<PAGE>
NATIONS FLOORING, INC.
(A DELAWARE CORPORATION)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
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 stockholders' equity--Predecessor Business........... F-6
Consolidated statements of cash flows.......................................... F-7-F-8
Notes to consolidated financial statements..................................... F-9-F-20
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS............................... F-21
Pro forma Consolidated Income Statement........................................ F-22
Notes to unaudited pro form condensed financial statements..................... F-23-F-24
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Consolidated balance sheets.................................................... F-25
Consolidated statements of income.............................................. F-26
Consolidated statements of cash flows.......................................... F-27-F28
Notes to unaudited consolidated financial statements........................... F-29-F34
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Nations Flooring, Inc.
(A Delaware Corporation)
New York, New York
We have audited the accompanying consolidated balance sheet of Nations
Flooring, Inc. 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 Nations Flooring Inc. 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.
- ----------------------------
McGladrey & Pullen, LLP
Las Vegas, Nevada
February 9, 1996, except for the second paragraph in Note 6
as to which the date is April 15, 1996 and the last paragraph
in Note 7 as to which the date is March 31, 1996 and the
last two paragraphs under basis of presentation in Note 1
as to which the date is January , 1997
The above form of auditors report represents the form of report that
McGladrey & Pullen, LLP would be willing to issue assuming the consummation of
the merger pursuant to which the Company will reincorporate in Delaware, change
its name to Nations Flooring, Inc. and effect a one-to-four reverse stock split
of the Company's common stock, all as described in Note 1, had taken place. The
merger is expected to occur prior to the effective date of the Company's planned
offering of 2,000,000 common shares.
/s/ McGladrey & Pullen, LLP
- ----------------------------
McGladrey & Pullen, LLP
Las Vegas, Nevada
January 15, 1997
F-2
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED BALANCE SHEETS
DECEMEBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
PREDECESSOR NATIONS
BUSINESS FLOORING, INC.
--------------- ----------------
DECEMBER 31, DECEMBER 31,
1994 1995
--------------- ----------------
<S> <C> <C>
ASSETS (Note 6)
Current Assets
Cash.................................................. $ 665,393 $ 693,356
Accounts receivable, less allowance for doubtful
accounts 1994 $81,316, 1995 $44,000................. 1,687,732 3,467,282
Inventory............................................. 373,918 638,295
Current portion of related party note receivable (Note
12)................................................. -- 132,800
Prepaid Expenses...................................... -- 61,637
--------------- ----------------
Total current assets.............................. $ 2,727,043 $ 4,993,370
--------------- ----------------
Related party note receivable, less current portion
(Note 12)............................................. -- 146,736
Property and equipment, net (Note 3).................... 447,098 415,738
Intangible assets, net (Notes 2 and 4).................. -- 18,528,647
--------------- ----------------
$ 3,174,141 $ 24,084,491
--------------- ----------------
--------------- ----------------
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)......... 21,130 3,527,862
Accounts payable...................................... 1,133,175 1,799,764
Accrued expenses...................................... 323,478 448,835
Customer deposits..................................... 734,694 592,496
--------------- ----------------
Total current liabilities......................... $ 2,212,477 $ 8,749,983
--------------- ----------------
Deferred Income Taxes (Note 10)......................... -- 35,616
Long-Term Debt, less current maturities (Note 6)........ $ 173,884 $ 8,811,558
--------------- ----------------
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 3,733,036 shares..... 3,733
Common stock, Predecessor Business, no par value,
authorized 2,500 shares; issued and outstanding 100
shares.............................................. 50,000 --
Additional paid-in capital............................ -- 3,341,207
Retained earnings..................................... 737,780 285,965
--------------- ----------------
$ 787,780 $ 6,487,334
--------------- ----------------
$ 3,174,141 $ 24,084,491
--------------- ----------------
--------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NATIONS
PREDECESSOR BUSINESS FLOORING,
----------------------------------- INC.
-----------
YEARS ENDED DECEMBER JAN. 1, JUN. 2,
31, 1995 TO 1995 TO
---------------------- JUN. 1, DEC. 31,
1993 1994 1995 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales (Note 8)........................... $34,529,604 $42,506,987 1$6,362,727 2$3,979,879
Cost of sales............................ 24,931,339 31,549,360 11,331,930 17,854,279
---------- ---------- ----------- -----------
Gross profit....................... $9,598,265 $10,957,627 $5,030,797 $6,125,600
Selling, general and administrative
expenses:
Related party consulting fee (Note
12).................................. $ -- $ -- $ -- $ 315,000
Related party rent expense (Note 12)... -- -- -- 60,199
Compensation to owner of Predecessor
Business............................. 5,550,000 2,030,000 0 0
Other (Note 9)......................... 2,927,520 3,351,414 1,292,945 2,961,977
---------- ---------- ----------- -----------
$8,477,520 $5,381,414 $1,292,945 $3,337,176
---------- ---------- ----------- -----------
Amortization and depreciation............ 24,957 28,442 14,195 679,471
---------- ---------- ----------- -----------
Operating income................... $1,095,788 $5,547,771 $3,723,657 $2,108,953
Other income (expense):
Miscellaneous income................... $ 43,267 $ 44,681 $ 19,892 $ 20,024
Interest expense....................... (17,810) (16,414) (6,405) (1,385,022)
Loss on sale of securities (Note 11)... -- (656,262) -- --
Loss on disposal of equipment.......... (7,424) (31,435) -- --
---------- ---------- ----------- -----------
Income before taxes...................... $1,113,821 $4,888,341 $3,737,144 $ 743,955
Provision for income taxes (Note 10)..... $ -- $ -- $ -- $ 254,595
---------- ---------- ----------- -----------
Net income......................... $1,113,821 $4,888,3341 $3,737,144 $ 489,360
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income applicable to common shares... $ 285,965
Net income per common share.............. $ 0.08
-----------
-----------
Unaudited Proforma Information (Note 2):
Net income before taxes................ $1,113,821 $4,888,341 $3,737,144
Proforma income tax expense............ 378,699 1,662,036 1,270,629
---------- ---------- -----------
Proforma net income after taxes.......... $ 735,122 $3,226,305 $2,466,515
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY--SUCCESSOR BUSINESS
COMMENCEMENT OF OPERATIONS (JUNE 2, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK (NOTE 1)
-------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DISCOUNT ON ADDITIONAL
PREFERRED SHARES PAID-IN RETAINED
SHARES DOLLARS STOCK OUTSTANDING DOLLARS CAPITAL EARNINGS
----------- --------- -------------- ----------- ----------- ------------- ---------
Issuance of common stock for
initial capitalization......... -- -- -- 209 2 925,055 --
Recapitalization/exchange
including issuance of common
stock for acquisition costs of
$910,468 (Note 2).............. -- -- -- 3,631,042 3,629 2,077,120 --
Issuance of preferred stock (Note
7)............................. 3,320 3,320,000 (1,036,509) -- -- -- --
Preferred stock issuance costs... -- -- -- -- -- (96,810) --
Exchange of subordinated debt for
preferred stock (Note 5)....... 820 820,000 (247,062) -- -- -- --
Issuance of common stock......... -- -- -- 43,214 43 188,839 --
Exchange of subordinated debt for
common stock (Note 5).......... -- -- -- 58,571 59 247,003 --
Net income....................... -- -- -- -- -- -- 489,360
Preferred stock dividend ($70.00
per share)..................... -- -- -- -- -- -- (203,395)
Balance, December 31, 1995....... 4,140 4,140,000 (1,283,571) 3,733,036 3,733 3,341,207 285,965
----- --------- -------------- ----------- ----- ------------- ---------
----- --------- -------------- ----------- ----- ------------- ---------
<CAPTION>
<S> <C>
TOTAL
---------
Issuance of common stock for
initial capitalization......... 925,057
Recapitalization/exchange
including issuance of common
stock for acquisition costs of
$910,468 (Note 2).............. 2,080,749
Issuance of preferred stock (Note
7)............................. 2,283,491
Preferred stock issuance costs... (96,810)
Exchange of subordinated debt for
preferred stock (Note 5)....... 572,938
Issuance of common stock......... 188,882
Exchange of subordinated debt for
common stock (Note 5).......... 247,062
Net income....................... 489,360
Preferred stock dividend ($70.00
per share)..................... (203,395)
Balance, December 31, 1995....... 6,487,334
---------
---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE 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 OUTSTANDING DOLLARS RETAINED 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................................ -- -- (5,353,092) (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>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NATIONS
PREDECESSOR BUSINESS FLOORING,
----------------------------------- INC.
-----------
YEARS ENDED DECEMBER JAN. 1, JUN. 2,
31, 1995 TO 1995 TO
---------------------- JUNE 1, DEC. 31,
1993 1994 1995 1995
---------- ---------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Cash received from customers........... $34,249,214 $42,803,429 $15,378,509 $23,148,474
Cash paid to suppliers & employees..... (33,088,745) (36,757,286) (13,629,493) (19,203,758)
Interest paid.......................... (17,810) (16,414) (6,405) (130,171)
Income taxes paid...................... -- -- -- (374,000)
Miscellaneous income received.......... 43,267 44,681 19,892 20,024
---------- ---------- ----------- -----------
Net cash provided by operating
activities....................... $1,185,926 $6,074,410 $ 1,762,503 $ 3,460,569
---------- ---------- ----------- -----------
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........ 3,350 -- 72,076 19,000
Purchase of equipment.................. (20,261) (62,052) -- (108,237)
---------- ---------- ----------- -----------
Net cash provided by (used in)
investing activities............. $ (16,911) $ (718,314) $ 72,076 $(19,989,571)
---------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs.................... $ -- $ -- $ -- $ (912,619)
Proceeds from issuance of stock in
connection with capitalization of
company.............................. -- -- -- 1,784,220
Proceeds form long-term debt........... -- -- -- 14,000,000
Principal payments on long-term debt... (17,136) (18,532) (8,156) (8,102)
Proceeds from subordinated notes
payable.............................. -- -- -- 1,569,364
Principal payment on subordinated notes
payable.............................. -- -- -- (560,000)
Proceeds from issuance 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.................... (917,510) (5,352,092) (2,400,000) (161,995)
---------- ---------- ----------- -----------
Net cash provided by (used in)
financing activities............. $ (934,646) $(5,370,624) $(2,408,156) $17,222,358
---------- ---------- ----------- -----------
Net Increase (Decrease) in Cash.... $ 234,369 $ (14,528) $ (573,577) $ 693,356
Cash, beginning........................ $ 445,552 $ 679,921 $ 665,393 $ --
---------- ---------- ----------- -----------
Cash, ending........................... $ 679,921 $ 665,393 $ 91,816 $ 693,356
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
F-7
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NATIONS
PREDECESSOR BUSINESS FLOORING,
----------------------------------- INC.
-----------
YEARS ENDED DECEMBER JAN. 1, JUN. 2,
31, 1995 TO 1995 TO
---------------------- JUNE 1, DEC. 31,
1993 1994 1995 1995
---------- ---------- ----------- -----------
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net Income............................. $1,113,821 $4,888,341 $ 3,737,144 $ 489,360
Depreciation........................... 24,957 28,442 14,195 44,121
Amortization........................... -- -- -- 635,858
Accretion of discount on subordinated
notes payable........................ -- -- -- 326,058
Deferred income taxes.................. -- -- -- 35,616
Provision for bad debts................ 95,723 -- 5,633 44,000
Interest added to note payable......... -- -- -- 790,795
Loss on sale of securities............. -- 656,262 -- --
Loss on disposal of equipment.......... 7,424 31,435 -- --
Changes in assets and liabilities
(Increase) decrease in accounts
receivable......................... $ (770,253) $ 342,098 $ (603,294) $(1,060,247)
(Increase) decrease in inventory..... 22,900 (141,066) (87,620) (161,757)
Increase in prepaids................. -- -- -- (61,637)
Increase (decrease) in accounts
payable............................ 262,264 234,123 (599,153) 1,746,045
Increase (decrease) in customer
deposits........................... 394,140 (45,656) (380,924) 228,842
Increase (decrease) in accrued
expenses........................... 34,950 80,431 (323,478) 403,515
---------- ---------- ----------- -----------
Net cash provided by operating
activities........................... $1,185,926 $6,074,410 $ 1,762,503 $ 3,460,569
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE 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.
The Company is conducting a public offering of 2,000,000 shares of common
stock. An agreement of merger and equity restructuring has been approved by
management, and a proxy statement circulated for shareholder approval. Upon
approval, the merger will be consummated, which is expected to occur prior to or
concurrent with the effective date of the public offering. The agreement
provides for the merger of the Company with and into Nations Flooring, Inc., (a
newly formed Delaware corporation which is a wholly owned subsidiary of the
Company and which will be the surviving corporation of the merger). Through the
merger, the Company will reincorporate in Delaware. The agreement provides that
all assets, liabilities,
F-9
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
property, rights, and obligations of the Company would be transferred to and
assumed by Nations Flooring, Inc.
In the merger, each four (4) shares of the Company's common stock will be
exchanged for one (1) share of Nations Flooring, Inc. common stock. The effect
of this exchange will be similar to a one-to-four reverse stock split of the
Company. Accordingly, all references to shares of the Company's common stock in
the accompanying financial statements and footnotes have been restated to
reflect this one-to-four reverse stock split as though it had occurred June 2,
1995.
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:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and equipment................................................................ 7
Autos and trucks....................................................................... 5
Building............................................................................... 40
Building improvements.................................................................. 40
</TABLE>
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.
F-10
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
approximate 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.
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.
SUPPLEMENTAL NET INCOME PER COMMON SHARE
The supplemental net income per common share has been calculated using the
number of shares used to calculate net income per common share, plus the effect
of the estimated shares to be issued in the Company's planned Offering
(1,018,930) which would be necessary to fund the repayment of $6,190,000 of the
First Source indebtedness, plus the effect of the estimated shares to be issued
in the Offering (767,078) which would be necessary to redeem $4,660,000 of
preferred stock issued by CBH. Interest expense related to the reduction of
indebtedness was $313,369 for the period June 2, 1995 to December 31, 1995, and
$537,204 for the year ended December 31, 1995 on a pro forma basis. Supplemental
net income per common share was $0.11 for the period June 2, 1995 to December
31, 1995, respectively and $0.40 for the year ended December 31, 1995 on a pro
forma basis.
F-11
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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 or the services received. 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 3,340,625 newly issued shares
of common stock of the Company,
F-12
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITIONS (CONTINUED)
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.
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 72,625 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>
<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.
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
F-13
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITIONS (CONTINUED)
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 agreement 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
<S> <C> <C>
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.................................... $ 0.40 $ 0.24
</TABLE>
The net income per common share was computed based on the 3,713,291 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.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1995:
<TABLE>
<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.
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 58,571 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:
<TABLE>
<S> <C>
Face value........................................................ $ 560,000
Unamortized discount.............................................. (44,578)
---------
$ 515,422
---------
---------
</TABLE>
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. NOTE 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
F-15
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
being amortized using the effective interest method over the approximate 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
approximate 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.
Amounts outstanding under the agreement at December 31, 1995 are as follows:
<TABLE>
<S> <C>
Working capital note........................................... $1,865,604
----------
----------
Long-term revolving note....................................... $12,250,000
----------
----------
</TABLE>
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:
<TABLE>
<S> <C>
1996........................................................... $3,527,862
1997........................................................... 3,519,839
1998........................................................... 3,514,158
1999........................................................... 1,777,561
----------
$12,339,420
----------
----------
</TABLE>
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.
F-16
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. PREFERRED STOCK (CONTINUED)
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.
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 Nations Flooring, Inc. and the Predecessor Business include sales
to, and accounts receivable due from, the following major customers:
<TABLE>
<CAPTION>
PERCENT TO
PERCENT TO TOTAL SALES TOTAL ACCOUNTS
------------------------------------------------------ RECEIVABLE
---------------
NATIONS PREDECESSOR BUSINESS
FLOORING, INC. ------------------------------------- NATIONS
--------------- YEAR ENDED DECEMBER FLOORING, INC.
JUNE 2, 1995 TO 31, ---------------
DECEMBER 31, JANUARY 1, TO -------------------- DECEMBER 31,
CUSTOMER 1995 JUNE 1, 1995 1994 1993 1995
- ----------------------------------------------- --------------- --------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
A.............................................. 13% 10% 12% 11% 12%
B.............................................. 9% 8% 12% 10% 3%
<CAPTION>
PREDECESSOR
BUSINESS
---------------
DECEMBER 31,
CUSTOMER 1994
- ----------------------------------------------- ---------------
<S> <C>
A.............................................. 10%
B.............................................. 3%
</TABLE>
NOTE 9. ADVERTISING
Advertising expense consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
NATIONS FLOORING, -----------------------------------------
INC. YEARS ENDED DECEMBER
- -------------------- JANUARY 1, 1995 31,
JUNE 1, 1995 TO TO ----------------------
DECEMBER 31, 1995 JUNE 1, 1995 1994 1993
- -------------------- ----------------- ---------- ----------
<S> <C> <C> <C>
$ 314,558 $ 137,952 $ 465,104 $ 433,032
-------- -------- ---------- ----------
-------- -------- ---------- ----------
</TABLE>
F-17
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. INCOME TAXES
The provision for federal income taxes for the period ended December 31,
1995 is comprised of the following:
<TABLE>
<S> <C>
Current expense................................................... $ 218,979
Deferred tax expense.............................................. 35,616
---------
$ 254,595
---------
---------
</TABLE>
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:
<TABLE>
<S> <C>
Gross gains..................................................... $1,740,104
Gross losses.................................................... (2,396,366)
----------
Net loss on sale of securities............................ $ (656,262)
----------
----------
</TABLE>
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:
<TABLE>
<S> <C>
1996.............................................................. $ 100,284
1997.............................................................. 100,284
1998.............................................................. 41,785
---------
$ 242,353
---------
---------
</TABLE>
Total rent expense under this lease and month-to-month leases for the period
from inception to December 31, 1995 was $60,199.
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
F-18
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
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, 217,875 shares of common stock of Ragar on June 1, 1995. 72,625
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 145,250 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, 29,050 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
17,030 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.
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.
F-19
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
BRANIN INVESTMENTS
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.
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:
<TABLE>
<S> <C>
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
---------
---------
</TABLE>
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-20
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
CARPET BARN,
INC. NATIONS FLOORING,
FIVE MONTHS INC.
ENDED SEVEN MONTHS ENDED PRO FORMA
JUNE 1, 1995 DECEMBER 31, 1995 ADJUSTMENT (NOTE) PRO FORMA
---------------- -------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Sales.................................. $ 16,362,727 $ 23,979,879 $ -- $ 40,342,606
Cost of sales.......................... 11,331,930 17,854,279 -- 29,186,209
---------------- -------------------- ----------------- -------------
Gross Profit........................... $ 5,030,797 $ 6,125,600 $ -- $ 11,156,397
Operating expenses..................... $ 1,307,140 $ 4,016,647 $ 466,667 ( )(3 $ 5,790,454
---------------- -------------------- ----------------- -------------
Operating income (loss).......... $ 3,723,657 $ 2,108,953 $ (466,667) $ 5,365,943
Other income (expense), net............ $ 13,487 $ (1,364,998) $ (989,301)(2) $ (2,340,812)
---------------- -------------------- ----------------- -------------
Income before income taxes....... $ 3,737,144 $ 743,955 $ (1,455,968) $ 3,025,131
Provision for income taxes............. $ -- $ 254,595 $ 773,950(4) $ 1,028,545
---------------- -------------------- ----------------- -------------
Net income (loss)................ $ 3,737,144 $ 489,360 $ (2,229,918) $ 1,996,586
---------------- -------------------- ----------------- -------------
---------------- -------------------- ----------------- -------------
Earnings per common share.............. $ -- $ 0.08 $ -- $ 0.40
---------------- -------------------- ----------------- -------------
---------------- -------------------- ----------------- -------------
Weighted average of common shares
outstanding.......................... $ -- $ 3,645,791 $ -- $ 3,645,791
</TABLE>
F-22
<PAGE>
NATIONS FLOORING, INC. 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 72,625 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:
<TABLE>
<S> <C>
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
----------
----------
</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-23
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
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:
<TABLE>
<S> <C> <C>
(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
</TABLE>
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.
<TABLE>
<S> <C> <C>
(2) Interest expense.............................................. 989,301
</TABLE>
To record estimated interest expense on notes payable, shareholder notes
payable and long-term debt for the period ended June 1, 1995.
<TABLE>
<S> <C> <C>
(3) Rent expense.................................................. 41,667
</TABLE>
To record rent expense for the period ended June 1, 1995.
<TABLE>
<S> <C> <C>
(4) Income tax expense............................................ 773,950
</TABLE>
To adjust estimated income tax expense based on the pro forma results of
operations for the year ended December 31, 1995.
F-24
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................................... $ 693,356 $ 471,519
Accounts receivable, less allowance for doubtful accounts 1995 $44,000,
1996 $71,924............................................................ 3,467,282 3,690,207
Due from principal shareholder............................................ -- 125,000
Inventory................................................................. 638,295 828,211
Current portion of related party note receivable.......................... 132,800 159,095
Prepaid Expenses.......................................................... 61,637 122,281
----------------- ------------------
Total current assets.................................................. $ 4,993,370 $ 5,396,313
----------------- ------------------
Related party note receivable............................................... 146,736 71,633
Property and equipment, net................................................. 415,738 468,118
Intangible assets, net...................................................... 18,528,647 17,741,197
----------------- ------------------
$ 24,084,491 $ 23,677,261
----------------- ------------------
----------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Subordinated notes payable................................................ $ 515,422 $ --
Note payable (Note 4)..................................................... 1,865,604 2,846,765
Credit facility (Note 4).................................................. 9,625,000
Current maturities of long-term debt (Note 4)............................. 3,527,862 31,000
Accounts payable.......................................................... 1,799,764 1,635,212
Due to principal shareholder.............................................. -- 403,000
Accrued expenses.......................................................... 448,835 423,029
Customer deposits......................................................... 592,496 1,173,566
----------------- ------------------
Total current liabilities (Note 4).................................... $ 8,749,983 $ 16,137,572
----------------- ------------------
Deferred Income Taxes (Note 10)............................................. 35,616 93,212
Long-Term Debt, less current maturities (Note 4)............................ 8,811,558 100,175
----------------- ------------------
Stockholders' Equity (Notes 6 and 7)
Preferred stock, 12% cumulative, $.01 par value, $1,000 stated value;
authorized 5,500 shares; issued and outstanding, 1995 4,140 shares 1996
4,660 shares............................................................ $ 4,140,000 $ 4,660,000
Discount on preferred stock............................................... (1,283,571) (1,445,916)
Common stock, $.001 par value, authorized 120,000,000 shares; issued, 1995
3,733,036 shares 1996 3,787,647 shares.................................. 3,733 3,788
Additional paid-in capital................................................ 3,341,207 3,518,497
Retained earnings......................................................... 285,965 615,743
----------------- ------------------
6,487,334 7,352,112
----------------- ------------------
Less cost of treasury stock (145,250 shares) (Note 5)....................... -- 5,810
----------------- ------------------
$ 6,487,334 $ 7,346,302
----------------- ------------------
Total liabilities and stockholder's equity............................ $ 24,084,491 $ 23,677,261
----------------- ------------------
----------------- ------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-25
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
PREDECESSOR NATIONS FLOORING
BUSINESS INC. NATIONS FLOORING
JANUARY 1, 1995 TO JUNE 2, 1995 TO INC.
JUNE 1, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------- ------------------- -------------------
<S> <C> <C> <C>
Sales............................................ $ 16,362,727 $ 13,526,471 $ 31,303,170
Cost of sales.................................... 11,331,930 10,133,551 22,796,823
------------------- ------------------- -------------------
Gross profit............................... $ 5,030,797 $ 3,392,920 $ 8,506,347
Selling, general and administrative expense:
Related party consulting fees.................. -- 180,000 335,000
Related party rent expense..................... -- 33,428 75,213
Other.......................................... 1,292,945 1,585,760 4,948,487
------------------- ------------------- -------------------
1,292,945 1,799,188 5,358,700
------------------- ------------------- -------------------
Amortization and depreciation.................... 14,195 372,481 902,118
------------------- ------------------- -------------------
Operating income........................... $ 3,723,657 $ 1,221,251 $ 2,245,529
Other income (expense):
Miscellaneous income........................... 19,892 $ 30,544 14,388
Interest expense............................... (6,405) (615,136) (1,149,482)
------------------- ------------------- -------------------
Income before taxes.............................. 3,737,144 636,659 1,110,435
------------------- ------------------- -------------------
Income taxes..................................... -- 218,603 382,057
------------------- ------------------- -------------------
Net income................................. $ 3,737,144 $ 418,056 $ 728,378
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Net income applicable to common shares........... 309,456 329,778
Net income per common share...................... 0.09 0.09
Unaudited Proforma Information:
Net income before taxes........................ $ 3,737,144
Proforma income tax expense.................... 1,270,629
-------------------
Proforma net income after taxes.................. $ 2,466,515
-------------------
-------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-26
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
PREDECESSOR NATIONS FLOORING,
BUSINESS INC. NATIONS FLOORING,
------------------- -------------------- INC.
JANUARY 1, 1995 TO JUNE 2, 1995 TO --------------------
JUNE 1, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------- -------------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers.................... $ 15,378,509 $ 13,465,812 $ 31,536,314
Cash paid to suppliers and employees............ (13,629,493) (10,497,020) (28,369,329)
Interest paid................................... (6,405) (77,937) (96,988)
Income taxes paid............................... -- (264,000) (138,000)
Miscellaneous income received................... 19,892 44,212 14,388
------------------- -------------------- --------------------
Net cash provided by operating activities... $ 1,762,503 $ 2,671,067 $ 2,946,385
------------------- -------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances to related parties................. $ -- $ (304,026) $ (90,992)
Acquisition cost expenditures................... -- (46,166) (15,339)
Payments for acquisition of net assets of
Predecessor Business.......................... -- (19,257,524) --
Payments for acquisition of net assets of
Steve's Floor Covering, Inc................... -- (266,722) --
Proceeds from sale of equipment................. 72,076 19,000 --
Purchase of equipment........................... -- (81,954) (112,457)
------------------- -------------------- --------------------
Net cash provided by (used in) investing
activities................................ 72,076 $ (19,937,392) $ (218,788)
------------------- -------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs............................. -- (897,034) --
Proceeds form issuance of stock in connection
with capitalization of company................ -- 1,864,925 --
Purchase of treasury stock...................... -- -- (5,810)
Proceeds from long-term debt.................... -- 14,000,000 --
Principal payments on long-term debt............ (8,156) -- (17,497)
Proceeds from subordinated notes payable........ -- 1,569,364 --
Principal payment on subordinated notes
payable....................................... -- -- (560,000)
Proceeds from issuance of preferred and common
stock......................................... -- 1,523,473 520,000
Proceeds from note payable...................... -- 1,152,532 --
Payments on note payable........................ -- (1,454,480) (2,720,527)
Cash dividends paid............................. (2,400,000) (107,695) (165,600)
------------------- -------------------- --------------------
Net cash provided by (used in) financing
activities................................ (2,408,156) 17,651,085 (2,949,434)
------------------- -------------------- --------------------
Net increase (decrease) in cash............. (573,577) 384,760 (221,837)
------------------- -------------------- --------------------
Cash, beginning................................. $ 665,393 $ -- $ 693,356
------------------- -------------------- --------------------
Cash, ending.................................... $ 91,816 $ 384,760 $ 471,519
------------------- -------------------- --------------------
------------------- -------------------- --------------------
</TABLE>
F-27
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
PREDECESSOR NATIONS FLOORING,
BUSINESS INC. NATIONS FLOORING,
------------------- -------------------- INC.
JANUARY 1, 1995 TO JUNE 2, 1995 TO --------------------
JUNE 1, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------- -------------------- --------------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING EXPENSES:
Net income...................................... $ 3,737,144 $ 418,056 $ 728,378
Depreciation.................................... 14,195 15,110 119,329
Amortization.................................... -- 357,498 802,789
Accretion of discount on subordinated notes..... -- 123,546 44,578
Deferred income taxes........................... -- 22,000 57,596
Provision for bad debts......................... 5,633 20,000 46,000
Interest on long-term debt and notes added to
note payable.................................. -- 401,226 1,076,688
Changes in Assets and Liabilities:
Increase in accounts receivable............... (603,294) (491,033) (393,925)
(Increase) Decrease in inventory.............. (87,620) 21,991 (189,916)
Increase in prepaid expenses.................. -- (27,235) (60,644)
Increase (Decrease) in accounts payable....... (599,153) 1,010,061 238,449
Increase (Decrease) in customer deposits...... (380,924) 333,964 581,069
Increase (Decrease) in accrued expenses....... (323,470) 466,083 (104,006)
------------------- -------------------- --------------------
Net cash provided by operating activities... $ 1,762,503 $ 2,671,067 $ 2,946,385
------------------- -------------------- --------------------
------------------- -------------------- --------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-28
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING PRACTICES
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. 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. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for 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 September
30, 1996, are not necessarily indicative of the results which will be reported
for the entire year.
The Company is conducting a public offering of 2,000,000 shares of common
stock. An agreement of merger and equity restructuring has been approved by
management, and a proxy statement circulated for shareholder approval. Upon
approval, the merger will be consummated, which is expected to occur prior to
F-29
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING PRACTICES (CONTINUED)
or concurrent with the effective date of the public offering. The agreement
provides for the merger of the Company with and into Nations Flooring, Inc., (a
newly formed Delaware corporation which is a wholly owned subsidiary of the
Company and which will be the surviving corporation of the merger). Through the
merger, the Company will reincorporate in Delaware. The agreement provides that
all assets, liabilities, property, rights, and obligations of the Company would
be transferred to and assumed by Nations Flooring, Inc.
In the merger, each four (4) shares of the Company's common stock will be
exchanged for one (1) share of Nations Flooring, Inc. common stock. The effect
of this exchange will be similar to a one to four reverse stock split of the
Company. Accordingly, all references to shares of the Company's common stock in
the accompanying financial statements and footnotes have been restated to
reflect this one to four reverse stock split as though it had occurred (June 2,
1995).
The opening stockholders' equity of CBH was 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.
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 September 30, 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 seven
years.
INTANGIBLES
Cost in excess of the net assets of the businesses 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
F-30
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING PRACTICES (CONTINUED)
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
approximate term of the debt (See Note 4).
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.
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 reported
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash, accounts
receivable, subordinated notes payable, note payable, credit facility, 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.
F-31
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING PRACTICES (CONTINUED)
SUPPLEMENTAL NET INCOME PER COMMON SHARE
The supplemental net income per common share has been calculated using the
number of shares used to calculate net income per common share, plus the effect
of the estimated shares to be issued in the Company's planned Offering
(1,018,930) which would be necessary to fund the repayment of $6,190,000 of the
First Source indebtedness, plus the effect of the estimated shares to be issued
in the Offering (767,078) which would be necessary to redeem $4,660,000 of
preferred stock issued by CBH. Interest expense related to the reduction of
indebtedness was $313,369 for the period June 2, 1995 to December 31, 1995, and
$537,204 for the year ended December 31, 1995 on a pro forma basis. Supplemental
net income per common share was $0.11 for the period June 2, 1995 to December
31, 1995, respectively and $0.40 for the year ended December 31, 1995 on a pro
forma basis.
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 3,340,625 newly issued shares
of common stock of the Company, representing 92% 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.
On July 28, 1995, the Company purchased substantially all of the assets of
Steve's Floor Covering, Inc. for approximately $267,000.
NOTE 3. PROFORMA FINANCIAL INFORMATION
Unaudited pro forma results of operations for the nine months ended
September 30, 1995 of the Company assuming the acquisitions occurred on January
1, 1995 and carried forward through September 30, 1995 are presented below.
Proforma 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.
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
Net sales...................................................................... $ 29,889,198
Gross margin................................................................... 8,423,717
Net income..................................................................... 2,077,219
Net income per common share.................................................... 0.52
</TABLE>
The net income per common share is based on the 3,631,250 weighted average
common shares outstanding during the nine month period ended September 30, 1995.
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.
F-32
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4. CREDIT AGREEMENT AND WORKING CAPITAL DEFICIT
Concurrent with its acquisition of the Predecessor Business, the Company
entered into a Credit Agreement with First Source Financial, LLP (First Source)
under which the Company obtained a $14,000,000 credit facility 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. The Credit Agreement contains
covenants requiring CBI to maintain minimum levels of tangible net worth,
working capital and various financial ratios. The agreement also limits payments
from CBI to CBH and limits dividends, redemptions and purchases of capital stock
of CBI, CBH and the Company. 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.
During the period from June 2, 1995 (commencement of operations) through
September 30, 1996 the Company has violated the following covenants: 1) adjusted
net worth at June 30, 1995, 2) quarterly and annual interest coverage ratios. On
April 15, 1996 First Source waived, through June 1, 1996, the covenant
violations occurring prior to that time and agreed to negotiate in good faith to
amend such covenants by June 1, 1996 so that the Company could reasonably expect
to be in compliance with the amended covenants based on its operating and cash
flow budgets. In connection with obtaining the waiver, the Company agreed to
limit certain payments including principal payments of CBH's subordinated debt,
with the exception that such payments could be made from the proceeds of newly
acquired capital, if any.
The Company had certain discussions with First Source in an effort to amend
such covenants but was unable to reach an agreement with First Source. The
discussions are not continuing at present, and the Company believes that the
covenants are not likely to be amended. Moreover, the waiver period has not been
extended beyond June 1, 1996, and, therefore, the Company has been in violation
of the covenants since June 1, 1996. To date, First Source has still allowed the
Company to borrow up to the full capacity under the original terms of the Credit
Agreement and the Company has received no indication from First Source that it
intends to exercise its right under the Credit Agreement to accelerate the
maturity of the debt. Based on its current cash flow projections, the Company
believes it will be able to make payments required under the Credit Agreement
from cash generated from operations. However, there can be no assurance in this
regard.
Because First Source has maintained its right to accelerate the maturity of
the debt due to the covenant violations, the Company has classified the debt as
current on the September 30, 1996 consolidated balance sheet.
The Company is currently exploring other financing options which are
available to it. The Company is currently having discussions with several other
lenders in this regard. However, there can be no assurance that the Company will
be able to obtain alternate financing or that such financing will be on similar
or favorable terms. If First Source chooses to accelerate the maturity of the
debt or if the Company were to obtain alternate financing, certain unamortized
debt acquisition costs classified as intangible assets would be charged to
expense. Such unamortized debt acquisition costs totaled $588,500 at September
30, 1996. Additionally, the Credit Agreement contains a prepayment penalty
clause requiring the Company to pay up to 2% of the then applicable revolving
loan commitment, as defined in the Credit Agreement, if the Company chooses to
terminate the Credit Agreement prior to May 31, 1999.
F-33
<PAGE>
NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5. CONTINGENCIES
On September 5, 1996, the Nevada Department of Employment, Training and
Rehabilitation notified the Company that it had changed the status of the
Company's floorcovering installers from independent contractors to employees,
subjecting the Company to unemployment tax obligations with respect to such
installers. The Company maintains that these installers are not employees of the
Company but rather independent contractors and, as such, the Company is not
subject to payment of unemployment taxes with regard to these installers. The
Company is vigorously defending its position, but, if the Company does not
prevail in this regard, it may be required to make payments to compensate for
not paying these taxes in the past and may also be subject to future payment of
these taxes for these installers.
The Company's Chief Financial Officer (CFO) was terminated by the Company in
August, 1996. In connection with such termination, the Company has for $5,810
repurchased 145,250 shares of Common Stock held in escrow pursuant to the former
CFO's employment agreement. The former CFO has commenced a suit against the
Company alleging wrongful and unlawful termination. The Company and its legal
counsel believe it has meritorious defenses to such allegations, and the Company
intends to defend the matter vigorously. The ranges of possible loss for the
above contingencies has not been determined; therefore, no liability has been
recorded in the financial statements.
F-34
<PAGE>
2,000,000 SHARES
NATIONS FLOORING, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
UNDERWRITING AGREEMENT
February __, 1997
CHATFIELD DEAN & CO., INC.
As Representatives of the
several Underwriters
7935 East Prentice Avenue
Suite 200
Greenwood Village, CO 80111
Dear Sirs:
1. INTRODUCTION. Nations Flooring, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters"), for which Chatfield Dean & Co., Inc. and
____________ are acting as Representatives (the "Representatives"), an aggregate
of 2,000,000 shares of the Company's Common Stock, par value $0.001 per share
(the "Common Stock"). The 2,000,000 shares of Common Stock to be sold by the
Company are referred to herein as the "Firm Shares." The Company also proposes
to issue and sell to the several Underwriters an aggregate of not more than
300,000 additional shares of Common Stock (the "Additional Shares"), if
requested by the Underwriters in accordance with Section 9 hereof. The Firm
Shares and the Additional Shares are collectively referred to herein as the
"Shares." The words "you" and "your" refer to the Representatives of the
Underwriters.
The Company also proposes to issue and sell to the Representatives in their
individual capacity the warrants referred to in Section 3 hereof to purchase up
to 200,000 shares of Common Stock (the "Warrants").
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The Company hereby agrees with the several Underwriters as follows:
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents, warrants and agrees with each of the
Underwriters that:
(i) A registration statement on Form S-1 (Registration No.
333- ____) under the Securities Act of 1933 as amended (the "Act"), with
respect to the Shares, including a form of prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Act and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder (the "Rules and
Regulations"). Such registration statement has been filed with the
Commission under the Act, and one or more amendments to such registration
statement may also have been so filed. After the execution of this
Agreement, the Company shall file with the Commission either (A) if such
registration statement, as it may have been amended, has been declared by
the Commission to be effective under the Act, either (x) if the Company
relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Shares, that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (y) if
the Company does not rely on Rule 434 under the Act, a prospectus in the
form most recently included in an amendment to such registration statement
filed with the Commission (or, if no such amendment shall have been filed,
in such registration statement), with such insertions and changes as are
required by Rule 430A under the Act or permitted by Rule 424(b) under the
Act, in the case of either clause (x) or (y) of this sentence, as shall
have been provided to and approved by the Representatives prior to the
filing thereof, or (B) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Act, an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Representatives prior to the filing thereof. As used in this
Agreement, the term "Registration Statement" means such registration
statement, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto; the Registration
Statement shall be deemed to include any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term
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"Preliminary Prospectus" means each prospectus subject to completion
contained in such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto or filed pursuant to
Rule 424(a) under the Act at the time it was or is declared effective); and
the term "Prospectus" means the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no prospectus is required to
be filed pursuant to said Rule 424(b), such term means (A) if the Company
relies on Rule 434 under the Act, the Term Sheet relating to the Shares
that is first filed pursuant to Rule 424(b)(7) under the Act, together with
the Preliminary Prospectus identified therein that such Term Sheet
supplements; (B) if the Company does not rely on Rule 434 under the Act,
the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act; or (C) if the Company does not rely on Rule 434 under the
Act, the prospectus included in the Registration Statement; and the "Term
Sheet" means any term sheet that satisfies the requirements of Rule 434
under the Act. Reference made herein to any Preliminary Prospectus or the
Prospectus shall be deemed to include all documents and information
incorporated by reference therein. Any reference herein to the "date" of
a Prospectus that includes a Term Sheet shall mean the date of such Term
Sheet.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus and has not instituted or
threatened to institute any proceedings with respect to such an order.
When any Preliminary Prospectus was filed with the Commission it
(A) complied in all material respects with the requirements of the Act and
the Rules and Regulations and (B) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (A) complied or will
comply in all material respects with the requirements of the Act and the
Rules and Regulations and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. When the Prospectus or any
Term Sheet that is a part thereof and when any amendment or supplement to
the Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if
the Prospectus or any part thereof or such amendment or supplement is not
required to be so filed, when the Registration Statement and when any
amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and at all times subsequent
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thereto up to and including the Closing Date (as defined in Section 3
hereof) and the Option Closing Date (as defined in Section 9 hereof), the
Prospectus, as amended or supplemented at any such time, (A) complied or
will comply in all material respects with the requirements of, the Act and
the Rules and Regulations and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing provisions of
this paragraph (ii) shall not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon,
and in conformity with, information furnished in writing to the Company by
or on behalf of the Underwriters through the Representatives expressly for
use therein.
(iii) Each of the Company and its subsidiaries set forth on
Schedule II hereto, which schedule sets forth all of the Company's
subsidiaries on the date hereof (the "Subsidiaries"), (A) is a duly
incorporated and validly existing corporation in good standing under the
laws of its jurisdiction of incorporation, with full power and authority
(corporate and other) to own or lease its properties and to conduct its
business as described in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus); and (B) is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction (x) in which the
conduct of its business requires such qualification (except for those
jurisdictions in which the failure so to qualify has not had and will not
have a Material Adverse Effect (as hereinafter defined)) and (y) in which
it owns or leases property. "Material Adverse Effect" means, when used in
connection with the Company or its Subsidiaries, any development, change or
effect that is materially adverse to the business, properties, assets, net
worth, condition (financial or other), results of operations or prospects
of the Company and its Subsidiaries taken as a whole.
(iv) The Company had the duly authorized and validly
outstanding capitalization set forth under the caption "Capitalization" in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) as of the date of the table thereunder and on the
Closing Date and the Option Closing Date will have the adjusted
capitalization set forth therein as of the date of the table thereunder,
based on the assumptions set forth
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therein. The securities of the Company conform in all material respects to
the descriptions thereof contained in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus). The
outstanding shares of Common Stock have been duly authorized and validly
issued by the Company and are fully paid and nonassessable. Except as
created hereby or referred to in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there are no
outstanding options, warrants, rights or other arrangements requiring the
Company or any Subsidiary at any time to issue any capital stock. No
holders of outstanding shares of capital stock of the Company are entitled
as such to any preemptive or other rights to subscribe for any of the
Shares and neither the filing of the registration statement nor the
offering or sale of the Shares as contemplated by this Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to, the registration of any securities of the Company. The Shares
have been duly authorized; on the Closing Date or the Option Closing Date
(as the case may be), after payment therefor in accordance with the terms
of this Agreement, (A) the Firm Shares and the Additional Shares to be sold
by the Company hereunder will be validly issued, fully paid and
nonassessable, and (B) good and marketable title to the Shares will pass to
the Underwriters on the Closing Date or the Option Closing Date (as the
case may be) free and clear of any lien, encumbrance, security interest,
claim or other restriction whatsoever. The Common Stock to be issued upon
exercise of the Warrants, when issued and delivered pursuant to the
Warrants, will be duly authorized, validly issued, fully paid and
nonassessable and free of any preemptive rights. All the outstanding
shares of capital stock of each Subsidiary has been duly authorized and
validly issued, are fully paid and nonassessable and are owned directly by
the Company or another Subsidiary, free and clear of any lien, encumbrance,
security interest or claim. The Company has received, subject to notice of
issuance, approval to have the Shares quoted on the National Market System
of the National Association of Securities Dealers' Automated Quotation
System and the Company knows of no reason or set of facts which is likely
to adversely affect such approval.
(v) The consolidated financial statements and the related
notes and schedules thereto included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the consolidated financial
condition, results of operations, shareholders' equity and cash flows of
the Company and its Subsidiaries at the dates and for the periods specified
therein. The financial
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statements and related notes and schedules of Carpet Barn, Inc. ("Carpet
Barn") thereto included in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) fairly present the results of operations of Carpet Barn at the
dates and for the periods specified therein. Such financial statements
and the related notes and schedules thereto have been prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved (except as otherwise
noted therein) and such financial statements as are audited have been
examined by McGladrey and Pullen, LLP, who are independent public
accountants within the meaning of the Act and the Rules and Regulations, as
indicated in their reports filed therewith. The selected financial
information and statistical data set forth under the captions ["Summary
Consolidated Financial Information"] and ["Selected Consolidated Financial
Data"] in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) have been prepared on a basis
consistent with the financial statements of the Company and its
Subsidiaries. The pro forma combined financial statements and the related
notes and schedules thereto included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) comply in all material respects with the applicable
requirements of Rule 11-02 of Regulation S-X of the Commission and fairly
present the information shown therein; and the pro forma adjustments have
been properly applied to the historical amounts in the compilation of such
statements. No other financial statements or schedules of the Company or
any other entity are required by the Act or the Rules and Regulations to be
included in the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
The pro forma financial data set forth in the prospectus (or, if the
Prospectus is not in existence, most recent Preliminary Prospectus), under
the captions "[Summary Consolidated Financial Information]" and "[Selected
Consolidated Financial Data]" have been prepared on a basis consistent with
the pro forma combined financial statements of the Company and its
Subsidiaries, included therein.
(vi) The Company and each of its Subsidiaries has filed all
necessary federal, state and local income, franchise and other material tax
returns and have paid all taxes shown as due thereunder, and the Company
has no knowledge of any tax deficiency which might be assessed against the
Company which, if so assessed, may have a Material Adverse Effect.
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(vii) The Company and each of its Subsidiaries maintains
insurance of the types and in amounts which they reasonably believe to be
adequate for their business in such amounts and with such deductibles as is
customary for companies in the same or similar business, all of which
insurance is in full force and effect.
(viii) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there is no pending action, suit, proceeding or investigation or, to the
Company's best knowledge, threatened action, suit, proceeding or
investigation before or by any court, regulatory body or administrative
agency or any other governmental agency or body, domestic or foreign, which
(A) questions the validity of the capital stock of the Company or this
Agreement or of any action taken or to be taken by the Company pursuant to
or in connection with this Agreement, (B) is required to be disclosed in
the Registration Statement which is not so disclosed (and such proceedings,
if any, as are summarized in the Registration Statement are accurately
summarized in all material respects), or (C) may have a Material Adverse
Effect.
(ix) The Company has full legal right, power and authority to
enter into this Agreement and the Warrant Agreement (as defined in
Section 3 hereof) and to consummate the transactions provided for herein
and therein. This Agreement and the Warrant Agreement have been duly
authorized, executed and delivered by the Company and, assuming that this
Agreement and the Warrant Agreement are binding agreements of yours,
constitute legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to
or affecting the enforcement of creditors' rights and the application of
equitable principles relating to the availability of remedies and except as
rights to indemnity or contribution may be limited by federal or state
securities laws and the public policy underlying such laws), and none of
the Company's execution or delivery of this Agreement or the Warrant
Agreement, its performance hereunder or thereunder, its consummation of the
transactions contemplated herein and therein, its application of the net
proceeds of the offering in the manner set forth under the caption "Use of
Proceeds" or the conduct of its business as described in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), conflicts or will conflict with or results or will result in
any breach or violation of any of
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the terms or provisions of, or constitutes or will constitute a default
under, causes or will cause (or permits or will permit) the maturation or
acceleration of any liability or obligation or the termination of any right
under, or result in the creation or imposition of any lien, charge, or
encumbrance upon, any property or assets of the Company or any of its
Subsidiaries pursuant to the terms of (A) the charter or by-laws of the
Company or any of its Subsidiaries, (B) any indenture, mortgage, deed of
trust, voting trust agreement, shareholders' agreement, note agreement or
other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which it is or any of them are or may be
bound or to which any of their respective property is or may be subject or
(C) any statute, judgment, decree, order, rule or regulation applicable to
the Company or any of its Subsidiaries of any government, arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body, domestic or foreign, having jurisdiction over the Company,
any of its Subsidiaries or any of their respective activities or
properties.
(x) All executed agreements or copies of executed agreements
filed or incorporated by reference as exhibits to the Registration
Statement to which the Company or any of its Subsidiaries is a party or by
which any of them are or may be bound or to which any of their assets,
properties or businesses is or may be subject have been duly and validly
authorized, executed and delivered by the Company or such Subsidiary, as
the case may be, and constitute the legal, valid and binding agreements of
the Company or such Subsidiary, as the case may be, enforceable against
each of them in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to enforcement of creditors'
rights generally, and general equitable principles relating to the
availability of remedies, and except as rights to indemnity or contribution
may be limited by federal or state securities laws and the public policy
underlying such laws). The descriptions in the Registration Statement of
contracts and other documents are accurate in all material respects and
fairly present the information required to be shown with respect thereto by
the Act and the Rules and Regulations, and there are no contracts or other
documents which are required by the Act or the Rules and Regulations to be
described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and
the exhibits which have been filed are complete and correct copies of the
documents of which they purport to be copies.
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(xi) Subsequent to the most recent respective dates as of which
information is given in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and except as expressly
contemplated therein, neither the Company nor any of its Subsidiaries has
incurred, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent, purchased any of its
outstanding capital stock, paid or declared any dividends or other
distributions on its capital stock or entered into any material
transactions not in the ordinary course of business, and there has been no
material change in capital stock or debt or any material adverse change in
the business, properties, assets, net worth, condition (financial or
other), or results of operations or prospects of the Company and its
Subsidiaries taken as a whole. Neither the Company nor any of its
Subsidiaries (or the manner in which any of them conducts its business) is
in breach or violation of, or in default under, any term or provision of
(A) its charter or by-laws, (B) any indenture, mortgage, deed of trust,
voting trust agreement, shareholders' agreement, note agreement or other
agreement or instrument to which it is a party or by which it is or may be
bound or to which any of its property is or may be subject, or any
indebtedness, the effect of which breach or default singly or in the
aggregate may have a Material Adverse Effect, or (C) any statute, judgment,
decree, order, rule or regulation applicable to the Company or any of its
Subsidiaries or of any arbitrator, court, regulatory body, administrative
agency or any other governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its Subsidiaries or any of
their respective activities or properties and the effect of which breach or
default singly or in the aggregate may have a Material Adverse Effect.
(xii) No labor disturbance by the employees of the Company or
any of its Subsidiaries exists or is imminent which may have a Material
Adverse Effect.
(xiii) Since its inception, the Company has not incurred any
material liability arising under or as a result of the application of the
provisions of the Act.
(xiv) Each of the Company and its Subsidiaries owns, or is
licensed or otherwise has sufficient right to use, the proprietary
knowledge, inventions, patents, trademarks, service marks, trade names,
logo marks and copyrights used in or necessary for the conduct of its
business (collectively "Rights") as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
No claims have been
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asserted against the Company or any of its Subsidiaries by any person with
respect to the use of any such Rights or challenging or questioning the
validity or effectiveness of any such Rights.
(xv) No consent, approval, authorization or order of or filing
with any court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, is required for the
performance of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in
connection with the Underwriters' purchase and distribution of the Shares.
(xvi) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities under the
Registration Statement (other than those that have been disclosed in the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), that have not been waived with respect to the
Registration Statement.
(xvii) Neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Rules and Regulations) has taken,
directly or indirectly, any action designed to stabilize or manipulate the
price of any security of the Company, or which has constituted or which
might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of the Shares or otherwise.
(xviii) Each of the Company and its Subsidiaries has good and
marketable title to, or valid and enforceable leasehold interests in, all
properties and assets owned or leased by it, free and clear of all liens,
encumbrances, security interests, claims, restrictions, equities, claims
and defects, except (A) such as are described in the Registration Statement
and Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), or such as do not materially adversely affect the
value of any of such properties or assets taken as a whole and do not
materially interfere with the use made and proposed to be made of any of
such properties or assets, and (B) liens for taxes not yet due and payable
as to which appropriate reserves have been established and reflected in
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the financial statements included in the Registration Statement. The
Company owns or leases all such properties as are necessary to its
operations as now conducted, and as proposed to be conducted as set forth
in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus); and the
properties and business of the Company and its Subsidiaries conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus). All the material leases and
subleases of the Company and its Subsidiaries, and under which the Company
or any Subsidiary holds properties or assets as lessee or sublessee,
constitute valid leasehold interests of the Company or such Subsidiary free
and clear of any lien, encumbrance, security interest, restriction, equity,
claim or defect, are in full force and effect, and neither the Company nor
any Subsidiary is in default in respect of any of the material terms or
provisions of any such material leases or subleases, and neither the
Company nor any Subsidiary has notice of any claim which has been asserted
by anyone adverse to the Company's or any of its Subsidiaries' rights as
lessee or sublessee under either the material lease or sublease, or
affecting or questioning the Company's or any Subsidiary's right to the
continued possession of the leased or subleased premises under any such
material lease or sublease, which may have a Material Adverse Effect.
(xix) Neither the Company nor any Subsidiary has violated any
applicable environmental, safety, health or similar law applicable to the
business of the Company, nor any federal or state law relating to
discrimination in the hiring, promotion, or pay of employees, nor any
applicable federal or state wages and hours law, nor any provisions of
ERISA or the rules and regulations promulgated thereunder, the consequences
of which violation may have a Material Adverse Effect.
(xx) Each of the Company and its Subsidiaries holds all
franchises, licenses, permits, approvals, certificates and other
authorizations from federal, state and other governmental or regulatory
authorities necessary to the ownership, leasing and operation of its
properties or required for the present conduct of its business, and such
franchises, licenses, permits, approvals, certificates and other
governmental authorizations are in full force and effect and the Company
and its Subsidiaries are in compliance therewith in all material respects
except where the failure so to obtain, maintain or comply with would not
have a Material Adverse Effect.
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(xxi) No Subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such Subsidiary's capital stock, from
repaying to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary's property or assets to
the Company or any other Subsidiary of the Company, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
[Additional representations to come, as needed]
3. PURCHASE, SALE AND DELIVERY OF THE SHARES. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to sell
to each Underwriter and each Underwriter, severally and not jointly, agrees to
purchase from the Company at a purchase price of $_____ per Share, the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I
hereto.
Delivery of certificates, and payment of the purchase price, for the
Firm Shares shall be made at the offices of Stroock & Stroock & Lavan, [Seven
Hanover Square], New York, New York 10004, or such other location as shall be
agreed upon by the Company and the Representatives. Such delivery and payment
shall be made at 10:00 a.m., New York City time, on _____________, 1997 or at
such other time and date not more than [five] business days thereafter as shall
be agreed upon by the Representatives and the Company. The time and date of
such delivery and payment are herein called the "Closing Date." Delivery of the
certificates for the Firm Shares shall be made to the Representatives for the
respective accounts of the several Underwriters against payment by the several
Underwriters through the Representatives of the purchase price for the Firm
Shares by certified or official bank checks in New York Clearing House (next
day) funds drawn to the order of the Company. The certificates for the Shares
to be so delivered will be in definitive, fully registered form, will bear no
restrictive legends and will be in such denominations and registered in such
names as the Representatives shall request, not less than two full business days
prior to the Closing Date. The certificates for the Firm Shares will be made
available to the Representatives at such office or such other place as the
Representatives may designate for inspection, checking and packaging not later
than 9:30 a.m., New York City time, on the business day prior to the Closing
Date.
On the Closing Date, the Company will issue and sell to Chatfield Dean
& Co., Inc. (for its own account and not as the
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Representatives of the several Underwriters) or, at the discretion of Chatfield
Dean & Co., Inc., to its respective bona fide officers or to other Underwriters,
the Warrants entitling the holders thereof to purchase an aggregate of 200,000
shares of Common Stock at a price per share equal to 120% of the "Price to
Public" as set forth on the cover page of the Prospectus. Such Warrants shall
contain such other terms and provisions as may be set forth in an agreement with
respect thereto (the "Warrant Agreement") executed and delivered by the Company
and Chatfield Dean & Co., Inc. simultaneously. The Warrants will be exercisable
at any time and from time to time on or after the first anniversary of the date
of this Agreement up to the fifth anniversary thereof. Each Warrant shall be
substantially identical to the form of Warrant filed as an exhibit to the
Registration Statement. The holders of the Warrants will be entitled to the
registration rights set forth in Section [10] of the Warrant Agreement.
4. PUBLIC OFFERING OF THE SHARES. It is understood that the Underwriters
will make a public offering of the Shares at the price and upon the other terms
set forth in the Prospectus and subject to the terms and conditions hereunder.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
practicable. If required, the Company will file the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement
thereto with the Commission in the manner and within the time period
required by Rules 434 and 424(b) under the Act. During any time when a
prospectus relating to the Shares is required to be delivered under the
Act, the Company (A) will comply with all requirements imposed upon it by
the Act and the Rules and Regulations to the extent necessary to permit the
continuance of sales of or dealings in the Shares in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented,
and (B) will not file with the Commission the prospectus, Term Sheet or the
amendment referred to in the third sentence of Section 2(a)(i) hereof, any
amendment or supplement to such prospectus, Term Sheet or any amendment to
the Registration Statement of which the Representatives shall not
previously have been advised and furnished with a copy a reasonable period
of time prior to the proposed filing and as to which filing the
Representatives shall not have given its consent, such consent to not be
unreasonably withheld.
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(ii) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives (A) when the
Registration Statement, as amended, has become effective; if the provisions
of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective;
(B) of any request made by the Commission for amending the Registration
Statement, for supplementing any Preliminary Prospectus or the Prospectus
or for additional information, or (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or the institution or threat of any
investigation or proceeding for that purpose, and will use its best efforts
to prevent the issuance of any such order and, if issued, to obtain the
lifting thereof as soon as possible.
(iii) The Company will (A) take or cause to be taken all such
actions and furnish all such information as the Representatives may
reasonably require in order to qualify the Shares for offer and sale under
the state securities or blue sky laws of such jurisdictions as the
Representatives may designate, (B) continue such qualifications in effect
for as long as may be necessary to complete the distribution of the Shares
but not to exceed one year from the date of this Agreement, and (C) make
such applications, file such documents and furnish such information as may
be required for the purposes set forth in clauses (A) and (B); PROVIDED,
HOWEVER, that the Company shall not be required to qualify as a foreign
corporation or file a general or unlimited consent to service of process in
any such jurisdiction.
(iv) The Company consents to the use of the Prospectus (and any
amendment or supplement thereto) by the Underwriters and all dealers to
whom the Shares may be sold, in connection with the offering or sale of the
Shares and for such period of time thereafter as the Prospectus is required
by law to be delivered in connection therewith. If, at any time when a
prospectus relating to the Shares is required to be delivered under the
Act, any event occurs as a result of which the Prospectus, as then amended
or supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading, or if it becomes necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the
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Company promptly will so notify the Representatives and, subject to Section
5(a)(i) hereof, will prepare and file with the Commission an amendment to
the Registration Statement or an amendment or supplement to the Prospectus
which will correct such statement or omission or effect such compliance,
each such amendment or supplement to be reasonably satisfactory to counsel
to the Underwriters.
(v) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (90 days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company
will make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representatives, an earnings statement which will be in the detail required
by, and will otherwise comply with, the provisions of Section 11(a) of the
Act and Rule 158(a) of the Rules and Regulations, which statement need not
be audited unless required by the Act or the Rules and Regulations,
covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(vi) During a period of five years after the date hereof, the
Company will furnish to its shareholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver
to the Representatives:
(A) concurrently with furnishing such quarterly reports
to its shareholders, statements of income of the Company for each
quarter in the form furnished to the Company's shareholders and
certified by the Company's principal financial or accounting officer;
(B) concurrently with furnishing such annual reports to
its shareholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
shareholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of independent
public accountants;
(C) as soon as they are available, copies of all
information (financial or other) mailed to shareholders;
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(D) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission,
the National Association of Securities Dealers, Inc. ("NASD") or any
securities exchange;
(E) every press release and every material news item or
article of interest to the financial community in respect of the
Company or its affairs which was released or prepared by the Company;
and
(F) any additional information of a public nature
concerning the Company or its business which the Representatives may
reasonably request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries
are consolidated, and will be accompanied by similar financial statements
for any significant subsidiary which is not so consolidated.
(vii) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its
Common Stock.
(viii) The Company will furnish, without charge, to the
Representatives or on the Representatives' order, at such place as the
Representatives may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits) and the Prospectus, and all amendments and
supplements thereto, in each case as soon as available and in such
quantities as the Representatives may reasonably request.
[(ix) The Company will not, directly or indirectly, without the
prior written consent of the Representatives, offer, sell, grant any option
to purchase or otherwise dispose (or announce any offer, sale, grant of any
option to purchase or other disposition) of any shares of Common Stock or
any securities convertible into, or exchangeable or exercisable for, shares
of Common Stock for a period of 180 days after the date hereof, except
pursuant to this Agreement and except as contemplated by the Prospectus.]
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<PAGE>
(x) The Company will cause the Shares to be duly included for
quotation on the National Association of Securities Dealers Automated
Quotations/National Market System, subject only to notice of issuance,
prior to the Closing Date.
(xi) Neither the Company nor any of its officers or directors,
nor affiliates of any of them (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the
Company.
(xii) The Company will apply the net proceeds of the offering
received by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
(xiii) The Company will timely file all such reports, forms or
other documents as may be required from time to time, under the Act, the
Rules and Regulations, the Exchange Act, and the rules and regulations
thereunder, and all such reports, forms and documents filed will comply in
all material respects as to form and substance with the applicable
requirements under the Act, the Rules and Regulations, the Exchange Act and
the rules and regulations thereunder.
(xiv) On the Closing Date and simultaneously with the delivery
of the Firm Shares, the Company shall execute and deliver to Chatfield Dean
& Co., Inc. and its designees the Warrants.
(xv) The Company will reserve and keep available the maximum
number of its authorized but unissued shares of Common Stock which are
issuable upon exercise of the Warrants outstanding from time to time.
6. EXPENSES. Regardless of whether the transactions contemplated in
this Agreement are consummated, and regardless of whether for any reason this
Agreement is terminated, the Company will pay, and hereby agrees to indemnify
each Underwriter against, all fees and expenses incident to the performance of
the obligations of the Company under this Agreement, including, but not limited
to, (i) fees and expenses of accountants and counsel for the Company, (ii) all
costs and expenses incurred in connection with the preparation, duplication,
printing, filing, delivery and shipping of copies of the Registration Statement
and any pre-effective or post-effective amendments thereto, any Preliminary
Prospectus and the Prospectus and any amendments or supplements thereto
(including postage costs related to the
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<PAGE>
delivery by the Underwriters of any Preliminary Prospectus or Prospectus, or any
amendment or supplement thereto), this Agreement, the Warrant Agreement, the
Warrants, the Agreement Among Underwriters, any Selected Dealer Agreement,
Underwriters' Questionnaire, Underwriters' Power of Attorney, and all other
documents in connection with the transactions contemplated herein, including the
cost of all copies thereof, (iii) fees and expenses relating to qualification of
the Shares under state securities or blue sky laws, including the cost of
preparing and mailing the preliminary and final blue sky memoranda and filing
fees and disbursements and fees of counsel and other related expenses, if any,
in connection therewith, (iv) filing fees of the Commission and the NASD
relating to the Shares, (v) any fees and expenses in connection with the
quotation of the Shares on the National Association of Securities Dealers
Automated Quotations/National Market System, (vi) costs and expenses incident to
the preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Shares, including transfer agent's and registrar's fees and any
applicable transfer taxes incurred in connection with the delivery to the
Underwriters of the Shares to be sold by the Company pursuant to this Agreement,
(vii) costs and expenses incident to any meetings with prospective investors in
the Shares (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters),(viii) costs and expenses of
advertising relating to the offering of the Shares (other than as shall have
been specifically approved by the Representatives to be paid for by the
Underwriters) up to $15,000, (ix) a non-accountable expense allowance of $
________, which amount shall be equal to 3% of the gross proceeds to the Company
from the sale of the Firm Shares and (x) the costs incurred for visits by
Chatfield Dean or its representatives to the Company, for which the Company has
given prior written authorization, occurring for a period of twelve months
following the "effective date" of the Registration Statement.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of each
Underwriter to purchase and pay for the Shares set forth opposite the name of
such Underwriter in Schedule I is subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date as if they had been made on and as of the Closing Date;
the accuracy on and as of the Closing Date of the statements of officers of the
Company made pursuant to the provisions hereof; the performance by the Company
on and as of the Closing Date of its covenants and agreements hereunder; and the
following additional conditions:
(a) If the Company has elected to rely on Rule 430A under the Act,
the Registration Statement shall have been declared effective, and the
Prospectus (containing the
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<PAGE>
information omitted pursuant to Rule 430A) shall have been filed with the
Commission not later than the Commission's close of business on the second
business day following the date hereof or such later time and date to which the
Representatives shall have consented; if the Company does not elect to rely on
Rule 430A, the Registration Statement shall have been declared effective not
later than 11:00 A.M., New York time, on the date hereof or such later time and
date to which the Representatives shall have consented; if required, in the case
of any changes or amendments or supplements to the Prospectus or any Term Sheet
that constitutes a part thereof in addition to those contemplated above, the
Company shall have filed such Prospectus as amended or supplemented with the
Commission in the manner and within the time period required by Rules 434 and
424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Representatives, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from counsel to the Underwriters, such opinion or opinions with respect
to the issuance and sale of the Firm Shares, the Registration Statement and the
Prospectus and such other related matters as the Representatives reasonably may
request and such counsel shall have received such documents and other
information as they request to enable them to pass upon such matters.
(d) On the Closing Date the Underwriters shall have received the
opinion, dated the Closing Date, of Herzfeld & Rubin, counsel to the Company
("Company Counsel"), to the effect set forth below:
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<PAGE>
(i) Each of the Company and the Subsidiaries (such
subsidiaries shall be defined to include all of the subsidiaries listed on
Schedule II to this Agreement) is a duly incorporated and validly existing
corporation in good standing under the laws of its jurisdiction of
incorporation with the corporate power and authority to own or lease its
properties and to conduct its business as described in the Prospectus. The
Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of the States of [Nevada, ____], which, to the
best knowledge of such counsel, constitute all of the jurisdictions (x) in
which the conduct of its business requires such qualification (except for
those jurisdictions in which the failure so to qualify can be cured without
having a Material Adverse Effect) and (y) in which it owns or leases
property;
(ii) The Company has authorized capital stock as set forth in
the Prospectus; the securities of the Company conform in all material
respects to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock have been duly authorized and validly
issued by the Company, are fully paid and nonassessable, and are free of
any preemptive or other rights to subscribe for any of the Shares; the
Company has duly authorized the issuance and sale of the Shares and the
shares of Common Stock issuable upon exercise of the Warrants to be sold by
it hereunder and thereunder; the Shares and the shares of Common Stock
issuable upon exercise of the Warrants, when issued by the Company and paid
for in accordance with the terms hereof and thereof, will be validly
issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectus and will
not be subject to any preemptive, subscription or other similar rights; the
shares of Common Stock issuable upon exercise of the Warrants have been
reserved for issuance upon such exercise; and the Shares have been duly
authorized for quotation, subject only to notice of issuance, on the
National Association of Securities Dealers Automated Quotation/National
Market System;
(iii) The Registration Statement is effective under the Act; any
required filing of the Prospectus or any Term Sheet that constitutes a part
thereof, pursuant to Rules 434 and 424(b) has been made; and, to the best
knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or are pending or are
threatened or contemplated under the Act; the Registration Statement, as of
the effective date, and the Prospectus, as of the date
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<PAGE>
thereof, and, if any, each amendment and supplement thereto (except for the
financial statements, schedules and other financial data included therein,
as to which such counsel need not express any opinion), complied as to form
in all material respects with the requirements of the Act and the Rules and
Regulations; and to the best knowledge of such counsel, there are no
contracts or documents which are required by the Act to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement which are not described or filed as required by the
Act and the Rules and Regulations; to the best knowledge of such counsel,
there is not pending or threatened against the Company any action, suit,
proceeding or investigation before or by any court, regulatory body, or
administrative agency or any other governmental agency or body, domestic or
foreign, of a character required to be disclosed in the Registration
Statement or the Prospectus which is not so disclosed therein;
(iv) The Company has full corporate right, power, and authority
to enter into this Agreement and the Warrant Agreement and to consummate
the transactions provided for herein and therein; each of this Agreement
and the Warrant Agreement has been duly authorized, executed and delivered
by the Company; and each of this Agreement and the Warrant Agreement,
assuming due authorization, execution and delivery by each other party
hereto and thereto, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws now or
hereafter in effect relating to or affecting creditors' rights generally or
by general principles of equity relating to the availability of remedies
and except as rights to indemnity and contribution may be limited by
federal or state securities laws or the public policy underlying such laws.
None of the Company's execution or delivery of this Agreement or the
Warrant Agreement, its performance hereof or thereof, its consummation of
the transactions contemplated herein or therein or its application of the
net proceeds of the offering in the manner set forth under the caption "Use
of Proceeds", conflicts or will conflict with or results or will result in
any breach or violation of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon, any property or assets of the Company or any of
its Subsidiaries pursuant to the terms of the charter or by-laws of the
Company or any of its Subsidiaries; the terms of any indenture, mortgage,
deed of trust, voting trust agreement, stockholder's agreement, note
agreement or other agreement or instrument known to such counsel to which
the Company or
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<PAGE>
any of its Subsidiaries is a party or by which it or any of its
Subsidiaries is or may be bound or to which any of their respective
properties may be subject; any statute, rule or regulation of any
regulatory body or administrative agency or other governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of
its Subsidiaries or any of their respective activities or properties; or
any judgment, decree or order, known to such counsel after reasonable
investigation, of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic or
foreign, having such jurisdiction; and no consent, approval, authorization
or order of any court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, has been or is required
for the Company's performance of this Agreement or the Warrant Agreement or
the consummation of the transactions contemplated hereby or thereby, or the
issuance of the Warrants or the Common Stock underlying such Warrants,
except under the Act or as may be required under state securities or blue
sky laws;
(v) To such counsel's knowledge, the conduct of the businesses
of the Company and its Subsidiaries is not in violation of any federal,
state or local statute, administrative regulation or other law, which
violation is likely to have a Material Adverse Effect; and each of the
Company and its Subsidiaries has obtained all licenses, permits,
franchises, certificates and other authorizations from state, federal and
other regulatory authorities as are necessary or required for the
ownership, leasing and operation of its properties and the conduct of its
business as presently conducted and as contemplated in the Prospectus,
except where the failure to so obtain any such license, permit, franchise,
certificate or other authorization would not have a Material Adverse
Effect;
(vi) The issued shares of capital stock of each of the
Subsidiaries are owned by the Company or another Subsidiary, to the
knowledge of such counsel, free and clear of any perfected security
interests or any other liens, encumbrances, claims or security interests;
and
(vii) To the best of such counsel's knowledge, except as
described in the Prospectus, no claims have been asserted against the
Company or any of its Subsidiaries by any person to the use of any Rights
or challenging or questioning the validity or effectiveness of any such
rights.
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<PAGE>
In addition, such counsel shall state that in the course of the
preparation of the Registration Statement and the Prospectus, such counsel has
participated in conferences with officers and representatives of the Company and
with the Company's independent public accountants, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Registration Statement and the Prospectus and
(without taking any further action to verify independently the statements made
in the Registration Statement and the Prospectus and, except as stated in the
foregoing opinion, without assuming responsibility for the accuracy,
completeness or fairness of such statements) nothing has come to such counsel's
attention that causes such counsel to believe that either the Registration
Statement as of the date it is declared effective and as of the Closing Date or
the Prospectus as of the date thereof and as of the Closing Date contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (it being understood that such counsel need not express
any opinion with respect to the financial statements, schedules and other
financial data included in the Registration Statement or the Prospectus).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials.
References to the Registration Statement and the Prospectus in
this paragraph (d) shall include any amendment or supplement thereto at the date
of such opinion.
(e) On or prior to the Closing Date, counsel to the Underwriters
shall have been furnished such documents, certificates and opinions as they may
reasonably require in order to evidence the accuracy, completeness or
satisfaction of any of the representations or warranties of the Company, or
conditions herein contained.
(f) At the time that this Agreement is executed by the Company, the
Underwriters shall have received from McGladrey & Pullen, LLP a letter as of the
date of this Agreement in form and substance satisfactory to you (the "Original
Letter"), and on the Closing Date the Underwriters shall have received from such
firm a letter dated the Closing Date stating that, as of a specified date not
earlier than five (5) days prior to the Closing Date, nothing has come to the
attention of such firm to suggest that the statements made in the Original
Letter are not true and correct.
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<PAGE>
(g) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that each
of such persons has carefully examined the Registration Statement and the
Prospectus and any amendments or supplements thereto and this Agreement, and
that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best knowledge of each of
such persons are contemplated or threatened under the Act and any and all
filings required by Rule 424 and Rule 430A have been timely made;
(iii) The Registration Statement and Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and neither the Registration
Statement nor any amendment thereto includes any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
neither the Prospectus (or any supplement thereto) nor any Preliminary
Prospectus includes or included any untrue statement of a material fact or
omits or omitted to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus up to and
including the Closing Date, neither the Company nor any of the Subsidiaries
has incurred, other than in the ordinary course of its business, any
material liabilities or obligations, direct or contingent; neither the
Company nor any of the Subsidiaries has purchased any of its outstanding
capital stock or paid or declared any dividends or other distributions on
its capital stock; neither the Company nor any of the Subsidiaries has
entered into any transactions not in the ordinary course of business; and
there has not been any change in the capital stock or[, except with respect
to the Securitization
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<PAGE>
Subsidiaries,] consolidated long-term debt or[, except with respect to the
Securitization Subsidiaries,] any increase in the consolidated short-term
borrowings (other than any increase in short-term borrowings in the
ordinary course of business) of the Company or any material adverse change
to the business, properties, assets, net worth, condition (financial or
other), results of operations or prospects of the Company and its
Subsidiaries taken as a whole; neither the Company nor any of the
Subsidiaries has sustained any material loss or damage to its property or
assets, whether or not insured; there is no litigation which is pending or
threatened against the Company or any of its Subsidiaries which is required
under the Act or the Rules and Regulations to be set forth in an amended or
supplemented Prospectus which has not been set forth; and there has not
occurred any event required to be set forth in an amended or supplemented
Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in
this paragraph (g) are to such documents as amended and supplemented at the
date of the certificate.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and including the
Closing Date there has not been (i) any adverse change or decrease specified in
the letter or letters referred to in paragraph (f) of this Section 7 or (ii) any
adverse change, or any development involving a prospective adverse change, in
the business or properties of the Company or its Subsidiaries which change or
decrease in the case of clause (i) or change or development in the case of
clause (ii) makes it impractical or inadvisable in the Representatives' judgment
to proceed with the public offering or the delivery of the Shares as
contemplated by the Prospectus.
(i) No order suspending the sale of the Shares in any jurisdiction
designated by you pursuant to Section 5(a)(iii)(A) hereof has been issued on or
prior to the Closing Date and no proceedings for that purpose have been
instituted or, to your knowledge or that of the Company, have been or are
contemplated.
(j) The Representatives shall have received from (A) each person who
is an officer or director of the Company or who owns more than five (5) percent
of the outstanding shares of Common Stock, (B) substantially all (75% or more)
of the investors identified in the registration statement dated December 22,
1995 who acquired their shares in a private placement in September 1994 and (C)
substantially all of the holders of Carpet Barn Holdings, Inc. preferred stock
whose shares of common stock are included in the December 22, 1995 registration
statement, an agreement (a "Lock-up Agreement") to the effect that such person
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<PAGE>
will not, directly or indirectly, without the prior written consent of the
Representatives, offer, sell, grant any option to purchase or otherwise dispose
(or announce any offer, sale, grant of any option to purchase or other
disposition) of any shares of Common Stock or any securities convertible into,
or exchangeable or excerciseable for, shares of common stock for a period of
twenty-four (24) months, six (6) months and twelve (12) months, respectively,
from the effective date of the offering; provided, however, that after twelve
(12) months 25% of the shares will be released and after eighteen (18) months
another 25% will be released, that shares may be sold if such sale or
disposition is a privately negotiated transaction, that the purchaser agrees in
writing with the Representatives to the provisions of the Lock-up Agreement and
the disposition is otherwise in accordance with the Federal securities and other
laws.
(k) Prior to the "effective date" of the Registration Statement, the
Company's Board of Directors shall have duly appointed two independent directors
to serve on its Board of Directors until the Company's next annual stockholders'
meeting.
(l) Prior to the "effective date" of the Registration Statement, the
Company's Board of Directors shall have established a Compensation Committee and
an Audit Committee, each consisting of at least two independent ("outside")
members of the Board of Directors.
(m) The Company shall have effected a four-to-one reverse split of
its then outstanding common stock.
(n) The Company shall have entered into employment agreements with
those key employees listed on Exhibit ___ hereto in substance satisfactory to
Chatfield Dean.
(o) The Company shall have furnished the Underwriters with such
further opinions, letters, certificates or documents as you or counsel for the
Underwriters may reasonably request. All opinions, certificates, letters and
documents to be furnished by the Company will comply with the provisions hereof
only if they are reasonably satisfactory in all material respects to the
Underwriters and to counsel for the Underwriters. The Company shall furnish the
Underwriters with conformed copies of such opinions, certificates, letters and
documents in such quantities as you reasonably request. The certificates
delivered under this Section 7 shall constitute representations, warranties and
agreements of the Company as to all matters set forth therein as fully and
effectively as if such matters had been set forth in Section 2 of this
Agreement.
(p) The Shares shall have been duly authorized for quotation on the
National Association of Securities Dealers
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<PAGE>
Automated Quotation/National Market System, subject only to notice of issuance.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any
and all losses, claims, damages or liabilities, joint or several (and actions in
respect thereof), to which such Underwriter or such controlling person may
become subject, under the Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or any blue sky application or other document executed by
the Company specifically for the purpose of qualifying, or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify, any or all of the Shares under the securities or blue sky laws
thereof (any such application, document or information being hereinafter called
a "Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements not misleading and will reimburse, as
incurred, such Underwriter or such controlling persons for any legal or other
expenses incurred by such Underwriter or such controlling persons in connection
with investigating, defending or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in any of such documents in reliance upon and in conformity with
information furnished in writing to the Company on behalf of such Underwriter
through the Representatives expressly for use therein, and PROVIDED, FURTHER,
that such indemnity with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) from whom the person asserting any such loss, claim, damage,
liability or action purchased Shares which are the subject thereof to the extent
that any such loss, claim, damage, liability or action (i) results from the fact
that such Underwriter failed to send or give a copy of the Prospectus (as
amended or supplemented) to such person at or prior to the confirmation of the
sale of such Shares to such person in any case where such delivery is required
by the Act and (ii) arises out of or is based upon an untrue statement or
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<PAGE>
omission of a material fact contained in such Preliminary Prospectus that was
corrected in the Prospectus (as amended and supplemented), unless such failure
resulted from non-compliance by the Company with Section 5(a)(viii) hereof.
The indemnity agreement in this paragraph (a) shall be in
addition to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act against any and all losses, claims, damages or liabilities
(and actions in respect thereof) to which the Company or any such director,
officer, or controlling person may become subject, under the Act or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto or in any Blue
Sky Application, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
information furnished in writing by that Underwriter through the Representatives
to the Company expressly for use therein; and will reimburse, as incurred, all
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action. The Company acknowledges that
the statements with respect to the public offering of the Shares set forth under
the heading "Underwriting" and the stabilization legend in the Prospectus have
been furnished by the Underwriters to the Company expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus. The indemnity agreement contained
in this paragraph (b) shall be in addition to any liability which the
Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 8, notify such indemnifying party or parties of the
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<PAGE>
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under paragraph (a) or (b) of this Section 8 or to the extent
that the indemnifying party was not adversely affected by such omission. In
case any such action is brought against an indemnified party and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties against which a claim is to be made will be entitled to
participate therein and, to the extent that it or they may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
PROVIDED HOWEVER, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party has
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and otherwise
to participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses (other than the reasonable costs of investigation) subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party has employed such counsel in connection with the
assumption of such different or additional legal defenses in accordance with the
proviso to the immediately preceding sentence, (ii) the indemnifying party has
not employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable to hold harmless an indemnified party under paragraph (a) or (b)
above in respect of any losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) (i) in such proportion as is appropriate to reflect the relative
benefits received by each of the contributing parties, on the one hand, and the
party to be indemnified, on the other hand, from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause
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<PAGE>
(i) above but also the relative fault of each of the contributing parties, on
the one hand, and the party to be indemnified, on the other hand, in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. In any
case where the Company is a contributing party and the Underwriters are the
indemnified party, the relative benefits received by the Company, on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares (before
deducting expenses) bear to the total underwriting discounts received by the
Underwriters hereunder, in each case as set forth in the table on the cover page
of the Prospectus. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this paragraph (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), (i) each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter and (ii) each director of
the Company, each officer of the Company who has signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same
rights to contribution as the Company, subject in each case to this paragraph
(d). Any party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this paragraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any other
obligation (x) it or they may have hereunder or otherwise than under this
paragraph (d) or (y) to the extent that such party or parties were not adversely
affected
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<PAGE>
by such omission. The contribution agreement set forth above shall be in
addition to any liabilities which any indemnifying party may have at common law
or otherwise.
9. RIGHT TO INCREASE OFFERING. At anytime during a period of 45 days
from the date of the Prospectus, the Underwriters, by no less than two business
days' prior notice to the Company, may designate a closing (which may be
concurrent with, and part of, the closing on the Closing Date with respect to
the Firm Shares or may be a second closing held on a date subsequent to the
Closing Date, in either case such date shall be referred to herein as the
"Option Closing Date") at which the Underwriters may purchase all or less than
all of the Additional Shares in accordance with the provisions of this Section 9
at the purchase price per share to be paid for the Firm Shares. In no event
shall the Option Closing Date be later than 10 business days after written
notice of election to purchase Additional Shares is given.
The Company agrees to sell to the several Underwriters on the Option
Closing Date the number of Additional Shares specified in such notice and the
Underwriters agree, severally and not jointly, to purchase such Additional
Shares on the Option Closing Date. Such Additional Shares shall be purchased
for the account of each Underwriter in the same proportion as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I bears to
the total number of Firm Shares (subject to adjustment by you to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in connection with the sale of the Firm Shares.
No Additional Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Additional Shares or any portion thereof may be surrendered and
terminated at any time upon notice by you to the Company.
Except to the extent modified by this Section 9, all provisions of
this Agreement relating to the transactions contemplated to occur on the Closing
Date for the sale of the Firm Shares shall apply, MUTATIS MUTANDIS, to the
Option Closing Date for the sale of the Additional Shares.
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<PAGE>
10. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers and the Underwriters,
respectively, set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriters, and will survive delivery of and payment for the Shares. Any
successors to the Underwriters shall be entitled to the indemnity, contribution
and reimbursement agreements contained in this Agreement.
11. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at 11:00 A.M., New York
time, on the first business day following the date hereof, or at such earlier
time after the Registration Statement becomes effective as the Representatives,
in its sole discretion, shall release the Shares for the sale to the public
unless prior to such time the Representatives shall have received written notice
from the Company that it elects that this Agreement shall not become effective,
or the Representatives shall have given written notice to the Company that the
Representatives on behalf of the Underwriters elects that this Agreement shall
not become effective; PROVIDED, HOWEVER, that the provisions of this Section and
of Section 6 and Section 8 hereof shall at all times be effective. For purposes
of this Section 11(a), the Shares to be purchased hereunder shall be deemed to
have been so released upon the earlier of notification by the Representatives to
securities dealers releasing such Shares for offering or the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Shares.
(b) This Agreement (except for the provisions of Sections 6 and 8
hereof) may be terminated by the Representatives by notice to the Company in the
event that the Company has failed to comply in any respect with any of the
provisions of this Agreement required on its part to be performed at or prior to
the Closing Date or the Option Closing Date, or if any of the representations or
warranties of the Company are not accurate in any respect or if the covenants,
agreements or conditions of, or applicable to the Company herein contained have
not been complied with in any respect or satisfied within the time specified on
the Closing Date or the Option Closing Date, respectively, or if prior to the
Closing Date or the Option Closing Date:
(i) the Company or any of its Subsidiaries shall have
sustained a loss by strike, fire, flood, accident or other calamity of such
a character as to interfere materially with the conduct of the business and
operations
- 32 -
<PAGE>
of the Company and its Subsidiaries takes as a whole regardless of whether
or not such loss was insured;
(ii) trading in the Common Stock shall have been suspended by
the Commission or the National Association of Securities Dealers Automated
Quotations/National Market System or trading in securities generally on the
New York Stock Exchange or the National Association of Securities Dealers
Automated Quotations/National Market System shall have been suspended or a
material limitation on such trading shall have been imposed or minimum or
maximum prices shall have been established on either any such exchange or
market system;
(iii) a banking moratorium shall have been declared by New York
or United States authorities;
(iv) there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed conflict involving the
United States; or
(v) there shall have been a material adverse change in (A)
general economic, political or financial conditions or (B) the present or
prospective business or condition (financial or other) of the Company and
its Subsidiaries taken as a whole that, in each case, in the
Representatives' judgment makes it impracticable or inadvisable to make or
consummate the public offering, sale or delivery of the Company's Shares on
the terms and in the manner contemplated in the Prospectus and the
Registration Statement.
(c) Termination of this Agreement under this Section 11 or Section 12
after the Firm Shares have been purchased by the Underwriters hereunder shall be
applicable only to the Additional Shares. Termination of this Agreement shall
be without liability of any party to any other party other than as provided in
Sections 6 and 8 hereof.
12. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or 11 hereof) to
purchase and pay for (a) in the case of the Closing Date, the number of Firm
Shares agreed to be purchased by such Underwriter or Underwriters upon tender to
you of such Firm Shares in accordance with the terms hereof or (b) in the case
of the Option Closing Date, the number of Additional Shares agreed to be
purchased by such Underwriter or Underwriters upon tender to you of such
Additional Shares in
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<PAGE>
accordance with the terms hereof, and the number of such Shares shall not exceed
10% of the Firm Shares or Additional Shares required to be purchased on the
Closing Date or the Option Closing Date, as the case may be, then, each of the
non-defaulting Underwriters shall purchase and pay for (in addition to the
number of such Shares which it has severally agreed to purchase hereunder) that
proportion of the number of Shares which the defaulting Underwriter or
Underwriters shall have so failed or refused to purchase on such Closing Date or
Option Closing Date, as the case may be, which the number of Shares agreed to be
purchased by such non-defaulting Underwriter bears to the aggregate number of
Shares so agreed to be purchased by all such non-defaulting Underwriters on such
Closing Date or Option Closing Date, as the case may be. In such case, you
shall have the right to postpone the Closing Date or the Option Closing Date, as
the case may be, to a date not exceeding seven full business days after the date
originally fixed as such Closing Date or the Option Closing Date, as the case
may be, pursuant to the terms hereof in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made.
If one or more of the Underwriters shall fail or refuse (otherwise
than for a reason sufficient to justify the termination of this Agreement under
the provisions of Section 7 or 11 hereof) to purchase and pay for (a) in the
case of the Closing Date, the number of Firm Shares agreed to be purchased by
such Underwriter or Underwriters upon tender to you of such Firm Shares in
accordance with the terms hereof or (b) in the case of the Option Closing Date,
the number of Additional Shares agreed to be purchased by such Underwriter or
Underwriters upon tender to you of such Additional Shares in accordance with the
terms hereof, and the number of such Shares shall exceed 10% of the Firm Shares
or Additional Shares required to be purchased by all the Underwriters on the
Closing Date or the Option Closing Date, as the case may be, then (unless within
48 hours after such default arrangements to your satisfaction shall have been
made for the purchase of the defaulted Shares by an Underwriter or Underwriters)
and subject to the provisions of Section 11(b) hereof, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or on
the part of the Company except as otherwise provided in Sections 6 and 8 hereof.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this paragraph. Nothing in this Section
12, and no action taken hereunder, shall relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
13. ADDITIONAL FINANCING. The Company hereby agrees that if on or prior
to September 17, 1999, Chatfield Dean (i) introduces, negotiates or arranges for
a non-public equity
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<PAGE>
financing for the Company which is consummated, (ii) arranges for a non-public
debt financing for the Company which is consummated, or (iii) arranges for the
purchase or sale of assets, a merger, acquisition or joint venture for the
Company which is consummated, then the Company shall pay Chatfield Dean a fee
for its services which shall be calculated as follows: a fee of 3% of the value
of a transaction up to and including $5,000,000; 2% of the value of a
transaction greater than $5,000,000 and up to and including $6,000,000; 1.5% of
the value of a transaction greater than $6,000,000 and up to and including
$7,000,000; and 1% of the value of a transaction in excess of $7,000,000.
14. NOTICES. All communications hereunder shall be in writing and if sent
to the Representatives shall be mailed or delivered or telegraphed and confirmed
by letter or telecopied and confirmed by letter to Chatfield Dean & Co., Inc.,
7935 East Prentice Avenue, Suite 200, Greenwood Village, Colorado 80111,
Attention: Kenneth L. Greenberg, with a copy to Stroock & Stroock & Lavan,
[Seven Hanover Square], New York, New York 10004, Attention: James R.
Tanenbaum, or if sent to the Company, shall be mailed or delivered or
telegraphed and confirmed to the Company at Branin Investments, Inc., 100 Maiden
Lane, 17th Floor, New York, New York 10038, Attention: Philip A. Herman, with
a copy to Herzfeld & Rubin, 40 Wall Street, New York, New York 10005,
Attention: Andrew Levinson.
15. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Company and each Underwriter and the Company's and each
Underwriter's respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or in
respect of this Agreement, or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person, except that the representations, warranties, indemnities and
contribution agreements of the Company contained in this Agreement shall also be
for the benefit of any person or persons, if any, who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
and except that the Underwriters' indemnity and contribution agreements shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement, and any person or persons,
if any, who control the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act. No purchaser of Shares from the Underwriters
will be deemed a successor because of such purchase.
16. APPLICABLE LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the
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<PAGE>
State of New York, without giving effect to the choice of law or conflict of law
principles thereof. Each party hereto consents to the jurisdiction of each
court in which any action is commenced seeking indemnity or contribution
pursuant to Section 8 above and agrees to accept, either directly or through an
agent, service of process of each such court.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
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<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
the Underwriters' acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
NATIONS FLOORING, INC.
By:
------------------------
Name: Philip A. Herman
Title: President
Accepted as of the date first
above written:
CHATFIELD DEAN & CO., INC.
By: Chatfield Dean & Co., Inc.
Acting on its own behalf and as
the Representatives of the several
Underwriters referred to in the
foregoing Agreement
By:
------------------------------
Name: Kenneth L. Greenberg
Title: Vice President
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<PAGE>
SCHEDULE I
UNDERWRITERS
Underwriting Agreement dated November __, 1996
Number of Firm
Shares to be
Purchased from
Name the Company
- ---- --------------
- 38 -
<PAGE>
SCHEDULE II
SUBSIDIARIES
Nation Flooring, Inc.
List of Subsidiaries
As of November __, 1996
State of Incorporation
Name of Subsidiary or Formation
- ------------------ -----------------------
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
NATIONS FLOORING, INC.
----------------------------------
FIRST: Name.
The name of the Corporation is: Nations Flooring, Inc.
SECOND: Registered Agent.
The registered office of the Corporation is to be located at The
Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington, Delaware,
19805. The name of the registered agent at that address is The Prentice-Hall
Corporation System, Inc. New Castle County.
THIRD: Purpose.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: Capitalization.
The total number of shares of stock which the Corporation shall have
the authority to issue is twenty-one million (21,000,000) shares, of which
twenty million (20,000,000) shares shall be common stock ("Common Stock"), par
value $.001 per share, and one million (1,000,000) shares shall be preferred
stock ("Preferred Stock"), par value $.001 per share.
COMMON STOCK. Subject to the prior or equal rights, if any, of the
Preferred Stock of any and all series stated and expressed by the Board of
Directors in the resolution or resolutions providing for the issuance of such
Preferred Stock, the holders of Common Stock shall be entitled (i) to receive
dividends when and as declared by the Board of Directors out of any funds
legally available therefor,(ii) in the event of any dissolution, liquidation or
winding up of the Corporation, to receive the remaining assets of the
Corporation, ratably according to the number of shares of Common Stock held,
and (iii) to one vote for each share of Common Stock held on all matters
submitted to a vote of stockholders. No holder of Common Stock shall have any
preemptive right to purchase or subscribe for any part of any issue of stock or
of securities of the Corporation convertible into stock of any class whatsoever,
whether now or hereafter authorized.
PREFERRED STOCK. The Board of Directors is expressly authorized at
any time, and from time to time, to provide for the issuance of shares of
Preferred Stock in one or more series, with such
1
<PAGE>
voting powers full or limited, or without voting powers, full or limited, or
without voting powers and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
subject to the limitations prescribed by law and in accordance with the
provisions hereof, including (but without limiting the generality thereof) the
following:
(a) The designation of the series and the number of shares to
constitute the series;
(b) The dividend rate, if any, of the series, the conditions and
dates upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or classes of
stock, and whether such dividends shall be cumulative or noncumulative;
(c) Whether the shares of the series shall be subject to redemption
by the Corporation and, if made subject to redemption, the times, prices and
other terms and conditions of such redemption;
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of the series;
(e) Whether or not the shares of the series shall be convertible into
or exchangeable for shares of any other class or classes or of any other series
of any class or classes of stock of the Corporation, and, if provision be made
for conversion or exchange, the times, prices, rates, adjustments and other
terms and conditions of such conversion or exchange;
(f) The extent, if any, to which the holders of the shares of the
series shall be entitled to vote with respect to the election of directors or
otherwise;
(g) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock; and
(h) The rights of the holders of the shares of the series upon the
dissolution, liquidation, or winding up of the Corporation.
FIFTH: Board of Directors.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors, subject
to any right of the holders of any series of Preferred Stock to elect additional
directors, shall be fixed from time to time by the Board of Directors pursuant
to the By-Laws.
SIXTH: Liability of Directors.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that to the extent required by the provisions of Section
102(b)(7) of the General Corporation Law of the State of Delaware or any
successor statute, or any other laws of the State of Delaware, this provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, (iv) for any transaction from which the director
derived an improper personal benefit or (v) for any act or omission occurring
prior to the date when the provision becomes effective. If the General
Corporation Law of the
2
<PAGE>
State of Delaware hereafter is amended to authorize the further elimination or
limitation on personal liability of directors, then the liability of a director
of the Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended General
Corporation Law of the State of Delaware. Any repeal or modification of this
Article Sixth by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.
SEVENTH: Incorporator.
The name and address of the incorporator is as follows:
Zev M. Bomrind
Herzfeld & Rubin, P.C.
40 Wall Street
New York, NY 10005
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinbefore named, has executed this Certificate of Incorporation on this 26th
day of December, 1996.
-----------------------------------
Zev M. Bomrind
Sole Incorporator
<PAGE>
BY-LAWS
OF
NATIONS FLOORING, INC.
-------------------------
ARTICLE I
SECTION 1.1 REGISTERED OFFICE. The registered office of Nations
Flooring, Inc. (the "Corporation") within the State of Delaware shall be located
at the principal place of business in said State of The Prentice-Hall
Corporation System, Inc., the Corporation's registered agent in the State of
Delaware.
SECTION 1.2 OTHER OFFICES. The Corporation may also have offices and
places of business at such other places both within and without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 PLACE OF MEETINGS. All meetings of stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
SECTION 2.2 ANNUAL MEETINGS. The annual meeting of Stockholders for
the election of directors and for the transaction of any other proper business
shall be held on the date and at the time fixed, from time to time, by the
Chairman of the Board or a majority of the members of the Board of Directors.
SECTION 2.3 SPECIAL MEETINGS. Subject to the rights of holders of
any series of preferred stock (the "Preferred Stock"), special meetings of
stockholders, for any purpose or purposes, may be called only by the Chairman of
the Board or a majority of the members of the Board of Directors. At any
special meeting of stockholders, only such business may be transacted as is
related to the purpose or purposes set forth in the notice of such meeting.
SECTION 2.4 NOTICE OF MEETINGS. Written notice of every meeting of
stockholders, stating the place, date and hour thereof and, in the case of a
special meeting of stockholders, the purpose or purposes thereof and the person
or persons by whom or at whose direction such meeting has been called and such
notice is being issued, shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting, either personally or by mail, by
or at the direction of the Chairman of the Board, the Chief Executive officer,
the President, or the persons calling the meeting, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the stock transfer books of
the Corporation.
<PAGE>
SECTION 2.5 QUORUM. The holders of a majority of the issued and
outstanding shares of stock of the Corporation entitled to vote, represented in
person or by proxy, shall be necessary to and shall constitute a quorum for the
transaction of business at any meeting of stockholders. If, however, such
quorum shall not be present or represented at any meeting of stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. Notwithstanding the foregoing, if after any
such adjournment the Board of Directors shall fix a new record date for the
adjourned meeting, or if the adjournment is for more than thirty (30) days, a
notice of such adjourned meeting shall be given as provided in Section 2.4 of
these By-Laws.
SECTION 2.6 VOTING. The voting rights of stockholders shall be as
provided in the Certificate of Incorporation.
SECTION 2.7 PROXIES. Every stockholder entitled to vote at a meeting
or by consent without a meeting may authorize another person or persons to act
for him or her by proxy. Each proxy shall be in writing executed by the
stockholder giving the proxy or by his or her duly authorized attorney. No
proxy shall be valid after the expiration of three (3) years from its date,
unless a longer period is provided for in the proxy. Unless and until voted,
every proxy shall be revocable at the pleasure of the person who executed it, or
his or her legal representatives or assigns, except in those cases where an
irrevocable proxy permitted by statute has been given.
SECTION 2.8 STOCK RECORDS. The Secretary or agent having charge of
the stock transfer books shall make, at least ten (10) days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order and showing
the address of and the number and class and series, if any, of shares held by
each. Such list, for a period of ten (10) days prior to such meeting, shall be
kept at the principal place of business of the Corporation or at the office of
the transfer agent or registrar of the Corporation and such other places as
required by statute and shall be subject to inspection by any stockholder at any
time during the meeting.
SECTION 2.9 CONDUCT OF MEETING. The Chairman of the Board shall
preside at all meetings of the stockholders. In the absence of a Chairman, the
Chief Executive Officer shall preside at all such meetings. If neither the
Chairman of the Board nor the Chief Executive Officer are present, then the
President, or if the President is not present, then any other director chosen by
the directors in attendance, shall preside. The Secretary of the Corporation,
or, in his or her absence, an Assistant Secretary, if any, shall act as
secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman for the meeting shall appoint a secretary of
the meeting.
SECTION 2.10 INSPECTORS AND JUDGES. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If an inspector or inspectors or judge or judges are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by appointment made by
the person presiding at the meeting. Each inspector or judge, if any, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector or judge at such meeting with
strict impartiality and according to the best of his or her ability. The
inspectors or judges, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the
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existence of a quorum and the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors or judge or
judges, if any, shall make a report in writing on any challenge, question or
matter determined by him or her or them and execute a certificate of any fact
found by him or her or them.
ARTICLE III
DIRECTORS
SECTION 3.1 NUMBER. Subject to any right of the holder of any series
of Preferred Stock to elect additional directors, the number of directors shall
be fixed from time to time by the Board. The initial Board of Directors shall
consist of four (4) members.
SECTION 3.2 POWERS AND DUTIES. Subject to the applicable provisions
of law, these By-Laws or the Certificate of Incorporation, but in furtherance
and not in limitation of any rights therein conferred, the Board of Directors
shall have the control and management of the business and affairs of the
Corporation and shall exercise all such powers of the Corporation and do all
such lawful acts and things as may be exercised by the Corporation.
SECTION 3.3 PLACE OF MEETING. All meetings of the Board of Directors
may be held either within or without the State of Delaware.
SECTION 3.4 ANNUAL MEETINGS. An annual meeting of the Board of
Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting to the directors, including the
newly elected directors, shall be necessary in order legally to constitute the
meeting, provided a quorum shall be present, or the directors, including the
newly elected directors, may meet at such time and place as shall be fixed by
the written consent of all of such directors.
SECTION 3.5 REGULAR MEETINGS. Regular meetings of Board of Directors
may be held upon such notice or without notice, and at such time and at such
place as shall from time to time be determined by the Board.
SECTION 3.6 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board and shall be called
promptly by the Chairman of the Board upon the written request of at least a
majority of the Board specifying the special purpose thereof, on not less than
two (2) days notice to each director. Such request shall state the date, time
and place of the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 3.7 NOTICE OF MEETINGS. Notice of each special meeting of
the Board (and of each regular meeting for which notice shall be required) shall
be given by the Secretary or an Assistant Secretary and shall state the place,
date and time of the meeting. Notice of each such meeting shall be given orally
or shall be mailed to each director at his or her residence or usual place of
business. If notice of less than three (3) days is given, it shall be oral,
whether by telephone or in person, or sent by special delivery mail, telegraph
or telecopy. If mailed, the notice shall be given when deposited in the United
States mail, postage prepaid. Notice of any adjourned meeting, including the
place, date and time
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of the new meeting, shall be given to all directors not present at the time of
the adjournment, as well as to the other directors unless the place, date and
time of the new meeting is announced at the adjourned meeting.
SECTION 3.8 QUORUM AND VOTING. At all meetings of the Board of
Directors a majority of the entire Board shall be necessary to and shall
constitute a quorum for the transaction of business at any meeting of directors,
unless otherwise provided by any applicable provision of law, by these By-Laws
or by the Certificate of Incorporation. The act of a majority of the directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the Board of Directors, unless otherwise provided by any applicable
provision of law, by these By-Laws or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time until a
quorum shall be present.
SECTION 3.9 COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of the directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the Corporation as
directors, officers or otherwise.
SECTION 3.10 BOOKS AND RECORDS. The directors may keep the books of
the Corporation, except such as are required by law to be kept either within or
outside the State of Delaware, at such place or places as they may from time to
time determine.
SECTION 3.11 ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the Board, or by a committee of the Board, may be taken
without a meeting if all members of the Board or the committee, as the case may
be, consent in writing to the adoption of a resolution authorizing the action.
Any such resolution and the written consents thereto by the members of the Board
or committee shall be filed with the minutes of the proceedings of the Board or
committee.
SECTION 3.12 TELEPHONE PARTICIPATION. Any one or more members of the
Board, or any committee of the Board, may participate in a meeting of the Board
or committee by means of a conference telephone call or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
SECTION 3.13 COMMITTEES OF THE BOARD. The Board, by resolution
adopted by a majority of the entire Board, may designate one or more committees,
each consisting of one or more directors. The Board may designate one or more
directors as alternate members of any such committee. Such alternate members
may replace any absent member or members at any meeting of such committee. Each
committee (including the members thereof) shall serve at the pleasure of the
Board and may keep minutes of its meetings and report the same to the Board.
Except as otherwise provided by law, each such committee, to the extent provided
in the resolution establishing it, shall have and may exercise all the authority
of the Board with respect to all matters. However, no such committee shall have
power or authority to:
(a) amend the Certificate of Incorporation;
(b) adopt an agreement of merger or consolidation;
(c) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets;
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(d) recommend to the stockholders a dissolution of the Corporation or
a revocation of a dissolution;
(e) amend these By-Laws; and
unless expressly so provided by resolution of the Board, no such
committee shall have power or authority to:
(f) declare a dividend; or
(g) authorize the issuance of shares of the Corporation of any class.
ARTICLE IV
WAIVER
SECTION 4.1 WAIVER. Whenever a notice is required to be given by any
provision of law, by these By-Laws, or by the Certificate of Incorporation, a
waiver thereof in writing, whether before or after the time stated therein,
shall be deemed equivalent to such notice. In addition, any stockholder
attending a meeting of stockholders in person or by proxy without protesting
prior to the conclusion of the meeting the lack of notice thereof to him or her,
and any director attending a meeting of the Board of Directors without
protesting prior to the meeting or at its commencement such lack of notice,
shall be conclusively deemed to have waived notice of such meeting.
ARTICLE V
OFFICERS
SECTION 5.1 EXECUTIVE OFFICERS. The executive Officers of the
Corporation may include a Chairman of the Board, a Chief Executive Officer,
President, one or more Vice Presidents, a Chief Financial Officer, a Chief
Operating Officer, a Secretary and a Treasurer. Any person may hold two or more
of such offices. The executive officers of the Corporation shall be elected
annually (and from time to time by the Board of Directors, as vacancies occur),
at the annual meeting of the Board of Directors following the meeting of
stockholders at which the Board of Directors (or any class thereof) was elected.
SECTION 5.2 OTHER OFFICERS. The Board of Directors may appoint such
other officers and agents, including Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers, as it shall at any time or from time to
time deem necessary or advisable.
SECTION 5.3 AUTHORITIES AND DUTIES. All officers, as between
themselves and the Corporation, shall have such authority and perform such
duties in the management of the business and affairs of the Corporation as may
be provided in these By-Laws, or, to the extent not so provided, as may be
prescribed by the Board of Directors.
SECTION 5.4 TENURE AND REMOVAL. The officers of the Corporation
shall be elected or appointed to hold office until their respective successors
are elected or appointed. All officers shall hold office at the pleasure of the
Board of Directors, and any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors for cause or
without cause at any regular or special meeting.
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SECTION 5.5 VACANCIES. Any vacancy occurring in any office of the
Corporation, whether because of death, resignation or removal, with or without
cause, or any other reason, shall be filled by the Board of Directors.
SECTION 5.6 COMPENSATION. The salaries and other compensation of all
officers and agents of the Corporation shall be fixed by or in the manner
prescribed by the Board of Directors.
SECTION 5.7 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
have general and active supervision and direction over the other officers,
agents and employees of the Corporation and shall see that their duties are
properly performed, subject, however, to the control of the Board of Directors.
The Chairman shall perform all duties incident to the office of Chairman and
such other duties as from time to time may be assigned to the Chairman by the
Board of Directors or these By-Laws.
SECTION 5.8 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall have general charge of the business and affairs of the Corporation. The
Chief Executive Officer shall perform such other duties as are properly required
of him or her by the Board of Directors.
SECTION 5.9 PRESIDENT. The President shall have general charge of
the business and affairs of the Corporation, subject to reporting directly to
the Chief Executive Officer or, in the absence of a Chief Executive Officer, to
the Board of Directors, and in the absence of the Chairman of the Board and the
Chief Executive Officer shall preside at all meetings of the stockholders and
the directors and shall perform the duties of the Chief Executive Officer in his
or her absence.
SECTION 5.10 VICE PRESIDENTS. Each Vice President, if any, shall
have such powers and shall perform such duties as may from time to time be
assigned to him or her by the President or Board of Directors.
SECTION 5.11 SECRETARY. The Secretary shall attend all meetings of
the stockholders and all meetings of the Board of Directors and shall record all
proceedings taken at such meetings in a book to be kept for that purpose; he or
she shall see that all notices of meetings of stockholders and meetings of the
Board of Directors are duly given in accordance with the provisions of these
By-Laws or as required by law; he or she shall be the custodian of the records
and of the corporate seal or seals of the Corporation; he or she, or an
Assistant Secretary, shall have authority to affix the corporate seal or seals
to all documents, the execution of which, on behalf of the Corporation, under
its seal, is duly authorized, and when so affixed it may be attested by his or
her signature or the signature of such Assistant Secretary; and, in general, he
or she shall perform all duties incident to the office of the Secretary of a
corporation and such other duties as the Board of Directors may from time to
time prescribe.
SECTION 5.12 CHIEF FINANCIAL OFFICER AND TREASURER. The Chief
Financial Officer and Treasurer shall have charge of and be responsible for all
funds, securities, receipts and disbursements of the Corporation and shall
deposit, or cause to be deposited, in the name and to the credit of the
Corporation, all moneys and valuable effects in such banks, trust companies, or
other depositories as shall from time to time be selected by the Board of
Directors. He or she shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation; he or she shall render to
the Chief Executive Officer and to each member of the Board of Directors,
whenever requested, an account of all of his or her transactions as Chief
Financial Officer and Treasurer and of the financial condition of the
Corporation; and, in general, he or she shall perform all of the duties incident
to the office of the Chief Financial Officer and Treasurer of a corporation and
such other duties as the Board of Directors may from time to time prescribe.
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SECTION 5.13 OTHER OFFICERS. The Board of Directors may also elect
or may delegate to the Chairman of the Board or the Chief Executive Officer the
power to appoint such other officers, including a Chief Operating Officer, as it
may at any time or from time to time deem advisable, and any officers so elected
or appointed shall have such authority and perform such duties as the Board of
Directors or the Chief Executive Officer, if he or she shall have appointed
them, may from time to time prescribe.
ARTICLE VI
PROVISIONS RELATING TO STOCK CERTIFICATES AND STOCKHOLDERS
SECTION 6.1 FORM AND SIGNATURE. The shares of the Corporation shall
be represented by certificates signed by the Chief Executive Officer or
President or any Vice President and by the Secretary or any Assistant Secretary
or the Chief Financial Officer or any Assistant Treasurer, and shall bear the
seal of the Corporation or a facsimile thereof. Each certificate representing
shares shall state upon its face: (a) that the Corporation is formed under the
laws of the State of Delaware, (b) the name of the person or persons to whom it
is issued, (c) the number of shares which such certificate represents and
(d) the par value, if any, of each share represented by such certificate.
SECTION 6.2 REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares of stock to receive dividends or other distributions, and to
vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares of stock, and shall not be bound
to recognize any equitable or legal claim to or interest in such shares on the
part of any other person.
SECTION 6.3 TRANSFER OF STOCK. Upon surrender to the Corporation or
the appropriate transfer agent, if any, of the Corporation, of a certificate
representing shares of stock duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, and, in the event that the
certificate refers to any agreement restricting transfer of the shares which it
represents, proper evidence of compliance with such agreement, a new certificate
shall be issued to the person entitled thereto, and the old certificate canceled
and the transaction recorded upon the books of the Corporation.
SECTION 6.4 LOST CERTIFICATES, ETC. The Corporation may issue a new
certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed, and the Board may
require the owner of such lost, mutilated, stolen or destroyed certificate, or
his or her legal representative(s), to make an affidavit of that fact and/or to
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation on account of the alleged
loss, mutilation, theft or destruction of any such certificate, or the issuance
of any such new certificate.
SECTION 6.5 RECORD DATE. For the purpose of determining the
stockholders entitled to notice of, or to vote at, any meeting of stockholders
or any adjournment thereof, or to express written consent to any corporate
action without a meeting, or for the purpose of determining stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board may fix, in advance, a record date. Such date shall neither be more
than sixty (60) nor less than ten (10) days before the date of any such meeting,
nor more than sixty (60) days prior to any other action.
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SECTION 6.6 REGULATIONS. Except as otherwise provided by law, the
Board may make such additional rules and regulations, not inconsistent with
these By-Laws, as it may deem expedient, concerning the issue, transfer and
registration of certificates for the securities of the Corporation. The Board
may appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars and may require all certificates for
shares of capital stock to bear the signature or signatures of any of them.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 DIVIDENDS AND DISTRIBUTIONS. Dividends and other
distributions upon or with respect to outstanding shares of stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, bonds, property, or in stock of the
Corporation. The Board shall have full power and discretion, subject to the
provisions of the Certificate of Incorporation or the terms of any other
corporate document or instrument binding upon the Corporation to determine what,
if any, dividends or distributions shall be declared and paid or made.
SECTION 7.2 CHECKS, ETC. All checks or demands for money and notes
or other instruments evidencing indebtedness or obligations of the Corporation
shall be signed by such officer or officers or other person or persons as may
from time to time be designated by the Board of Directors.
SECTION 7.3 SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
SECTION 7.4 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 7.5 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may
authorize from time to time the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may be delegated by the Board from time to
time. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these By-Laws, as it
may deem expedient.
ARTICLE VIII
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
SECTION 8.1 INDEMNIFICATION. The Corporation shall indemnify each
person who was or is made a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person for whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or alleged action in
any other capacity while service as a director, officer, employee or agent, to
the maximum extent authorized by the General Corporation Law of the State of
Delaware, as the same exists
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or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred by such person in
connection with such proceeding and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators. The
right to indemnification conferred in this Article shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided
that, if the General Corporation Law of the State of Delaware so requires, the
payment of such expenses incurred by a director or officer in advance of the
final disposition of a proceeding shall be made only upon receipt by the
Corporation of an undertaking by or on behalf of such person to repay all
amounts so advanced if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article or
otherwise.
SECTION 8.2 NONEXCLUSIVITY. The right to indemnification and
advancement of expenses conferred on any person by this Article shall not limit
the Corporation from providing any other indemnification permitted by law nor
shall it be deemed exclusive of any other right which any such person may have
or hereafter acquire under any statute, provision of this Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
SECTION 8.3 INSURANCE. The Corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of the State of
Delaware.
ARTICLE IX
ADOPTION AND AMENDMENTS
SECTION 9.1 POWER TO AMEND. The Board of Directors shall have the
power to make, amend and repeal these By-Laws. Any By-Laws made by the Board of
Directors under the powers conferred hereby may be amended or repealed by the
Board of Directors or by the stockholders.
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WARRANT AGREEMENT
By and Between
NATIONS FLOORING, INC.
and
CHATFIELD DEAN & CO., Inc.
Dated as of __________ __, 199_
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<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ____________ __, 199_ by and between NATIONS
FLOORING, INC., a Delaware corporation (the "Company"), and CHATFIELD DEAN &
CO., Inc. ("Chatfield Dean").
The Company proposes to issue to CHATFIELD DEAN warrants as
hereinafter described (the "Chatfield Dean Warrants") to purchase up to an
aggregate of 200,000 shares, subject to adjustment as provided in Section 8
hereof (such shares, as adjusted, being hereinafter referred to as the "Shares")
of the Company's Common Stock, par value $0.001 per share (the "Common Stock"),
each Chatfield Dean Warrant entitling the holder thereof to purchase one share
of Common Stock. All capitalized terms used herein and not otherwise defined
herein shall have the same meanings as in that certain Underwriting Agreement,
of even date herewith, by and between the Company and Chatfield Dean (the
"Underwriting Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows;
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue,
sell and deliver for a purchase price of $100 the Chatfield Dean Warrants to
Chatfield Dean or its bona fide officers and/or directors or assigns. The form
of the Chatfield Dean Warrant and the form of election to purchase Shares to be
attached thereto shall be substantially as set forth on Exhibit A attached
hereto. The Chatfield Dean Warrants shall be executed on behalf of the Company
by the manual or facsimile signature of the present or any future President or
any Vice President of the Company, under its corporate seal, affixed or in
facsimile, and attested by the manual or facsimile signature of the present or
any future Secretary or Assistant Secretary of the Company.
2. REGISTRATION. The Chatfield Dean Warrants shall be numbered and
shall be registered in a Chatfield Dean Warrant register to be maintained by the
Company (the "Chatfield Dean Warrant Register"). The Company shall be entitled
to treat the registered holder of any Chatfield Dean Warrant on the Chatfield
Dean Warrant Register (the "Holder") as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Chatfield Dean Warrant on the part of any other person, and
shall not be liable for any registration of transfer of Chatfield Dean Warrants
which are registered or are to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration of
transfer, or with such knowledge of such facts that its participation therein
amounts to bad faith. The Chatfield Dean Warrants shall be registered initially
in the name of "Chatfield Dean & Co., Inc." in such denominations as Chatfield
Dean may request in writing to the Company; provided, however, that Chatfield
Dean may designate that all or a portion of the Chatfield Dean Warrants be
issued in varying amounts directly to its bona fide officers and/or directors,
or to other Underwriters (identified on Schedule __ of that certain Underwriting
Agreement dated __________ __, 1997 entered into between the Company and
Chatfield Dean and _________________ as Representatives of the several
Underwriters), and not to Chatfield Dean. Such designation will only be made by
Chatfield Dean if it determines that such issuances would not violate the
interpretation of the Board of Governors of the National Association of
Securities Dealers, Inc. (the "NASD") relating to the review of corporate
financing arrangements.
<PAGE>
3. TRANSFER OF WARRANTS. The Chatfield Dean Warrants will not be
sold, transferred, assigned or hypothecated, in part or in whole (other than by
will or pursuant to the laws of descent and distribution), except to bona fide
officers, directors, shareholders, employees or registered representatives of
Chatfield Dean after twelve (12) months from the effective date (the "Effective
Date") of the Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission (the "Commission") on __________ __, 199_, as
amended or supplemented (the "Registration Statement") and upon delivery thereof
duly endorsed by the Holder or by his duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or an official copy thereof, duly certified,
shall be deposited with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall deliver a new Chatfield Dean Warrant or Chatfield
Dean Warrants to the persons entitled thereto. The Chatfield Dean Warrants may
be exchanged at the option of the Holder thereof for another Chatfield Dean
Warrant, or other Chatfield Dean Warrants, of different denominations, of like
tenor and representing in the aggregate the right to purchase a like number of
shares of Common Stock upon surrender to the Company or its duly authorized
agent. Notwithstanding the foregoing, the Company shall have no obligation to
cause Chatfield Dean Warrants to be transferred on its books to any person, if
such transfer would violate the Securities Act of 1933, as amended (the "Act").
4. TERM OF WARRANTS; EXERCISE OF WARRANTS. (a) Each Chatfield Dean
Warrant entitles the registered owner thereof to purchase one Share at a
purchase price of $_____ per Share (120% of the "Price to Public" as set forth
on the cover page of the Prospectus which forms a part of the Registration
Statement)(the "Exercise Price") at any time from the first anniversary of the
Effective Date until 5:00 p.m., New York City time, on _________ __, 200_ (the
"Warrant Expiration Date"). Prior to the Warrant Expiration Date, the Company
will not take any action which would terminate the Chatfield Dean Warrants. The
Exercise Price and the Shares issuable upon exercise of Chatfield Dean Warrants
are subject to adjustment upon the occurrence of certain events, pursuant to the
provisions of Section 8 of this Agreement. Subject to the provisions of this
Agreement, each Holder shall have the right, which may be exercised as set forth
in such Chatfield Dean Warrants, to purchase from the Company (and the Company
shall issue and sell to such Holder) the number of fully paid and nonassessable
shares of Common Stock specified in such Chatfield Dean Warrant as follows:
(i) Upon surrender to the Company, or its duly authorized agent, of
such Chatfield Dean Warrants with the form of election to purchase attached
thereto duly completed and signed, with signatures guaranteed by a member
firm of a national securities exchange, a commercial bank or trust company
located in the United States or a member of the NASD and upon payment to
the Company of the Exercise Price, as adjusted in accordance with the
provisions of Section 8 of this Agreement, for the number of Shares in
respect of which such Chatfield Dean Warrants are then exercised. Payment
of such Exercise Price may be made in cash or by cashier's check payable to
the order of the Company. No adjustment shall be made for any dividends on
any Shares issuable upon exercise of a Chatfield Dean Warrant; or
(ii) Upon surrender to the Company, or its duly authorized agent,
of such Chatfield Dean Warrants with the form of cashless exercise attached
thereto (a "Cashless Exercise"), duly
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completed and signed, with signatures guaranteed by a member firm of a
national securities exchange, a commercial bank or trust company located in
the United States or a member of the NASD. Such surrender shall be deemed
a waiver of the obligation of the Holder to pay all or any portion of the
Exercise Price. In the event of a Cashless Exercise, the exercise price
will be paid by surrendering to the Company that number of Chatfield Dean
Warrants which is calculated by multiplying (i) the total number of
Chatfield Dean Warrants by (ii) the exercise price of the Chatfield Dean
Warrants and (iii) by dividing the product of (i) and (ii) by the then
current bid price for the Company's common stock, on the date of exercise
of the Chatfield Dean Warrants, of the Company's common stock ("the
Cashless Exercise Price"). The Cashless Exercise Price may be tendered pro
rata by the holder or holders of less than all the Chatfield Dean Warrants,
as the case may be.
(b) Upon each surrender of Chatfield Dean Warrants in accordance with
Section 4(a)(i) or 4(a)(ii) hereof, the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
Holder of such Chatfield Dean Warrants and in such name or names as such Holder
may designate, a certificate or certificates for the number of full Shares so
purchased upon the exercise of such Chatfield Dean Warrants, together with cash,
as provided in Section 9 of this Agreement, in respect of any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Shares as of the date
of the surrender of the Chatfield Dean Warrants as aforesaid (and payment of the
Exercise Price with respect to Section 4(a)(i) hereof); provided, however, that
if, at the date of surrender of such Chatfield Dean Warrants, the transfer books
for the Common Stock or other class of securities issuable upon the exercise of
such Chatfield Dean Warrants shall be closed, the certificates for the Shares
shall be issuable as of the date on which such books shall next be opened
(whether before, on or after the Warrant Expiration Date) and until such date
the Company shall be under no duty to deliver any certificate for such Shares;
provided, further, however, that the transfer books of record, unless otherwise
required by law, shall not be closed at any one time for a period longer than
twenty (20) days. The rights of purchase represented by the Chatfield Dean
Warrants shall be exercisable, at the election of the Holders thereof, either in
full or from time to time in part and, in the event that any Chatfield Dean
Warrant is exercised in respect of less than all of the Shares issuable upon
such exercise at any time prior to the Warrant Expiration Date, the Company
shall promptly issue or cause to be issued a new Chatfield Dean Warrant or
Chatfield Dean Warrants representing the remaining number of Shares specified in
the Chatfield Dean Warrant so surrendered.
5. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the issuance of Shares upon the exercise of
Chatfield Dean Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issue or delivery of any certificates for Shares in a name other
than that of the Holder of Chatfield Dean Warrants in respect of which such
Shares are issued.
6. MUTILATED OR MISSING WARRANTS. In case any of the Chatfield Dean
Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Chatfield Dean Warrant, or in lieu of and
substitution for the Chatfield Dean Warrant lost, stolen or destroyed, a new
Chatfield Dean Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence reasonably satisfactory to the
Company of such mutilation, loss, theft or destruction of such
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Chatfield Dean Warrant and indemnity, unless mutilated, also reasonably
satisfactory to the Company, indemnifying the Company for any claims arising
under a Chatfield Dean Warrant that has been lost, stolen or destroyed. An
applicant for such substitute Chatfield Dean Warrants shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
7. RESERVATION OF SHARES, ETC. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
Common Stock, such number of shares of Common Stock as shall be sufficient to
provide for the exercise of the rights of purchase represented by the
outstanding Chatfield Dean Warrants.[__________________], transfer agent for the
Common Stock (the "Transfer Agent"), and every subsequent transfer agent, if
any, for the Company's securities issuable upon the exercise of the Chatfield
Dean Warrants will be irrevocably authorized and directed at all times until the
Warrant Expiration Date to reserve such number of authorized and unissued shares
as shall be required for such purpose. The Company will keep a copy of this
Agreement on file with the Transfer Agent and with every subsequent transfer
agent for any shares of the Company's securities issuable upon the exercise of
the Chatfield Dean Warrants. The Company will supply the Transfer Agent or any
subsequent transfer agent with duly executed certificates for such purpose and
will itself provide or otherwise make available any cash which may be
distributable as provided in Section 9 of this Agreement. All Chatfield Dean
Warrants surrendered in the exercise of the rights thereby evidenced shall be
canceled, and such canceled Chatfield Dean Warrants shall constitute sufficient
evidence of the number of Shares that have been issued upon the exercise of such
Chatfield Dean Warrants. No shares of Common Stock shall be subject to
reservation in respect of unexercised Chatfield Dean Warrants subsequent to the
Warrant Expiration Date.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise
Price and the number and kind of securities issuable upon exercise of each
Chatfield Dean Warrant shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(a) In case the Company shall (i) declare a dividend on its
Common Stock in shares of Common Stock or make a distribution in Common Stock,
(ii) subdivide its outstanding Common Stock, (iii) combine its outstanding
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its Common Stock other securities of the Company (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), the number of Shares purchasable
upon exercise of each Chatfield Dean Warrant immediately prior thereto shall be
adjusted so that the Holder of each Chatfield Dean Warrant shall be entitled to
receive the kind and number of Shares or other securities of the Company which
he would have owned or have been entitled to receive after the happening of any
of the events described above, had such Chatfield Dean Warrant been exercised
immediately prior to the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event.
(b) In case the Company shall issue rights, options or warrants
to all holders of its Common Stock, without any charge to such holders,
entitling them (for a period expiring within 45 days after the record date
mentioned below in this paragraph (b)) to subscribe for or to purchase shares of
Common Stock at a price per share that is lower at the record date mentioned
below than the Current Market Price per share of Common Stock, the number of
Shares thereafter purchasable upon exercise of each Chatfield Dean Warrant shall
be determined by multiplying the
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number of Shares theretofore purchasable upon exercise of each Chatfield Dean
Warrant by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
Common Stock offered for subscription or purchase, and of which the denominator
shall be the number of shares of Common Stock outstanding on such record date
plus the number of shares which the aggregate offering price of the total number
of shares of Common Stock so offered would purchase at the Current Market Price
per share of Common Stock. Such adjustment shall be made whenever such rights,
options or warrants are issued, and shall become effective on the date of
issuance.
(c) In case the Company shall distribute to all holders of its
shares of Common Stock shares of stock (other than Common Stock) or evidences
of its indebtedness or assets (excluding cash dividends payable out of
consolidated earnings or retained earnings and dividends or distributions
referred to in paragraph (a) above) or rights, options or warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding those referred to in paragraph (b)
above), then in each case the number of Shares thereafter issuable upon the
exercise of each Chatfield Dean Warrant shall be determined by multiplying the
number of Shares theretofore issuable upon the exercise of each Chatfield Dean
Warrant, by a fraction, of which the numerator shall be the Current Market Price
per share of Common Stock on the record date mentioned below in this paragraph
(c), and of which the denominator shall be the Current Market Price per share of
Common Stock on such record date, less the then fair value (as determined by the
Board of Directors of the Company, whose determination shall be conclusive) of
the portion of the shares of stock (other than Common Stock) or assets or
evidences of indebtedness so distributed or of such subscription rights, options
or warrants, or of such convertible or exchangeable securities, applicable to
one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of distribution.
(d) For the purpose of any computation under this Agreement, the
"Current Market Price" per share of Common Stock at any date shall be the
average of the daily closing prices for fifteen (15) consecutive trading days
commencing twenty (20) trading days before the date of such computation. The
closing price for each day shall be the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
closing bid and asked prices regular way for such day, in either case on the
principal national securities exchange on which the shares are listed or
admitted to trading, or if they are not listed or admitted to trading on any
national securities exchange, but are traded in the over-the-counter market, the
closing sale price of the Common Stock or, in case no sale is publicly reported,
the average of the representative closing bid and asked quotations for the
Common Stock on the National Association of Securities Dealers Automated
Quotations ("NASDAQ") system or any comparable system, or if the Common Stock is
not listed on the NASDAQ system or a comparable system, the closing sale price
of the Common Stock or, in case no sale is publicly reported, the average of the
closing bid and asked prices as furnished by two members of the NASD selected
from time to time by the Company for that purpose.
(e) No adjustment in the number of Shares purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of Shares purchasable upon the
exercise of each Chatfield Dean Warrant; provided, however, that any adjustments
which by reason of this paragraph (e) are not required to be made shall
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be carried forward and taken into account in any subsequent adjustment, but not
later than three years after the happening of the specified event or events.
All calculations shall be made to the nearest one thousandth of a share.
Anything in this Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the number of
Shares purchasable upon the exercise of each Chatfield Dean Warrant, in addition
to those required by this Section 8, as it in its discretion shall determine to
be advisable in order that any dividend or distribution in shares of Common
Stock, subdivision, reclassification or combination of shares of Common Stock,
issuance of rights, warrants or options to purchase Common Stock, or
distribution of shares of stock other than Common Stock, evidences of
indebtedness or assets (other than distributions of cash out of consolidated
earnings or retained earnings) or convertible or exchangeable securities
hereafter made by the Company to the holders of its Common Stock shall not
result in any tax to the holders of its Common Stock or securities convertible
into Common Stock.
(f) Whenever the number of Shares purchasable upon the exercise
of each Chatfield Dean Warrant is adjusted, as herein provided, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such adjustment by a fraction, of which the numerator shall be the
number of Shares purchasable upon the exercise of each Chatfield Dean Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Shares so purchasable immediately thereafter.
(g) For the purpose of this Section 8, the term "shares of
Common Stock" shall mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares consisting
solely of changes in par value, or from no par value to par value, or from par
value to no par value. In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the Holders shall become
entitled to purchase any shares of capital stock of the Company other than
Common Stock, thereafter the number of such other shares so purchasable upon
exercise of each Chatfield Dean Warrant and the Exercise Price of such Shares
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Shares
contained in paragraphs (a) through (f), inclusive, and paragraphs (h) through
(m), inclusive, of this Section 8, and the provisions of Sections 4, 5, 7 and
10, with respect to the Shares, shall apply on like terms to any such other
shares.
(h) Upon the expiration of any rights, options, warrants or
conversion rights or exchange privileges, if any thereof shall not have been
exercised, the Exercise Price and the number of shares of Common Stock
purchasable upon the exercise of each Chatfield Dean Warrant shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been had
it originally been adjusted (or had the original adjustment not been required,
as the case may be) as if (i) the only shares of Common Stock so issued were the
Common Stock, if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion rights or exchange privileges and (ii) such
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the aggregate consideration, if
any, actually received by the Company for the issuance, sale or grant of all of
such rights, options, warrants or conversion rights or exchange privileges
whether or not exercised; provided, however, that no such readjustment shall
have the effect of increasing the Exercise Price by an amount in excess of the
amount of the adjustment initially made in respect to the issuance, sale or
grant of such rights, options, warrants or conversion rights or exchange
privileges.
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(i) The Company may, at its option, at any time during the term
of the Chatfield Dean Warrants, reduce the then current Exercise Price to any
amount deemed appropriate by the Board of Directors of the Company.
(j) Whenever the number of Shares issuable upon the exercise of
each Chatfield Dean Warrant or the Exercise Price of such Shares is adjusted, as
herein provided, the Company shall promptly mail by first class mail postage
prepaid, to each Holder notice of such adjustment or adjustments at such
Holder's address appearing on the Chatfield Dean Warrant Register. The Chief
Financial Officer of the Company shall make any computation required by this
Section 8 and shall execute a certificate (the "CFO Certificate") setting forth
the number of Shares issuable upon the exercise of each Chatfield Dean Warrant
and the Exercise Price of such Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Each Holder shall have the right
to inspect the CFO Certificate during reasonable business hours. In the event
that a Holder shall dispute the determination set forth in the CFO Certificate,
the Company shall retain, at its expense, a firm of independent public
accountants (who may be regular accountants employed by the Company) to make the
required computation and to prepare a certificate which shall set forth the
information required in the CFO Certificate. Such certificate shall be
conclusive on the correctness of such adjustment and each Holder shall have the
right to inspect such certificate during reasonable business hours.
(k) Except as provided in this Section 8, no adjustment in
respect of any dividends shall be made during the term of a Chatfield Dean
Warrant or upon the exercise of a Chatfield Dean Warrant.
(l) In case of any consolidation of the Company with or merger
of, the Company with or into another corporation or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, the Company or such successor or purchasing
corporation (or an affiliate of such successor or purchasing corporation), as
the case may be, agrees that each Holder shall have the right thereafter upon
payment of the Exercise Price in effect immediately prior to such action to
purchase upon exercise of each Chatfield Dean Warrant the kind and amount of
shares and other securities and property (including cash) which he would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Chatfield Dean Warrant been
exercised immediately prior to such action. The provisions of this paragraph
(l) shall similarly apply to successive consolidations, mergers, sales or
conveyances.
(m) Notwithstanding any adjustment in the Exercise Price or the
number or kind of shares purchasable upon the exercise of the Chatfield Dean
Warrants pursuant to this Agreement, certificates for Chatfield Dean Warrants
issued prior or subsequent to such adjustment may continue to express the same
price and number and kind of Shares as are initially issuable pursuant to this
Agreement.
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9. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractions of Shares upon the exercise of Chatfield Dean Warrants. If more than
one Chatfield Dean Warrant shall be presented for exercise in full at the same
time by the same Holder, the number of Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Shares issuable on exercise of the Chatfield Dean Warrants so presented. If any
fraction of a Share would, except for the provisions of this Section 9, be
issuable on the exercise of any Chatfield Dean Warrant (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the Current Market Price per share of Common Stock on
the date of exercise.
10. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and
agrees with Chatfield Dean and any other or subsequent Holders of the
Registrable Securities (as defined in paragraph (e) of this Section 10) that,
upon written request by the Holder(s) of at least fifty percent (50%) of the
Chatfield Dean Warrants or of the Registrable Securities which were originally
issued on the date hereof to Chatfield Dean or its designees within the period
commencing twelve months and ending five years after the Effective Date, the
Company will file as promptly as practicable and, in any event, within 30 days
after receipt of such written request, at its sole expense, no more than once a
post-effective amendment (the "Amendment") to the Registration Statement, or a
new Registration Statement or a Regulation A Offering Statement (an "Offering
Statement") under the Act, registering or qualifying the Registrable Securities
for sale. Not less than thirty (30) days prior to filing such Amendment,
Registration Statement or Offering Statement with the Commission, the Company
shall give notice to the other Holders of the Registrable Securities at the
addresses appearing on the Chatfield Dean Warrant Register advising that the
Company is proceeding with such Amendment, Registration Statement or Offering
Statement and offering to include therein the Registrable Securities of such
Holders. The Company shall not be obligated to any such other Holder unless
such other Holder shall accept such offer by notice in writing to the Company
within fifteen (15) days thereafter. No other securities of the Company shall
be entitled to be included in such Amendment, Registration Statement or Offering
Statement. The Company will use its best efforts, through its officers,
directors, auditors and counsel in all matters necessary or advisable, to file
and cause to become effective such Amendment, Registration Statement or Offering
Statement as promptly as practicable and for a period of two years thereafter to
reflect in the Amendment, Registration Statement or Offering Statement financial
statements which are prepared in accordance with Section 10(a)(3) of the Act and
any facts or events arising that, individually, or in the aggregate, represent a
fundamental and/or material change in the information set forth in the
Amendment, Registration Statement or Offering Statement to enable any Holders of
the Chatfield Dean Warrants to exercise such Chatfield Dean Warrants and sell
Shares, or to enable any holders of Shares to sell such Shares, during said
two-year period. If any registration pursuant to this paragraph (a) is an
underwritten offering, the Holders of a majority of the Registrable Securities
to be included in such registration shall be entitled to select the underwriter
or managing underwriter (in the case of a syndicated offering) of such offering
and all costs incurred in connection with the preparation of such registration
shall be paid by the Company, provided that fees of Underwriter's counsel and
sales commissions for Chatfield Dean and such holders shall be borne by
Chatfield Dean. The Company agrees to use its best efforts to cause the above
filing to become effective as promptly as practicable and to remain current for
six (6) months.
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(b) PIGGYBACK REGISTRATION RIGHTS. The Company covenants and
agrees with Chatfield Dean and any other Holders or subsequent Holders of the
Registrable Securities that if, at any time within the period commencing twelve
months and ending five years after the Effective Date, it proposes to file a
Registration Statement or Offering Statement with respect to any class of
security (other than in connection with an offering to the Company's employees)
under the Act in a primary registration on behalf of the Company and/or in a
secondary registration on behalf of holders of such securities and the
registration form or Offering Statement to be used may be used for registration
of the Registrable Securities, the Company will give prompt written notice
(which, in the case of a Registration Statement or notification pursuant to the
exercise of demand registration rights other than those provided in Section
10(a) of this Agreement, shall be within fifteen days after the Company's
receipt of notice of such exercise and, in any event, shall be at least thirty
(30) days prior to such filing) to, Chatfield Dean and to the Holders of
Registrable Securities (regardless of whether some of the Holders shall have
theretofore availed themselves of the right provided in Section 10(a) of this
Agreement) at the addresses appearing on the records of the Company of its
intention to file a Registration Statement or Offering Statement. Chatfield
Dean (or its assigns) shall have the right to register all, but not less than
twenty percent (20%), of the Registrable Securities by notifying the Company in
writing within fifteen (15) days of receipt of the Company's notice, requesting
registration of such Registrable Securities and setting forth the intended
method of distribution and such other data or information as the Company or its
counsel shall reasonably require. Such registration shall be without cost to
Chatfield Dean (or its assigns), provided that fees of Underwriter's counsel and
sales commissions for Chatfield Dean and such holders shall be borne by
Chatfield Dean. In the event that such offering is underwritten by a
broker/dealer other than Chatfield Dean, then Chatfield Dean's right to register
the Warrants in such Registration Statement shall be subject to the approval of
such underwriter, and the Company agrees to use its reasonable efforts to obtain
such approval. All registrations requested pursuant to this Section 10(b) are
referred to herein as "Piggyback Registrations." This paragraph is not
applicable to a Registration Statement filed by the Company with the Commission
on Forms S-4 or S-8 or any successor forms.
(i) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration includes an underwritten primary registration on behalf of the
Company and the underwriter(s) for the offering being registered by the
Company shall determine in good faith and advise the Company in writing
that in its/their opinion the number of Registrable Securities requested to
be included in such registration exceeds the number that can be sold in
such offering without materially adversely affecting the distribution of
such securities by the Company, the Company will include in such
registration (A) first, the securities that the Company proposes to sell
and (B) second, the Registrable Securities requested to be included in such
registration, apportioned pro rata among the Holders of Registrable
Securities and (C) third, securities of the holders of other securities
requesting registration.
(ii) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration consists only of an underwritten secondary registration on
behalf of holders of securities of the Company (other than pursuant to
Section 10(a)), and the underwriter(s) for the offering being registered by
the Company advise the Company in writing that in its/their opinion the
number of Registrable Securities requested to be included in such
registration exceeds the number which can be sold in such offering without
materially adversely affecting the distribution of such securities by the
Company, the Company will include in such registration (A) first, the
securities requested to be included therein by the holders requesting such
registration and the
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Registrable Securities requested to be included in such registration above,
pro rata, among all such holders on the basis of the number of shares
requested to be included by each such holder and (B) second, other
securities requested to be included in such registration.
Notwithstanding the foregoing, if any such underwriter(s)
shall determine in good faith and advise the Company in writing that the
distribution of the Registrable Securities requested to be included in the
registration concurrently with the securities being registered by the
Company would materially adversely affect the distribution of such
securities by the Company, then the Holders of such Registrable Securities
shall not participate in the Company's distribution by the underwriter(s)
and shall delay their offering and sale for such period ending on the
earliest of (1) 90 days following the effective date of the Company's
registration statement, (2) the day upon which the underwriting syndicate,
if any, for such offering shall have been disbanded or (3) such date as the
Company, managing underwriter and Holders of Registrable Securities shall
not participate in the Company's distribution by the underwriter(s) and
shall otherwise agree. In the event of such delay, the Company shall file
such supplements, post-effective amendments and take any such other steps
as may be necessary to permit such Holders to make their proposed offering
and sale for a period of 120 days immediately following the end of such
period of delay. If any party disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company, the underwriter, and Chatfield Dean. Notwithstanding the
foregoing, the Company shall not be required to file a registration
statement to include Shares pursuant to this Section 10(b) if an opinion of
counsel, reasonably satisfactory to counsel for Chatfield Dean, that the
Shares proposed to be disposed of may be transferred pursuant to the
provisions of Rule 144 under the Act shall have been delivered to the
Company and Chatfield Dean.
(c) OTHER REGISTRATION RIGHTS. In addition to the rights above
provided, the Company will cooperate with the then Holders of the Registrable
Securities in preparing and signing any Registration Statement or Offering
Statement, in addition to the Registration Statements and Offering Statements
discussed above, required in order to sell or transfer the Registrable
Securities and will supply all information required therefor, but such
additional Registration Statement or Offering Statement shall be at the then
Holders' cost, and expense and subject to reasonable delay (no longer than 120
days) by the Company if it would adversely impact the Company in its capital
raising plans or otherwise; provided, however, that if the Company elects to
register or qualify additional shares of Common Stock, the cost and expense of
such Registration Statement or Offering Statement will be pro rated between the
Company and the Holders of the Registrable Securities according to the aggregate
sales price of the securities being issued. Notwithstanding the foregoing, the
Company will not be required to file a Registration Statement or Offering
Statement hereunder or under Section 10(a) hereof at a time when the audited
financial statements required to be included therein are not available, which
time shall be limited to the period commencing 45 days after the end of the
Company's last fiscal year and ending 90 days after the end of such fiscal year
existing at the time of the proposed offering.
(d) ACTION TO BE TAKEN BY THE COMPANY. In connection with the
registration of Registrable Securities in accordance with paragraphs (a), (b) or
(c) of this Section 10, the Company agrees to:
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(i) Bear the expenses of any registration or qualification under
paragraphs (a) or (b) of this Section 10, including, but not limited to,
legal, accounting and printing fees; provided, however, that in no event
shall the Company be obligated to pay (A) any fees and disbursements of
special counsel for Holders of Registrable Securities, or (B) any
underwriters' discount or commission in respect of such Registrable
Securities, or (C) upon the exercise of and demand registration right
provided for in paragraph (a) of this Section 10, the cost of any liability
or similar insurance required by an underwriter, to the extent that such
costs are attributable solely to the offering of such Registrable
Securities, payment of which shall, in each case, be the sole
responsibility of the Holders of the Registrable Securities;
(ii) Use its best efforts to register or qualify the Registrable
Securities for offer or sale under state securities or Blue Sky laws of
jurisdictions in which Chatfield Dean shall reasonably request and to do
any and all other acts and things which may be necessary or advisable to
enable the holders to consummate the proposed sale, transfer or other
disposition of such securities in any jurisdiction; and
(iii) Enter into a cross-indemnity agreement, in customary form,
with each underwriter, if any, and each holder of securities included in
such Amendment, Registration Statement or Offering Statement,
(e) For purposes of this Section 10, (i) the term "Holder" shall
include holders of Shares, and (ii) the term "Registrable Securities" shall
mean the Shares issuable or issued upon exercise of the Chatfield Dean
Warrants.
11. NOTICES TO HOLDERS.
(a) Nothing contained in this Agreement or in any of the
Chatfield Dean Warrants shall be construed as conferring upon the Holders
thereof the right to vote or to receive dividends or to consent or to
receive notice as shareholders in respect of the meetings of shareholders
or the election of directors of the Company or any other matter, or any
rights whatsoever as shareholders of the Company; provided, however, that
in the event that a meeting of shareholders shall be called to consider and
take action on a proposal for the voluntary dissolution of the Company,
other than in connection with a consolidation, merger or sale of all, or
substantially all, of its property, assets, business and good will as an
entirety, then and in that event the Company shall cause a notice thereof
to be sent by first-class mail, postage prepaid, at least twenty (20) days
prior to the date filed as a record date or the date of closing the
transfer books in relation to such meeting, to each registered Holder of
Chatfield Dean Warrants at such Holder's address appearing on the Chatfield
Dean Warrant Register; but failure to mail or to receive such notice or any
defect therein or in the mailing thereof shall not affect the validity of
any action taken in connection with such voluntary dissolution. If such
notice shall have been so given and if such a voluntary dissolution shall
be authorized at such meeting or any adjournment thereof, then from and
after the date on which such voluntary dissolution shall have been duly
authorized by the shareholders, the purchase rights represented by the
Chatfield Dean Warrants and all other rights with respect thereto shall
cease and terminate.
-11-
<PAGE>
(b) In the event the Company intends to make any distribution on
its Common Stock (or other securities which may be issuable in lieu thereof upon
the exercise of Chatfield Dean Warrants), including, without limitation, any
such distribution to be made in connection with a consolidation or merger in
which the Company is the continuing corporation, or to issue subscription rights
or warrants to holders of its Common Stock, the Company shall cause a notice of
its intention to make such distribution to be sent by first-class mail, postage
prepaid, at least twenty (20) days prior to the date fixed as a record date or
the date of closing the transfer books in relation to such distribution, to each
registered Holder of Chatfield Dean Warrants at such Holder's address appearing
on the Chatfield Dean Warrant Register, but failure to mail or to receive such
notice or any defect therein or in the mailing thereof shall not affect the
validity of any action taken in connection with such distribution.
12. NOTICES. Any notice pursuant to this Agreement to be given or
made by the Holder of any Chatfield Dean Warrant and/or the holder of any Share
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed as follows or to such other address as the
Company may designate by notice given in accordance with this Section 12, to the
Holders of Chatfield Dean Warrants and/or the holders of Shares:
Branin Investments, Inc.
100 Maiden Lane, 17th Floor
New York, New York 10038
Attn: Philip A. Herman
with a copy to:
Herzfeld & Rubin
40 Wall Street
New York, New York 1005
Attn: Andrew Levinson, Esq.
Notices or demands authorized by this Agreement to be given or
made by the Company to or on the Holder of any Chatfield Dean Warrant and/or the
holder of any Share shall be sufficiently given or made (except as otherwise
provided in this Agreement) if sent by first-class mail, postage prepaid,
addressed to such Holder or such holder of Shares at the address of such Holder
or such holder of Shares as shown on the Chatfield Dean Warrant Register or the
books of the Company, as the case may be.
13. GOVERNING LAW. This Agreement and each Chatfield Dean Warrant
issued hereunder shall be governed by and construed in accordance with the
substantive laws of the State of New York. The Company hereby agrees to accept
service of process by notice given to it pursuant to the provisions of Section
12.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day, month and year first above written.
(Corporate Seal)
NATIONS FLOORING, INC.
By:
---------------------
Name:
Title:
Attest:
- -----------------
(Corporate Seal)
CHATFIELD DEAN & CO. INC.
By:
---------------------
Name:
Title:
Attest:
- -------------------
-13-
<PAGE>
EXHIBIT A
No. ________ ________ Warrants
VOID AFTER 5:00 P.M. NEW YORK CITY TIME
ON __________, 2001
NATIONS FLOORING, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received ______________ or registered
assigns, is the owner of the number of warrants set forth above, each of which
entitles the owner thereof to purchase at any time from __________ __, 199_,
until 5:00 p.m., New York City time on __________ __, 200_,(the "Warrant
Expiration Date"), one fully paid and nonassessable share of Common Stock, par
value $.001 per share (the "Common Stock"), of NATIONS FLOORING, INC., a
Delaware corporation (the "Company"), at the purchase price of $____ per share
(the "Exercise Price") upon presentation and surrender of this Warrant
Certificate with either the Form of Election to Purchase or Form of Cashless
Exercise duly executed. The number of Warrants evidenced by this Warrant
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Exercise Price per share set forth above, are
the number and Exercise Price as of the date of original issuance of the
Warrants, based on the shares of Common Stock of the Company as constituted at
such date. As provided in the Warrant Agreement referred to below, the Exercise
Price and the number or kind of shares which may be purchased upon the exercise
of the Warrants evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to modification and adjustment.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated as of
_________ __, 199_ (the "Warrant Agreement") between the Company and Chatfield
Dean & Co., Inc. which Warrant Agreement is hereby incorporated herein by
reference and made a part hereof and to which Warrant Agreement reference is
hereby made for a full description of the rights, limitations of rights, duties
and immunities hereunder of the Company and the holders of the Warrant
Certificates. Copies of the Warrant Agreement are on file at the principal
office of the Company.
This Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the holder to purchase a like aggregate number of
shares of Common Stock as the Warrants evidenced by the Warrant Certificate or
Warrant Certificates surrendered entitled such holder to purchase. If this
Warrant Certificate shall be exercised in part, the holder hereof shall be
entitled to receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise
of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
A-1
<PAGE>
No holder of this Warrant Certificate shall be entitled to vote or
receive dividends or be deemed the holder of Common Stock, any other securities
of the Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise) or,
except as provided in the Warrant Agreement, to receive notice of meetings, or
to receive dividends or subscription rights or otherwise, until the Warrant or
Warrants evidenced by this Warrant Certificate shall have been exercised and the
shares shall have become deliverable as provided in the Warrant Agreement.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for the Company's Common Stock or other class of
stock purchasable upon the exercise of this Warrant are closed for any purpose,
the Company shall not be required to make delivery of certificates for shares
purchasable upon such exercise until the date of the reopening of said transfer
books.
IN WITNESS WHEREOF, NATIONS FLOORING, INC. has caused the signature
(or facsimile signature) of its President and its Secretary to be printed hereon
and its corporate seal (or facsimile) to be printed hereon.
Dated: __________, 199_
NATIONS FLOORING, INC.
By:
-------------------------
Name:
Title:
[Corporate Seal]
Attest:
- -----------------------------
Name:
Title: Secretary
A-2
<PAGE>
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate in
accordance with Section 4(a)(i) of the Warrant Agreement.)
TO: NATIONS FLOORING, INC.
The undersigned hereby irrevocably elects to exercise Warrants
represented by this Warrant Certificate to purchase the shares of Common Stock
issuable upon the exercise of such Warrants and payment of the Exercise Price
therefor in accordance with Section 4(a)(i) of the Warrant Agreement and
requests that certificates for such shares to be issued in the name of:
Please insert social security or other
identifying number
- --------------------------------------
- --------------------------------------
-----------------------------------------------------------------
(Please print name and address)
-----------------------------------------------------------------
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert social security number or other
identifying number
- --------------------------------------
- --------------------------------------
-----------------------------------------------------------------
(Please print name and address)
-----------------------------------------------------------------
Dated: ______________, 199_
------------------------------
Signature
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant Certificate)
Signature Guaranteed:
<PAGE>
FORM OF CASHLESS EXERCISE
(To be executed if holder desires to exercise
the Warrant Certificate in accordance
with Section 4(a)(ii) of the Warrant Agreement)
TO: NATIONS FLOORING, INC.
The undersigned hereby irrevocably elects a Cashless Exercise of the
Warrants represented by this Warrant Certificate to purchase the shares of
Common Stock issuable upon the exercise of such Warrants in accordance with
Section 4(a)(ii) of the Warrant Agreement and requests that certificates for
such shares be issued in the name of:
Please insert Social Security or
other identifying number
- -----------------------------------
- -----------------------------------
- -------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert Social Security or
other identifying number
- -----------------------------------
- -----------------------------------
- -------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------
Dated: __________, 199_
--------------------------------
Signature
(Signature must conform in all
respects to name of holder as
specified on the back of this
Warrant Certificate)
Signature Guaranteed:
<PAGE>
FORM OF
ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates.)
FOR VALUE RECEIVED, ________________________ hereby sells, assigns and
transfers unto this Warrant Certificate, together with all right, title and
interest herein, and does hereby irrevocably constitute and appoint
________________, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _______________, 199_
Signature
------------------
Signature Guaranteed:
NOTICE
The signature of the foregoing Assignment must correspond to the name
as written upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 28th day of May, 1996 between CARPET BARN,
INC., a corporation organized under the laws of the State of Delaware, with
offices at 105 West Charleston Boulevard, Las Vegas, Nevada 89102 (hereinafter
referred to as the "Company"), and ALAN EMBER, an individual residing at 51-05
North 40th St. Apt. E 201, Pheonix, AZ 85018.
W I T N E S E T H:
WHEREAS, Employee desires to become employed by the Company;
WHEREAS, the Company desires to obtain the services of Employee; and
WHEREAS, as a key employee of the Company, Employee will gain
knowledge and expertise with respect to the business and operations (including,
without limitation, the employees, customers and suppliers) of the Company;
NOW THEREFORE, in consideration of the covenants and agreements herein
set forth, the parties hereto agree as follows:
2. TERM. The Company will employ Employee and Employee will work for the
Company for the period beginning on the date hereof and ending on the date
immediately preceding the third anniversary of the date hereof, unless and until
such employment hereunder shall have been earlier terminated or extended as
provided in this Agreement. The term of this Agreement shall be automatically
extended for successive one year periods unless one party shall give notice to
the other party, at least ninety (90) days prior to the then current expiration
date of such term, of its intention not to extend such term. Each of the
successive twelve-month periods during the term of the employment of Employee
hereunder (the first beginning on the date hereof) shall hereinafter be referred
to as a "Contract Year".
3. DUTIES. During his employment by the Company hereunder, Employee
shall: (a) render his services as Senior Vice President (b) perform duties
consistent with his titles and such other related duties, not inconsistent with
his titles, as the Board of Directors of the Company otherwise shall request,
(c) not engage in any other business activity (other than passive investment
activities which are not prohibited under paragraph 7) and (d) devote all his
business time, attention, skill and his best efforts exclusively to his duties
hereunder and the business and affairs of the Company and its Affiliates (as
defined in subparagraph 9J). Employee shall report directly to the President of
the Company. During the period of his employment, Employee also agrees to
serve, if elected, as a director of the Company and/or as an officer and/or
director of any Affiliate of the Company (and agrees that he shall be deemed to
have resigned from all such positions upon the termination of his employment
with the Company hereunder).
<PAGE>
4. COMPENSATION AND BENEFITS. As compensation for his services to the
Company during his employment hereunder in any capacity (including, without
limitation, services as an executive, officer, director or member of any
committee of the Company or its Affiliates), the Employee shall be entitled to
the following:
A. BASE SALARY. Employee shall receive a base salary at the rate of
one-hundred twenty five thousand dollars ($125,000) payable in substantially
equal installments in accordance with the normal payroll practices of the
Company. The Company shall annually review Employee's base salary to determine
whether, and to what extent, such base salary shall be increased.
B. BONUS.
(1) Employee shall provide the Company with quarterly financial
projections for the entity for which he will operate. At the end of each fiscal
year, the Employee will be eligible to receive a bonus in the form of Ragar
Corp. common shares equal to percent (25%) of the Earnings Before
Interest and Taxes for the Entity.
(2) For purposes of this Agreement, (a) the term "Earnings
Before Interest and Taxes" shall refer to the earnings before interest and taxes
(or other like phase of similar import) of the Company for the relevant fiscal
year, as shown on the Company's Financial Statements, (b) the term "Company's
Financial Statements" shall refer to such annual financial statements, relating
to the operations and financial position of the Company, as are regularly
prepared by or on behalf of the Company in the normal course of its business,
(c) the term "Payment Date" shall refer to the date falling fifteen days after
the date on which the Company's Financial Statements are finalized by or on
behalf of the Company.
(3) Employee acknowledges and agrees to all the terms and
provisions set forth in Exhibit A hereto with respect to any and all Common
Stock issued to Employee.
C. CAR ALLOWANCE. Employee shall be entitled to receive a car
allowance of five hundred dollars ($500) per month.
D. VACATION. Employee shall be entitled to take an aggregate of
three (3) weeks of paid vacation during each Contract Year (which shall be non-
cumulative), to be taken at such times as may be consistent with the needs of
the business of the Company and the proper discharge of Employee's duties
hereunder.
E. OTHER BENEFITS. Employee shall also be entitled to such benefits
of the Company as may be in effect from time to time and generally available to
senior executive employees of the Company, including, but not limited to,
medical insurance, life insurance and disability insurance.
2
<PAGE>
F. WITHHOLDING. All compensation paid to Employee hereunder shall
be subject to such withholdings as may be required by applicable law.
5. BUSINESS EXPENSES. Employee is authorized during the term of his
employment hereunder to incur necessary and reasonable expenses in connection
with the performance of his duties hereunder, including expenses for
transportation, business meals, travel, and similar items. The Company will
reimburse Employee for all such expenses upon his presentation, from time to
time, of a reasonably itemized account of such expenditures together with
receipts and other appropriate supporting documentation therefor. Such account
shall be provided by Employee as promptly as possible after disbursement of
funds by Employee.
6. TERMINATION OF EMPLOYMENT. The following provisions set forth the
only circumstances under which this Agreement, and therefore the employment of
Employee hereunder, may be terminated prior to expiration of the term provided
for in paragraph 1:
A. UPON DEATH. This Agreement shall terminate upon the death of
Employee.
B. FOR CAUSE. This Agreement may be terminated by the Company in
the event of the occurrence of any of the following conditions or events:
(1) the failure of Employee to substantially perform his duties
hereunder as a result of physical or mental incapacity, for either one
continuous period of two (2) months or a total of three (3) out of any four (4)
consecutive months ("Total Disability") (performance of duties for a period of
less than two weeks shall not be deemed to interrupt an otherwise continuous
period);
(2) the entering by Employee of a plea of guilty or NOLO
CONTENDERE to, or the commission by Employee of, a felony or any other criminal
act involving moral turpitude, dishonesty or theft;
(3) the failure or refusal of Employee to perform his duties
hereunder (other than as a result of death, illness, or other objective
incapacity, including Total Disability);
(4) the commission by Employee of misconduct or insubordination
in connection with his employment; or
(5) the commission by Employee of any willful or intentional act
having the effect of injuring the reputation, business or business relationships
of the Company or its Affiliates;
(6) any other material breach of this Agreement by Employee; or
3
<PAGE>
(7) the failure of the Company to achieve EBIT (determined in
accordance with generally accepted accounting principles consistently applied)
equal to or greater than: (a) in any fiscal quarter, seventy-five percent (75%)
of the projected net income for such quarter (as shown on Exhibit B hereto); or
(b) in each of any two consecutive fiscal quarters, eighty-five percent (85%) of
the projected net income for such quarter (as shown on Exhibit B hereto) (it
being acknowledged that such failure may be determined to have resulted
primarily from industry-wide conditions in the geographic market served by the
Company).
The good faith determination by the Company's Board of Directors as to
whether any of the foregoing events or conditions has occurred (or been cured)
shall be conclusive for all purposes of this paragraph 4. Upon or after the
date of occurrence of any of the events or conditions described above, the
Company may deliver written notice to Employee of its election to terminate his
employment hereunder (a "Termination Notice"). Fifteen (15) days after the
delivery of such notice, the employment of Employee, and this Agreement, shall
terminate unless, with respect to subparagraph (3), (4), (5) or (6), during said
fifteen-day period, said event or condition, if curable, shall have been cured;
PROVIDED, HOWEVER, that notwithstanding the foregoing, in the event that the
Company shall deliver a Termination Notice with respect to subparagraph (3),
(4), (5) or (6), Employee's termination shall take effect on such fifteenth day
notwithstanding any cure or attempted cure if (a) any of the events specified in
said subparagraph (3), (4), (5) or (6) shall have previously occurred (any such
event being a "Prior Event") and (b) the Company shall have delivered a
Termination Notice with respect to any such Prior Event.
C. VOLUNTARY RESIGNATION. This Agreement may be terminated at any
time by Employee upon not less than ninety (90) days' prior written notice to
the Company.
7. SEVERANCE PAY AND OTHER OBLIGATIONS.
A. SEVERANCE PAY. In the event that this Agreement shall be
terminated by virtue of clauses (1) or (7) of subparagraph 4B, Employee shall be
entitled to severance pay ("Severance Pay") in an amount equal to two months'
base salary (plus an additional month's base salary for each full Contract Year
which has elapsed prior to the effective date of such termination) at the rate
in effect at the time of such termination. Severance Pay shall be paid to
Employee in such number of substantially equal monthly installments as shall
equal the number of months' base salary comprising the Severance Pay, each
payable on the first day of the month, beginning on the first day of the month
immediately succeeding that month in which the termination of this Agreement
shall occur (the period between the date of such termination and the date on
which, under the provisions of this subparagraph, the Severance Pay would be
fully paid being the "Severance Period").
B. OTHER OBLIGATIONS. Upon the expiration or any other termination
of this Agreement, the Company shall be under no further
4
<PAGE>
obligation to the Employee except to pay the Employee (i) any salary under
subparagraph 2A for services rendered up to and including the date of
termination, (ii) any reimbursement for expenses incurred by Employee pursuant
to paragraph 4 hereof up to and including the date of termination, (iii) any and
all compensation to which Employee may be entitled as of the date of termination
pursuant to subparagraph 2B or any benefit plan of the Company and (iv) any
Severance Pay due to Employee pursuant to the preceding subparagraph.
8. RESTRICTIVE COVENANT.
A. Without limiting any other obligation Employee may have under
applicable law as an officer and employee of the Company, Employee agrees that
from the date hereof until the date falling eighteen (18) months after the later
of the date on which he ceases to be an employee of the Company (which for
purposes of this paragraph 6 includes its Affiliates) and the date on which the
Severance Period, if any, shall end (the later date being the "Cessation Date"),
he shall not, directly or indirectly, anywhere within the states of Nevada,
California, Utah or Arizona (or any other state in which the Company is
conducting business at the Cessation Date or has conducted business at any prior
time thereto), (i) engage in the business of selling and/or installing carpet,
vinyl, ceramic tile or any other floor coverings (or engage in the business of
selling or providing any other product or service which the Company sells or
provides at the Cessation Date or has sold or provided at any time prior
thereto) to consumers, new home builders or any other persons or entities (the
"Business") or assist, advise, represent or consult for any other person or
entity in connection with such person or entity engaging in the Business, (ii)
induce, or attempt to induce, any employee of the Company to leave such employ,
or to accept any other position or employment or assist any other person or
entity in hiring such employee, (iii) solicit, or attempt to solicit, any
persons or entities who or which are customers of the Company (as of the
Cessation Date or at any time prior thereto) in connection with the engagement,
by any person or entity, in the Business; or (iv) otherwise disrupt or interfere
with, or attempt to disrupt or interfere with, the Company's relations with any
actual or potential customer or supplier or any other material relationship of
the Company; PROVIDED, HOWEVER, that in the event of a termination of employment
of Employee pursuant to clause (7) of subparagraph 4B where the failure to meet
the relevant projected quarterly earnings is determined to have resulted
primarily from industry-wide conditions in the geographic market served by the
Company, the time period of "eighteen (18) months" stated earlier in this
subparagraph shall be deemed amended to six (6) months.
B. For purposes of subparagraph A of this paragraph, the term
"indirectly" shall include, without limitation, a reference to any business or
entity: (1) which Employee engages in, consults for, manages, operates,
controls or supervises or in which Employee participates in the management,
operation, control or supervision of; or (2) in which Employee has any direct or
indirect ownership or financial interest, OTHER THAN the direct
5
<PAGE>
or indirect beneficial ownership by Employee of less than four percent (4%) of
the voting capital stock of a publicly held corporation.
9. PROPRIETARY INFORMATION.
A. For Purposes of this paragraph 7, the term "Proprietary
Information" shall mean any and all information concerning or relating to the
business or operations of the Company (which for purposes of this paragraph 8
includes its Affiliates), including, without limitation, information concerning
or relating to products, prices, costs, customers, suppliers, employees,
independent contractors, trade secrets, know-how, discoveries, methods,
processes, data, business plans, results of operations, technical information,
financial information, business forecasts, marketing plans and information,
current, future and proposed products and services, research, development and
design details and specifications of the Company. Notwithstanding the
foregoing, Proprietary Information shall not be deemed to include any
information which is or becomes generally available to the public OTHER THAN as
a result, directly or indirectly, of acts of Employee.
B. Employee agrees to treat the Proprietary Information as strictly
confidential and, except to the extent necessary in the ordinary course of
performing tasks for which Employee is responsible to the Company, shall not
directly or indirectly: (i) use any Proprietary Information for any purpose; or
(ii) disclose in any manner the Proprietary Information to any person or entity.
Upon the earlier of (i) the termination of the employment of Employee hereunder
and (ii) the request by the Company, Employee shall promptly return to the
Company all Proprietary Information in his possession. Employee further agrees
that he does not and shall not have any right, title or interest (by license or
otherwise) in or to any Proprietary Information.
C. Notwithstanding the foregoing subparagraph, Employee may disclose
Proprietary Information in the event and to the extent that Employee becomes
legally compelled to do so; PROVIDED, HOWEVER, that Employee shall immediately
advise the Company of such legal compulsion in order to enable the Company, if
it so chooses, to apply for a protective order or similar relief. Employee
shall cooperate in all reasonable respects with the Company's attempts to secure
such protective order or other relief and, if and to the extent that the Company
secures the same, Employee shall comply with such protective order or other
relief after notice thereof from the Company.
D. Without limiting anything herein, Employee shall, upon reasonable
notice, during or after the period of his employment, furnish such information
as may be in his possession to, and cooperate with, the Company as may
reasonably be requested by the Company in connection with the analysis,
negotiation and settlement of any pending claims and any litigation in which the
Company is, or may become, a party.
6
<PAGE>
10. EQUITABLE RELIEF. Employee acknowledges that the services to be
rendered by him are of a special, unique and extraordinary character and that it
would be very difficult or impossible to replace such services, that the
material provisions of this Agreement are of crucial importance to the Company
(which for purposes of this paragraph 8 includes its Affiliates), that any
damage caused by the breach of any material provision of this Agreement would
adversely affect the Company irreparably and that a material violation of this
Agreement will result in irreparable harm to the business of the Company for
which money damages alone would not adequately compensate. Accordingly,
Employee consents and agrees that if he violates any of the provisions of
paragraphs 6 or 7 the Company shall, in addition to any other rights or remedies
of the Company otherwise available through binding arbitration hereunder:
A. be entitled to equitable relief in any court of competent
jurisdiction, including, without limitation, temporary injunction and permanent
injunction (without the posting of any bond or security); and
B. be entitled to hold Employee liable to the Company for all
damages, costs and expenses to the Company resulting from such breach
(including, without limitation, reasonable attorneys' fees and expenses in
dealing with his breach and/or any suits or actions with regard thereto) and for
all damages (compensatory along with punitive) which may be awarded through
binding arbitration hereunder.
11. MISCELLANEOUS.
A. NOTICES. All notices, requests, demands and other communications
provided for or permitted under this Agreement shall be in writing and shall be
either personally delivered (including delivery by express couriers such as
Federal Express) or sent by prepaid certified mail, return receipt requested,
addressed to the party to which notice is to be given at the address set forth
at the beginning of this Agreement for such party, or to such other address as
such party may have fixed by notice given in accordance with the terms hereof.
Any notice sent as aforesaid shall be deemed given and effective upon the
earlier of (i) delivery to the address provided for herein and (ii) the date
falling three days after notice of attempted delivery has been left at the
address to which a notice to the intended recipient is to be sent hereunder.
B. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Nevada applicable to contracts made
and to be performed entirely in that state (without regard to principles of
conflicts of law).
C. JURISDICTION AND VENUE. The parties hereby submit to the
jurisdiction of any court of record of the State of Nevada or the Federal
Government situate in Clark County, Nevada relating to any action arising under
this Agreement. Each party hereby waives any claim that Clark County, Nevada is
an inconvenient venue and trial by jury in connection with the trial of any such
action or dispute.
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D. ASSIGNMENT. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; PROVIDED,
HOWEVER, that the Company shall have the right to assign and/or delegate any or
all of its rights and obligations hereunder to: (i) any person or entity who
shall acquire (whether by sale of assets, merger or otherwise) all or
substantially all of its assets (excluding, for purposes of this determination,
cash and cash equivalents) or (ii) any Affiliate of the Company. Any assignment
or delegation by either party in violation of this Agreement shall be null and
void. Subject to the foregoing two sentences, this Agreement and all of the
provisions hereof shall be binding upon, and inure to the benefit of, the
parties hereto, and their successors, assigns, executors, administrators,
personal representatives, heirs and distributees.
E. CERTAIN ACKNOWLEDGEMENTS. Employee acknowledges that, in view of
all circumstances, the restrictions with respect to Employee set forth herein
are fair and reasonable. Employee hereby represents and warrants to the Company
that the execution, delivery and performance of this Agreement by him shall not
violate any agreement or other obligation of any kind, written or oral, to which
he is subject.
F. HEADINGS. The paragraph headings contained in this Agreement are
for convenience of reference only and are not intended to define, limit or
describe the scope or intent of any provision of this Agreement.
G. NUMBER AND GENDER. Whenever in this Agreement the singular is
used, it shall include the plural if the context so requires, and whenever the
masculine gender is used in this Agreement, it shall be construed as if the
masculine, feminine or neuter gender, respectively, has been used where the
context so dictates, with the rest of the sentence being construed as if the
grammatical and terminological changes thereby rendered necessary have been
made.
H. SEVERABILITY. It is the intention of the parties that this
Agreement shall be enforced to the fullest extent permissible under the laws and
public policies of each state and jurisdiction in which such enforcement is
sought, but that the unenforceability (or the modification to conform with such
laws or public policies) of any provision hereof, shall not render unenforceable
or impair the remainder of this Agreement. Accordingly, if any provision of
this Agreement shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete or modify, as
necessary, the offending provision and to alter the balance of this Agreement in
order to render the same valid and enforceable to the fullest extent
permissible.
I. ENTIRE UNDERSTANDING; WAIVER. This Agreement (including the
Exhibits hereto) sets forth the entire understanding of the parties relating to
the matters treated herein and all other previous or contemporaneous
understandings or agreements with respect to such matters,
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whether written or oral, are hereby superseded. None of the terms or provisions
hereof shall be modified or waived, and this Agreement may not be amended or
terminated, except by a written instrument signed by a party against which
modification, waiver, amendment or termination is to be enforced. No waiver of
any one provision shall be construed as a waiver of any other provision and the
fact that an obligation is waived for a period of time shall not be considered
to be a continuous waiver.
J. DEFINITION OF AFFILIATE. For purposes of this Agreement, an
"Affiliate" of an entity shall mean any person or entity controlling, controlled
by or under common control with, such entity. "Control" of an entity shall mean
the power to direct, or cause the direction of, the management and policies of
an entity whether by voting, contract or otherwise. Ownership, directly or
indirectly, of 50% or more of the voting interest in any corporation,
partnership or other business, entity or enterprise shall in any event
constitute control thereof for purposes of this Agreement.
K. CONTINUATION. In the event that this Agreement shall expire and
Employee shall nevertheless continue to be employed by the Company, the parties
acknowledge that the terms of this Agreement, absent a supplemental written
agreement between the parties to the contrary, shall not be deemed to apply to
such post-expiration employment, any such employment being (and without limiting
the foregoing) on an at-will basis.
L. SURVIVAL. The provisions of paragraphs 7 through 10 and Exhibit
A hereto shall survive the expiration or termination hereof, regardless of the
reason therefor.
M. NO THIRD-PARTY BENEFICIARIES. Except as contemplated by
subparagraph 10D and Exhibit A, this Agreement is for the sole benefit of the
parties hereto and nothing herein expressed or implied shall give or be
construed to give to any person or entity, other than the parties hereto, any
legal or equitable rights hereunder.
N. SOVEREIGNTY. The Company shall at all times have the power to
terminate the employment of Employee with the Company, notwithstanding the fact
that the exercise of such power by the Company may constitute a breach of the
terms of this Agreement.
O. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
constitute one instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
CARPET BARN, INC.
By: /S/ Philip A Herman
--------------------------------
Title: Chairman
EMPLOYEE:
/s/ Alan Ember
----------------------------------
ALAN EMBER
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EXHIBIT A
TERMS AND CONDITIONS RELATING TO COMMON STOCK
(a) The Employee is acquiring, and will acquire, the shares of Common
Stock pursuant to subparagraph 3B hereof for his own account, for investment,
and not with a view to, or for sale in connection with, the distribution thereof
or of any interest therein, unless a registration statement is in effect with
respect to the Common Stock, or Ragar has received an opinion of counsel
satisfactory to it and to its counsel that registration is not required.
(b) Without limiting any other provision hereof, Employee will not sell,
transfer, assign or otherwise dispose of any of such Common Stock or any
interest therein and neither Ragar nor any transfer agent acting on its behalf
shall be required to register or otherwise recognize any transfer resulting from
any such sale, transfer, assignment or other disposition of such Common Stock
unless and until (i) the shares of Common Stock to be disposed of and the
proposed disposition thereof are made the subject of a currently effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
and are registered or qualified under the laws of any state under whose laws
such transfer of Common Stock is subject to a requirement that such Common Stock
be so registered or qualified (a "State") or (ii) Ragar shall have received an
opinion of counsel, in form and substance satisfactory to it and to its counsel,
to the effect that the registration of such Common Stock is not required in
connection with such proposed disposition by virtue of an exemption from the
registration requirements contained in the Act or in the rules and regulations
promulgated thereunder and under the laws of any applicable State.
(c) So long as the Common Stock acquired by Employee under subparagraph 3B
remains subject to the restrictions set forth, each certificate representing
such Common Stock shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF
ANY STATE. NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST HEREIN MAY BE MADE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND THE
LAWS OF SUCH STATES UNDER WHOSE LAWS A TRANSFER OF SHARES WOULD BE SUBJECT TO A
REGISTRATION REQUIREMENT, UNLESS RAGAR CORP. AND ITS COUNSEL HAVE RECEIVED A
SATISFACTORY OPINION OF COUNSEL THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION
UNDER THE ACT OR THE SECURITIES LAWS OF SUCH STATES.
Ragar and any transfer agent acting on its behalf may maintain on the Ragar's
register for the Common Stock appropriate "stop transfer" notations with respect
to the aforesaid shares of the Common Stock.
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CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Nations Flooring, Inc.
Las Vegas, Nevada
We hereby consent to the use in the Registration Statement on Form S-1 of our
report dated February 9, 1996, relating to the consolidated balance sheet of
Nations Flooring, Inc. 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 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
January, ___, 1997
