 and the commercial
market accounting for approximately 25% of such sales. A number of factors
influence overall sales levels in the carpet industry, including consumer
spending on durable goods, levels of discretionary spending, interest rates,
housing turnover, the condition of the residential construction industry and the
economy's overall strength.
Strategy
The Company's objective is to be a leading provider of floor
coverings to the residential markets in Las Vegas and other cities in the
southwestern United States. The Company's strategy includes the following:
Continue to Offer Competitive Prices and Enhanced Service. The
Company intends to continue its policy of offering to beat any competitor's
price. In addition, the Company intends to continue its policy of next-day
installation and of guaranteeing free repairs on carpets it has installed for
homeowner-buyers for as long as they own their homes. The Company intends to
continue to offer what it believes is quality technical service and assistance
to its customers in both the new home and replacement sales markets. Employees
of the Company assist, as needed, in all phases of customers' projects, from
conceptualization, design and product selection to actual installation. The
Company intends to continue to hire salespersons with experience in floor
covering or related trades, and to continue to train such salespersons with
respect to its products and services. The Company believes that such programs
will have a positive effect on results of operations, although there can be no
assurance of this.
Maintain New Home Market Share; Increase Replacement Sales
Penetration. The Company intends to increase its core business through continued
advertising and marketing efforts, and intends to open new branches in other
areas of Las Vegas in the upcoming year. The Company's main facility is located
centrally, and the additional branches would be located in areas of Las Vegas
with large concentrations of mature homes. The Company intends to expand upon
its existing base of customers by increasing its number of new home projects
with residential developers. In addition, the Company intends to actively seek
to increase its retail replacement sales through increased consumer advertising,
enhanced marketing, the opening of one or more new retail locations and the
addition of new products.
Focus on Core Product Areas. The Company intends to offer a
broad product selection designed to meet virtually all floor covering needs.
However, the Company intends to focus its marketing efforts on four primary
product categories: (a) carpet; (b) ceramic tile; (c) vinyl floor covering; and
(d) wood flooring. Since the Acquisition, approximately 70%, 13%, 13% and 4% of
the Company's net sales were generated from carpet, ceramic tile, vinyl and wood
floor coverings, respectively. In each of these core product areas, the Company
intends to provide a product selection which spans a wide range of quality and
price points, with a deep selection of product offerings at each level.
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<PAGE>
Addition of New Products. The Company intends to add to its
offerings by developing lines of complementary product offerings. The Company
has targeted wall and window coverings as its first significant product
extensions. The Company intends that its salespersons will take orders on
products in these new lines and will promote the products through the Company's
advertising campaigns. To that end, the Company has recently hired a manager to
develop a wall and window covering showroom in its existing facility and to
implement related sales and marketing programs.
Pursuit of Selective Acquisitions. The Company believes that
its industry presents significant consolidation opportunities and that the
Company is well positioned to achieve financial and operational efficiencies
through selective acquisitions due to favorable working relationships with its
suppliers and major customers. The Company believes that any such acquisitions
will enable it to increase its sales while decreasing its general and
administrative costs as a percentage of such sales due to the creation of
substantial economies of scale. The Company intends to pursue acquisitions of
businesses that provide the same products and services as, or those
complementary to, the Company's existing business. The Company has identified a
number of markets that it intends to explore entering over the next several
years. In November 1995, Branin, a significant stockholder of the Company and an
entity of which the Company's Chairman and President is also President, entered
into a non-binding letter of intent to acquire a floor covering retailer with
annual net sales in excess of $350 million. Although such letter of intent has
expired, the parties are continuing discussions on the structure and financing
of a possible transaction. There can be no assurance that such mutually
agreeable documentation or financing can be arranged or that Branin would
accomplish the acquisition through the Company, or what fees, if any, Branin
would receive.
Operations
Background. The Company operates its business in Las
Vegas, Nevada, which is located in Clark County. At this time, all of the
Company's operations are located in this area.
The Las Vegas area is one of the fastest growing in the
country, according to regional publications. According to Las Vegas Perspective,
an average of 4,000 persons relocate to Las Vegas each month, and the Las Vegas
population has grown by approximately 7.2% in the one-year period between 1993
and 1994, with a similar percentage increase in the number of households during
that time. More than 40% of persons in Las Vegas have resided there for only
five years or less, and two-thirds of the area's residents own their own homes.
The above statistics underscore the high numbers of persons arriving in the Las
Vegas area and the potential strength of the retail floor covering market.
Divisions. The Company operates through two divisions, the
New Housing Division and the Replacement Sales Division.
New Housing Division. The Company's New Housing Division is
responsible for installation of carpeting in newly built homes. Salespersons in
this Division deal with both home builders and buyers. In servicing the new home
market, the Company generally secures contracts from builders to carpet new
homes. When the builder sells a new home, in most cases the builder directs the
home buyer to the Company, which allows the buyer to choose the color of
carpeting represented by a standard allowance provided from the builder to the
home buyer or to upgrade from the standard selection by paying a higher price.
The Company has found that most home buyers choose an upgraded carpet selection.
The Company receives payment for its carpeting in new homes in
one of two ways. In most cases, the buyer directly pays the upgraded portion of
a carpet sale by generally paying
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<PAGE>
the full amount with the order. In other cases, the Company bills the upgraded
portion of the job to the builder, who then passes on the carpet's additional
cost to the buyer as part of the total price of the home; this method may allow
buyers to finance their flooring through their mortgage, with little
incremental effect on monthly payments. Most of the Company's accounts
receivable result from builders' standard allowances and are due within thirty
days.
Through its New Housing Division, the Company has
relationships with most of the larger tract home builders in the Clark County
area, with its five largest customers accounting for $11.5 million, $15.9
million and $12.3 million in sales in 1993, 1994 and 1995, respectively. During
the past six years, the New Housing Division has accounted for Company sales
ranging from a low of $21.8 million in 1990 (56% of total Company sales) to a
high of $29.9 million in 1995 (74% of total Company sales). The Company
estimates that its market share of sales to new homes in Clark County was 76%,
77% and 74% in 1993, 1994 and 1995, respectively.
Because the Division's sales are dependent on sales of new
homes, such sales are affected by interest rates prevailing in the home industry
and by building activity generally. Because the Company also services the carpet
replacement market, the adverse effects on the Company's sales by downturns in
the business cycle have been moderated.
Replacement Sales Division. The Replacement Sales Division is
responsible for providing individual consumers who have existing homes with new
or replacement floor coverings. The Company is one of the top three retailers in
such consumer replacement sales in the Las Vegas area, chiefly because of its
large selection, low prices and quick installation time.
Customers wishing to purchase flooring may choose to approach
the Company with their own measurements and select a carpet at the Company's
offices or to have the Company send a salesperson to the customer with a line of
samples.
Generally, the Company requires that replacement carpet buyers
provide a deposit by cash, check or credit card when they place an order, and
that they pay the balance upon installation. For customers who wish to finance
their purchases, the Company refers such customers to a consumer finance company
which issues a check directly to the Company upon completion of installation.
Customers
The Company has among its customers most of the larger tract
home builders in Clark County, Nevada, including Lewis Homes of Nevada, Inc.
("Lewis"), American West Homes ("AWH") and Pardee Construction Company of
Nevada. The Company has developed its relationships with such builders over the
past 24 years. In 1993, 1994, 1995 and the three months ended March 31, 1996,
five customers accounted for approximately 35%, 37%, 31% and 36% of the
Company's net sales, respectively. In 1993, 1994, 1995 and the three months
ended March 31, 1996, Lewis accounted for 11.3%, 12.5%, 11.3% and 14.6% of net
sales, respectively. In 1993, 1994, 1995 and the three months ended March 31,
1996, AWH accounted for 12.6%, 11.9%, 8.1% and 10.1% of net sales, respectively.
Suppliers
The Company currently purchases its carpeting from suppliers
outside Nevada including suppliers located in Georgia and California. The
Company generally pays for its purchases within three weeks of delivery,
allowing the Company to procure substantial discounts from its suppliers. The
Company's six largest suppliers, which include Shaw Industries, Inc., Aladdin
Mills, Inc. and Tuftex (a division of Queen Carpet Corp.) accounted for 77.0%,
74.3%,
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87.8% and 81.7% of its total purchases in 1993, 1994, 1995 and the three
months ended March 31, 1996, respectively. The Company believes that one of its
competitive advantages is its strong relationship with such suppliers. While the
Company continues to have good relations with its suppliers, management believes
that the Company could find alternative sources of supply should any of the
Company's major suppliers cease doing business with it.
Marketing, Advertising and Merchandising
The Company's advertising program includes television and
radio commercials and print advertising in local daily newspapers. Expenditures
for advertising and promotion were approximately $433,000, $465,000, $453,000
and $143,000 (representing 1.3%, 1.1%, 1.1% and 1.5% of net sales) in 1993,
1994, 1995 and the three months ended March 31, 1996, respectively. The Company
spent 51% of its 1995 advertising budget on print advertising (including
pre-printed newspaper inserts and print advertisements), and 49% on television
and radio advertising. The Company features in its advertising its large
selection and low prices and also features its free repair guarantee on
installation for as long as buyers own their homes. The Company also receives
cooperative advertising contributions from mills and yarn companies by including
in its advertising references to brand name yarns (such as DuPont or Monsanto)
or floor coverings (such as Congoleum). The Company has located its main store
on a centrally located, heavily traveled street.
Training
The Company strives to develop the technical and sales skills
of its store personnel to ensure that customers consistently receive
knowledgeable and courteous assistance. The Company's training programs are
oriented toward emphasizing the importance of customer service and improving
selling skills and the mechanical skills of installation and service
technicians. The Company provides training for its entry level personnel through
an in-house training program which combines on-the-job training with formal
presentations. In addition, ongoing instruction is given to all sales,
installation and customer service personnel.
Competition
The floor covering industry is highly competitive and
fragmented. According to an industry publication, the nation's ten largest floor
covering retailers in terms of sales volume accounted for approximately 20% of
all floor covering sales in the United States in 1994, although none of such
retailers dominated the market. In 1995, Clark County, Nevada had approximately
104 outlets through which carpet was sold.
Companies in the floor covering industry compete mainly
through their ability to provide service and selection at reasonable prices. The
Company competes with general merchandise and discount stores, home improvement
centers and specialty retailers operating on a local, regional and national
basis. The Company believes that its chief competitors are local and regional
specialty chains as well as homebuilders' in-house design centers. Competitors
include Carpeteria, Carpets Galore, Cloud Carpets, Albright and Adams Brothers,
all of which have stores located in Las Vegas.
In addition to the local and regional specialty chains, the
Company competes with national and regional home improvement centers (such as
Home Depot and Payless Cashways) and national department stores and specialty
retailers (such as Sears and Color Tile). Many of such regional and national
competitors sell a considerably broader variety of products than the Company
within the Company's product lines and have substantially greater financial
resources
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<PAGE>
than the Company. In addition, expansion by certain regional home improvement
center chains has led to increased price competition for certain of the
Company's products.
While there is intense competition among providers of floor
coverings in the Las Vegas, Nevada market, the Company has successfully competed
for customers on the basis of price, reliability and quality of product, breadth
of product line and service.
Employees
As of April 30, 1996, the Company employed approximately 125
persons, who are spread among its accounting, administrative, buying, sales and
warehousing departments. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that its relationship with
its employees is satisfactory.
Product Liability and Insurance
The sale of the Company's retail products involves some risk
of product liability claims. The Company has obtained product liability
insurance in the amount of $1.0 million per occurrence with a $2.0 million
aggregate limit. The Company has recently obtained a $4.0 million excess
liability umbrella insurance policy. There can be no assurance that the coverage
limits of the Company's insurance policy and/or any rights of indemnification
and contribution that the Company may have will offset potential claims. A
successful claim against the Company in excess of insurance coverage and not
subject to indemnification could have a material adverse affect on the Company.
Properties
The Company rents the property on which its operating facility
is located at an annual rent of approximately $105,000. On such 44,000 square
foot property the Company has located three contiguous warehouses and a modern
showroom for the New Housing Division.
Prior to June 2, 1995, the Company maintained its business
office at 134 West 72nd Street, New York, New York, using these offices on a
rent-free basis. The Company has changed its principal executive offices within
New York, New York to 100 Maiden Lane.
Legal Proceedings
The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business. The Company believes that the
amount of any ultimate liability with respect to these actions in the aggregate
or individually will not materially affect the results of operations, cash flows
or financial position of the Company.
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<PAGE>
MANAGEMENT
Directors, Executive Officers and Significant Employees
The following table sets forth certain information with
respect to the directors and executive officers of the Company:
Name Age Position
Philip A. Herman 50 Chairman of the Board and President
Gary Peiffer 44 Secretary and Director
Steven Chesin 35 Senior Vice President and Chief
Operating Officer of Carpet Barn,
Inc.
Mark Szporka 40 Chief Financial Officer
Michael Mindlin 54 Director
Lawrence Fleischman 42 Director
Facundo Bacardi 50 Director
Jeffrey Wiens 34 Controller
------------------------
The number of directors on the Board is presently fixed at
five.
Philip A. Herman has been Chairman of the Board and President
of the Company since June 2, 1995, the date of consummation of the Exchange and
the Acquisition. He also has served as a principal of Branin, an investment
banking company, since 1994. From 1992 to 1994, Mr. Herman served as a principal
of Americorp Securities, Inc. ("Americorp"), a retail brokerage firm, and from
1989 to 1992 he served as principal of PAH Marketing Consultants Inc., a
consulting firm. In January 1995, Mr. Herman and PAH entered into a consent
decree, without admitting any violation of law, with the Federal Trade
Commission ("FTC") pursuant to which Mr. Herman and PAH paid $40,000 to the FTC
and consented to being enjoined from participating in certain telemarketing
related activities.
Gary Peiffer has been Secretary and a director of the
Company since June 2, 1995. Mr. Peiffer has served as Vice Chairman of the
Board, General Counsel and a director of The Aegis Consumer Funding
Group, Inc. ("Aegis"), a publicly-traded automobile finance company since
January 1994. Prior to joining Aegis, Mr. Peiffer was a senior Partner at the
law firm of Jeffer, Hopkinson, Vogel, Coomber & Peiffer from January 1983
through December 1993. Mr. Peiffer also serves as a director of Equivest
Finance, Inc., a publicly-traded automobile insurance premium finance
company.
Steven Chesin has been Senior Vice President and Chief
Operating Officer of Carpet Barn, Inc. since July 28, 1995. Prior to joining
the Company, Mr. Chesin served as President of Steve's Floor Covering,
Inc., a carpet installer, from its founding in 1977, when Mr.
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<PAGE>
Chesin was only 15 years old, to the Company's acquisition of Steve's in July
1995. See "Certain Transactions."
Mark Szporka has been Chief Financial Officer of the Company
since June 1, 1995. Prior to that, Mr. Szporka served as Chief Financial Officer
of AMI Holding Corporation, Inc., a healthcare company, from May 1994 to May
1995. From December 1992 to May 1994, Mr. Mr. Szporka served as Director,
Corporate Finance Consulting of Arthur Andersen & Co., an accounting firm, and
from March 1991 to November 1992 he served as Managing Director of Flagship
Capital Advisers, an investment banking company. From March 1989 to February
1991, Mr. Szporka served as Managing Director of S.J. Haupt & Co., an investment
banking company.
Michael Mindlin has been a director of the Company since June
2, 1995. He also serves as President of Americorp, and has served in that
capacity since 1992. Prior to that time, Mr. Mindlin served as Chief Operating
Officer of Aegis.
Lawrence Fleischman has been a director of the Company
since June 2, 1995. He also serves as the President of Capital Vision Group,
Inc, an investment banking firm, and has served in that capacity since
January 1993. Prior to Capital, Mr. Fleischman served as Vice President of
Gro-Vest, Inc. and Vice President of G-V Capital Corp. ("G-V Capital"), each
an investment banking firm, from 1987 to December 1992.
Facundo Bacardi has been a director of the Company since June
2, 1995. He also serves as a director of Suramericana de Inversiones, S.A., an
investment company located in Panama, and has served in that capacity since
1990. From 1980 to 1990 Mr. Bacardi served as a director of Bacardi
Cenroamerica, S.A., a rum manufacturing corporation.
Jeffrey Wiens has been Controller of the Company since July
1995. From 1988 to July 1995, Mr. Wiens served in various capacities at
McGladrey & Pullen, LLP, the Company's independent auditors, including serving
as a member of the audit staff from 1988 to July 1994 and a Manager from August
1994 to July 1995.
Summary Compensation Table
The following table sets forth for the fiscal year ended
December 31, 1995, the compensation for services in all capacities to the
Company of the person who was at December 31, 1995 the President of the Company.
No executive officers of the Company received salary and bonus in excess of
$100,000 during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------------------
Name and Other Annual
Principal Position Salary $ Bonus $ Compensation $
------------------ -------- ------- --------------
<S> <C> <C> <C>
Philip A. Herman 0 0 0(1)
Chairman of the Board and President
</TABLE>
- ------------------------
(1) Certain entities controlled by Mr. Herman received fees from the
Company for the year ended December 31, 1995 as set forth herein under
"Certain Transactions" and in
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<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Executive Compensation
Compensation. Prior to the Exchange, no officer or director
of the Company received remuneration from the Company. Directors do not
receive fees or other remuneration from the Company.
Bonus Plan. In June 1995, the Company initiated a Management
Bonus Program (the "Bonus Plan") pursuant to which the Company will make
available for bonuses to members of management of the Company (currently Steven
Chesin, Mark Szporka and Jeffrey Wiens) an aggregate amount equal to 2% of the
Earnings Before Income Taxes (as defined below) of the Company for each fiscal
year, with the Company's management to have the right to determine how such
bonus amount will be allocated among its members. If all of the members of the
Company's management issue a written statement recommending allocation, the
bonus is to be allocated as such; and if no written statement is issued, the
President of the Company may allocate the bonus in its discretion. "Earnings
Before Income Taxes" means earnings before income taxes of the Company for the
relevant fiscal year. There were no bonuses paid in 1995.
Employment Agreements
The Company currently has employment agreements with Messrs.
Chesin, Szporka and Wiens.
Steven Chesin. Pursuant to an employment agreement, dated as
of July 28, 1995, between Mr. Chesin and the Company, Mr. Chesin serves as
Senior Vice President and Chief Operating Officer of Carpet Barn for a
three-year period, with successive one-year automatic extensions to his
employment unless either party gives the other at least 90 days' notice of
termination prior to the end of any one-year term. His salary is $78,000 per
year during the first six-month period of the agreement and $104,000 per year
thereafter, subject to annual pay increases at the Company's discretion.
Pursuant to the Bonus Plan, on or about fifteen days after the Company finalizes
its annual financial statements, the Company shall pay Mr. Chesin in cash
one-half of any bonus amount allocated to him by the Company or its management
and shall issue to Mr. Chesin the number of shares of Common Stock that he could
purchase at a per share price equal to 80% of the closing sale price of the
Common Stock with an amount equal to one-half of such bonus amount. Mr. Chesin's
employment is terminable for cause which includes the Company's failure (a
"Target Failure") to achieve net income equal to or greater than (a) 75% of the
projected net income for any fiscal quarter or (b) 85% of the projected net
income for any two consecutive fiscal quarters. Mr. Chesin will receive two
months' severance pay, plus an additional month's severance pay for each full
year of employment that has elapsed, if the agreement terminates due to a Target
Failure or Mr. Chesin's total disability.
Mark Szporka. Pursuant to a five-year employment agreement,
dated as of June 2, 1995, Mr. Szporka is employed as the Company's Chief
Financial Officer at an annual salary of $120,000 per year, subject to annual
pay increases at the Company's discretion. In addition, Mr. Szporka, under the
terms of his employment agreement, purchased at $0.001 per share, 871,500 shares
of Common Stock on June 1, 1995. 290,500 shares were deemed to be consideration
to the Company for services provided prior to June 1, 1995 in connection with
the acquisition of the Predecessor Company. Such shares were deemed to be
"founders shares" and were considered to have been purchased at market value and
therefore no compensation expense is recognized in the consolidated financial
statements in connection with these shares.
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<PAGE>
Also, pursuant to the employment agreement, the remaining
581,000 shares of Common Stock ("Escrow Shares") were deposited into an escrow
account on June 1, 1995. All dividends on and voting rights of the Escrow Shares
belong to the Company until such time as the Escrow Shares are released from
escrow. Upon the first anniversary of Mr. Szporka's employment and each of the
following four such anniversaries, 116,200 of the Escrow Shares will be released
to Mr. Szporka together with all rights and privileges thereto. In the event the
Company does not meet certain operating goals, as described in the employment
agreement, the Company has the right to repurchase those shares at $.001 per
share.
The Company will recognize compensation expense equal to the
difference between the aggregate market price when earned and the aggregate
purchase price of all Escrow Shares released to Mr. Szporka. Such compensation
expense, if any, will be recorded in the period in which the right to receive
such shares is earned. As of December 31, 1995, Mr. Szporka had not earned the
right to receive 68,122 of the Escrow Shares because the Company did not meet
certain operating goals described in the employment agreement during the
Operating Period. Therefore, no compensation expense relating to the Escrow
Shares has been recognized in the Operating Period. Mr. Szporka also is entitled
to participation in the Bonus Plan and to consideration as a member of
"management" for any fiscal year during which he has been employed for at least
six months. Mr. Szporka's termination and severance provisions are comparable to
those for Mr. Chesin.
Jeffrey Wiens. Pursuant to an employment agreement, dated as
of July 5, 1995, the Company has employed Mr. Wiens as its Controller for a
two-year period, with successive one-year automatic extensions of his employment
unless either party gives the other at least 90 days' notice of termination
prior to the end of any one-year term. Mr. Wiens receives a salary of $60,000
per year, subject to annual pay increases at the Company's discretion and is
entitled to participation in the Bonus Plan on terms similar to those of Mr.
Szporka.
Limitations on Liability of Officers and Directors
As permitted under the New York Business Corporation Law, the
Company's by-laws provide for indemnification of an officer or director under
certain circumstances against reasonable expenses incurred in connection with
the defense of an action brought against him by reason of his being a director
or officer. In addition, the Company's charter documents provide for the
elimination of directors' liability to the Company or its shareholders for
monetary damages except in certain instances of bad faith, intentional
misconduct, a knowing violation of law or illegal personal gain.
CERTAIN TRANSACTIONS
Branin, a principal shareholder of the Company, acted as
advisor in connection with the Financing as well as the concurrent private
offerings of Notes and Preferred Stock of CBH. Branin acted as advisor to the
Financing between CBAC and First Source and for its role will receive a fee of
3% of the aggregate proceeds received by CBAC from the Credit Agreement upon the
consummation of a Public Offering, if any. On June 2, 1995, CBH completed the
concurrent offerings in the aggregate amount of $4,655,000 consisting of
$1,940,000 in Notes from the Note Offering at a per Note unit price of $200,000
and $2,715,000 from the Preferred Stock Offering consisting of 2,715 shares of
Preferred Stock at a per share price of $1,000 and a per Preferred Stock unit
price of $250,000. For each Preferred Stock unit sold, the Company issued
145,250 shares of Common Stock, and for each Note unit sold, the Company issued
63,640 shares of Common Stock, for an aggregate of 2,194,730 shares of Common
Stock issued in such Note Offering and Preferred Stock Offering. Branin will
receive a fee of 3% of the aggregate proceeds
32
<PAGE>
from the Note Offering and the Preferred Stock Offering upon the consummation
of a Public Offering of Common Stock, if any. Philip A. Herman, the Chairman of
the Board and President of the Company, is a principal of Branin. The total of
such fees will be approximately $650,000. There is no guarantee such an
offering will be consummated, therefore the financial statements do not contain
any provision or liability for these fees. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
In May, 1996, the Company incurred a liability to Branin of
$47,000 as a result of interest and dividend payments on CBH securities made by
Branin on behalf of CBH.
In May 1996, Branin paid the Company approximately $6,000
for consulting services rendered to Branin by employees of the Company.
In addition, in connection with the Preferred Stock Offering
and the Financing, a finder's fee of $445,000 was paid to Michael H. Mindlin, a
director of the Company. In addition, CBI has entered into consulting
arrangements with (a) Branin, pursuant to which CBI pays $35,000 per month to
Branin; (b) PAH. CBI also entered into a consulting arrangement with Capital, a
company controlled by Lawrence Fleischman, a director and shareholder of the
Company, pursuant to which CBI paid $5,000 per month to Capital from June 1995
through January 1996. These agreements were entered into for the purpose of
receiving management advisory services in the areas of operations management,
financing and acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
C.B. Realty, Inc. (CB Realty), which is owned by four
shareholders of the Company, acquired the land and building previously owned by
Carpet Barn. In connection with such purchase, the Company loaned $288,000 to CB
Realty, payable over a three-year period in monthly installments of $9,293,
including interest at a rate of 10% per annum. CB Realty simultaneously entered
into a lease agreement with the Company pursuant to which the Company leased the
land and building in which it conducts its operations for a three year term with
annual lease payments of $100,784.
On July 28, 1995, the Company purchased Steve's, a floor
covering repairer, installer, cleaner and retailer from Steven Chesin, the Chief
Operating Officer of CBI, pursuant to an asset purchase agreement (the "Steve's
Agreement"). Under the Steve's Agreement, the Company purchased substantially
all of the assets of Steve's in exchange for approximately $266,000. Mr. Chesin
entered into an employment agreement with CBI in connection therewith. The
revenues of Steve's are not expected to have a significant impact on the
Company's results of operations. In 1994, the last full year prior to the
Company's acquisition of Steve's, Steve's had total revenues of $686,480 and
employed 25 people. See "Management - Employment Agreements."
33
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of May
17, 1996 with respect to the beneficial ownership of the Common Stock by (a)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock (b) each Selling Shareholder, (c) each
director of the Company, (d) each executive officer of the Company and (e) all
officers and directors of the Company as a group. Unless otherwise noted, the
Company believes that all persons named in the table have sole voting and
dispositive power with respect to all shares of Common Stock beneficially owned
by them.
The Company has agreed to register the Common Stock held and
issuable upon the conversion and/or exercise of such securities by the Selling
Shareholders and to pay all expenses in connection therewith (other than
brokerage commissions and fees and expenses of their respective counsel). The
following table assumes all shares being offered hereby will be sold.
<TABLE>
<CAPTION>
Number of Shares Owned Percentage Ownership
---------------------------- ------------------------
Before After Shares Offered Before After
Name Offering Offering in the Offering Offering Offering
- ---- -------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Philip A. Herman (1) 10,791,150 10,791,150 -- 71.3% 71.3%
Gary Peiffer 139,850 139,850 -- * *
Michael Mindlin (2) 576,800 576,800 -- 3.8% 3.8%
Lawrence Fleischman (3) 746,250 726,250 20,000 4.9% 4.8%
Capital Vision Group Inc. 10,000 0 10,000 * *
Money Purchase Pension Plan **
Lawrence K. Fleischman C/F 5,000 0 5,000 * *
Eric S. Fleischman **
Steven Chesin 0 0 -- * *
Facundo Bacardi (4) 5,741,985 5,741,985 -- 37.9% 37.9%
Mark Szporka (5) 802,378 802,378 -- 5.3% 5.3%
Icarus Investments Ltd. (6) 3,515,414 3,515,414 -- 23.2% 23.2%
Designed Investments Ltd. (7) 747,021 747,021 -- 4.9% 4.9%
Branin Investments Ltd. (8) 1,273,412 1,273,412 -- 8.4% 8.4%
Bernard Pismeny** 5,000 0 5,000 * *
The Bridge Fund N.V. (9) 54,050 29,250 25,000 * *
Paul M. Brandoff and Brenda J.
Brandoff** 10,000 0 10,000 * *
Michael F. Madden and Juliette
Madden ** 5,000 0 5,000 * *
Lawrence J. Rubinstein ** 5,000 0 5,000 * *
Manhattan Group Funding ** 25,000 0 25,000 * *
Hy Miller ** 5,000 0 5,000 * *
Richard Wolfeld(10) 31,221 9,078 22,143 * *
Raymond Koubek ** 4,000 0 4,000 * *
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned Percentage Ownership
---------------------------- ------------------------
Before After Shares Offered Before After
Name Offering Offering in the Offering Offering Offering
- ---- -------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Joanne Antonelli(11) 14,286 0 14,286 * *
Inverness Investments Profit 10,000 0 10,000 * *
Sharing Plan (Ernest Mathis,
Trustee)**
Kenneth S. Bernstein ** 12,000 0 12,000 * *
Joseph W. Halliwell ** 3,000 0 3,000 * *
Milton H. Barbarosh ** 5,000 0 5,000 * *
Renee M. Nadel Revocable Trust 25,000 0 25,000 * *
(Sidney Gershon, Trustee)**
Peter Rona ** 5,000 0 5,000 * *
Ann DiGregorio ** 2,500 0 2,500 * *
Carylyn K. Bell** 5,000 0 5,000 * *
Gary McAdams Trustee** 10,000 0 10,000 * *
Andre J. Menard ** 10,000 0 10,000 * *
Harry G. Mohrman and Diana 15,000 0 15,000 * *
Mohrman **
Richard G. Klein ** 7,500 0 7,500 * *
JM Customs Brokers Pension 19,000 0 19,000 * *
Plan **
W. Donald DeWitt (11) 38,443 14,157 24,286 * *
Cliff Broder ** 3,000 0 3,000 * *
Loretta Demilt ** 5,000 0 5,000 * *
Christian C.A. Lange and 10,000 0 10,000 * *
Theresa Lange **
Michael J. LaTorre (10) 40,300 18,157 22,143 * *
Susan A. LaTorre ** 5,000 0 5,000 * *
Neil Ragin (12) 32,500 12,500 20,000 * *
Richard Newcomb ** 10,000 0 10,000 * *
Irwin E. Kaplan ** 10,000 0 10,000 * *
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned Percentage Ownership
---------------------------- ------------------------
Before After Shares Offered Before After
Name Offering Offering in the Offering Offering Offering
- ---- -------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Anthony and Allie LeGrand ** 12,143 0 12,143 * *
Robert Kerzner ** 5,000 0 5,000 * *
John Ryan ** 10,000 0 10,000 * *
Mantis Holdings ** 5,000 0 5,000 * *
Abraham H. Rosenberg ** 30,000 0 30,000 * *
Deborah and Craig Kadamian ** 3,000 0 3,000 * *
Maynard Hollander (13) 21,221 9,078 12,143 * *
Richard Weiner ** 3,000 0 3,000 * *
Frederick Modlin ** 5,000 0 5,000 * *
John Tutunjian ** 10,000 0 10,000 * *
Perry P. Mallas ** 2,000 0 2,000 * *
Samuel Breshin ** 2,000 0 2,000 * *
John Marino ** 10,000 0 10,000 * *
Patricia Rothbart and Michael 5,000 0 5,000 * *
Karpoff **
Richard H. Kamerling ** 5,000 0 5,000 * *
Virginia Fox Farrell C/F 1,000 0 1,000 * *
Timothy Burton Farrell UGMA/NY**
Mark Lubranski ** 2,500 0 2,500 * *
Russel Feigenbaum ** 1,000 0 1,000 * *
Bruce Wallach ** 5,000 0 5,000 * *
Sam Brody ** 3,000 0 3,000 * *
Kenneth S. Roth ** 10,000 0 10,000 * *
Barry and Lisa Siegel ** 5,000 0 5,000 * *
Carol Lou Greenbaum ** 5,000 0 5,000 * *
Brian Forberg ** 1,000 0 1,000 * *
Rudolph Koubek Jr. and Dorothy 10,000 0 10,000 * *
Koubek **
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned Percentage Ownership
---------------------------- ------------------------
Before After Shares Offered Before After
Name Offering Offering in the Offering Offering Offering
- ---- -------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Virginia Rini ** 1,000 0 1,000 * *
Raymond Perez ** 1,500 0 1,500 * *
Alfred Schiffrin ** 15,000 0 15,000 * *
Stanley A. Kaplan (14) 120,350 89,779 30,571 * *
Eileen A. Kaplan (11) 15,714 0 15,714 * *
Jerry Kaplan (15) 26,571 0 26,571 * *
Lorraine Kaplan ** 2,000 0 2,000 * *
Jerry and Lorraine Kaplan ** 10,000 0 10,000 * *
Frank J. Faltus ** 15,000 0 15,000 * *
Alfred A. Romano (10) 45,507 16,221 29,286 * *
Jean Romano ** 10,000 0 10,000 * *
Hilda Gitman ** 7,000 0 7,000 * *
Andrew Kaplan (16) 6,000 3,000 3,000 * *
David S. Kaplan ** 5,000 0 5,000 * *
Nancy Kaplan (13) 6,000 1,000 5,000 * *
Edwin Green ** 10,000 0 10,000 * *
Linda Green ** 15,000 0 15,000 * *
Helaine Kaplan ** 5,000 0 5,000 * *
Lawrence Kaplan (17) 239,529 187,100 52,429 1.6% *
Rita Leffler ** 5,000 0 5,000 * *
Edmond O'Donnell (9) 140,130 89,416 50,714 1.1% *
Robert DeBonis ** 10,000 0 10,000 * *
Dennis D'Amato** 5,000 0 5,000 * *
Robert Harries (13) 21,221 9,078 12,143 * *
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned Percentage Ownership
---------------------------- ------------------------
Before After Shares Offered Before After
Name Offering Offering in the Offering Offering Offering
- ---- -------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Beverly Hoffman ** 5,000 0 5,000 * *
Arik Eshel (18) 4,500 0 4,500 * *
John J. Haas ** 1,000 0 1,000 * *
Ronald Filosa ** 3,000 0 3,000 * *
Ronald Filosa and Judith 5,000 0 5,000 * *
Filosa **
Harold and Barbara Elman ** 5,000 0 5,000 * *
Peter Wolf (19) 66,221 9,078 57,143 * *
Vincent Ferrante (12) 25,714 0 25,714 * *
Amarika Ltd.(13) 21,221 9,078 12,143 * *
Jay Haft ** 10,000 0 10,000 * *
Robert M. Rubin ** 10,000 0 10,000 * *
Philip Haber and Marilyn Haber 3,000 0 3,000 * *
**
Joseph and Theresa Giannone ** 3,000 0 3,000 * *
Anthony Natale ** 5,000 0 5,000 * *
Louis P. Ruggiero ** 5,000 0 5,000 * *
David Feldman and Barbara 5,000 0 5,000 * *
Feldman**
Ron Kyle 14,286 0 14,286 * *
Robert Long 2,857 0 2,857 * *
B. Michael Pisani 7,143 0 7,143 * *
Carmen Archetto 4,286 0 4,286 * *
Nathan Russo 4,286 0 4,286 * *
John Bencivenga 22,857 0 22,857 * *
Charles Dietzek 7,143 0 7,143 * *
James Ortenzio 71,429 0 71,429 * *
Pat Livecchi 114,372 100,086 14,286 * *
Alan Dietzek 5,714 0 5,714 * *
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned Percentage Ownership
---------------------------- ------------------------
Before After Shares Offered Before After
Name Offering Offering in the Offering Offering Offering
- ---- -------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Universal Partners/Chicago 64,884 36,313 28,571 * *
Michael Miller 64,884 36,313 28,571 * *
Benjamin Bloomberg 26,995 12,709 14,286 * *
Elliott H. Vernon 132,625 82,625 50,000 * *
Bernard Moskowitz 14,286 0 14,286 * *
Gary Dorsi 14,286 0 14,286 * *
David Boone 14,286 0 14,286 * *
Dr. Marc Noar 57,143 0 57,143 * *
Jack Bruscianelli 14,286 0 14,286 * *
M.S. Chen 34,286 0 34,286 * *
Frederic A. Arnstein, Trustee 16,221 9,078 7,143 * *
Jack and Carol DeSantis 26,221 9,078 17,143 * *
Maria Hendersen 8,114 971 7,143 * *
Thomas McChesney 16,221 9,078 7,143 * *
James Twadell 9,733 5,447 4,286 * *
Creative Investment Services, 10,000 0 10,000 * *
Inc.
Frank Faitus 15,000 0 15,000 * *
Alan Gelband Company 10,000 0 10,000 * *
Defined Contribution
Pension Plan & Trust
Raymond Halliwell 5,000 0 5,000 * *
Robert J. Lehrman 2,000 0 2,000 * *
Vincent P. O'Donnell 5,000 0 5,000 * *
Marilyn Rubinson 10,000 0 10,000 * *
Andrew Ruotolo 10,000 0 10,000 * *
Georgia R. Scherff 5,000 0 5,000 * *
Siar Corp. Money 20,000 0 20,000 * *
Purchase Pension Plan
Charles Arthur Smith 7,500 0 7,500 * *
Timothy Coffey 1,000 0 1,000 * *
Sheldon N. Erdman 2,000 0 2,000 * *
Larry W. Kapuvari 1,000 0 1,000 * *
John Rissi 1,000 0 1,000 * *
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned Percentage Ownership
---------------------------- ------------------------
Before After Shares Offered Before After
Name Offering Offering in the Offering Offering Offering
- ---- -------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Tobie R. Saren 500 0 500 * *
Robert Marletti 10,000 0 10,000 * *
Joseph Rubino 7,500 0 7,500 * *
All directors and executive
officers as a group: 11,537,400 11,522,400 15,000 76.2% 76.1%
</TABLE>
- ---------------------------------------
* Less than one percent.
** Subject to contractual lock-up period ending September 23, 1996
pursuant to which such persons will not, without the prior
written consent of G-V Capital in its sole and absolute
discretion, sell or otherwise dispose of shares of Common Stock
(the "lock-up").
1 Includes an aggregate of 10,791,350 shares issued to Mr. Herman as
voting trustee pursuant to a Voting Trust Agreement, dated May 30,
1995, among Mr. Herman and certain shareholders of the Company,
which shares Mr. Herman is deemed to beneficially own. 1,273,412 of
such shares are held by Branin, of which Mr. Vernon is a principal.
Excludes 2,905 shares held by each of Richard and Ruth Herman and
62,458 shares held by David Herman, all members of the immediate
family of Mr. Herman. Mr. Herman disclaims beneficial ownership of
the shares held by such family members.
2 Includes 576,800 shares held by Mr. Mindlin's spouse, as to which he
disclaims beneficial ownership. All of such shares are held in the
Voting Trust referred to in note 1, above.
3 Includes (a) 10,000 shares held by Capital Vision Group, Inc. Money
Purchase Pension Plan whose sole beneficiary is Mr. Fleischman, and
(b) 5,000 shares held by Mr. Fleischman as custodian for the benefit
of his minor son. See "Certain Transactions." Of such shares,
20,000 are subject to the lock-up.
4 Includes an aggregate of 4,872,484 shares held by various affiliates
of Mr. Bacardi (including 3,515,414 shares held by Icarus Investments
Ltd., 305,025 shares held by each of Stylish Investments Ltd. and
Delphic Investments Ltd., and 747,021 shares held by Designed
Investments Ltd.). All of such shares are held in the Voting Trust
referred to in note 1, above.
5 Mr. Szporka's right to receive up to 512,878 of these shares over the
period ending June 1, 2000 is subject to forfeiture pursuant to
certain escrow provisions contained in his employment agreement. See
"Management." All of the shares referred to in the table are held in
the voting trust referred to in note 1, above.
6 Excludes shares held by Mr. Bacardi and his other affiliates. Mr.
Bacardi has sole voting and dispositive power with respect to the
shares of Common Stock owned by this entity. All of such shares are
held in the voting trust referred to in note 1, above.
7 Excludes shares held by Mr. Bacardi and his other affiliates. Mr.
Bacardi has sole voting and dispositive power with respect to the
shares of Common Stock owned by this entity. All of such shares are
held in the voting trust referred to in note 1, above.
8 Excludes 290,000 shares held through the voting trust referenced in
Note 1, above, for the benefit of Mr. Herman.
9 Of such shares, 25,000 are subject to the lock-up.
10 Of such shares, 15,000 are subject to the roll-up.
40
<PAGE>
11 Of such shares, 10,000 are subject to the lock-up.
12 Of such shares, 20,000 are subject to the lock-up.
13 Of such shares, 5,000 are subject to the lock-up.
14 Of such shares, 12,000 are subject to the lock-up.
15 Of such shares, 18,000 are subject to the lock-up.
16 Of such shares 3,000 are subject to the lock-up.
17 Of such shares, 31,000 are subject to the lock-up.
18 Of such shares, 2,500 are subject to the lock-up.
19 Of such shares 50,000 are subject to the lock-up.
DESCRIPTION OF CAPITAL STOCK
Common Stock
The Company is authorized to issue 120,000,000 shares of
Common Stock. As of May 17, 1996, there were an aggregate of 15,135,716 shares
of Common Stock outstanding, held of record by approximately 312 holders. The
holders of Common Stock are entitled to one vote for each share held of record
on all matters to be voted on by shareholders. There is no cumulative voting
with respect to the election of directors, with the result that the holders of
more than 50% of the shares voting for the election of directors can elect all
of the directors then up for election. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining which are available
for distribution to them after payment of liabilities and after provision has
been made for each class of stock having preference over the Common Stock.
Holders of shares of Common Stock, as such, have no conversion, preemptive or
other subscription rights, and there are no redemption provisions applicable to
the Common Stock. All of the outstanding shares of Common Stock are fully paid
and nonassessable.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock
is Corporate Stock Transfer, located in Denver, Colorado.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 15,135,716 shares of Common Stock
outstanding. Of such shares, the shares sold in the offering (other than shares
which may be purchased by "affiliates" of the Company) will be freely tradeable
without restriction or further registration under the Securities Act. In
addition, the 100,000 shares sold by the Company in its initial public offering
in 1990 (other than shares which may be purchased by affiliates of the Company)
are freely tradeable without restriction or further registration under the
Securities Act. The 15,035,716 remaining shares of Common Stock are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act, and may only be sold pursuant to a registration statement under
the Securities Act or an applicable exemption from the registration
requirements of the Securities Act, including Rule 144 and 144A thereunder.
Approximately 62,000 shares are eligible for sale pursuant to Rule 144.
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated), including an affiliate, who has
beneficially owned restricted shares for at least two years from the later of
the date such restricted shares were acquired from the Company and (if
applicable) the date they were acquired from an affiliate, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock (151,357 shares
based on the number of shares to be outstanding immediately after this
offering) or the average weekly trading volume in the public market 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
requirements as to the manner and notice of sale and the availability of public
information concerning the Company.
Affiliates may sell shares not constituting restricted shares
in accordance with the foregoing volumelimitations and other restrictions, but
without regard to the two-year holding period. Restricted shares held by
affiliates of the Company eligible for sale in the public market under Rule 144
are subject to the foregoing volume limitations and other restrictions.
Further, under Rule 144(k), if a period of at least three
years has elapsed between the later of the date restricted shares were acquired
from the Company and the date they were acquired from an affiliate of the
Company, and the person was not an affiliate for at least three months prior to
the sale, such person would be entitled to sell the shares immediately without
regard to volume limitations and the other conditions described above.
No predictions can be made as to the effect, if any, that
market sales of shares of existing shareholders or the availability of such
shares for future sale will have on the market price of shares of Common Stock
prevailing from time to time. The prevailing market price of Common Stock after
the offering could be adversely affected by future sales of substantial amounts
of Common Stock by existing shareholders.
42
<PAGE>
PLAN OF DISTRIBUTION
Any or all of the Securities may be sold from time to time to
purchasers directly by the Selling Shareholders. Alternatively, the Selling
Shareholders may from time to time offer the Securities through underwriters,
dealers or agents who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the Securities for whom they may act as agents. The Selling
Shareholders and any such underwriters, dealers or agents that participate in
the distribution of the Securities may be deemed to be underwriters under the
Securities Act, and any profit on the sale of the Securities by them and any
discounts, commissions or concessions received by them may be deemed to be
underwriting discounts and commissions under the Securities Act. The
Securities may be sold from time to time in one or more transactions at a fixed
offering price, which may be changed, or at varying prices determined at the
time of sale or at negotiated prices. The distribution of the Securities by
the Selling Shareholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transaction or through sales to one or more
broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees, discounts and commissions may be paid by the Selling
Shareholders in connection with such sales of securities.
At the time a particular offer of the Securities is made, to
the extent required, a supplement to this Prospectus will be distributed (or,
if required, a post-effective amendment to the Registration Statement of which
this Prospectus is a part will be filed) which will identify the specific
Securities being offered and set forth the aggregate amount of Securities being
offered, the purchase price and the terms of the offering, including thename or
names of the Selling Shareholders and of any underwriters, dealers or agents,
the purchase price paid by any underwriter for Securities purchased from the
Selling Shareholder, any discounts, commissions and other items constituting
compensation from the Selling Shareholders and/or the Company and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
including the proposed selling price to the public. In addition, an
underwritten offering will require clearance by the National Association of
Securities Dealers, Inc. of the underwriter's compensation arrangements. The
Company will not receive any of the proceeds from the sale by the Selling
Shareholders of the Securities offered hereby. All of the filing fees and other
expenses of this Registration Statement will be borne in full by the Company,
other than any underwriting fees, discounts and commissions relating to this
offering.
In order to comply with certain states' securities laws, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states the Securities may
not be sold unless the Securities have been registered or qualified for sale in
such state, or unless an exemption from registration or qualification is
available and is obtained.
The Securities originally issued by the Company in the
Private Placement contained legends as to their restricted transferability.
Upon the effectiveness of the Registration Statement of which this Prospectus
forms a part and the transfer of the Securities pursuant thereto, these legends
will no longer be necessary, and accordingly, new certificates representing
such shares of Common Stock will be issued to the transferee without any such
legends unless otherwise required by law.
In addition to sales pursuant to the Registration Statement
of which this Prospectus forms a part, the Securities may be sold in accordance
with Rule 144.
43
<PAGE>
Nasdaq Listing
The Company has applied for listing of the Common Stock for
trading on the National Association of Securities Dealers Automated Quotation
System Small Cap Market ("NASDAQ"). There can be no assurance that the Company
will qualify for listing on the NASDAQ System or any other exchange. In
addition, there can be no assurance that the Company will meet the criteria for
continued listings of securities on the NASDAQ System. These continued listing
criteria include a minimum of $2,000,000 in total assets, $1,000,000 in capital
and surplus, a minimum bid price of $1.00 per share and 300 shareholders of
record. If an issuer does not meet the $1.00 minimum bid price standard, it
may, however, remain in the NASDAQ System if the market value of its public
float is at least $1,000,000 and the issuer has capital and surplus of at least
$2,000,000. If the Company is unable to meet the continued listing criteria of
the NASDAQ System and became delisted therefrom, trading, if any, of the Common
Stock would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or, if then available, "Electronic Bulletin Board"
administered by the NASD. As a result, an investor would likely find it more
difficult to dispose of, or to obtain accurate quotations as the value of, the
Company's securities.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by
Shereff, Friedman, Hoffman & Goodman, LLP, New York, New York.
EXPERTS
The Financial Statements of Carpet Barn (Predecessor Company)
and the Consolidated Financial Statements of Ragar Corp. and subsidiaries
included in this Prospectus and in the Registration Statement have been audited
by McGladrey & Pullen, LLP, independent public accountants, to the extent and
for the periods set forth in their reports appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon the authority
of said firm as experts in auditing and accounting.
44
<PAGE>
RAGAR CORP.
(A New York Corporation)
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
RAGAR CORP.
(A New York Corporation)
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
INDEPENDENT AUDITOR'S REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets F-3
Consolidated statements of income F-4
Consolidated statement of stockholders' equity -
Successor Business F-5
Consolidated statement of stockholder's equity -
Predecessor Business F-6
Consolidated statements of cash flows F-7 - F-8
Notes to consolidated financial statements F-9 - F-22
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ragar Corp. (A New York Corporation)
New York, New York
We have audited the accompanying consolidated balance sheet of Ragar Corp.
and subsidiaries (Successor Business) as of December 31, 1995 and the related
consolidated statements of income, stockholders' equity, and cash flows for
the period from commencement of operations (June 2, 1995) to December 31,
1995. We have also audited the accompanying balance sheet of Carpet Barn,
Inc., a Nevada corporation (Predecessor Business), as of December 31, 1994
and the related statements of income, stockholder's equity and cash flows
for the period from January 1, 1995 to June 1, 1995, and for the years ended
December 31, 1994 and 1993. These financial statements are the
responsibility of the respective Successor and Predecessor Companies'
managements. Our responsibility is to express an opinion on the respective
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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. 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 opinions.
In our opinion, the Successor Business consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Ragar Corp. and subsidiaries, as of December 31, 1995 and the
results of their operations and their cash flows for the period from
commencement of operations (June 2, 1995) to December 31, 1995, in
conformity with generally accepted accounting principles. Also, in our
opinion, the Predecessor Business financial statements referred to above
present fairly, in all material respects, the financial position of
Carpet Barn, Inc., a Nevada corporation, as of December 31, 1994 and the
results of its operations and its cash flows for the period from January
1, 1995 to June 1, 1995, and for the years ended December 31, 1994 and 1993,
in conformity with generally accepted accounting principles.
Las Vegas, Nevada /s/ McGladrey & Pullen, LLP
February 9, 1996, except for the second ---------------------------
paragraph in Note 6 as to which the McGladrey & Pullen, LLP
date is April 15, 1996 and the last
paragraph in Note 7 as to which the date
is March 31, 1996
F-2
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A NEW YORK CORPORATION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Predecessor
Ragar Corp. Business
-------------------- ------------------
December 31, December 31,
ASSETS (Note 6) 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 693,356 $ 665,393
Accounts receivable, less allowance for doubtful
accounts 1995 $44,000, 1994 $81,316 3,467,282 1,687,732
Inventory 638,295 373,918
Current portion of related party note receivable (Note 12) 132,800 --
Prepaid expenses 61,637 --
------------------ ----------------
Total current assets 4,993,370 2,727,043
------------------ ----------------
Related party note receivable, less current portion (Note 12) 146,736 --
Property and equipment, net (Note 3) 415,738 447,098
Intangible assets, net (Notes 2 and 4) 18,528,647 --
------------------ ----------------
$ 24,084,491 $ 3,174,141
------------------ ----------------
------------------ ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Subordinated notes payable (Note 5) $ 515,422 $ --
Note payable (Note 6) 1,865,604 --
Current maturities of long-term debt (Note 6) 3,527,862 21,130
Accounts payable 1,799,764 1,133,175
Accrued expenses 448,835 323,478
Customer deposits 592,496 734,694
------------------ ----------------
Total current liabilities 8,749,983 2,212,477
------------------ ----------------
Deferred Income Taxes (Note 10) 35,616 --
Long-Term Debt, less current maturities (Note 6) 8,811,558 173,884
------------------ ----------------
Commitments and Contingencies (Note 12)
Stockholders' Equity (Notes 6 and 7)
Preferred stock, 12% cumulative, $.01 par value,
$1,000 stated value; authorized 5,500 shares;
4,140 shares issued and outstanding 4,140,000 --
Discount on preferred stock (1,283,571) --
Common stock, $.001 par value, authorized 120,000,000
shares; issued and outstanding 14,932,145 shares 14,932 --
Common stock, Predecessor Business, no par value,
authorized 2,500 shares; issued and outstanding
100 shares -- 50,000
Additional paid-in capital 3,330,008 --
Retained earnings 285,965 737,780
------------------ ----------------
6,487,334 787,780
------------------ ----------------
$ 24,084,491 $ 3,174,141
------------------ ----------------
------------------ ----------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Ragar Corp. Predecessor Business
----------------- --------------------------------------------
January 1,
June 2, 1995 to 1995 Years ended December 31,
December 31, to June 1, --------------------------
1995 1995 1994 1993
--------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Sales (Note 8) $ 23,979,879 $ 16,362,727 $ 42,506,987 $34,529,604
Cost of sales 17,854,279 11,331,930 31,549,360 24,931,339
--------------- -------------- ------------ -----------
Gross profit 6,125,600 5,030,797 10,957,627 9,598,265
Selling, general and administrative
expenses:
Related party consulting fees (Note 12) 315,000 - - -
Related party rent expense (Note 12) 60,199 - - -
Other (Note 9) 2,961,977 1,292,945 5,381,414 8,477,520
--------------- -------------- ------------ -----------
3,337,176 1,292,945 5,381,414 8,477,520
--------------- -------------- ------------ -----------
Amortization and depreciation 679,471 14,195 28,442 24,957
--------------- -------------- ------------ -----------
Operating income 2,108,953 3,723,657 5,547,771 1,095,788
Other income (expense):
Miscellaneous income 20,024 19,892 44,681 43,267
Interest expense (1,385,022) (6,405) (16,414) (17,810)
Loss on sale of securities (Note 11) - - (656,262) -
Loss on disposal of equipment - - (31,435) (7,424)
--------------- -------------- ------------ -----------
Income before taxes 743,955 3,737,144 4,888,341 1,113,821
Provision for income taxes (Note 10) 254,595 - - -
--------------- -------------- ------------ -----------
Net income $ 489,360 $ 3,737,144 $ 4,888,341 $ 1,113,821
--------------- -------------- ------------ -----------
--------------- -------------- ------------ -----------
Net income per common share $ 0.02
---------------
---------------
Unaudited Proforma Information (Note 2):
Net income before taxes $ 3,737,144 $ 4,888,341 $ 1,113,821
Proforma income tax expense 1,270,629 1,662,036 378,699
-------------- ------------ -----------
Proforma net income after taxes $ 2,466,515 $ 3,226,305 $ 735,122
-------------- ------------ -----------
-------------- ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - SUCCESSOR BUSINESS
Commencement of Operations (June 2, 1995) to December 31, 1995
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Preferred Stock Discount Additional
------------------- on Preferred Shares Paid-in Retained
Shares Dollars Stock Outstanding Dollars Capital Earnings Total
------ ----------- ------------ ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock
for initial
capitalization -- $ -- $ -- 834 $ 10 $ 925,047 -- $ 925,057
Recapitalization
/exchange
including
issuance of
common stock
for acquisition
costs of $910,468
(Note 2) -- -- -- 14,524,166 14,515 2,066,234 -- 2,080,749
Issuance of
preferred stock
(Note 7) 3,320 3,320,000 (1,036,509) -- -- -- -- 2,283,491
Preferred stock
issuance costs -- -- -- -- -- (96,810) -- (96,810)
Exchange of
subordinated debt
for preferred stock
(Note 5) 820 820,000 (247,062) -- -- -- -- 572,938
Issuance of
common stock -- -- -- 172,860 173 188,709 -- 188,882
Exchange of
subordinated debt
for common stock
(Note 5) -- -- -- 234,285 234 246,828 -- 247,062
Net income -- -- -- -- -- -- 489,360 489,360
Preferred stock
dividend ($70.00
per share) -- -- -- -- -- -- (203,395) (203,395)
------ ----------- ------------ ---------- ----------- ----------- ----------- -----------
Balance, December
31, 1995 4,140 $ 4,140,000 $(1,283,571) 14,932,145 $ 14,932 $ 3,330,008 $ 285,965 $ 6,487,334
------ ----------- ------------ ---------- ----------- ----------- ----------- -----------
------ ----------- ------------ ---------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY - PREDECESSOR BUSINESS
Period from January 1, 1995 to June 1, 1995
and Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Common Stock
Shares Retained
Outstanding Dollars Earnings Total
------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 100 $ 50,000 $ 1,005,220 $ 1,055,220
Dividends paid - - (917,510) (917,510)
Net income - - 1,113,821 1,113,821
------------ ------------ -------------- ---------------
Balance, December 31, 1993 100 50,000 1,201,531 1,251,531
Dividends paid - - (5,352,092) (5,352,092)
Net income - - 4,888,341 4,888,341
------------ ------------ -------------- ---------------
Balance, December 31, 1994 100 50,000 737,780 787,780
Dividends paid - - (2,400,000) (2,400,000)
Net income - - 3,737,144 3,737,144
------------ ------------ -------------- ---------------
Balance, June 1, 1995 100 $ 50,000 $ 2,074,924 $ 2,124,924
----------- ------------ -------------- ---------------
----------- ------------ -------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Ragar Corp. Predecessor Business
----------------- --------------------------------------------------
January 1,
June 2, 1995 to 1995 Years ended December 31,
December 31, to June 1, -------------------------------
1995 1995 1994 1993
------------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Cash received from customers $ 23,148,474 $ 15,378,509 $ 42,803,429 $ 34,249,214
Cash paid to suppliers and employees (19,203,758) (13,629,493) (36,757,286) (33,088,745)
Interest paid (130,171) (6,405) (16,414) (17,810)
Income taxes paid (374,000) - - -
Miscellaneous income received 20,024 19,892 44,681 43,267
------------------- --------------- ------------- ---------------
Net cash provided by
operating activities 3,460,569 1,762,503 6,074,410 1,185,926
------------------- --------------- ------------- ---------------
Cash Flows from Investing Activities
Net advances to related parties (279,536) - - -
Acquisition cost expenditures (96,552) - - -
Payments for acquisition of net assets of
Predecessor Business (19,257,524) - - -
Payments for acquisition of net assets of
Steve's Floor Covering (266,722) - - -
Net cash flows from investments
in securities - - (656,262) -
Proceeds from sale of equipment 19,000 72,076 - 3,350
Purchase of equipment (108,237) - (62,052) (20,261)
------------------- --------------- ------------- ---------------
Net cash provided by (used
in) investing activities (19,989,571) 72,076 (718,314) (16,911)
------------------- --------------- ------------- ---------------
Cash Flows from Financing Activities
Debt issuance costs (912,619) - - -
Proceeds from issuance of stock in con-
nection with capitalization of company 1,784,220 - - -
Proceeds from long-term debt 14,000,000 - - -
Principal payments on long-term debt (8,102) (8,156) (18,532) (17,136)
Proceeds from subordinated notes payable 1,569,364 - - -
Principal payment on subordinated notes
payable (560,000) - - -
Proceeds from issuances of preferred stock 2,283,490 - - -
Preferred stock issuance costs (96,810) - - -
Proceeds from note payable 1,152,532 - - -
Payments on note payable (1,827,722) - - -
Cash dividends paid (161,995) (2,400,000) (5,352,092) (917,510)
------------------- --------------- ------------- ---------------
Net cash provided by (used
in) financing activities 17,222,358 (2,408,156) (5,370,624) (934,646)
------------------- --------------- ------------- ---------------
Net increase (decrease) in cash 693,356 (573,577) (14,528) 234,369
Cash, beginning - 665,393 679,921 445,552
------------------- --------------- ------------- ---------------
Cash, ending $ 693,356 $ 91,816 $ 665,393 $ 679,921
------------------- --------------- ------------- ---------------
------------------- --------------- ------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Ragar Corp. Predecessor Business
----------------- --------------------------------------------------
January 1,
June 2, 1995 to 1995 Years ended December 31,
December 31, to June 1, -------------------------------
1995 1995 1994 1993
------------------ ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 489,360 $ 3,737,144 $ 4,888,341 $ 1,113,821
Depreciation 44,121 14,195 28,442 24,957
Amortization 635,858 - - -
Accretion of discount on subordinated
notes payable 326,058 - - -
Deferred income taxes 35,616 - - -
Provision for bad debts 44,000 5,633 - 95,723
Interest added to note payable 790,795 - - -
Loss on sale of securities - - 656,262 -
Loss on disposal of equipment - - 31,435 7,424
Changes in assets and liabilities
(Increase) decrease in accounts
receivable (1,060,247) (603,294) 342,098 (770,253)
(Increase) decrease in inventory (161,757) (87,620) (141,066) 22,900
Increase in prepaids (61,637) - - -
Increase (decrease) in accounts
payable 1,746,045 (599,153) 234,123 262,264
Increase (decrease) in customer
deposits 228,842 (380,924) (45,656) 394,140
Increase (decrease) in accrued
expenses 403,515 (323,478) 80,431 34,950
----------------- ---------------- --------------- --------------
Net cash provided by
operating activities $ 3,460,569 $ 1,762,503 $ 6,074,410 $ 1,185,926
----------------- ---------------- --------------- --------------
----------------- ---------------- --------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
Ragar Corp. (Successor Business, Ragar or Company) was organized under the
laws of the state of New York on July 19, 1988. Ragar Corp. had
substantially no operations prior to its exchange, on June 2, 1995, in a
reverse acquisition with Carpet Barn Holdings, Inc., (CBH), which was
organized under the laws of the State of Delaware on May 26, 1995 (see Note
2). CBH and its wholly owned subsidiary, Carpet Barn, Inc., (CBI), a
Delaware corporation, were formed for the purpose of acquiring the assets and
operations of Carpet Barn, Inc., a Nevada Corporation (Predecessor
Business), a retail carpet sales and installation outlet located in Las Vegas,
Nevada. The Company began operations on June 2, 1995, the date of acquisition,
as described in Note 2.
The Company is also related, through common ownership, to C. B. Realty of
Delaware, Inc. (Realty).
The Company sells floor coverings, primarily carpet, to the new home and
retail replacement markets primarily in southern Nevada.
A summary of the Company's significant accounting policies follows.
Unless specifically discussed, the accounting policies apply to both Ragar
(and its subsidiaries) and the Predecessor Business.
The results of operations of the Company are not comparable to those of the
Predecessor Business, due primarily to the amortization of intangible
assets and interest expense incurred on the acquisition debt. Also, the
Predecessor Business financial statements contain no provision for income
taxes.
Basis of presentation
On June 2, 1995, the Company acquired all of the common stock of CBH in an
exchange (the Exchange) by the holders of such common stock for newly issued
common stock of the Company, representing 91% of the Company's common stock
outstanding after the Exchange. For financial reporting and accounting
purposes, the Exchange was recorded as a reverse acquisition, with CBH as
the accounting acquirer. In a reverse acquisition, the accounting acquirer
is treated as the surviving entity, even though the Company's legal
existence does not change and the financial statement titles refer to the
Company, not the accounting acquirer. The accounting acquirer treats the
Exchange as a purchase acquisition. As a result, the historical financial
information presented is CBH's and not the Company's, as previously
reported. The operating results of the Company are included with those of
CBH after June 2, 1995, the date of the Exchange. See Note 2 for further
discussion of the Exchange.
The opening stockholders' equity of CBH has been retroactively restated
to give effect to the impact of the Exchange as if CBH had been
recapitalized. As a result, the preferred stock of CBH is presented as
preferred stock of the Company.
F-9
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Principles of consolidation
The Successor Business consolidated financial statements include the
accounts of the Company and its subsidiaries, CBH and CBI. All material
intercompany accounts and transactions are eliminated in consolidation.
Cash
During the periods presented, the Company and the Predecessor Business
maintained cash balances which, at times, were in excess of federally insured
limits. At December 31, 1995 the Company's cash balances were maintained at
financial institutions in Nevada and Illinois.
Inventory
Inventory consists primarily of carpet and vinyl and is stated at the lower
of cost (first-in, first-out method) or market.
Property and equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided on the straight line and accelerated methods for
financial reporting purposes. Estimated useful lives for financial
reporting purposes are as follows:
Years
Furniture and equipment 7
Autos and trucks 5
Building 40
Building improvements 40
Intangibles
Cost in excess of net assets of the business' acquired in connection with the
Company's acquisitions (see Note 2) is being amortized by the straight-line
method over twenty-five years. The Company periodically reviews the value
of its goodwill to determine if an impairment has occurred. The
Company does not believe that an impairment of its goodwill has occurred
based on an evaluation of operating income, cash flows and business
prospects.
The Company incurred financing costs related to the bank financing obtained
in connection with the acquisition of the Predecessor Business (see Note 2).
These costs are being amortized on the effective interest method over the
term of the debt.
The Company also entered into a covenant not-to-compete in connection with
the acquisition of the Predecessor Business (see Note 2). The covenant is
being amortized on the straight-line method over the five-year term of the
agreement.
F-10
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Income taxes
The Company provides for deferred taxes on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effect of changes in tax laws
and rates on the date of enactment.
The Predecessor Business, with the consent of its stockholder, elected to be
taxed under sections of the federal tax law which provide that, in lieu of
corporation income taxes, the stockholder separately accounted for the
Predecessor Business' items of income, deduction, losses and credits.
Therefore, the Predecessor Business financial statements do not include any
provision for corporation income taxes.
Advertising
Advertising costs are expensed as incurred.
Earnings per common share
Earnings per share is computed based on the weighted average number of
common shares outstanding during the period and the net income less
preferred stock dividends accrued for the period. There were no common
stock equivalents outstanding during the period from June 2, 1995 to December
31, 1995.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
The Financial Accounting Standards Board issued SFAS No. 107,
Disclosures about Fair Value of Financial Statements, which is effective
December 31, 1995. This statement requires the disclosure of estimated fair
values for all financial instruments for which it is practicable to estimate
fair value.
The carrying amounts of financial instruments including cash, accounts
receivables, subordinated notes payable, note payable, accounts payable
and accrued expenses approximate their fair values because of their
short maturities.
F-11
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
The carrying amounts of long-term debt and the related party note
receivable approximate their fair values because the interest rates on these
instruments are at market interest rates.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation. Statement No. 123 establishes financial
accounting and reporting standards for stock-based employee compensation
plans, such as stock options and stock purchase plans. The statement
generally suggests but does not require stock-based compensation
arrangements for employees 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. Stock-based compensation for
nonemployees is required to be accounted for at the fair value of the
instruments issued. Statement No. 123 will first be required for the
Company's year ending December 31, 1996. Companies that do not elect to
change their accounting for stock-based compensation for employees are
required to disclose the effect on net income and earnings per share as if the
provision of Statement No. 123 were applied. The Company has decided not to
adopt the accounting provisions of this statement for employees' stock-based
compensation arrangements.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
Statement No. 121 establishes accounting standard 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, certain
identifiable intangibles to be disposed of. Statement No. 121 will first
be required for the Company's year ending December 31, 1996. Based on
management's preliminary analysis, the Company does not anticipate that
the adoption of Statement No. 121 will have a material impact on the
consolidated financial statements.
Note 2. Acquisitions
On June 2, 1995, the Company acquired all of the common stock of CBH in an
exchange by the holders of such common stock for 13,362,500 newly issued
shares of common stock of the Company, representing 91% of the Company's
common stock outstanding after the Exchange. For financial reporting and
accounting purposes, the exchange was recorded as a reverse acquisition,
with CBH as the accounting acquirer. In a reverse acquisition, the accounting
acquirer is treated as the surviving entity, even though the Company's
legal existence did not change and the financial statement titles refer to the
Company, not the accounting acquirer. The accounting acquirer treats the
Exchange as a purchase acquisition. As a result, the historical financial
information presented is CBH's and not the Company's as previously reported.
The operating results of the Company are included with CBH after June 2, 1995,
the date of the Exchange. Ragar had no operations prior to the acquisition
of Carpet Barn, Inc. Its only asset was approximately $860,000 of cash and it
had immaterial liabilities.
F-12
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Acquisitions (continued)
Concurrent with CBH's stock exchange with the Company, CBI executed an
"Asset Purchase Agreement" to acquire certain assets net of assumed
liabilities of the Predecessor Business, for a cash purchase price of
$19,257,524. The acquisition was accounted for as a purchase. In addition, a
$500,000 fee was paid to an unaffiliated third party in connection with the
acquisition through the issuance of 500 shares of preferred stock and 21.978
shares of common stock of CBH (subsequently converted in the stock exchange
described in the preceding paragraph, into 290,500 shares of common stock of
the Company). As part of this acquisition, CBI entered into a consulting
and restrictive convenant agreement with the owner of the Predecessor
Business for $575,000 which will be amortized over the five year life of the
agreement. Realty, which is owned by four shareholders who are also
shareholders of the Company, acquired the land and building previously
owned by the Predecessor Business. As part of executing the Asset
Purchase Agreement, CBI loaned $288,008 to Realty payable over a period of
three years in monthly installments of $9,293 including interest at a rate of
10% per annum.
The allocation of the purchase price of the net assets of the Predecessor
Business is as follows:
<TABLE>
<CAPTION>
<S> <C>
Consideration and liabilities assumed:
Cash paid $ 19,257,524
Liabilities assumed (A) 357,689
Ragar common stock and CBH preferred stock issued for broker fee 500,000
-----------------------
$ 20,115,213
-----------------------
-----------------------
Allocated to:
Tangible assets acquired (A) $ 3,074,177
Non-compete covenant 575,000
Cost in excess of net assets of business acquired 16,466,036
-----------------------
$ 20,115,213
-----------------------
-----------------------
</TABLE>
(A) - The tangible assets acquired and liabilities assumed have been
recorded at the Predecessor Business' respective carrying values
which approximated their fair values on the date of acquisition.
In addition to the above amounts, approximately $1,007,000 in direct
acquisition costs were incurred by the Company and are recorded as costs in
excess of net assets of business acquired.
F-13
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Acquisitions (continued)
On July 28, 1995, the Company purchased the net assets of Steve's Floor
Covering, Inc. (Steve's), a floor covering repairer, installer and
cleaner, from Steven Chesin, the Chief Operating Officer of the Company,
pursuant to an asset purchase agreement (the Steve's Agreement). Under
the Steve's Agreement, the Company purchased substantially all of the
assets of Steve's in exchange for approximately $267,000. The acquisition was
accounted for as a purchase. Approximately $203,000 of the purchase price
was allocated to costs in excess of net assets of business acquired. Mr.
Chesin entered into an employment 200agreement with the Company in connection
therewith.
Unaudited pro forma results of operations of the Company assuming the
acquisitions occurred on January 1, 1994 are presented below. Pro forma
adjustments made to the historical results of operations consist principally
of the amortization of intangible assets and interest expense related to the
acquisition financing. Earnings per common share has been adjusted to reflect
the stock issued in the acquisition as outstanding on January 1, 1994.
Year Ended December 31
-----------------------------------
1995 1994
---------------- ----------------
Net sales $ 40,343,000 $ 42,507,000
Gross profit $ 11,156,000 $ 10,958,000
Net income $ 1,997,000 $ 1,312,000
Net income per common share $ 0.10 $ 0.06
The net income per common share was computed based on the 14,583,163 weighted
average common shares outstanding during the period from June 2, 1995 to
December 31, 1995.
The above pro forma information does not purport to be indicative of the
results that actually would have been obtained had the acquisitions
occurred on January 1, 1994 and is not intended to be a projection or
indicative of future results.
F-14
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Property and Equipment
Property and equipment consists of the following at December 31:
1995 1994
----------------- ----------------
Furniture and equipment $ 245,341 $ 219,125
Autos and trucks 214,518 53,817
Land - 113,201
Building - 282,252
Building improvements - 125,013
----------------- ----------------
459,859 793,408
Less accumulated depreciation 44,121 346,310
----------------- ----------------
$ 415,738 $ 447,098
----------------- ----------------
----------------- ----------------
Note 4. Intangible Assets
Intangible assets consist of the following at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Cost in excess of net assets of business' acquired,
including costs incurred in connection with
business acquisitions $ 17,676,886
Covenant not-to-compete 575,000
Debt issuance costs 912,619
-----------------
19,164,505
Less accumulated amortization 635,858
-----------------
Intangible assets, net $ 18,528,647
-----------------
-----------------
</TABLE>
Note 5. Subordinated Notes Payable
The Company issued unsecured notes payable with a face value of
$1,940,000 in connection with acquisition discussed in Note 2. The notes
have a stated interest rate of 12% and are subordinated to the First Source
notes described in Note 6. The notes were issued at a discount of
approximately $371,000 which is being amortized to interest expense over
the term of debt. The effective annual interest rate is approximately
14.8%. Fees of $94,534 were incurred in connection with the issuance of this
debt and are capitalized as debt issuance costs and are being amortized by the
straight-line method over the term of the notes.
F-15
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Subordinated Notes Payable (continued)
On November 30, 1995, notes with a face value of $560,000 were paid in full.
Also, on November 30, 1995, notes with a face value of $820,000 were
exchanged for 820 shares of CBH preferred stock and 234,285 shares of Ragar
common stock. The CBH preferred stock was recorded at a net value of
$572,938 and the Ragar common stock was recorded at $247,062.
At December 31, 1995, outstanding subordinated notes payable were as follows:
Face value $ 560,000
Unamortized discount (44,578)
-------------------
$ 515,422
-------------------
-------------------
The notes are due on the earlier of April 30, 1996 or the date of completion
of an underwritten public offering of Ragar common stock.
Note 6. Payable and Long-Term Debt
Concurrent with the acquisition described in Note 2, CBI entered into a
Credit Agreement with First Source Financial, LLP (First Source), and
obtained a $14,000,000 revolving note, due May 31, 1999, and a $3,000,000
working capital note, due May 31, 1997, which, under certain conditions,
may be extended through May 31, 1999. All borrowings under the Credit
Agreement bear interest at the base rate announced by The First National Bank
of Chicago (8.5% at December 31, 1995) plus 2.25%, payable monthly, and
are secured by substantially all of the assets and the stock of CBI. The
Company also pays an unused commitment fee of 0.5% of the unused amount of
the commitment. The notes are guaranteed by CBH and Realty. Loan fees
incurred as a result of the Credit Agreement amounted to $402,000 and are
being amortized using the effective interest method over the term of the
loan. Additional debt acquisition costs of $510,619 were incurred in
connection with obtaining this financing and are being amortized over the
term of the loan. The Credit Agreement contains covenants requiring CBI to
maintain minimum levels of tangible net worth, working capital and various
ratios. The agreement also limits payments from the CBI to its parent and
limits dividends, redemptions, and purchases of capital stock of CBI, CBH
and the Company.
The Company was in violation of certain of the above covenants as of December
31, 1995. On April 15, 1996, First Source waived the covenant violations
that existed at December 31, 1995 and agreed to waive such violations
through June 1, 1996, provided the Company agrees to limit certain payments,
including principal payments on the subordinated notes, until the covenants
are amended. In addition, the Company and First Source agreed to
negotiate to amend the covenants so that the Company can reasonably expect to
be in compliance with such amended covenants based on its current operating
and cash flow budgets. It is the intent of both parties to accomplish this by
June 1, 1996.
F-16
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Note Payable and Long-Term Debt (continued)
Amounts outstanding under the agreement at December 31, 1995 are as follows:
Working capital note $ 1,865,604
-----------
-----------
Long-term revolving note $12,250,000
-----------
-----------
At December 31, 1995 the Company has approximately $1,100,000 available under
the commitment.
During the period ended December 31, 1995, $1,750,000 due on the
long-term revolving note was satisfied by borrowing $1,750,000 on the
working capital note.
Additionally, CBI has long-term notes payable of $89,420 outstanding at
December 31, 1995. The notes bear interest at 9.5%-12% and mature between
March 1997 and December 1999.
Aggregate maturities required on the long-term debt are due in future years as
follows:
1996 $ 3,527,862
1997 3,519,839
1998 3,514,158
1999 1,777,561
--------------
$ 12,339,420
--------------
--------------
Note 7. Preferred Stock
As a result of the reverse acquisition accounting treatment described in
Note 2 the preferred stock of CBH is presented as preferred stock of the
Company in the consolidated balance sheet.
The preferred stock is divided into two classes, one designated as Series
A and the other undesignated. The Series A preferred stockholders have an
aggregate of 6% of the votes of the outstanding shares of the common stock
of the Company. The other preferred stockholders have an aggregate of 10%
of the votes of the outstanding shares of the common stock of the Company.
Both classes of preferred stock contain the identical provisions as
described below.
In the event the Company is liquidated, no distributions shall be made to
the holders of shares of stock ranking junior to the preferred stock,
unless, prior thereto, the holders of shares of preferred stock shall
have received a liquidation preference payment of $1,000 per share plus all
accrued and unpaid dividends through the date of such payment. Also, until
all accrued and unpaid dividends and distributions on preferred stock have
been paid in full, the Company shall not declare or pay dividends on, make any
other distributions on, or redeem, purchase or otherwise acquire for
consideration any shares of stock ranking junior to the preferred stock.
F-17
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Preferred Stock (continued)
The preferred stock may be redeemed at the option of the Board of Directors
at a call price per share equal to its stated value plus any accrued and unpaid
dividends through the date of redemption. If no call has been made, the
Company is required to call the preferred stock for redemption at the
call price on a date not later than seven days after the closing of an
underwritten public offering on behalf of the Company.
The discount on preferred stock represents the excess of the aggregate
stated value of shares issued over the aggregate consideration received by the
Company upon issuance.
The Series A preferred stock was issued with a provision requiring the
Company to redeem the stock upon the tenth anniversary of its issuance.
Subsequent to December 31, 1995 the redemption provision was rescinded
with the approval of the holders of such stock. Because this redemption
provision was rescinded the Series A preferred stock is classified as
stockholders' equity at December 31, 1995.
Note 8. Major Customers
Sales for Ragar Corp. and the Predecessor Business include sales to, and
accounts receivable due from, the following major customers:
<TABLE>
<CAPTION>
Percent to Total
Percent to Total Sales Accounts Receivable
------------------------------------------------------ -------------------------------
Predecessor Business Ragar Corp.
--------------------------------- ------------- Predecessor
Ragar Corp. Year Ended Business
---------------- December 31, -------------
June 2, 1995 to January 1, to ------------- December 31, December 31,
Customer December 31 1995 June 1, 1995 1994 1993 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A 13% 10% 12% 11% 12% 10%
B 9% 8% 12% 10% 3% 3%
</TABLE>
Note 9. Advertising
Advertising expense consists of the following:
<TABLE>
<CAPTION>
Ragar Corp. Predecessor Business
--------------------- ---------------------------------------------------
June 1, 1995 to January 1, 1995 Years Ended December 31,
December 31, 1995 to June 1, 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C>
$ 314,558 $ 137,952 $ 465,104 $ 433,032
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Income Taxes
The provision for federal income taxes for the period ended December 31, 1995
is comprised of the following:
Current expense $ 218,979
Deferred tax expense 35,616
------------
$ 254,595
------------
------------
The $35,616 deferred tax liability at December 31, 1995 is the result of
temporary differences between the tax bases and reported amounts of
intangible assets.
Note 11. Loss on Sale of Securities of Predecessor Business
A summary of net losses on sales of securities (primarily foreign currency
contracts) of the Predecessor Business for the year ended December 31, 1994,
are as follows:
Gross gains $ 1,740,104
Gross losses (2,396,366)
-----------------
Net loss on sale of securities $ (656,262)
-----------------
-----------------
The Predecessor Business accounted for these securities at market value.
There were no open contracts at December 31, 1994 or 1993. The Successor
Business does not enter into foreign currency contracts.
Note 12. Commitments, Contingencies and Related Party Transactions
Related party lease commitments
The Company leases its premises from Realty under a noncancelable operating
lease expiring in May 1998. Future minimum rental payments under this lease
are as follows:
1996 $ 100,284
1997 100,284
1998 41,785
-----------------
$ 242,353
-----------------
-----------------
Total rent expense under this lease and month-to-month leases for the period
from inception to December 31, 1995 was $60,199.
F-19
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Commitments, Contingencies and Related Party Transactions (continued)
Employment agreements
The Company has entered into employment agreements with its Chief Operating
Officer (COO) and Chief Financial Officer (CFO). The COO's agreement,
expiring in July 1998, stipulates the annual salary and bonus to be paid. The
bonus is payable in cash and common stock of Ragar and is based in part on
the Company's attainment of certain operating goals. The CFO's agreement,
as amended, expires in June 2000 and stipulates the annual salary and bonus
to be paid, all of which is payable in cash, and is based in part on the
Company's attainment of certain operating goals.
In addition, the CFO, under terms of his employment agreement, purchased,
at $.001 per share, 871,500 shares of common stock of Ragar on June 1, 1995.
290,500 shares were deemed to be consideration to the CFO for services
provided prior to June 1, 1995 in connection with the acquisition of the
Predecessor Business. Such shares were deemed to be "founders shares" and
were considered to have been purchased at market value and therefore no
compensation expense is recognized in the consolidated financial statements in
connection with these shares.
Also pursuant to the employment agreement, the remaining 581,000 shares
(Escrow Shares) were deposited into an escrow account on June 1, 1995. All
dividends on and voting rights of the Escrow Shares belong to the Company
until such time as the Escrow Shares are released from escrow. Upon
the first anniversary of the CFO's employment and each of the following
four such anniversaries, 116,200 of the Escrow Shares will be released to the
CFO together with all rights and privileges thereto. In the event the
Company does not meet certain operating goals, as described in the
employment agreement, the Company has the right to repurchase those shares
at $.001 per share.
The Company will recognize compensation expense equal to the difference
between the aggregate market price when earned and the aggregate purchase
price of all Escrow Shares released to the CFO. Such compensation expense,
if any, will be recorded in the period in which the right to receive such
shares is earned. As of December 31, 1995, the CFO had not earned the right
to receive 68,122 of the Escrow Shares because the Company did not meet
certain operating goals described in the employment agreement during the
period from June 2, 1995 to December 31, 1995. Therefore, no compensation
expense relating to the Escrow Shares has been recognized in the period from
June 2, 1995 to December 31, 1995.
Consulting agreements
The Company has entered into month-to-month consulting agreements with
Branin Investments, Inc. (Branin), a principal shareholder of Ragar, PAH
Marketing Consultants, Inc. (PAH), a company controlled by the Chairman of
the Board and President of Ragar, and Capital Vision Group, Inc. (Capital),
a company controlled by a director and shareholder of Ragar, under which
the company receives management advisory services in the areas of
operations management, financing, and mergers and acquisitions. Pursuant
to these agreements the Company pays $35,000, $5,000 and $5,000 per month to
Branin, PAH and Capital, respectively. The Company terminated its
agreement with Capital in January 1996.
F-20
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Commitments, Contingencies and Related Party Transactions (continued)
Consulting agreements (continued)
Total consulting expense under these agreements for the period from
commencement of operations to December 31, 1995 was $315,000.
Related party note receivable
The Company has an unsecured note receivable of $279,536 at December 31,
1995 due from Realty. The note accrues interest at 10% per annum and is
payable in equal monthly installments, including interest, of $9,293 through
May 1998.
Branin Investments, Inc.
Branin Investments, Inc., which is 100% owned by the Chairman of the
Board and President of Ragar acted as advisor to the Company in certain
financing and equity transactions consummated concurrently with the
acquisition described in Note 2. The Company will pay fees to Branin, in
consideration of these advisory services of approximately $650,000,
representing 3% of the aggregate proceeds received by the Company from First
Source under the Credit Agreement described in Note 6 and 3% of the
aggregate proceeds from the Note offering and Preferred Stock Offering
described in Note 2. The fees are payable upon the consummation of an
underwritten public offering of common stock of the Company. There is no
guarantee such an underwritten public offering will be consummated,
therefore the financial statements do not contain any provision or liability
for these fees.
Predecessor Business Contingency
The Predecessor Business previously engaged an environmental consultant
who informed the Predecessor Business that contaminant levels at its
business location may exceed maximum levels established by The
Environmental Protection Agency. Management of the Predecessor Business
believes that it was not and has not been the source of the contaminants, if
any. In the absence of a conclusive finding concerning the source of and
the actual level of contamination, no accrual was made in the Predecessor
Business financial statements as of December 31, 1994.
The business location of the Predecessor Business was not acquired by the
Company in the exchange. The business location was acquired by Realty (see
Note 2) and leased to the Company under the operating lease agreement
described above. Subsequent to the acquisition, the Company obtained advice
from legal counsel that the Company would not become liable for the potential
contamination even if the Predecessor Business or Realty are found to be
liable.
F-21
<PAGE>
RAGAR CORP. AND SUBSIDIARIES
(A New York Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Cash Flow Information
The following schedule describes the Company's noncash investing and
financing activities for the period from June 2, 1995 to December 31, 1995.
Acquisition of net assets of Predecessor Business:
Ragar common stock and CBH preferred
stock issued for broker fee $ 500,000
Liabilities assumed 357,689
--------------
$ 857,689
--------------
--------------
Acquisition costs, incurred by related party
prior to commencement of operations, contributed
to Company $ 910,468
--------------
--------------
There were no significant noncash investing or financing activities of the
Predecessor Business during the period from January 1, 1995 to June 1, 1995
and the years ended December 31, 1994 and 1993.
F-22
<PAGE>
RAGAR CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
These pro forma financial statements reflect the June 2, 1995 acquisition by
Ragar Corp. (Ragar, the registrant) of Carpet Barn Holdings, Inc. (CBH) and its
wholly-owned subsidiary, Carpet Barn, Inc. (CBI), the issuance of debt and
preferred stock, and the concurrent acquisition by CBI of certain assets net of
assumed liabilities of Carpet Barn. The pro forma income statements are
presented as if the transactions occurred on January 1, 1995 and carried forward
through the year ended December 31, 1995.
For accounting purposes, the transaction is recorded as a reverse acquisition
with CBH and CBI as the accounting acquirer. In a reverse acquisition, the
accounting acquirer is treated as the surviving entity, even though the
registrant's legal existence does not change and the financial statements refer
to Ragar not CBH. The accounting acquirer treats the exchange as a purchase
acquisition. As a result, the exchange has been recorded using the historical
cost basis for the assets of CBH and CBI, as adjusted, and the estimated fair
values of Ragar assets and liabilities.
A further description of the exchange, nature and amount of consideration given
and pro forma adjustments follow the unaudited pro forma condensed combined
financial statements.
<PAGE>
<TABLE>
<CAPTION>
RAGAR CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
Ragar Corp. Carpet Barn, Inc.
Seven Months Five Months Pro Forma
Ended Ended Adjustment
December 31, 1995 June 1, 1995 (Note) Pro Forma
----------------- ----------------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $23,979,879 $16,362,727 $ - $40,342,606
Cost of sales 17,854,279 11,331,930 - 29,186,209
----------- ----------- ----------- -----------
Gross profit 6,125,600 5,030,797 - 11,156,397
Operating expenses 4,016,647 1,307,140 466,667 (1)(3) 5,790,454
----------- ----------- ----------- -----------
Operating income (loss) 2,108,953 3,723,657 (466,667) 5,365,943
Other income (expense), net (1,364,998) 13,487 (989,301)(2) (2,340,812)
----------- ----------- ----------- -----------
Income before income taxes 743,955 3,737,144 (1,455,968) 3,025,131
Provision for income taxes 254,595 - 773,950 (4) 1,028,545
----------- ----------- ----------- -----------
Net income (loss) $ 489,360 $ 3,737,144 $(2,229,918) $ 1,996,586
=========== =========== =========== ===========
Earnings per common share $ 0.02 $ 0.10
=========== =========== =========== ===========
Weighted average of
common share outstanding 14,583,163 14,583,163
=========== =========== =========== ===========
</TABLE>
<PAGE>
RAGAR CORP. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Description of Acquisition
Under the terms of an Agreement and Plan of Exchange, each shareholder of CBH
received 13,362.5 shares of Ragar Corp. common stock for each share of CBH's
common stock. Immediately following the exchange of stock, Ragar contributed
approximately $860,000 of additional capital to CBH.
Subsequent to CBH's stock exchange with Ragar, CBI executed an "Asset Purchase
Agreement" to acquire certain assets net of assumed liabilities of Carpet Barn
for a cash purchase price of $19,257,524. In addition, a $500,000 fee was paid
to an unaffiliated third party in connection with the acquisition through the
issuance of 500 shares of preferred stock and 21.978 shares of common stock of
CBH (subsequently converted in the stock exchange described in the preceding
paragraph, into 290,500 shares of common stock of Ragar Corp.). In order to
execute this Asset Purchase Agreement, CBI entered into a Credit Agreement with
First Source Financial, LLP, and obtained a $14,000,000 revolving note, due May
31, 1999, and a $3,000,000 working capital note, due May 31, 1997, which, under
certain criteria, may be extended through May 31, 1999. All borrowings under
the Credit Agreement are secured by substantially all of the assets of CBI and
the stock of CBH. Loan fees incurred as a result of the Credit Agreement
amounted to $402,000 and will be amortized over the term of the loan. As part
of this acquisition, CBI also entered into a consulting and restrictive covenant
agreement with the former owner of CBI for which it paid $575,000, which will be
amortized over the five year term of the agreement.
Nature and Amount of Consideration Given
The allocation of the purchase price adjusting to fair value the assets and
liabilities of Carpet Barn is as follows:
Consideration and liabilities assumed:
Cash paid $19,257,524
Liabilities assumed 357,689
Stock issued 500,000
-----------
$20,115,213
===========
Allocated to:
Tangible assets acquired (A) $ 3,074,177
Non-compete covenant 575,000
Cost in excess of net assets of business acquired 16,466,036
-----------
$20,115,213
===========
(A) - The tangible assets acquired and liabilities assumed have been
recorded at the Predecessor Business' respective carrying values
which approximated their fair values on the date of the acquisition.
In addition to the above amounts, approximately $1,007,000 in direct
acquisition costs were incurred by the Company and are recorded as costs in
excess of net assets of business acquired.
<PAGE>
RAGAR CORP. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Income Statement Pro Forma Adjustments for the Year Ended December 31, 1995
The pro forma adjustments associated with the combined income statement are as
follows:
(1) Non-compete covenant amortization 47,917
Loan fees amortization 33,500
Goodwill amortization 289,980
Debt issuance costs amortization 53,099
Organizational costs amortization 504
To record the estimated amortization expense for the period ended June 1, 1995,
of the non-compete covenant, loan fees, debt issuance costs and organizational
costs based upon the lives of each agreement, and to record the amortization of
goodwill over an estimated useful life of 25 years.
(2) Interest expense 989,301
To record estimated interest expense on notes payable, shareholder notes payable
and long-term debt for the period ended June 1, 1995.
(3) Rent expense 41,667
To record rent expense for the period ended June 1, 1995.
(4) Income tax expense 773,950
To adjust estimated income tax expense based on the pro forma results of
operations for the year ended December 31, 1995.
<PAGE>
Ragar Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Unaudited
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
================================================================================
<S> <C> <C>
Current Assets
Cash $ 326,268 $ 693,356
Accounts receivable, less allowance for
doubtful accounts 1996 $60,000, 1995 $44,000 3,297,098 3,467,282
Inventory 547,121 638,295
Current portion of related party note receivable 145,256 132,800
Prepaid expenses 99,296 61,637
<CAPTION>
- --------------------------------------------------------------------------------
Total current assets 4,415,040 4,993,370
- --------------------------------------------------------------------------------
Related party note receivable, less current portion 122,322 146,736
Property and equipment, net 428,846 415,738
Intangibles assets, net 18,248,599 18,528,647
- -------------------------------------------------------------------------------
$ 23,214,808 $ 24,084,491
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
================================================================================
Current Liabilities
Subordinated notes payable $ 548,855 $ 515,422
Note payable 2,241,001 1,865,604
Current maturities of long-term debt 3,530,000 3,527,862
Accounts payable 1,147,959 1,799,764
Accrued expenses 419,165 448,835
Customer deposits 700,788 592,496
- --------------------------------------------------------------------------------
Total current liabilities 8,592,869 8,749,983
- --------------------------------------------------------------------------------
Deferred income taxes 49,112 35,616
Long-term debt, less current maturities 7,953,461 8,811,558
- --------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock, $0.01 par value ($1,000
stated value); 12% Cummulative; 5,500 shares
authorized; 4,140 shares issued and outstanding 4,140,000 4,140,000
Discount on preferred stock (1,283,571) (1,283,571)
Common stock, $0.001 par value;
120,000,000 shares authorized;
issued and outstanding 1995 14,932,145
shares; 1996 14,987,145 shares 14,987 14,932
Additional paid-in-capital 3,344,953 3,330,008
Retained earnings 408,098 285,965
- --------------------------------------------------------------------------------
6,624,467 6,487,334
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 23,214,808 $ 24,084,491
================================================================================
See Notes to Consolidated Financial Statements
3
<PAGE>
Ragar Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 and 1995
Unaudited
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
Predecessor
Ragar Corp. Business
================================================================================
<S> <C> <C>
Sales $ 9,764,955 $ 9,147,284
Costs of sales 7,087,047 6,296,347
- --------------------------------------------------------------------------------
Gross profit 2,677,908 2,850,937
- --------------------------------------------------------------------------------
Selling, general and administrative expenses:
Related party consulting fees 125,000 --
Related party rent expense 25,071 --
Other 1,409,823 824,632
- --------------------------------------------------------------------------------
1,559,894 824,632
- --------------------------------------------------------------------------------
Amortization and depreciation 316,546 8,518
- --------------------------------------------------------------------------------
Operating income 801,468 2,017,787
Other income (expense):
Miscellaneous income 4,509 7,906
Interest expense (429,993) (3,875)
- --------------------------------------------------------------------------------
Income before taxes 375,984 2,021,818
Provision for income taxes 129,650 --
- --------------------------------------------------------------------------------
Net income $ 246,333 $ 2,021,818
================================================================================
Net income per common share $ 0.01
================================================================================
Unaudited Proforma Information:
Net income before taxes $ 2,021,818
Proforma income tax expense 687,418
- --------------------------------------------------------------------------------
Proforma net income after taxes $ 1,334,400
================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
Ragar Corp. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY-SUCCESSOR BUSINESS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
Unaudited
<TABLE>
<CAPTION>
Common Stock
Preferred Stock Discount -------------------------------------
------------------------ on Preferred Additional Retained
Shares Dollars Stock Shares Dollars Paid-in-Capital Earnings Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 4,140 $ 4,140,000 $ (1,283,571) 14,932,145 $ 14,932 $ 3,330,008 $ 285,965 $ 6,487,334
Common stock issued - - - 55,000 55 14,945 - 15,000
Dividends paid - - - - - - (124,200) (124,200)
Net income - - - - - - 246,333 246,333
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 4,140 $ 4,140,000 $ (1,283,571) 14,987,145 $ 14,987 $ 3,344,953 $ 408,098 $ 6,624,467
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
Ragar Corp. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY-PREDECESSOR BUSINESS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
Unaudited
Shares Retained
Outstanding Dollars Earnings Total
================================================================================
Balance, December 31, 1994 100 $ 50,000 $ 737,780 $ 787,780
Dividends paid -- -- (1,100,000) (1,100,000)
Net income -- -- 2,021,818 2,021,818
- --------------------------------------------------------------------------------
Balance, March 31, 1995 100 $ 50,000 $ 1,659,598 $ 1,709,598
================================================================================
See Notes to Consolidated Financial Statements
6
<PAGE>
Ragar Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Unaudited
<TABLE>
<CAPTION>
1996 1995
---- ----
Predecessor
Ragar Corp. Business
================================================================================
<S> <C> <C>
Cash flows from Operating Activities
Cash received from customers $ 10,049,458 $ 9,096,407
Cash paid to suppliers and employees (9,402,430) (7,921,892)
Interest paid (6,028) (3,875)
Miscellaneous income received 4,509 7,906
- --------------------------------------------------------------------------------
Net cash provided by operating activities 645,509 1,178,546
- --------------------------------------------------------------------------------
Cash flows from Investing Activities
Purchase of equipment (24,162) --
- --------------------------------------------------------------------------------
Net cash used in investing activities (24,162) --
- --------------------------------------------------------------------------------
Cash flows from Financing Activities
Net advances to related parties 11,228 --
Principal payments on long-term debt (6,404) --
Payments on notes payable (869,059) --
Cash dividends paid (124,200) (1,100,000)
- --------------------------------------------------------------------------------
Net cash used in financing activities (988,435) (1,100,000)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash (367,088) 78,546
Cash, beginning 693,356 665,393
- --------------------------------------------------------------------------------
Cash, ending $ 326,268 $ 743,939
================================================================================
Reconciliation of Net Income to Net Cash Provided
By Operating Activities
Net income $ 246,233 $ 2,021,818
Depreciation 36,498 8,518
Amortization 280,047 --
Accretion of discount on subordinated
notes payable 33,434 --
Deferred income taxes 14,226 --
Provision for bad debts 16,000 --
Interest on long-term debt and notes
added to note payable 369,456 --
Changes in assets and liabilities
Decrease in accounts receivable 154,184 61,107
(Increase) decrease in inventory 91,174 (108,761)
Increase in deposits and prepaids (37,659) (987)
Decrease in accounts payable (651,805) (662,108)
Increase (decrease) in customer deposits 108,292 (111,984)
Decrease in accrued expenses (14,671) (29,057)
- --------------------------------------------------------------------------------
Net cash provided by operating activities $ 645,509 $ 1,178,546
================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Capital lease obligation incurred for the use
of equipment $ 25,445 $ --
================================================================================
Issuance of Common Stock in lieu of finders fee
and advance $ 165,000 $ --
================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
RAGAR CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of Business
Ragar Corp. (Successor Business, Ragar, or Company) was organized under the laws
of the State of New York on July 19, 1988. Ragar Corp. had substantially no
operations prior to its exchange, on June 2, 1995, in a reverse acquisition with
Carpet Barn Holdings, Inc. (CBH), which was organized under the laws of the
State of Delaware on May 26, 1995 (see Note 2). CBH and its wholly owned
subsidiary, Carpet Barn, Inc. (CBI), a Delaware corporation, were formed for the
purpose of acquiring the assets and operations of Carpet Barn, Inc., a Nevada
corporation (Predecessor Business), a retail carpet sales and installation
outlet located in Las Vegas, Nevada. The Company began operations on June 2,
1995, the date of the acquisition, as described in Note 2.
The Company is also related, through common ownership, to C.B. Realty of
Delaware, Inc. (Realty).
The Company sells floor coverings, primarily carpet, to the new home and retail
replacement markets primarily in southern Nevada.
A summary of the Company's significant accounting policies follows. Unless
specifically discussed, the accounting policies apply to Ragar (and its
subsidiaries) and the Predecessor Business.
The results of operations of the Company are not comparable to those of the
Predecessor Business, due primarily to the amortization of intangible assets and
interest expense incurred on the acquisition debt. Comparisons to the quarter
ended March 31, 1995, refer to the operations of the Predecessor Business. Also,
the Predecessor Business' financial statements contain no provision for income
taxes.
Basis of Presentation
On June 2, 1995, the Company acquired all of the common stock of CBH in an
exchange (the Exchange) by the holders of such common stock for newly issued
common stock of the Company, representing 91% of the Company's common stock
outstanding after the Exchange. For financial reporting and accounting purposes,
the exchange was recorded as a reverse acquisition, with CBH as the accounting
acquirer. In a reverse acquisition, the accounting acquirer is treated as the
surviving entity, even though the registrant's legal existence does not change
and the financial statement titles refer to the Company, not the accounting
acquirer. The accounting acquirer treats the Exchange as a purchase acquisition.
As a result, the historical financial information presented is CBH's and not the
Company's as previously reported. The operating results of the Company are
included with CBH after June 2, 1995, the date of the Exchange. See Note 2 for a
further discussion of the Exchange.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for the complete financial
statements. In management's opinion, the accompanying consolidated financial
statements reflect all material adjustments (consisting only of normal recurring
accruals) necessary for a fair statement of the results for the interim periods
presented. The results for the interim period ended March 31, 1996, are not
necessarily indicative of the results which will be reported for the entire
year.
The opening stockholders' equity of CBH was retroactively restated to give
effect to the impact of the exchange as if CBH has been recapitalized. As a
result, the preferred stock of CBH is presented as preferred stock of the
Company.
8
<PAGE>
RAGAR CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Principles of consolidation:
The Successor Business consolidated financial statements include the accounts of
the Company and its subsidiaries CBH and CBI. All material intercompany accounts
and transactions have been eliminated in consolidation.
Cash
During the periods presented, the Company and the Predecessor Business
maintained cash balances, which at times, were in excess of federally insured
limits. At March 31, 1996 the Company's cash balances were maintained at
financial institutions in Nevada and Illinois.
Inventory
Inventory consists primarily of carpet and vinyl and is stated at the lower of
cost (first-in, first-out method) or market.
Property and equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided on the straight line and accelerated methods for
financial reporting purposes using estimated useful lives of five to forty
years.
Intangibles
Cost in excess of net assets of the business' acquired in connection with the
Company's acquisitions (see Note 2) is being amortized by the straight-line
method over twenty-five years. The Company periodically reviews the value of its
goodwill to determine if an impairment has occurred. The Company does not
believe that an impairment of its goodwill has occurred based on an evaluation
of operating income, cash flows and business prospects.
The Company incurred financing costs related to the bank financing obtained in
connection with the acquisition of the Predecessor Business (see Note 2). These
costs are being amortized on the effective interest method over the term of the
debt.
The Company also entered into a covenant not-to-compete in connection with the
acquisition of Predecessor Business (see Note 2). The covenant is being
amortized on the straight-line method over the five-year term of the agreement.
Income taxes
The Company provides for deferred taxes on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.
9
<PAGE>
RAGAR CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Advertising
Advertising costs are expensed as incurred.
Earnings per common share
Earnings per common share is calculated based on the weighted average number of
common shares outstanding during the period and the net income less preferred
stock dividends accrued for the period. There were no common stock equivalents
outstanding during the periods presented.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expense during the reporting period. Actual
results could differ from those estimates.
Fair value of financial instruments
The carrying values of financial instruments including cash, accounts
receivables, subordinated notes payable, note payable, accounts payable and
accrued expenses approximate their fair values because of their short
maturities.
The carrying values of long-term debt and the related party note receivable
approximate their fair values because the interest rates on these instruments
are at market interest rates.
Note 2. Acquisitions
On June 2, 1995, the Company acquired all of the common stock of CBH in an
exchange by the holders of such common stock for 13,362,500 newly issued shares
of common stock of the Company, representing 91% of the Company's common stock
outstanding after the Exchange. Ragar had no operations prior to the acquisition
of the Predecessor Business. Its only asset was approximately $860,000 of cash
and it had immaterial liabilities.
Concurrent with CBH's exchange with the Company, CBI executed an Asset Purchase
Agreement to acquire certain assets net of assumed liabilities of the
Predecessor Business for a cash purchase price of $19,257,524. The acquisition
was accounted for as a purchase.
10
<PAGE>
RAGAR CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Pro Forma Financial Information
Unaudited pro forma results of operations of the Company assuming the
acquisitions occurred on January 1, 1995 and carried forward through March 31,
1996 are presented below. Pro forma adjustments made to the historical results
of operations consist principally of the amortization of intangible assets,
interest expense related to acquisition financing and income taxes.
Three Months Ended March 31,
----------------------------
1996 1995
============================
Net sales $ 9,764,955 $ 9,147,284
Gross profit 2,677,908 2,850,937
Net income 246,233 840,975
Net income per common share 0.01 0.05
The net income per common share was computed based on the 14,932,142 weighted
average common shares outstanding during the period ended March 31, 1996.
The above pro forma information does not purport to be indicative of the results
of operations that would have occurred had the acquisitions occurred on January
1, 1995 and is not intended to be a projection or indicative of future results.
Note 4. Subsequent Event
On May 9, 1996, CBH issued 520 shares of preferred stock, raising $520,000. The
preferred stock pays cumulative dividends, payable monthly, at the annual rate
of 12% of the stated value thereof. In connection with the issuance of the
preferred stock, the Company issued 148,571 shares of Common Stock. The holders
of such preferred stock have the right to vote on all matters as a single class
with the holders of the CBH Common Stock, and in the aggregate have votes equal
to 6% of the total voting power of CBH. The preferred stock is redeemable upon
an underwritten public offering of the Company. The proceeds were used to make
principal payments on CBH's subordinated debt.
11
<PAGE>
================================================================
No person is authorized in connection with any offering made hereby to give any
information or to make any representation not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the shares of Common Stock offered hereby, nor does it constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby to any person in any jurisdiction in which it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any date
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
Page
Prospectus Summary..........................................
Risk Factors ...............................................
Use of Proceeds.............................................
Price Range of Common Stock.................................
Dividend Policy.............................................
Capitalization..............................................
Selected Historical Financial Data..........................
Management's Discussion and
Analysis of FinancialCondition
and Results of Operations.................................
Business....................................................
Management..................................................
Certain Transactions........................................
Principal and Selling Shareholders..........................
Description of Capital Stock................................
Shares Eligible for Future Sale.............................
Plan of Distribution........................................
Legal Matters...............................................
Experts.....................................................
Available Information.......................................
Index to Financial Statements...............................
================================================================
================================================================
1,605,716 Shares
RAGAR CORP.
Common Stock
------------------
PROSPECTUS
______________, 1996
============================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses incurred by the Company in connection with
this Offering are:
SEC registration fee............................. $2,089
Accounting fees and expenses*.................... 15,000
Legal fees and expenses*......................... 150,000
Printing costs*.................................. 10,000
Blue sky fees and expenses*...................... 20,000
Transfer agent's fees*........................... 2,500
Miscellaneous*................................... 411
-----------
Total.................................... $ 200,000
-----------
-----------
* Estimated.
Item 14. Indemnification of Directors and Officers.
Sections 722 and 726 of the New York Business Corporation Law
(the "BCL") grant the Company broad powers to indemnify and insure its
directors and officers against liabilities they may incur in such capacities.
In accordance therewith, the Company's Certificate of Incorporation (the
"Charter") and by-laws provide for the fullest indemnification of an officer or
director of the Company under the BCL. The Charter also eliminates liability
for monetary damages for any breach of directors' duty to the Company and its
shareholders, provided that such breach does not result from (a)(i) an act or
omission in bad faith, (ii) intentional misconduct or (iii) a knowing violation
of law, (b) a transaction from which a director derived a personal benefit or
financial gain to which the director was not entitled, or (c) the approval of
dividends, stock repurchases, asset distribution or loans to directors in
violation of the BCL.
Item 15. Recent Sales of Unregistered Securities.
Since December 15, 1992, the Company has sold unregistered
securities in the amounts, at the time and for the aggregate amounts of
consideration listed as follows:
(a) On September 23, 1994, the Company sold an aggregate
of 1,000,000 shares of Common Stock to 114 persons in a private placement, for
an aggregate consideration of $1,000,000.
(b) On June 2, 1995, the Company issued an aggregate of
13,217,750 shares of Common Stock to 10 holders of CBH Common Stock in the
Exchange.
(c) In November and December 1995, the Company issued an
aggregate of 407,145 shares of Common Stock to 34 purchasers of 12% preferred
stock of CBH.
(d) In January 1996, the Company issued 5,000 shares of
Common Stock to Herman Jeffer as a fee in connection with an advance to the
Company.
(e) In January 1996, the Company issued 50,000 shares of
Common Stock to Elliot H. Vernon as a finders fee.
II-1
<PAGE>
(f) In May 1996, the Company issued an aggregate of 148,571
shares of Common Stock to six purchasers of 12% preferred stock of CBH.
The above transactions were made in reliance upon the
exemption from the registration provisions under the Securities Act contained
in Section 4(2) thereof.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
2.1 Agreement and Plan of Exchange, dated as of June 1, 1995,
among the Company, Carpet Barn Holdings, Inc. ("CBH") and
the holders of common stock of CBH (incorporated by
reference from Exhibit 1 of the Company's Report on Form 8-K
(June 2, 1995) (the "June Form 8-K").
2.2 Asset Purchase Agreement, dated as of June 1, 1995, between
Carpet Barn Acquisition Corp. ("CBAC") and Carpet Barn, Inc.
("Carpet Barn") (incorporated by reference from Exhibit 3 of
the June Form 8-K).
2.3 Amendment, dated June 1, 1995, to Asset Purchase Agreement
(incorporated by reference from Exhibit 4 of the June Form
8-K).
3.1 Certificate of Incorporation, dated July 19, 1988, of the
Company (incorporated by reference from Exhibit 3(a) of the
Company's Registration Statement on Form S-18 (33-29942-NY)
filed October 20, 1989 (the "1989 Registration Statement").
3.2 By-laws of the Company (incorporated by reference from
Exhibit 3(b) of the Registration Statement).
3.3 Amended and Restated Certificate of Incorporation of CBH
(incorporated by reference from Exhibit 3.3 of the Company's
Annual Report on Form 10-K for the period ended December 31,
1995 (the "Form 10-K")).
3.4 Certificate of Amendment to Amended and Restated Certificate
of Incorporation of CBH (incorporated by reference from
Exhibit 3.4 of the Form 10-K).
** 5 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.
9.1 Voting Trust Agreement, dated May 30, 1995, between Philip
A. Herman and certain shareholders of the Company
(incorporated by reference from Exhibit 2 of the June Form
8-K).
10.1 Secured Credit Agreement, dated as of June 1, 1995,
between CBAC and with First Source Financial LLP
("First Source") (incorporated by reference from
Exhibit 5 of the June Form 8-K).
II-2
<PAGE>
10.2 Pledge Agreement, dated as of June 1, 1995, among CBH, CBAC
and First Source (incorporated by reference from Exhibit 9
of the June Form 8-K).
10.3 Guaranty, dated as of June 1, 1995, by CBH in favor of First
Source (incorporated by reference from Exhibit 10 of the
June Form 8-K).
10.4 Revolving Note, dated June 1, 1995, between CBAC and First
Source (incorporated by reference from Exhibit 6 of the June
Form 8-K).
10.5 Working Capital Note, dated June 1, 1995, between CBAC and
First Source (incorporated by reference from Exhibit 7 of
the June Form 8-K).
10.6 Security Agreement, dated June 1, 1995, between CBAC and
First Source (incorporated by reference from Exhibit 8 of
the June Form 8-K).
10.7 Terms of preferred stock, par value $.01 per share, stated
value $1,000 per share, of CBH (incorporated by reference
from Exhibit 12 of the June Form 8-K).
10.8 Employment Agreement, dated as of July 28, 1995, between CBI
and Steven Chesin (incorporated by reference from Exhibit 1
of the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1995 (the "June 1995 Form 10-Q).
10.9 Employment Agreement, dated as of June 1, 1995, between CBI
and Mark Szporka incorporated by reference from Exhibit 2 of
the June 1995 Form 10-Q).
10.10 Amendment, dated June 1, 1995, to employment agreement
between CBAC and Mark Szporka (incorporated by reference
from Exhibit 3 of the June 1995 Form 10-Q).
10.10.1 Amendment, dated March 6, 1996, to employment agreement
between CBAC and Mark Szporka (incorporated by reference
from Exhibit 10.11 of the Form 10-K).
10.11 Form of Promissory Note issued in the offering of short-term
notes of CBH (incorporated by reference from Exhibit 11 of
the June Form 8-K).
10.12 Lease, dated June 1, 1995, between C.B. Realty of Delaware,
Inc. ("CB Realty") and CBAC (incorporated by reference from
Exhibit 10.13 of the Form 10-K).
10.13 First Amendment to Lease Agreement, dated August 1, 1995,
between CB Realty and CBAC (incorporated by reference from
Exhibit 10.14 of the Form 10-K).
10.14 Promissory Note, dated June 1, 1995 from CB Realty in favor
of CBAC (incorporated by reference from Exhibit 10.15 of the
Form 10-K).
II-3
<PAGE>
16 Letter from Scott & Guilfoyle (incorporated by reference
from Exhibit 1 of the Company's Report on Form 8-K (August
1, 1995)).
21 List of Subsidiaries of the Company.
23.1 Consent of McGladrey & Pullen, LLP.
24.1 Power of Attorney (contained in the signature page hereto).
- ----------------
** To be filed by amendment.
Item 17. Undertakings.
(a) Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
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
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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 Companywill, 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 Securities Act and will be governed by the final
adjudication of such issue.
(b) The Company hereby undertakes that:
(1) for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Company
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; and
(2) for the purposes of determining liability under the Securities
Act, 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 the time shall be deemed to be the initial
bona fide offering thereof.
(c) The 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-4
<PAGE>
(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.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement on Form S-1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State
of New York, on the 31st day of May, 1996.
RAGAR CORP.
By: /s/ Philip A. Herman
Philip A. Herman
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Titles Date
<S> <C> <C>
/s/ Philip A. Herman Chairman of the Board and President May 31, 1996
--------------------------
Philip A. Herman
* Director May 31, 1996
-----------------------------------
Michael Mindlin
* Director May 31, 1996
-----------------------------------
Gary Peiffer
Director
-----------------------------------
Lawrence Fleischman
* Director May 31, 1996
------------------------------------
Facundo Bacardi
* Chief Financial Officer (Principal May 31, 1996
----------------------------------- Financial and Accounting Officer)
Mark Szporka
*By: /s/ Philip A. Herman
Philip A. Herman
Power of Attorney
</TABLE>
<PAGE>
Exhibit Index
Exhibit Name Page
2.1 Agreement and Plan of Exchange, dated as of June 1,
1995, among the Company, Carpet Barn Holdings, Inc.
("CBH") and the holders of common stock of CBH
(incorporated by reference from Exhibit 1 of the
Company's Report on Form 8-K (June 2, 1995) (the "June
Form 8-K").
2.2 Asset Purchase Agreement, dated as of June 1, 1995,
between Carpet Barn Acquisition Corp. ("CBAC") and
Carpet Barn, Inc. ("Carpet Barn") (incorporated by
reference from Exhibit 3 of the June Form 8-K).
2.3 Amendment, dated June 1, 1995, to Asset Purchase
Agreement (incorporated by reference from Exhibit 4 of
the June Form 8-K).
3.1 Certificate of Incorporation, dated July 19, 1988, of
the Company (incorporated by reference from Exhibit 3(a)
of the Company's Registration Statement on Form S-18
(33-29942-NY) filed October 20, 1989 (the "1989
Registration Statement").
3.2 By-laws of the Company (incorporated by reference from
Exhibit 3(b) of the Registration Statement).
3.3 Amended and Restated Certificate of Incorporation of CBH
(incorporated by reference from Exhibit 3.3 of the
Company's Annual Report on Form 10K for the period ended
December 31, 1995 (the "Form 10-K")).
3.4 Certificate of Amendment to Amended and Restated
Certificate of Incorporation of CBH (incorporated by
reference from Exhibit 3.4 of the Form 10-K).
**5 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.
9.1 Voting Trust Agreement, dated May 30, 1995, between
Philip A. Herman and certain shareholders of the Company
(incorporated by reference from Exhibit 2 of the June
Form 8-K).
10.1 Secured Credit Agreement, dated as of June 1, 1995,
between CBAC and with First Source Financial LLP ("First
Source") (incorporated by reference from Exhibit 5 of
the June Form 8-K).
10.2 Pledge Agreement, dated as of June 1, 1995, among CBH,
CBAC and First Source (incorporated by reference from
Exhibit 9 of the June Form 8-K).
10.3 Guaranty, dated as of June 1, 1995, by CBH in favor of
First Source (incorporated by reference from Exhibit 10
of the June Form 8-K).
10.4 Revolving Note, dated June 1, 1995, between CBAC and
First Source (incorporated by reference from Exhibit 6
of the June Form 8-K).
10.5 Working Capital Note, dated June 1, 1995, between CBAC
and First Source (incorporated by reference from Exhibit
7 of the June Form 8-K).
10.6 Security Agreement, dated June 1, 1995, between CBAC and
First Source (incorporated by reference from Exhibit 8
of the June Form 8-K).
<PAGE>
Exhibit Name Page
10.7 Terms of preferred stock, par value $.01 per share,
stated value $1,000 per share, of CBH (incorporated by
reference from Exhibit 12 of the June Form 8-K).
10.8 Employment Agreement, dated as of July 28, 1995, between
CBI and Steven Chesin (incorporated by reference from
Exhibit 1 of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1995 (the "June 1995
Form 10-Q).
10.9 Employment Agreement, dated as of June 1, 1995, between
CBI and Mark Szporka incorporated by reference from
Exhibit 2 of the June 1995 Form 10-Q).
10.10 Amendment, dated June 1, 1995, to employment agreement
between CBAC and Mark Szporka (incorporated by reference
from Exhibit 3 of the June 1995 Form 10-Q).
10.10.1 Amendment, dated March 6, 1996, to employment agreement
between CBAC and Mark Szporka (incorporated by reference
from Exhibit 10.11 of the Form 10-K).
10.11 Form of Promissory Note issued in the offering of
short-term notes of CBH (incorporated by reference from
Exhibit 11 of the June Form 8-K).
10.12 Lease, dated June 1, 1995, between C.B. Realty of
Delaware, Inc. ("CB Realty") and CBAC (incorporated by
reference from Exhibit 10.13 of the Form 10-K)
10.13 First Amendment to Lease Agreement, dated August 1,
1995, between CB Realty and CBAC (incorporated by
reference from Exhibit 10.14 of the Form 10-K).
10.14 Promissory Note, dated June 1, 1995 from CB Realty in
favor of CBAC (incorporated by reference from Exhibit
10.15 of the Form 10-K).
16 Letter from Scott & Guilfoyle (incorporated by reference
from Exhibit 1 of the Company's Report on Form 8-K
(August 1, 1995)).
21 List of Subsidiaries of the Company.
23.1 Consent of McGladrey & Pullen, LLP.
24.1 Power of Attorney (contained in the signature page hereto).
** To be filed by amendment.
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Ragar Corporation
Las Vegas, Nevada
We hereby consent to the use in Amendment No. 1 to the Registration Statement on
Form S-1 of our report dated February 9, 1996, relating to the consolidated
balance sheet of Ragar Corp. and subsidiaries (Successor Business) as of
December 31, 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the period from commencement of
operations (June 2, 1995) to December 31, 1995. We also consent to the use in
Amendment No. 1 to the Registration Statement on Form S-1 of our report dated
February 9, 1996 relating to the balance sheet of Carpet Barn, Inc., a Nevada
corporation (Predecessor Business), as of December 31, 1994 and the related
statements of income, stockholder's equity and cash flows for the period from
January 1, 1995 to June 1, 1995, and for the years ended December 31, 1994 and
1993.
/s/ McGladrey & Pullen, LLP
Las Vegas, Nevada
May 31, 1996
