UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-49854-A
INTILE DESIGNS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3625325
(State of Incorporation) (I.R.S. Employer Identification No.)
9716 Old Katy Road, Suite 110
Houston, Texas 77055
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 468-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes No X
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
Registrant's revenues for its most recent fiscal year: $15,936,681
The aggregate market value of voting stock held by nonaffiliates
of the registrant at April 30, 1998 was approximately
$1,056,213 (at $.25). As of April 30, 1998, 4,777,079 shares of
the registrant's Common Stock, $.0001 par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
into the indicated parts of this report: None.
<PAGE>
The aggregate market value of Common Stock, $0.001 par value,
held by non-affiliates of the registrant as of April 30, 1998 was
derived by (i) considering all members of the Board of Directors
of the registrant as of March 31, 1997 and all persons who became
members of the new Board of Directors of the registrant on August
1, 1997, as a group, to constitute an affiliate of the
registrant, (ii) totaling all shares of Common Stock beneficially
owned by such members of the Board of Directors, (iii)
multiplying such total by $.25, the average bid and asked prices
of such stock as of April 30, 1998 and (iv) subtracting the
resulting figure from the dollar amount derived by multiplying
the total amount of issued and outstanding shares of Common Stock
of the registrant as of April 30, 1998 by $.25.
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE
Part I
1. Business 3-6
2. Properties 6
3. Legal Proceedings 7
4. Submission of Matters to a Vote of
Security Holders 7
Part II
5. Market for Registrant's Common Equity
and Related Stockholder Matters 7-8
6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-12
7. Financial Statements 12
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
Part III
9. Directors and Executive Officers of Registrant 14-15
10. Executive Compensation 15
11. Security Ownership of Certain Beneficial Owners
and Management 16
12. Certain Relationships and Related Transactions 16-17
13. Exhibits and reports on Form 8-K 18-19
21. List of Subsidiaries 18
<PAGE>
INTILE DESIGNS, INC.
PART 1
Item 1. Business
General
Intile Designs, Inc. (Company or Intile), a Delaware
company, is a direct importer and distributor of foreign ceramic
tile, marble, swimming pool tile and related home design
products. The Company is also a distributor of domestic ceramic
tile, marble and other related home design/building products. The
Company's products are distributed to a diverse and varied retail
and wholesale customer base through ten (10) showroom/warehouse
facilities and three (3) retail showrooms in six (6) states.
Subsequent to March 31, 1997, the Company elected to close two
(2) showroom/warehouse facilities located in California and
Arizona.
The Company markets its products to at least five general
customer bases: new home builders, residential and commercial
remodeling contractors, architects and designers, swimming pool
contractors, and do-it-yourself consumers. Generally, marketing
to the contractor trade is accomplished as retail sales to the
ultimate consumer through the retail showrooms. Trained,
experienced sales personnel work out of and process sales through
the showroom facilities.
The method by which merchandise is distributed varies
depending upon the warehouse support structure for a particular
sales location. Where a warehouse is attached to a showroom, the
customer may obtain products immediately, depending upon
availability. Where the showroom has no warehouse facility, the
customer may wait only as long as two days to receive the
merchandise. However, in cases of special orders, or where a
particular location or warehouse is out of stock, the delivery
time may exceed two weeks. Generally, a customer or his
contractor picks up the products at one of the Company's
warehouse facilities or showrooms. Only a small number of the
orders are shipped directly to customers.
There are other companies and firms selling tile and related
products that have greater financial and managerial resources
than the Company. The Company competes with these other
businesses on the basis of product quality, selection, price and
service.
The Company is supplied by a diversified group of both
domestic and international companies. Generally, purchases are
made from the various countries as follows: Italy - 40%, Japan
- - - 30%, United States - 10% and 20% from a variety of other
countries. No single foreign or domestic source provides over
10% of all the Company's purchases. No single customer accounts
for 10% or more of the Company's revenues. Although many of the
Company's customers purchase substantial quantities of product,
the Company is not dependent on one or a few major customers.
There are 80 employees in the Company, all of which are full
time employees. The Company engages individuals to perform
specified functions from time to time, when needed, on a contract
basis.
Forward looking statements
This Form 10-KSB for the year ended March 31, 1997 as well
as other public documents of the Company contains forward-looking
statements which involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance
or achievement of the Company to be materially different from any
future results, performance or achievements expressed or implied
by such forward looking statements. Such statements include,
without limitation, the Company's expectations and estimates as
to future financial performance, cash flows from operations,
capital expenditures and the availability of funds from
refinancing of indebtedness. Readers are urged to consider
statements which use the terms "believes", "intends," "expects,"
"plans," "estimates," "anticipated," or "anticipates," to be
uncertain and forward looking. In addition to other factors that
may be discussed in the Company's filings with the Securities and
Exchange Commission, including this report, the following
factors, among others could cause the Company's actual results to
differ materially.
History
The Company, then known as IV Ventures Ltd., was formed in
July 1991 for the purpose of conducting a public offering and
seeking out an operating entity to acquire. In July 1993, the
Company successfully completed a public offering and sold 66,667
shares of Common Stock for proceeds of $550,000. The Company
then acquired Intile Designs, Inc. (IDI), a Texas corporation, in
a merger in November 1993 by issuing 1,186,667 shares of its
restricted Common Stock, par value $.0001, to the former owners
of IDI. Immediately following the merger, the Company changed
its name to Intile Designs, Inc.
IDI was formed in 1976 as a division of Texas Building
Centers, Inc. and was subsequently spun off in May 1980. At the
time, IDI was primarily an importer and distributor of ceramic
tile, marble and related products. Swimming pool tile and brick
coping were added as product lines in 1983 and 1985,
respectively, and wall coverings were added to selected showrooms
in 1988. In 1993, a division was formed to produce swimming pool
depth marker tiles and specialty signage products.
Expansion and development
Effective November 2, 1994, the Company acquired
substantially all of the assets of International Tile & Supply
Corp. (International). The Company, through its wholly-owned
subsidiary, Intile Designs of Los Angeles, Inc., purchased the
assets of International by payment of cash at closing of
$1,050,000. The assets acquired had a book value of $1,659,265
and the Company assumed liabilities of $609,265.
Additionally, the Company agreed to pay to the allowed
general unsecured creditors of International an amount equal to
10% of the net operating profits generated from the operations of
the business acquired for a period of four years after the
closing, with maximum payments in the aggregate totaling
$100,000. There have been no amounts paid in accordance with
this arrangement. The funding of the cash at closing was
accomplished through a private placement of debt totaling
$1,000,000. The Company issued a $650,000 convertible
subordinated note, a $350,000 short-term bridge note and a
warrant to purchase 38,333 shares of Common Stock at an exercise
price of $3.25 per share to Retail Associates Management Company,
L.P. (RAMCO). Simultaneous with the acquisition of TCM Holdings
Corporation (see below), RAMCO converted the $650,000 convertible
subordinated note payable into 33,334 shares of the Company's
common stock. The Company has accounted for the International
acquisition as a purchase and post purchase operating results of
International have been included in the accompanying statements
of income.
Effective February 21, 1995, the Company acquired 100% of
the Common Stock of TCM Holdings Corporation (TCM). The Company
acquired the stock of TCM from RAMCO in exchange for 107,380
shares of Intile's Common Stock. The agreement provides for an
additional 40,000 shares to be placed in escrow for subsequent
distribution after the final price adjustment is determined in
accordance with the provisions of the agreement. The Company
currently estimates that all escrowed shares will be returned to
the Company. The transaction has been accounted for by the
Company as a purchase and post purchase operating results of TCM
have been included in the accompanying statements of income.
Effective February 21, 1995, the Company acquired
substantially all of the assets of the Orlando showroom (Orlando)
of P&M Tile, Inc. (P&M). The Company acquired Orlando by a cash
payment of $140,113 at closing and the issuance of a noninterest-
bearing note to P&M for $257,517, which was paid in full during
the year ended March 31, 1996. The transaction has been
accounted for by the Company as a purchase; therefore, post
purchase operating results of Orlando have been included in the
accompanying statements of income.
Due to recurring losses, the management of TCM elected in
August 1995, to cease operations and to abandon all facilities
other than the central warehouse. Prior to the Company's
acquisition of TCM stock, TCM had confirmed a Chapter 11 Plan of
Reorganization in December 1994. Pursuant to the terms of the
plan, all property of TCM was to vest in the reorganized entity
emerging from bankruptcy. In October 1995, the U.S. Trustee
petitioned the bankruptcy court to convert TCM's Chapter 11
filing to a Chapter 7 under the U.S. Bankruptcy Code. On
November 7, 1995, the U.S. Bankruptcy Court, District of
Massachusetts, Eastern Division issued an order converting the
case to Chapter 7. The Company entered into a consignment
agreement with TCM and NationsBank to provide an orderly
liquidation of the bank's collateral through the sales efforts of
Global Tile Distributors, Inc. (Global), a wholly-owned
subsidiary of the Company. Inventory with a value of
approximately $258,000 remains on hand as of March 31, 1997. An
additional allowance for losses of unconsolidated Investee in the
amount of $100,000 was provided in the fiscal year ended March
31, 1997. The Company's management believes that the liquidation
will be accomplished with no significant additional losses
accruing to the Company. Management also believes that as a
result of the liquidation, the Company will recover some
previously recognized losses since certain recorded liabilities
are not anticipated to be paid by TCM's bankruptcy estate.
The Company believes that the liquidation value of the
assets of TCM, as the reorganized entity, will be less than the
value of the recorded liens against such assets, of which the
Company is the primary lienholder. Accordingly, it is
anticipated that the unsecured creditors under the confirmed
plan, or otherwise, will not receive any proceeds from the
Chapter 7 liquidation. During the year ended March 31, 1996, as
a result of the bankruptcy filing, TCM wrote down certain assets
to their net realizable values. The writedown reported was
$2,280,791. In addition, the Company accrued $150,000 to cover
additional costs related to the closure of TCM.
Due to recurring losses, management elected as of January
20, 1997 to cease operations of International and to abandon all
facilities. An allowance for losses relating to International in
the amount of $692,985 has been provided by a charge against
earnings in the fiscal year ended March 31, 1997. A reserve
against inventory has also been provided in the amount of
$268,905, and is included in cost of sales in the fiscal year
ended March 31, 1997. The charge to inventory reflects the full
disposal of the inventory in an auction in December, 1997. The
Company also recorded a charge to expense for fiscal 1997 in the
amount of $532,118 for the net present value of remaining lease
commitments of International.
As a part of new management's (See Item 4 herein)
preliminary implementation of its turnaround strategy, management
elected to withdraw operations from the western region,
principally California and Arizona. Operations in the Phoenix
store were ceased as of November 30, 1997 and operations in the
Anaheim store were ceased as of December 31, 1997. Certain
products included in the Company's current product line were
relocated to the Houston warehouse or other locations that had a
need for the product. The remaining inventories were
consolidated in Anaheim for liquidation. Lease termination
agreements, which provide for the full release of the Company
have been obtained from the landlords of the Phoenix and Anaheim
landlords.
Internal expansion by the Company during fiscal 1996
included the opening of new showroom/warehouses in The Woodlands,
Texas (Houston) and Denver, Colorado. A showroom in Plano, Texas
was leased and leasehold improvements made during the fourth
quarter of fiscal 1997 and opened in April 1997.
Capitalization
On May 1, 1995, the Company authorized a 2 for 1 stock split
that was effected in the form of a 100% stock dividend. All
share information reflects this transaction.
On August 5, 1996, the Company authorized a one-for-two
reverse stock split. Shareholders received one new share of the
Company's common stock for each two shares they then held. All
share information has been retroactively restated to reflect the
reverse stock split.
On March 31, 1997, the Company authorized a one-for-three
reverse stock split. Shareholders received one new share of the
Company's common stock for each three shares they then held. All
share information has been retroactively restated to reflect the
reverse stock split.
On August 23, 1997, the Company issued $1,600,000 of
convertible notes payable with private investors that resulted in
net proceeds of $1,347,272. The Company paid $1,000,000 from the
proceeds to the primary lender and the balance was retained for
working capital. The investors were issued warrants to purchase
up to 800,000 shares of the Company's common stock at $.25 per
share and the underwriter was issued warrants to purchase up to
80,000 shares at the same price. As of March 31, 1997, notes in
the amount of $1,400,000 were converted into 1,400,041 shares of
the Company's common stock. Each holder retains the warrants
associated with the Notes. The conversion of the Notes into
shares of common stock occurred subsequent to the one-for-three
reverse stock split on March 31, 1997. Notes in a face amount of
$100,000 were converted into common stock subsequent to March 31,
1997.
On March 31, 1997, the Company sold 47 Units at a price of
$50,000 per Unit (See Note 8). Each Unit consisted of 50,000
shares of the Company's common stock totaling 2,350,000 shares of
common stock. The sale of the common stock occurred subsequent to
the one-for-three reverse stock split on March 31, 1997. The
Company received net proceeds of $2,010,998 from the sale of the
common stock of which $1,000,000 was paid to the primary lender
and the balance was retained in working capital.
The Company has issued various common stock warrant
agreements entitling the holders to acquire the Company's common
stock. There are 952,820 warrants outstanding at March 31, 1997
and all warrants are exercisable.
Operations
The Company strives to organize its business on a
centralized supply point concept with a central regional
warehouse in a selected city and facilities located within the
area around this site. These are either showrooms with small
warehouses or stand-alone showrooms. The Company has established
a showroom in the main warehouse facility in Houston to sell its
closeouts and odd lots.
Intile maintains a large inventory in its approximately
80,000 square foot warehouse in Houston, Texas. The warehouse
does sell to the public through its contained showroom; however,
the primary market is to wholesale customers. Material and
services are also provided through this warehouse to the other
showroom facilities. The showrooms/warehouses sell to both
wholesale and retail markets, while the stand-alone showrooms
sell primarily to retail customers and remodeling contractors.
The Company intends to develop other regional operations to
support expansion plans and activities, thereby furthering growth
and expansion of the centralized supply point structure.
Item 2. Properties
At April 30, 1998, The Company has operations in eight (8)
showroom/warehouse facilities and three (3) retail showrooms in
four (4) states. These locations are in Houston (2 including the
main central warehouse location), Austin, Corpus Christi, Dallas,
The Woodlands and Webster, Texas; Atlanta, Georgia; Orlando,
Florida; and Denver, Colorado. The retail showroom in Plano,
Texas was opened in April 1997. All facilities are leased with
lease terms ranging from tenant at will (month-to-month) to five-
year leases with expiration terms through 2001.
Locations in Phoenix, Arizona and Anaheim, California were
closed on November 30, 1997 and December 31, 1997, respectively.
The leases for these locations have been terminated and the
Company has been released of any future obligations on these
leases. The Company continues to be obligated on the locations
associated with the closure of the Los Angeles, California
(International) locations. The financial statements herein
include a charge to expense in fiscal 1997 in the amount of
$532,118 for the net present value of the lease payments of
International over the remaining terms of the leases. Also, the
Company remains obligated on a lease for a facility in Boston,
Massachusetts that ceased operations during fiscal 1997. The
financial statements herein include a charge to expense in fiscal
1997 in the amount of $178,412 for the net present value of the
lease payments over the remaining term of the Boston lease. All
leasehold improvements in the closed facilities have been
abandoned and inventories have been sold or relocated to other
locations, primarily Houston.
The following table lists the ranges in size and lease costs
of the showrooms. A typical showroom/warehouse operation is
approximately 12,000 square feet with an annual cost of as much
as $50,000, while a typical retail showroom (without warehouse)
is approximately 4,000 square feet with an annual cost of a
similar amount ($50,000).
Size Range (S.F.) Monthly Rate/s.f.
Showroom/warehouse 5,620 - 18,000 $ 3.50 - $ 9.00
Showroom only 1,400 - 5,980 $ 8.00 - $32.76
Item 3. Legal Proceedings
The Company is a defendant in various lawsuits resulting
from disputes arising in the day-to-day operations to which
management believes the outcome based upon information currently
available, in the aggregate, would not have a material adverse
effect on the Company's financial position, results of operations
or cash flows.
A subsidiary of the Company (TCM) filed for Chapter 7
Bankruptcy during August 1995. As discussed in Item 1 above and
Note 1 of the Notes to Consolidated Financial Statements herein,
TCM's commitments and obligations are not included in the
financial statements as of March 31, 1997 and 1996. Management
believes that the Company will not be responsible for TCM's
commitments or any potential outstanding liabilities that may
arise.
Item 4. Submission of Matters to a Vote of Security Holders
On or about July 31, 1997, stockholders holding a majority
of the issued and outstanding common stock of the Company
executed written consents pursuant to section 228 of the General
Corporation Law of Delaware for the purpose of removing C.
William Cox, Edward Paul and Walter Rae, as current directors of
the Company. This action was taken in response to the property
tax matters disclosed in the Company's Form 8-K filings dated
July 22 and August 1, 1997. The shareholders then elected new
directors by written consent. The new directors elected are
George C. Siller, Jr., Barry Feiner and Sidney Dworkin. The new
directors executed a unanimous written consent removing the
President and Secretary of the Company and electing a new
President and Secretary of the Company. The new President
elected is George C. Siller, Jr. who was also elected Chief
Executive Officer and Secretary. (See Form 8-K dated August 1,
1997 for disclosure of these shareholder actions.) (Also see Part
III, Item 9 herein and Notes 11 and 12 of the Notes to
Consolidated Financial Statements contained herein.)
During the fourth quarter of fiscal 1997, no matter was
submitted to a vote of security holders, either through the
solicitation of proxies or otherwise.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
On May 1, 1995, the Company authorized a 2 for 1 stock split
that was effected in the form of a 100% stock dividend. All
share information reflects this transaction.
On August 5, 1996, the Company authorized a one-for-two
reverse stock split. Shareholders received one new share of the
Company's common stock for each two shares they then held. All
share information has been retroactively restated to reflect the
reverse stock split.
On March 31, 1997, the Company authorized a one-for-three
reverse stock split. Shareholders received one new share of the
Company's common stock for each three shares they then held. All
share information has been retroactively restated to reflect the
reverse stock split.
On August 23, 1997, the Company issued $1,600,000 of
convertible cotes payable with private investors that resulted in
net proceeds of $1,347,272. The Company paid $1,000,000 from the
proceeds to the Company's primary lender and the balance was
retained for working capital. The investors were issued warrants
to purchase up to 800,000 shares of the Company's common stock
at $.25 per share and the underwriter was issued warrants to
purchase up to 80,000 shares at the same price. As of March 31,
1997, notes in the amount of $1,400,000 were converted into
1,400,041 shares of the Company's common stock. Each holder
retains the warrants associated with the Notes. The conversion
of the Notes into shares of common stock occurred subsequent to
the one-for-three reverse stock split on March 31, 1997. Notes
in a face amount of $100,000 were converted into common stock
subsequent to March 31, 1997.
On March 31, 1997, the Company sold 47 Units at a price of
$50,000 per Unit (See Note 8). Each Unit consisted of 50,000
shares of the Company's common stock totaling 2,350,000 shares of
common stock. The sale of the common stock occurred subsequent to
the one-for-three reverse stock split on March 31, 1997. The
Company received net proceeds of $2,010,998 from the sale of the
common stock of which $1,000,000 was paid to the Company's
primary lender and the balance was retained in working capital.
The Company's Common Stock is traded in the over-the-counter
market on the OTC Electronic Bulletin Board under the trading
symbol IDES. The following tables set forth the range of high
and low bid information for the Company's Common stock by quarter
for fiscal years 1997 and 1996. The bid information was obtained
from the National Quotation Bureau, Inc. and has been adjusted
proforma to reflect all stock splits and reverse stock splits.
The following quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission and may not represent
actual transactions.
OTC Electronic
Fiscal Year Ended March 31, Bulletin Board
High Low
1997
First Quarter 2-1/4 1-1/2
Second Quarter 3-3/4 1-1/2
Third Quarter 3-3/4 1-1/2
Fourth Quarter 1-7/8 1-1/8
1996
First Quarter 34-1/2 27-3/4
Second Quarter 33 26-1/4
Third Quarter 30 3/10
Fourth Quarter 4-1/2 1-1/2
At April 30, 1998 there were 136 holders of record of the
Company's common stock.
The Company has paid no dividends on its Common Stock during
the past two years and no such payment is contemplated in the
foreseeable future. The terms of the Company's bank loan
agreements contain provisions, which presently prohibit the
payment of cash dividends by the Company on its common stock.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussion which follows summarizes the Company's
financial position as of March 31, 1997 and the results of its
operations for the twelve month periods ended March 31, 1997 and
1996, and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in
this Form 10-KSB.
Liquidity and Capital Resources
In August 1996, the Company issued $1,600,000 of convertible
notes payable with private investors that resulted in net
proceeds of $1,347,272. The Company paid $1,000,000 from the
proceeds to the Company's primary lender and the balance was
retained for working capital. The investors were issued warrants
to purchase up to 800,000 shares of the Company's common stock
at $.25 per share and the underwriter was issued warrants to
purchase up to 80,000 shares at the same price. As of March 31,
1997, notes in the amount of $1,400,000 were converted into
1,400,041 shares of the Company's common stock. Each holder
retains the warrants associated with the Notes.
The conversion of the Notes into shares of common stock
occurred subsequent to the one-for-three reverse stock split on
March 31, 1997. Notes in a face amount of $100,000 were
converted into common stock subsequent to March 31, 1997.
In March 1997, the Company consummated the sale of 47 Units
(the "Units") at a price of $50,000 per Unit. Each Unit
consisted of 50,000 shares of the Company's common stock for a
total of 2,350,000 shares of common stock. The sale of the common
stock occurred subsequent to the one-for-three reverse stock
split on March 31, 1997. The Company received net proceeds of
$2,010,998 from the sale of the common stock of which $1,000,000
was paid to the Company's primary lender and the balance was
retained in working capital.
The Company has a bank revolving line of credit that
originally provided for borrowings up to $6,000,000. At March
31, 1997 and 1996, respectively, the amounts outstanding under
the terms of this line of credit were $3,780,000 and $5,820,000.
The Company is not in compliance with the required current,
quick, leverage, tangible net worth, current maturities and
interest coverage ratios. The bank has not waived any of the
covenant violations. Furthermore, the bank has sent a Notice of
Claim and Demand for Arbitration dated December 2, 1997. The
Arbitration process is specified in the Credit Agreement dated
January 20, 1995 and is the agreed upon procedure for the bank to
process its demand for payment of the outstanding balance and
outstanding interest. Pursuant to this demand, an Arbitration
hearing was scheduled for April 9, 1998 and then reset for May
19, 1998. Effective March 19, 1998 the bank and the Company in
anticipation of possible recapitalization efforts have agreed to
a stay of the arbitration hearing. The Company cannot predict
the actions of the bank; however, management anticipates that
should recapitalization of the Company not be concluded within a
reasonable period of time, a new Notice of Claim and Demand for
Arbitration will be issued by the bank.
As of March 31, 1997, the Company owed the bank $126,648 in
interest charges and this amount remains unpaid. The entire
outstanding balance of the bank line of credit has been included
in current liabilities for the years ended March 31, 1997 and
1996. The Company does not currently have a line of credit
available to it; therefore, short-term liquidity is provided by
current operations.
Subsequent to year-end, the Company became aware and
reported to BDO Seidman, LLP ("BDO"), the auditors of the
Company, that property taxes were underpaid by an undetermined
amount. The underpayment was the result of the underreporting of
inventory and personal property values on the personal property
renditions filed annually with the respective county appraisal
districts. The underreporting has occurred for at least seven
(7) years and involves the locations in Houston, Corpus Christi,
Dallas and Austin, Texas and Atlanta, Georgia. On July 22, 1997,
BDO issued a report to the Board of directors of the company
pursuant to the requirements of Section 10A of the Securities
Exchange Act of 1934 ("Exchange Act") stating that BDO had
determined that the Company had filed deficient property tax
reports. (see Form 8-K dated July 22, 1997 filed with the SEC.)
The filing of the deficient reports was a material "illegal act"
within the meaning of Section 10A. Consequently, BDO withdrew
its audit opinion on the March 31, 1996 annual financial
statements of the Company and resigned as the Company's
accounting firm. Following a change in management of the Company
in August, 1997, BDO was re-engaged as the independent accounting
firm for the Company.
The Company has negotiated settlements of reporting value
with the applicable appraisal districts having jurisdiction over
each taxed location. The Houston settlement is limited to a two
(2) year lookback and the taxing authorities in the various other
jurisdictions have either followed the precedent established in
the Houston settlement or elected to not assess the Company for
prior year underpayments of property taxes. The financial
statements herein reflect a charge to expense of approximately
$127,000 for the fiscal year ended March 31, 1997 and a restated
charge to expense to accrue additional personal property taxes of
approximately $213,000 for the fiscal year ended March 31, 1996.
Management believes the charges to operating results in fiscal
years ended March 31, 1997 and 1996 adequately reflects the
assessments, penalties, interest and fees to be paid. Also,
while the Company cannot be certain that all of the taxing
authorities will do so, there are statutory provisions in some of
the jurisdictions that provide that the taxpayer will be afforded
a three year amortization of past due taxes, penalties and
interest. Therefore, the Company's monthly outlay could be as
low as $9,500 to $10,000 per month.
The Company raised capital during fiscal years 1997 and 1996
through the exercise of stock options totaling 2,347 shares and
11,746 shares, respectively. All remaining options have expired
or were cancelled in fiscal 1997.
At March 31, 1997, the Company's working capital decreased
$1,147,838 to a deficit of $540,690 from a working capital
surplus of $607,148 at March 31, 1996. The decrease in working
capital is primarily due to the reductions in inventory of
$2,373,127 and accounts receivable of $189,518 offset by the
increase in restricted certificates of deposit of $192,500 and
the reduction of $2,000,000 in the bank revolving credit facility
out of proceeds of the sales of convertible notes and stock
subscriptions discussed above. Also, working capital decreased
from an increase in accrued expenses of $1,233,247, including the
accrued provision for closure of International of $692,985. The
restricted certificates of deposits are collateral on certain
irrevocable letters of credit; therefore, they are not available
for other uses. Trade receivables, net of allowance for
doubtful accounts, decreased due to lower sales levels and
increased provisions for doubtful accounts. Inventories
decreased due to less stockpiling of inventory for the new
season, a shift in product mix and the establishment of a reserve
for obsolescence and a writedown to net realizable value totaling
approximately $1,700,000. Accrued liabilities increased
primarily due to the accrual of property taxes, penalties and
interest and associated legal fees anticipated of approximately
$340,000 and a reserve for abandoning leases of approximately
$532,000.
Stockholders' equity(capital deficit) decreased $1,365,504
from equity of $1,276,311 at March 31, 1996 to a deficit of
$89,193 at March 31, 1997, primarily due to the net loss for the
fiscal year of $5,352,967, offset in part by the conversion of
convertible notes payable with a face value of $1,400,000 and the
net proceeds of sales of common stock of $2,010,998. The
increases to additional paid-in capital are due to the issuance
of additional shares purchased in the stock offering, the
exercise of stock options for 2,347 shares and the conversion of
notes payable to common stock.
The Company has suffered significant losses during the
fiscal years ended March 31, 1997 and 1996 and has a capital
deficit at March 31, 1997. The Company is not in compliance with
numerous covenants of its bank financing agreement and the bank
has sent a Notice of Claim and Demand for Arbitration dated
December 2, 1997. Accordingly, there is substantial doubt about
the Company's ability to continue as a going concern. The
Company's management continues to seek private sources of capital
and alternative financing sources in an endeavor to alleviate the
doubt as to its ability to continue as a going concern. A number
of potential investors have been identified and discussions
continue with several of these sophisticated investors regarding
opportunity that exists with Intile. The financing alternatives
would be enhanced significantly if the Company could obtain
additional capital and thereby reduce the level of financing
required to restructure the existing bank credit line.
The Company cannot guarantee success in any of its efforts
to obtain additional capital investment in the Company. However,
on April 2, 1998, the Company announced that it signed a Letter
of Intent ("LOI"), to sell 25,000,000 new shares of Intile Common
Stock for $2,000,000, in cash, to Energy Drilling Industries,
Inc. ("EDII"). EDII is a holding company headquartered in
Houston, Texas with diverse interests in five industry segments:
industrial, financial, oil and gas, real estate and
entertainment. The purchase will represent approximately 82% of
the then issued shares of common stock. The LOI is subject to
certain conditions, including due diligence by both parties,
amendment of the Company's charter to authorize the issuance of
additional shares of common stock, and preparation and execution
of definitive agreements. The proceeds of the sale will be used
in the restructuring of the senior debt on terms more favorable
to the Company. One significant condition to the transaction is
negotiating those terms with the Company's senior lender in
advance of closing.
The Company purchased a new computer system and software for
all of its accounting applications. Implementation of the
conversion to the new system is nearing completion. The new
system and software has year 2000 processing capabilities which
was a key factor in the selection of these products. As of March
31, 1997, all significant costs related to its implementation has
been incurred or accrued, and in accordance with Emerging Issues
Task Force issue 96-14 those costs related to year 2000 matters
have been expensed as incurred.
Results of Operations for the Twelve Months Ended March 31, 1997,
Compared with the Twelve Months Ended March 31, 1996
Sales decreased $2,956,266 (15.6%) to $15,936,681 and cost
of sales increased $246,653 (2.1%) to $11,864,464 for the twelve
months ended March 31, 1997 compared to the comparable period
ended March 31, 1996, resulting in a decrease of $3,202,919 in
gross profit for fiscal year 1997. The reduction in sales is
principally due to the closing of the Tile Boutique location in
Houston, Texas during fiscal 1996, which had no sales in 1997,
offset by general increases in sales at other locations during
fiscal 1997. The reduction in sales for Tile Boutique, comparing
fiscal 1997 and fiscal 1996, was $752,247. In addition,
International was closed in January 1997. Sales for
International decreased by approximately $2,200,000 from 1996.
The reduction in gross margin percentage from 38.5% for the
twelve months ended March 31, 1996, to 25.6% for the comparable
period ended March 31, 1997 is due, primarily, to charges to
consolidated cost of goods sold to establish a reserve for
inventory obsolescence and a writedown of inventory totaling
approximately $1,700,000 to net realizable value in fiscal 1997.
Selling and administrative expenses decreased $878,263 to
$7,343,768 for the fiscal year ended March 31, 1997 from
$8,222,031 for the fiscal year ended March 31, 1996. The
decrease is primarily attributable to the reduced expenses
related to the decreases in sales volume, offset by increases in
rent expense of $249,765 and bad debt expense of $183,640.
The provision for closure of International (Note 3 of the
Notes to Consolidated Financial Statements herein) for the fiscal
year ended March 31, 1997 includes the estimated losses to be
recognized from the disposal of net assets of International and a
reserve for abandoning leases of approximately $532,000.
The increase in rent expense is principally from the accrual
of the net present value of remaining lease payments of the lease
for a facility in Boston, Massachusetts in the amount of
$178,412. This location has been utilized as a storage facility
and limited distribution point since the closure of TCM Holdings
Corporation (See Note 3 of the Notes to Consolidated Financial
Statements herein) and as of April 30, 1998 all inventories have
been liquidated from the location. The Company is continuing its
efforts to sub-lease the facility or obtain a lease termination
agreement from the landlord on manageable terms.
The increase in bad debt expense is a result of management's
assessment of the trade accounts receivable and the determination
that a higher allowance for doubtful accounts is necessary to
reflect management's current expectation of collections on the
accounts.
Interest expense increased to $1,419,512 for the fiscal year
ended March 31, 1997 from $452,993 for the fiscal year ended
March 31, 1996, due to the addition of a note for a new computer
system and the increase in the bank line of credit interest rate
from 8.5% to 10.75%, offset by the paydown of $2,000,000 of the
line during the fiscal year ended March 31, 1997. Also, interest
expense in fiscal 1997 includes expenses and commissions of
$223,000 paid to the underwriter of the convertible debt issue;
and, related to the convertible debt issues, a charge to interest
expense has been made in the amount of $571,395 pursuant to the
provisions of Statement of Financial Accounting Standards No. 123
- - - "Accounting for Stock-Based Compensation".
The Company has recorded a 100% valuation allowance on the
deferred tax asset since it cannot be determined if the asset
would be realized.
New Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 provides a different
method of calculating earnings per share than is currently used
in APB Opinion 15. SFAS 128 provides for the calculation of
basic and diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income(loss)
available to common stockholders by the weighted average number
of common shares outstanding for the period. Dilutive earnings
per share reflect the potential dilution of securities that could
share in the earnings of an entity, similar to existing fully
diluted earnings per share. The Company is required to adopt
SFAS 128 in the third quarter ended December 31, 1997. Using the
principles set forth in this standard, basic and diluted earnings
per share would not be materially different from that presented.
Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS 129")
effective for periods ending after December 15, 1997, establishes
standards for disclosing information about an entity's capital
structure. SFAS 129 requires disclosure of the pertinent rights
and privileges of various securities outstanding (stock, options,
warrants, preferred stock, debt and participating rights)
including dividend and liquidations preferences, participant
rights, call prices and dates, conversion or exercise prices and
redemption requirements. Adoption of SFAS 129 will have no
effect on the Company as it currently discloses the information
specified.
In June 1997, the Financial Accounting Standards Board
issued two new disclosure standards, Statement of Financial
Accounting Standards (SFAS) 130, "Reporting Comprehensive Income"
and SFAS 131, "Disclosure About Segments of a Business
Enterprise". Both of these new standards are effective for
financial statements for periods beginning after December 15,
1997 and require comparative information for earlier years to be
restated. Management does not anticipate that results of
operations and financial position will be materially affected by
implementation of these new standards.
SFAS 130, "Reporting Comprehensive Income", establishes
standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among
other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.
SFAS 131, "Disclosure about Segments of a Business
Enterprise", establishes standards for the way that public
enterprises report information about operating segments in annual
financial statements and requires reporting of selected
information about operating segments in interim financial
statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas
and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources
and in assessing performance.
Item 7. Financial Statements
See Index to Financial Statements on Page F-1.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On February 23, 1996, Intile Designs, Inc. dismissed Price
Waterhouse LLP as its independent accountants. The reports of
Price Waterhouse LLP, at the time of issue, on the financial
statements for the past two fiscal years contained no adverse
opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle.
The Company's Board of Directors participated in and approved the
decision to change independent accountants. In connection with
its audits for the two most recent fiscal years and through
February 23, 1996, there were no disagreements with Price
Waterhouse LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to the
satisfaction of Price Waterhouse LLP would have caused them to
make reference thereto in their report on the financial
statements for such years. Price Waterhouse LLP furnished the
Company with a letter addressed to the SEC stating that it agreed
with the above statements, and a copy of such letter, dated March
1, 1996, was filed as Exhibit 16 to the Form 8-K filed February
28, 1996. The Company engaged BDO Seidman, LLP as its new
independent accountants on March 15, 1996. During the period
prior to engagement, the Company had not consulted with BDO
Seidman, LLP on items which (1) were or should have been subject
to SAS 50; or (2) concerned the subject matter of a disagreement
or reportable event with the former auditor (as described in
Regulation S-K Item 304(a)(2).
On August 20, 1997, Price Waterhouse LLP, the former
independent accounting firm for the Company withdrew its audit
opinion on the March 31, 1995 consolidated financial statements
of the Company as a result of the property tax liability issue
discussed below and elsewhere herein under "Liquidity and Capital
Resources" and Note 11 and 12 of the Notes to Consolidated
Financial Statements contained herein. The consolidated
financial statements for the fiscal year ended March 31, 1995 are
not included herein; however, users of the financial statements
for the fiscal year ended March 31, 1995 should be aware that the
audit opinion of Price Waterhouse LLP has been withdrawn. The
activity for the year ended March 31, 1995 and the balances as of
the year then ended in the Consolidated Statement of
Shareholders' Equity have not been restated to reflect any
adjustment as a result of the property tax issue.
Subsequent to March 31, 1997, the current year-end, the
Company became aware and reported to BDO Seidman, LLP ("BDO"),
the auditors of the Company, that property taxes were underpaid
by an undetermined amount which it believed was material, in the
aggregate, to the financial position of the Company. The
underpayment was the result of the underreporting of inventory
and personal property values on the personal property renditions
filed annually with the respective county appraisal districts.
The underreporting has occurred for as long as seven (7) years
and involved the locations in Houston, Corpus Christi, Dallas and
Austin, Texas and Atlanta, Georgia. On July 22, 1997, BDO issued
a report to the Board of Directors of the company pursuant to the
requirements of Section 10A of Securities Exchange Act of 1934
("Exchange Act") stating that BDO had determined that the Company
had filed deficient property tax reports. (see Form 8-K dated
July 22, 1997 filed with the SEC) The filing of the deficient
reports was a material "illegal act" within the meaning of
Section 10A. Consequently, BDO withdrew its audit opinion on the
March 31, 1996 annual financial statements of the Company and
resigned as the Company's accounting firm.
Following the change in the Company's directors and
management on August 1, 1997, BDO Seidman, LLP ("BDO") was re-
engaged as the accounting firm for the Company. (See Note 11 and
12 of the Notes to Consolidated Financial Statements contained
herein and the Company's Form 8-K dated August 15, 1997)
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons
Executive Officers/Significant Employees of the Registrant
On or about July 31, 1997, stockholders holding a majority
of the issued and outstanding common stock of the Company
executed written consents pursuant to section 228 of the General
Corporation Law of Delaware for the purpose of removing C.
William Cox, Edward Paul and Walter Rae, as current directors of
the Company. This action was taken in response to the property
tax matters disclosed in Note 11 and 12 of the Notes to the
Consolidated Financial Statements contained herein and also
disclosed in the Company's Form 8-K filings dated July 22 and
August 1, 1997. The shareholders then elected new directors who
executed a unanimous written consent removing the President and
Secretary of the Company and electing a new President and
Secretary of the Company.
The following is a list of the executive officers and
directors of the Company as of the date of this filing:
Held a Position
Continuously
Name Position Age Since
George C. Siller, Jr. President 46 1997
Chief Executive Officer
Secretary and Director
C. Doyle Smith Vice President - Finance 50 1997
and Administration
Chief Financial Officer and
Assistant Secretary
Barry Feiner Director (1) 64 1997
Sidney Dworkin Director 77 1997
Peter Boogren Vice President - Sales 48 1997
and marketing
(1) Member of the Audit Committee
Mr. Siller joined Intile in May 1995 as Vice President and
General Manager and became a Director in July 1995. Prior to
joining Intile, he was CFO of Air Dreco, a fluid power
distribution division of Sun Distributors (a Master Limited
Partnership, traded on the NYSE). From 1988 through 1990 he was
Group Controller for American Desk, a manufacturer of school
furniture and stadium and theater seating. He was a
Manufacturing Engineer and Manager of Production Planning and
Senior Auditor for Texas Instruments from 1983 to 1988. Prior to
Texas Instruments, Mr. Siller served in the United States Marine
Corps for ten years where he attained the rank of Captain.
Mr. Smith joined Intile in October 1996. Prior thereto
from September 1995 through September 1996 he was employed as
Chief Financial Officer by Fradigil, Inc. a restaurant operator
located in Kemah, Texas. From June 1993 through August 1995 Mr.
Smith was a business consultant in Houston, Texas. For the 13
years prior thereto he was employed as controller and from 1989
through 1993 as Chief Financial Officer by Kettle Restaurants,
Inc. an operator of family restaurants in the southern United
States.
Mr. Dworkin is the Chief Executive Officer, Director, and
controlling stockholder of Advanced Modular Systems, Inc., a
closely held corporation he founded in 1988 engaged in the
business of selling and leasing modular buildings. Mr. Dworkin
currently serves on the Boards of Directors of the following
publicly held companies: Northern Technologies International,
Inc., CCA Industries, Inc., Comtrex Systems Inc., Interactive
Technologies Inc., Viragen, Inc., Marbledge, Inc., Consolidated
Health Care Associates, Inc., Cragar Industries, Inc., and QEP,
Inc.
Mr. Feiner is an attorney in private practice in New York
City, and has served for the past three and one-half years as a
director of Fortune Natural Resources Corporation, a publicly
held company.
Mr. Boogren joined Intile in April, 1996 as Vice President -
Sales and Development and has served as Vice President - Central
Region since September 1997. From January 1993 to April 1996,
Mr. Boogren was employed by Color Tile Supermarts, Inc. and
served as Vice President - Eastern Division and then Vice
President - Franchise Operations.
Item 10. Executive Compensation
The following summarizes the compensation for C. William
Cox, the former President, Chairman and Chief Executive Officer
of the Company as of March 31, 1997. No other executive officer
received compensation during fiscal 1997 in excess of $100,000.
Cash Compensation of Executive Officers
long-term Compensation
Name and Restricted Number
Principal Fiscal Amount of Amount of Stock of
Position Year End Salary Bonus Awards Options
C. William Cox 1997 $148,388 -- -- --
Former Chief 1996 165,022 -- -- --
Executive Officer 1995 173,807 -- -- --
and President
There were no stock option grants to any person associated
with the Company during the fiscal year ended March 31, 1997.
Furthermore, all outstanding options either expired or were
cancelled during fiscal 1997.
Mr. C. William Cox, purchased $100,000 of convertible notes
(See Note 8 of Notes to Consolidated Financial Statements herein
and Item 5 - Market for Common Equity and Related Stockholder
Matters, Liquidity and Capital Resources, above) on the same
terms as all other purchasers of the convertible notes including
warrants attached thereto to purchase up to 50,000 shares of the
Company's common stock at $.25 per share.
Compensation of Directors
The Company currently pays its outside directors $500 per
each Board meeting attended by such director plus expenses
incurred in attending the meeting.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of April 30, 1998, the
aggregate number of shares of Common Stock of the Company owned
of record or beneficially by each person who owned of record, or
is known by the Company to own beneficially, more than 5% of the
Company's Common Stock, and the name and shareholdings of each
officer and director and all officers and directors as a group:
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership(1) of Class
C. William Cox 502,109 10.5%
10815 Briar Branch
Houston, Texas 77024
J. E. McConnaughy, Jr. 450,000 9.4%
637 Valley Road
New Canaan, CT 60840
Renaissance Capital Growth
& Income Fund III, Inc. 500,000 10.5%
8080 North Central Expressway
Suite 210
Dallas, Texas 75206
Renaissance US Growth
& Income Trust, PLC 500,000 10.5%
8080 North Central Expressway
Suite 210
Dallas, Texas 75206
Sidney Dworkin 50,000 1.1%
2600 South Ocean Blvd. Apt. 12F
Boca Raton, Florida 33432
George C. Siller, Jr. 883 .0%
9716 Old Katy Rd., #110
Houston, Texas 77055
All current officers and directors
as a group 50,883 1.1%
_____________________
(1) All shares are held beneficially and of record.
Item 12. Certain Relationships with Related Transactions
The Company leases certain equipment from entities owned by
C. William Cox, former President of the Company. Rental payments
under the leases were in the aggregate amounts of approximately
$20,000 and $17,000 for the fiscal years ended March 31, 1997 and
1996, respectively.
Effective January 1995, Mr. Cox, former President of the
Company, has provided his limited personal guarantee on the
Company's bank line of credit up to $1,000,000. In consideration
of this guarantee, the Company paid fees to Mr. Cox in the
amounts of $12,000 in each of the fiscal years ended March 31,
1997 and 1996, respectively. Such fees were charged to interest
expense.
Mr. Ehud D. Laska, a former Director of the Company is the
Chairman of Coleman and Company Securities, Inc. (Coleman). Mr.
Laska resigned as a Director effective January 20, 1997. On
August 23, 1996, the Company, through a Placement Agent Agreement
with Coleman, issued with private investors $1,600,000 of
convertible cotes of which Mr. C. William Cox, former President
of the Company, purchased $100,00 of the Notes (see Note 8).
Attached thereto, Mr. Cox received warrants to purchase up to
50,000 shares of the Company's common stock at $.25 per share and
Coleman was issued warrants to purchase up to 80,000 shares at
the same price. Mr. Cox's purchase of convertible notes payable
was on the same terms and conditions as all other purchases of
the convertible notes. Coleman received for its services a fee
of 10% of the proceeds of the placement and a non-accountable
expense reimbursement of 3% of the proceeds of the placement.
Total costs of the placement paid to Coleman were approximately
$223,000.
On January 31, 1997, the Company entered into a Placement
Agent Agreement with Coleman to act as its exclusive placement
agent in connection with the "best efforts" sale by the Company
of up to 47 Units (the "Units") at a price of $50,000 per Unit
(see Note 10). Each Unit consisted of 150,000 shares of the
Company's common stock. As of March 31, 1997, all of the Units
were sold of which Mr. Cox purchased one Unit. Mr. Cox's
purchase of the Unit was on the same terms and conditions as all
other purchases of Units. Total costs of the placement paid to
Coleman were approximately $305,500.
Item 13 - Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as a part of this report:
3(i) Articles of Incorporation **
3(ii) Bylaws of the Company **
4.1 Form of Subscription Agreement and Investment Letter
specifying terms of private placement sale of
$1,600,000 of 12% Convertible Subordinated Promissory
Notes due July 31, 1999.
4.2 Form of 12% Convertible Subordinated Promissory
Note Due July 31, 1999.
4.3 Form of Conversion Certificate for surrender of 12%
Convertible Subordinated Promissory Notes to convert to
common stock of the Company.
4.4 Form of Warrant to purchase common stock of the Company
issued in conjunction with the $1,600,000 of 12%
Convertible Subordinated Promissory Notes.
4.5 Form of Subscription Agreement and Investment Letter
specifying terms of irrevocable purchase of Units
consisting of 150,000 shares of common stock of the
Company at a price of $50,000 per Unit.
21 List of subsidiaries as of March 31, 1997
Intile Designs of Arizona, Inc. Arizona corporation
Intile Designs of Dallas, Inc. Texas corporation
Austin Tile Designs, Inc. Texas corporation
Intile Designs of California, Inc. California corporation
Intile Designs of Los Angeles, Inc. California corporation
TCM Holdings Corp. Massachusetts corporation
Intile Designs of Orlando, Inc. Florida corporation
Intile Designs of Woodlands, Inc. Texas corporation
Intile Designs of Denver, Inc. Colorado corporation
Global Tile Distributors, Inc. Massachusetts corporation
27 Financial Data Schedule
_______________________
** Incorporated by reference to the Exhibit of the same number
to the Annual Report on Form 10-KSB of the Company filed with
the commission for the year ended March 31, 1994.
(a) Reports on Form 8-K were filed during the last quarter of
the period covered by this report as follows:
On March 17, 1997, the Company filed a Form 8-K
reporting under Item 5 - "Other events" the approval by a
majority of the stockholders of the Company of a 3-to-1
reverse split in the issued and outstanding shares of
the Company's common stock
Additionally, reports on Form 8-K were filed subsequent to
the last quarter of the period covered by this report as
follows:
On July 28, 1997, the Company filed a Form 8-K
reporting under Item 5 - "Other events" the receipt of a
report from BDO Seidman, LLP (BDO), the Company's
auditors, covering the determination that personal
property amounts were under reported on related property
tax renditions which could result in a significant
underpayment of personal property taxes. Also included
in this filing was the notice that BDO had withdrawn its
audit opinion on the March 31, 1996, annual financial
statements of the Company and had resigned as the
Company's accounting firm on July 22, 1997.
On August 4, 1997, the Company filed a Form 8-K
reporting under Item 1 - "Changes in control of
registrant" and Item 5 - "Other events" the execution of
written consents by stockholders holding a majority of
the issued and outstanding common stock of the Company
for the purpose of removing the directors of the Company
and electing a new board of directors. The new
directors, immediately following this action, executed a
unanimous written consent removing the President and
Secretary of the Company and elected a new President and
Secretary of the Company.
On August 20, 1997, the Company filed a Form 8-K
reporting under Item 4 - "Changes in registrant's
certifying accountant" the re-engagement of BDO as the
Company's auditors. BDO agreed to be re-engaged
following the change in the Company's directors and
management on August 1, 1997, and reported on August 4,
1997.
On August 28, 1997, the Company filed a Form 8-K
reporting under Item 5 - "Other events" that due to the
potential for restatement of the Company's 1995 financial
statements as a result of the underpayment of personal
property taxes, Price Waterhouse LLP, the former
independent accounting firm for the Company, had
withdrawn its audit opinion on the March 31, 1995
consolidated financial statements of the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Intile Designs, Inc.
June 12, 1998 By:/s/ George C. Siller, Jr.
George C. Siller, Jr.
Chief Executive Officer, President,
and Secretary
June 12, 1998 By:/s/C. Doyle Smith
C. Doyle Smith
Vice President - Finance and Administration
and Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated.
June 12, 1998 By:/s/George C. Siller, Jr.
George C. Siller, Jr.
Chief Executive Officer, President,
Secretary and Director
June 12, 1998 By:/s/C. Doyle Smith
C. Doyle Smith
Vice President - Finance and Administration
and Assistant Secretary
June 12, 1998 By:/s/Barry Feiner
Barry Feiner
Director
June 12, 1998 By:/s/Sidney Dworkin
Sidney Dworkin
Director
<PAGE>
INTILE DESIGNS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of March 31, 1997 and 1996 F-3
Consolidated Statements of Loss for the years ended
March 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity (Capital
Deficit) for the years ended March 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Thru
F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Intile Designs, Inc.
We have audited the consolidated balance sheets of Intile
Designs, Inc. at March 31, 1997 and 1996 and the consolidated
statements of loss, stockholders' equity (capital deficit) and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Intile Designs, Inc. at March 31, 1997 and
1996 and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company has incurred significant losses in the
fiscal years ended March 31, 1997 and 1996 and is in default of
its loan agreement, as a result of which the lender may enforce
its demand for repayment of the entire outstanding balance.
Accordingly, there is substantial doubt about the Company's
ability to continue as a going concern. Management's plans in
regard to these matters are also discussed in Note 2. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Houston, Texas
January 19, 1998, except for Note 5 which
is as of March 19, 1998 and Note 12
which is as of April 2, 1998
<PAGE>
INTILE DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
1997 1996
(Restated)
Assets
Current Assets:
Cash $179,157 $69,778
Accounts receivable, less allowance
for doubtful accounts of $340,315 and $134,602 1,374,656 1,564,174
Restricted certificates of deposit 192,500 --
Inventories 6,074,110 8,447,237
Prepaid expenses and other 230,451 137,471
Total Current Assets 8,050,874 10,218,660
Property and equipment, net of accumulated
depreciation and amortization 643,937 556,665
Other Assets:
Organization costs, net of accumulated
amortization 15,935 24,755
Deposits 233,996 137,415
Other -- 54,086
Total assets $8,944,742 $10,991,581
Liabilities and Stockholders' Equity(Capital Deficit)
Current Liabilities:
Current portion of notes payable $3,973,457 $5,953,907
Accounts payable 2,943,401 3,216,146
Accrued provision for closure of International 692,985 --
Accrued other expenses 981,721 441,459
Total Current Liabilities 8,591,564 9,611,512
Notes payable less current portion 338,613 --
Other 103,758 103,758
Total Liabilities 9,033,935 9,715,270
Commitments and Contingencies
Stockholders' Equity(Capital Deficit):
Common stock, $.0001 par value;
10,000,000 shares authorized 469 93
Additional paid-in capital 8,704,974 4,717,887
Deficit (8,794,636) (3,441,669)
Total Stockholders' Equity(Capital Deficit) (89,193) 1,276,311
$8,944,742 $10,991,581
See accompanying notes to consolidated financial statements.
<PAGE>
INTILE DESIGNS, INC.
CONSOLIDATED STATEMENTS OF LOSS
For the years
ended March 31,
1997 1996
(Restated)
Net sales $15,936,681 $18,892,947
Cost of sales 11,864,464 11,617,811
Gross profit 4,072,217 7,275,136
Selling and administrative expenses 7,343,768 8,222,031
Equity in losses of Investee -- 3,169,419
Provision for closure of International 692,985 --
8,036,753 11,391,450
Loss from operations (3,964,536) (4,116,314)
Other Income (Expense)
Interest expense (1,419,512) (452,993)
Other income 31,081 5,407
Other expense - net (1,388,431) (447,586)
Loss before income taxes (5,352,967) (4,563,900)
Income taxes benefit -- (105,000)
Net loss $(5,352,967) $(4,458,900)
Net loss per share $ (4.66) $ (4.81)
Weighted average number of
common shares outstanding 1,148,208 926,287
See accompanying notes to consolidated financial statements.
<PAGE>
INTILE DESIGNS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(CAPITAL DEFICIT)
For The Years Ended March 31, 1997 and 1996
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit) Total
Balance, at April 1, 1995 915,377 $ 92 $4,696,162 $1,017,231 $5,713,485
Additional issuance costs
relating to issuance of
common stock to acquire
TCM Holdings -- -- (68,644) -- (68,644)
Exercise of stock options 11,746 1 56,691 -- 56,692
Issuance of common stock 6,101 -- 33,678 -- 33,678
Net loss (restated) -- -- -- (4,458,900)(4,458,900)
Balance, at March
31, 1996 (restated) 933,224 93 4,717,887 (3,441,669) 1,276,311
Issuance of common stock 2,347 1 5,069 -- 5,070
Issuance of common stock 2,350,000 235 2,010,763 -- 2,010,998
Conversion of notes payable
to common stock 1,400,041 140 1,971,255 -- 1,971,395
Net loss -- -- -- (5,352,967)(5,352,967)
Balance, at March
31, 1997 4,685,612 $469 $8,704,974 $(8,794,636) $(89,193)
See accompanying notes to consolidated financial statements.
<PAGE>
INTILE DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
For the years
ended March 31,
1997 1996
(Restated)
Cash flows from operating activities:
Net loss $(5,352,967) $(4,458,900)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 293,985 150,720
Noncash interest expense
- issuance of warrants 575,937 --
Equity in net loss of unconsolidated investee -- 3,169,419
Provision for inventory obsolescenc 1,707,398 --
Loss on abandonment of leasehold improvements -- 7,236
Bad debt expense 256,557 93,597
Deferred taxes -- 77,000
Changes in assets and liabilities:
Accounts receivable (67,039) 227,200
Restricted certificates of deposits (192,500) --
Inventories 665,729 549,235
Prepaid expenses (190,933) 160,533
Change in deposits and other assets (80,724) --
Accounts payable and accrued expenses 960,502 (766,202)
Income taxes payable -- (32,373)
Net cash used in operating activities (1,424,055) (822,535)
Cash flows from investing activities:
Purchase of equipment (236,255) (311,795)
Proceeds from disposition of assets -- 25,000
Net cash used in investing activities (236,255) (286,795)
Cash flows from financing activities:
Proceeds from debt issuance 1,918,677 168,000
Payments of debt (165,056) (355,050)
Borrowings under line of credit -- 1,225,000
Payments on line of credit (2,000,000) (105,000)
Proceeds from issuance of common stock 2,016,068 33,678
Exercise of stock options -- 56,692
Issuance costs on acquisition of TCM -- (68,644)
Net cash provided by financing activities 1,769,689 954,676
Net increase (decrease) in cash 109,379 (154,654)
Cash, beginning of year 69,778 224,432
Cash, end of year $ 179,157 $ 69,778
See accompanying notes to consolidated financial statements.
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business and Basis of Presentation
The Company is a direct importer and distributor of foreign
ceramic tile, marble and related home design products. The
Company is also a distributor of domestic ceramic tile, marble,
swimming pool tile and other related home design/building
products. The Company's products are distributed to a diverse
and varied retail and wholesale customer base through ten (10)
showroom/warehouse facilities and three (3) retail showrooms in
six (6) states. Subsequent to March 31, 1997, the Company
elected to close two (2) showroom/warehouse facilities located in
California and Arizona.
The consolidated financial statements include the accounts
of Intile Designs, Inc. and its wholly owned subsidiaries, except
where control is deemed to be temporary (Note 3). All
significant intercompany accounts and transactions have been
eliminated.
The Company accrued additional property tax expense relating
to an underreporting of property tax values in fiscal 1997 and
earlier years (Note 11 - Contingencies). A portion of the
accrual related to fiscal 1996. Accordingly, the 1996 financial
statements have been restated to reflect a charge to expense and
an additional liability of approximately $213,000.
Revenue Recognition
Revenue is recognized upon the sale of swimming pool brick,
ceramic tile, marble and related home design products and is
recorded net of discounts and returns.
Inventories
Inventories consisting of swimming pool brick, ceramic tile,
marble and related home design products are stated at the lower
of cost (first-in, first-out) or market. Inventory costs include
freight and certain handling costs.
Restricted Certificates of Deposit
Certificates of deposit with original maturities greater
than 90 days are designated as collateral on certain letter of
credit and are reserved for such purpose. Such investments are
stated at cost, which approximates market.
Property and Equipment, Net
Property and equipment are stated at cost. Maintenance and
repairs are charged to expenses as incurred and expenditures for
major improvements and leasehold improvements are capitalized.
Depreciation on equipment is provided using the straightline
method over the estimated useful lives of the assets. For
income tax purposes, depreciation on certain assets is calculated
using accelerated methods. Leasehold improvements are amortized
over the term of the leases, not in excess of their estimated
useful lives.
The Company reviews the carrying values of its long-lived
assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may
not be recoverable. The Company had no significant impairment of
long-lived assets for the year ended March 31, 1997 and 1996.
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment in TCM
As discussed in Note 3, during the year ended March 31,
1996, TCM entered into Chapter 7 bankruptcy proceedings under the
U.S. Bankruptcy Code. In light of this event, the Company's
control over TCM is deemed to be temporary in nature. Generally
Accepted Accounting Principles do not permit the use of
consolidation accounting in circumstances where the investor has
temporary control over an investee. Accordingly, effective April
1, 1995, the Company's investment in TCM is accounted for using
the equity method; therefore, the investment is carried at cost
and adjusted for the Company's proportionate share of profit or
losses.
Organization Costs
Organization costs are amortized on a straight-line basis
over five years.
Employee Stock Option Plan
The Company has elected to continue to account for stock
options issued to employees in accordance with APB No. 25.
Effective for the fiscal year ended March 31, 1997, the Company
was required to adopt the disclosure requirements of SFAS No. 123
- - - "Accounting for Stock-based Compensation". This statement
requires the Company to provide proforma information regarding
net loss and loss per share as if compensation cost for the
Company's stock options granted to employees had been determined
in accordance with the fair value based method prescribed in SFAS
No. 123. There were no options granted for the fiscal years
ended March 31, 1997 and 1996, therefore there is no proforma
effect.
Income Taxes
For federal income tax purposes, the Company files a
consolidated tax return, which includes the operations of its
divisions and subsidiaries.
The Company recognizes income tax expense (benefit) using
the asset and liability method of accounting for deferred income
taxes. Deferred tax assets or liabilities are recorded based
upon the future tax consequences attributable to differences
between the tax basis of assets and liabilities and their
respective carrying value for financial reporting purposes.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to be recovered or settled. The effect of tax
rate changes on deferred tax assets and liabilities is recognized
in income in the period of enactment.
The Company adjusts the deferred tax assets valuation
allowance based on judgment as to future realization of the
deferred tax benefits supported by demonstrated trends in the
company's operating results.
Loss Per Share
Loss per share is calculated using the weighted average
number of outstanding shares of common and common equivalent
shares outstanding, including stock options which have a dilutive
effect. The loss per share calculation for the year ended March
31, 1996 has been adjusted to reflect the pro forma application
of the one-for-two reverse stock split effected on August 5, 1997
and the one-for-three reverse stock split effected on March 31,
1997. For the fiscal years ended March 31, 1997 and 1996, there
were no dilution effects from common stock equivalents.
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments
The Company follows the guidance of Statement of Financial
Accounting Standards No. 107, "Disclosure of Fair Value of
Financial Instruments," which requires the disclosures of the
fair value of the Company's financial instruments. Some of the
information used to determine fair value is subjective and
judgmental in nature; therefore, fair value estimates may vary.
The amounts actually realized or paid upon settlement or maturity
could be significantly different.
Unless quoted market price indicates otherwise, the fair
values of cash, certificates of deposit, accounts receivable,
accounts payable and bank debt generally approximate market value
as the underlying borrowing rates are similar to other financial
instruments with similar maturities and terms.
Year 2000 Plans
The Company purchased a new computer system and software for
all of its accounting applications. Implementation of the
conversion to the new system is nearing completion. The new
system and software has year 2000 processing capabilities which
was a key factor in the selection of these products. As of
March 31, 1997, all significant costs related to its
implementation has been incurred or accrued, and in accordance
with Emerging Issues Task Force issue 96-14 those costs related
to year 2000 matters have been expensed as incurred.
Management's Estimates and Assumptions
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 disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
periods. Actual results could differ from these estimates.
New Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 provides a different
method of calculating earnings per share than is currently used
in APB Opinion 15. SFAS 128 provides for the calculation of
basic and diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income available
to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings per share
reflect the potential dilution of securities that could share in
the earnings of an entity, similar to existing fully diluted
earnings per share. The Company is required to adopt SFAS 128 in
the third quarter ended December 31, 1997. Using the principles
set forth in this standard, basic and diluted earnings per share
would not be materially different from that presented.
Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129")
is effective for periods ending after December 15, 1997 and
establishes standards for disclosing information about an
entity's capital structure. SFAS 129 requires disclosure of the
pertinent rights and privileges of various securities outstanding
(stock, options, warrants, preferred stock, debt and
participating rights) including dividend and liquidations
preferences, participant rights, call prices and dates,
conversion or exercise prices and redemption requirements.
Adoption of SFAS 129 will have no effect on the Company as it
currently discloses the information specified.
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1997, the Financial Accounting Standards Board
issued two new disclosure standards, Statement of Financial
Accounting Standards (SFAS) 130, "Reporting Comprehensive Income"
and SFAS 131, "Disclosure About Segments of a Business
Enterprise". Both of these new standards are effective for
financial statements for periods beginning after December 15,
1997 and require comparative information for earlier years to be
restated. Management does not anticipate that results of
operations and financial position will be materially affected by
implementation of these new standards.
SFAS 130, "Reporting Comprehensive Income", establishes
standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among
other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.
SFAS 131, "Disclosure about Segments of a Business
Enterprise", establishes standards for the way public enterprises
report information about operating segments in annual financial
statements and requires reporting of selected information about
operating segments in interim financial statements issued to the
public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS
131 defines operating segments as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Reclassifications
Certain 1996 balances have been reclassified to conform with
1997 financial statement presentations.
NOTE 2 - GOING CONCERN UNCERTAINTY
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. The Company has suffered significant losses during the
fiscal years ended March 31, 1997 and 1996 and has a capital
deficit at March 31, 1997. The Company is not in compliance with
numerous covenants of its bank financing agreement and the bank
has sent a Notice of Claim and Demand for Arbitration dated
December 2, 1997. Accordingly, there is substantial doubt about
the Company's ability to continue as a going concern.
The Company's management continues to seek private sources
of capital and alternative financing sources in an endeavor to
alleviate the going concern uncertainty (Note 12). There can be
no assurance that these efforts will be successful.
NOTE 3 - BUSINESS CLOSURES
TCM Holdings Corporation
Due to recurring losses, the management of TCM (a wholly
owned subsidiary of the Company) elected in August 1995 to cease
operations and to abandon all facilities other than the central
warehouse. Prior to the Company's acquisition of TCM stock, TCM
had confirmed a Chapter 11 Plan of Reorganization in December
1994. Pursuant to the terms of the plan, all property of TCM was
to vest in the reorganized entity emerging from
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
bankruptcy. In October 1995, the U.S. Trustee petitioned the
bankruptcy court to convert TCM's Chapter 11 filing to a Chapter
7 under the U.S. Bankruptcy Code. On November 7, 1995, the U.S.
Bankruptcy Court, District of Massachusetts, Eastern Division
converted the case into Chapter 7. The Company entered into a
consignment agreement with TCM and NationsBank to provide an
orderly liquidation of the bank's collateral through the sales
efforts of Global Tile Distributors, Inc. (Global), a wholly-
owned subsidiary of the Company. Inventory with a value of
approximately $258,000 remains on hand as of March 31, 1997. The
Company's management believes that the liquidation will be
accomplished with no significant additional losses to the
Company. Management believes that as a result of the
liquidation, the Company will recover some previously recognized
losses since certain recorded liabilities are not anticipated to
be paid by TCM's bankruptcy estate.
The Company believes that the liquidation value of the
assets of TCM, as the reorganized entity, will be less than the
value of the recorded liens against such assets, of which the
Company's bank is the primary lienholder. Accordingly, it is
anticipated that the unsecured creditors under the confirmed
plan, or otherwise, will not receive any proceeds from the
Chapter 7 liquidation. During the year ended March 31, 1996, as
a result of the bankruptcy filing, TCM wrote down certain assets
totaling $2,280,791, which is included in the "Equity in losses
of investee". Although the Company has a 100% ownership interest
in TCM, its control over TCM is considered to be temporary in
nature because of TCM's Chapter 7 bankruptcy proceeding.
Accordingly, the Company has accounted for its investment in TCM
using the equity method in fiscal 1997 and 1996. The following
is a summary of the financial position (excluding amounts payable
to parent), net sales and loss for TCM for the years ended March
31, 1997 and 1996.
March 31,
1997 1996
Current assets $ 342,225 $ 442,225
Liabilities $ 430,578 $ 430,578
Equity (Deficit) (88,353) 11,647
$ 342,225 $ 442,225
Sales $ -- $ 1,643,495
Net loss $ (100,000) $(3,169,419)
The net loss for fiscal 1996 includes a writedown of assets
totaling $2,280,791 to their net realizable values including
$150,000 to cover additional costs related to the closure of TCM.
The net loss also includes the writeoff of goodwill relating to
TCM. The Company recorded an additional allowance for losses in
unconsolidated Investee in the amount of $100,000 in the fiscal
year ended March 31, 1997 that is included in cost of sales in
the accompanying statement of loss.
Intile Designs of Los Angeles, Inc. ("International")
Due to recurring losses, management elected as of January
20, 1997 to cease operations of International and to abandon all
facilities. An allowance for losses relating to International in
the amount of $692,985 has been provided by a charge against
earnings in the fiscal year ended March 31, 1997. Included in
the allowance for losses is $532,118 for the net present value of
the remaining lease commitments. A reserve against inventory has
also been provided in the amount of $268,905, and is included in
cost of sales in the fiscal year ended March 31, 1997. The
charge to inventory reflects the full disposal of the inventory
in an auction in December, 1997.
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment and their useful lives are summarized
as follows:
March 31,
Lives 1997 1996
Leasehold improvements 3-5 $623,532 $625,398
Furniture, fixtures and computer equipment 5 635,069 397,634
Warehouse equipment 5 328,133 327,447
Tractor, trucks, trailers and automobiles 3 156,446 156,446
Turnstiles 3-5 46,940 46,940
1,790,120 1,553,865
Accumulated depreciation and amortization (1,146,183) (997,200)
$643,937 $556,665
NOTE 5 - NOTES PAYABLE
Notes payable consists of the following:
March 31,
1997 1996
Bank line of credit of $6,000,000 with interest
at prime plus 2.5% (10.75% at March 31, 1997);
in default; originally due January 20, 1997;
secured by inventory and accounts receivable
and the limited personal guarantee of the
Company's former President $3,780,000 $5,820,000
Unsecured note payable to a company, due in
monthly installments of $25,000 plus interest
at prime plus 3% (10.75% at March 31, 1997)
in default 100,000 100,000
Unsecured private placement convertible notes
payable, due July, 1999, interest at 14%,
increasing 2% every six months with 18% maximum 200,000 --
Other installment notes with interest rates of
8% to 12.5%; due at various maturity dates;
secured by transportation equipment 232,070 33,907
4,312,070 5,953,907
Current portion (3,973,457) (5,953,907)
Notes payable less current portion $338,613 $ --
The bank line of credit requires the maintenance of certain
financial covenants. The Company is not in compliance with the
required current, quick, leverage, tangible net worth, current
maturities and interest coverage ratios. The bank has not waived
any of the covenant violations. Furthermore, the bank has sent a
Notice of Claim and Demand for Arbitration dated December 2,
1997. Effective March 19, 1998 the bank and the Company in
anticipation of possible recapitalization efforts have agreed to
a stay of the arbitration hearing. The Company
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cannot predict the actions of the bank; however, management
anticipates that should recapitalization of the Company not be
concluded within a reasonable period of time, a new Notice of
Claim and Demand for Arbitration will be issued by the bank.
The unsecured private placement convertible notes payable
("Notes"), due July 1999, were part of an original issue totaling
$1,600,000 and convertible into common stock at a rate of $1.00
per share. The investors were also issued warrants to purchase up
to 800,000 shares of the Company's common stock at $.25 per
share and the underwriter was issued warrants to purchase up to
80,000 shares at the same price. Under the accounting provisions
of Statement of Financial Accounting Standards No. 123 -
"Accounting for Stock-Based Compensation," a charge to interest
expense of $571,395 has been made in fiscal 1997. Notes with a
face amount of $1,400,000 were converted into common stock as of
March 31, 1997, subsequent to the reverse stock split effected on
the same date (Note 10). Notes in a face amount of $100,000 were
converted into common stock subsequent to March 31, 1997.
NOTE 6 - COMMITMENTS
Future minimum lease payments under noncancelable operating
leases expiring through 2002 for automobiles, office space and
office equipment for years ending March 31, are as follows:
Amount
1998 $ 893,396
1999 641,607
2000 386,445
2001 110,751
2002 35,000
$2,067,199
Lease expenses for all operating leases during the years
ended March 31, 1997 and 1996, were approximately $1,025,000 and
$1,645,000, respectively. In addition, the Company accrued the
net present values of leases on closed locations of $710,530 in
fiscal 1997.
NOTE 7 - INCOME TAXES
The provision for income taxes for the fiscal years ended
March 31, 1997 and 1996 is summarized as follows:
March 31,
1997 1996
Current benefit:
Federal income tax $ -- $(182,000)
Deferred federal income tax expense -- 77,000
Total $ -- $(105,000)
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of the principal temporary differences
between financial reporting and income tax reporting are as
follows:
March 31,
1997 1996
Current deferred tax asset:
Capitalized inventory costs $391,000 $ 34,000
Inventory reserve 581,000 --
Receivable allowance 89,000 50,000
1,061,000 84,000
Less: valuation allowance (1,061,000) (84,000)
Net current deferred tax asset $ -- $ --
Long-term deferred tax asset:
Book/tax depreciation differences $ 18,000 $ 11,000
Investment in subsidiary 270,000 270,000
Issuance costs of convertible debt 220,000 --
Reserve for closure of International 236,000 --
Net operating loss carryforwards 1,241,000 840,000
1,985,000 1,121,000
Less: valuation allowance (1,985,000) (1,121,000)
Net long-term deferred tax asset $ -- $ --
The Company has recorded a 100% valuation allowance for
fiscal years ended March 31, 1997 and 1996 on the deferred tax
asset since it could not be determined if the asset was more
likely than not to be realized.
The Company has available net operating loss carryforwards
of $3,651,000 that will expire during 2011 (Note 12).
For the year ended March 31, 1996, the Company was able to
carryback $513,559 of its net operating losses, which resulted in
an income tax receivable of $150,000.
The provision for income taxes differs from the amount of
income tax determined by applying the statutory federal income
tax rate to loss before income taxes as a result of the
following:
March 31,
1997 1996
Federal income tax statutory rate $(1,820,000) $(1,320,000)
Change in valuation allowance 1,841,000 1,205,000
Other (21,000) 10,000
$ -- $ (105,000)
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has extended certain notes receivable to its
affiliates and employees in the aggregate amount of $42,660 and
$46,900 at March 31, 1997 and 1996, respectively.
The Company leases certain equipment from entities owned by
C. William Cox, former President of the Company. Rental payments
under the leases were in the aggregate amounts of approximately
$20,000 and $17,000 for the fiscal years ended March 31, 1997 and
1996, respectively.
Effective January 1995, Mr. Cox, former President of the
Company, provided his limited personal guarantee on the Company's
bank line of credit up to $1,000,000. In consideration of this
guarantee, the Company paid fees to Mr. Cox in the amounts of
$12,000 in each of the fiscal years ended March 31, 1997 and
1996. Such fees were charged to interest expense.
Mr. Ehud D. Laska, a former Director of the Company is the
Chairman of Coleman and Company Securities, Inc. (Coleman). Mr.
Laska resigned as a Director effective January 20, 1997. On
August 23, 1996, Coleman acted as placement agent in a private
placement of $1,600,000 of Convertible Notes of which Mr. C.
William Cox, former President of the Company, purchased $100,000
of the Notes (Note 10). Mr. Cox also received warrants to
purchase up to 50,000 shares of the Company's common stock at
$.25 per share and Coleman was issued warrants to purchase up to
80,000 shares at the same price. Coleman received for its
services a fee of 10% of the proceeds of the placement and a non-
accountable expense reimbursement of 3% of the proceeds of the
placement. Total costs of the placement paid to Coleman were
approximately $223,000.
On January 31, 1997, Coleman acted as placement agent in a
private placement of up to 47 Units (the "Units") at a price of
$50,000 per Unit (Note 10). Each Unit consisted of 150,000
shares of the Company's common stock. As of March 31, 1997, all
of the Units were sold of which Mr. Cox purchased one Unit.
Total costs of the placement paid to Coleman were approximately
$305,500.
NOTE 9 - STOCK OPTION PLAN
The Company has non-qualified stock option plans whereby
selected employees and non-employees under contract are eligible
for non-qualified stock options. Under the plans, the company
may grant options for up to 60,307 shares of common stock. The
maximum term of the options is three (3) years and they become
fully vested and exercisable on the expiration date.
All options granted during the fiscal years ended March 31,
1996 and 1997 were forfeited, cancelled or not ultimately issued;
therefore, no compensation cost was charged to operations for the
applicable fiscal years.
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the status of the non-qualified
stock option plans during fiscal 1996 and 1997 (All shares have
been restated to reflect the reverse stock splits and stock split
in fiscal 1997 and 1996):
Weighted
Average
Number of Exercise
Shares Price
Options outstanding, April 1, 1995 66,718 $ 6.90
Granted -- --
Exercised (11,746) 4.50
Forfeited (54,972) 4.48
Options outstanding, March 31, 1996 -- $ 0.00
NOTE 10 - COMMON STOCK
On May 1, 1995, the Company authorized a 2 for 1 stock split
that was effected in the form of a 100% stock dividend. All
share information reflects this transaction.
On August 5, 1996, the Company authorized a one-for-two
reverse stock split. Shareholders received one new share of the
Company's common stock for each two shares they then held. All
share information has been retroactively restated to reflect the
reverse stock split.
On March 31, 1997, the Company authorized a one-for-three
reverse stock split. Shareholders received one new share of the
Company's common stock for each three shares they then held. All
share information has been retroactively restated to reflect the
reverse stock split.
On August 23, 1997, the Company issued $1,600,000 of
convertible notes payable with private investors (Note 8) that
resulted in net proceeds of $1,347,272. The Company paid
$1,000,000 from the proceeds to the Company's primary lender and
the balance was retained for working capital. The holders were
issued warrants to purchase up to 800,000 shares of the
Company's common stock at $.25 per share and Coleman was issued
warrants to purchase up to 80,000 shares at the same price. As
of March 31, 1997, notes in the amount of $1,400,000 were
converted into 1,400,041 shares of the Company's common stock.
Each holder retains the warrants associated with the Notes. The
conversion of the Notes into shares of common stock occurred
subsequent to the one-for-three reverse stock split on March 31,
1997.
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 31, 1997, the Company sold 47 Units at a price of
$50,000 per Unit (Note 8). Each Unit consisted of 50,000 shares
of the Company's common stock totaling 2,350,000 shares of common
stock. The sale of the common stock occurred subsequent to the
one-for-three reverse stock split on March 31, 1997. The Company
received net proceeds of $2,010,998 from the sale of the common
stock of which $1,000,000 was paid to the Company's primary
lender and the balance was retained in working capital.
The Company has issued various common stock warrant
agreements entitling the holders to acquire the Company's common
stock. There are 952,820 warrants outstanding at March 31, 1997
and all warrants are exercisable.
The fair value of each warrant issued during fiscal 1996 and
1997 is estimated on the issue date using the Black-Scholes
model. The following assumptions were made in estimating fair
value:
Dividend yield 0.0%
Risk-free interest rate 6.8%
Expected life 3.5yrs
Expected volatility 120.0%
Under the accounting provisions of Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock-Based
Compensation", a charge to interest expense of $571,395 has been
made in fiscal 1997.
Following is a summary of the status of the warrants during
fiscal 1996 and 1997 (All shares have been restated to reflect
the reverse stock splits in fiscal 1997):
Weighted
Average
Number of Exercise
Shares Price
Warrants outstanding, April 1, 1995 72,820 $ 15.96
Granted -- --
Exercised -- --
Forfeited -- --
Warrants outstanding, March 31, 1996 72,820 15.96
Granted 880,000 .25
Exercised -- --
Forfeited -- --
Warrants outstanding, March 31, 1997 952,820 $ 1.45
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the status of fixed warrants
outstanding at March 31, 1997.
Weighted
Average Weighted
Number Remaining Average
Exercise Issued and Contractual Exercise
Price Range Exercisable Life Price
$ .25 880,000 6 years $ .25
$19.50-$19.80 72,820 6 years $ 15.76
$ .25-$19.80 952,820 6 years $ 1.44
NOTE 11 - CONTINGENCIES
The Company is a defendant in various lawsuits resulting
from disputes arising in the day-to-day operations to which
management believes the outcome based upon information currently
available, in the aggregate, would not have a material adverse
effect on the Company's financial position, results or operations
or cash flows.
A subsidiary of the Company (TCM) filed for Chapter 7
Bankruptcy during August 1995. As discussed in Note 1, TCM's
commitments and obligations are not included in the accompanying
financial statements as of March 31, 1997 and 1996. Management
believes that the Company will not be responsible for TCM's
commitments or any potential outstanding liabilities that may
arise.
Subsequent to year-end, the Company became aware that
property taxes were underpaid by an amount which was material, in
the aggregate, to the financial position of the Company. The
underpayment was the result of the underreporting of inventory
and personal property values on the personal property renditions
filed annually with the respective county appraisal districts.
The underreporting has occurred for at least seven (7) years and
involves the locations in Houston, Corpus Christi, Dallas and
Austin, Texas and Atlanta, Georgia. The Company has negotiated
settlements of reporting value with the applicable appraisal
districts having jurisdiction over each taxed location. The
Houston settlement is limited to a two (2) year lookback and the
taxing authorities in the various other jurisdictions have either
followed the precedent established in the Houston settlement or
elected to not assess the Company for prior year underpayments of
property taxes. The financial statements herein reflect a charge
to expense of approximately $127,000 for the fiscal year ended
March 31, 1997 and a restated charge to expense to accrue
additional personal property taxes of approximately $213,000 for
the fiscal year ended March 31, 1996. Management believes the
charges to operating results in fiscal years ended March 31, 1997
and 1996 adequately reflects the assessments, penalties, interest
and fees to be paid.
During March 1997, the Company entered into four (4) letters
of credit agreements totaling approximately $190,000. The
letters of credit, which mature September 1997, are
collateralized by the restricted certificates of deposit (Note
1).
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SUBSEQUENT EVENTS
On or about July 31, 1997, stockholders holding a majority
of the issued and outstanding common stock of the Company
executed written consents pursuant to section 228 of the General
Corporation Law of Delaware for the purpose of removing C.
William Cox, Edward Paul and Walter Rae, as current directors of
the Company. This action was taken in response to the property
tax matters disclosed in Note 11 above and also disclosed in the
Company's Form 8-K filings dated July 22 and August 1, 1997. The
shareholders then elected new directors who executed a unanimous
written consent removing the President and Secretary of the
Company and electing a new President and Secretary of the
Company.
As of November 30, 1997, the Company closed its Phoenix
location and as of December 31, 1997, the Company closed its
Anaheim location due to unacceptable results of operations.
On April 2, 1998, the Company announced that it has signed a
Letter of Intent ("LOI"), to sell 25,000,000 new shares of Intile
Common Stock for $2,000,000, in cash, to Energy Drilling
Industries, Inc. ("EDII"). The purchase will represent
approximately 82% of the then issued shares of common stock. The
LOI is subject to certain conditions, including due diligence by
both parties, amendment of the Company's charter to authorize
additional shares of common stock, and preparation and execution
of definitive agreements. The proceeds of the sale will be used
in the restructuring of the bank debt on terms more favorable to
the Company. One significant condition to the transaction is
negotiating those terms with the Company's bank in advance of
closing. EDII is a holding company headquartered in Houston,
Texas with diverse interests in five industry segments:
industrial, financial, oil and gas, real estate and
entertainment. Management anticipates, depending upon the final
terms of the definitive agreement, a potential gain of as much as
$1,600,000 that will be offset by available tax net operating
loss carryforwards. However, under regulation 382 the remaining
unused net operating losses available for offset against taxable
income will be significantly limited in future tax years.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
March 31,
1997 1996
Interest paid $747,330 $452,993
During the year ended March 31, 1997,
non-cash financing activities were as follows:
Conversion of subordinated debt to
common stock $1,400,000
Exhibit No. 4.1
Intile Designs, Inc.
Form 10-KSB/ 1997
File No. 33-49854-A
SUBSCRIPTION AGREEMENT
AND INVESTMENT LETTER
________________
Date
To the Board of Directors
Intile Designs, Inc.
9716 Old Katy Road
Suite 110
Houston, Texas 77055
Re: Subscription to Purchase Units
of Intile Designs, Inc.
Gentlemen:
This will acknowledge that the undersigned hereby agrees to
irrevocably purchase from Intile Designs, Inc. (the "Company" or
"Intile"), a corporation formed in July 1991 and now organized
under the laws of the State of Delaware, ___________________
unit(s) (collectively the "Units") at a price of $100,000 per
Unit. The Unit(s) to be purchased by the undersigned is (are)
part of a private placement of securities (the "Offering") by the
Company of up to 16 Units which is being made only to "accredited
investors" as defined herein on a 12 Unit minimum or none to 16
Unit maximum best efforts basis by the Company through July 31,
1996. Based thereon, if 12 Units are not sold and paid for on or
prior to August 15, 1996 (unless extended as provided below), the
Offering will not become effective and all funds collected from
subscribers will be promptly returned to them without interest
thereon or deduction therefrom. The Company reserves the right
to sell fractions of a Unit.
All funds collected from subscribers pending consummation or
termination of the Offering as set forth herein will be held in
the escrow account described below. The Company is required to
obtain the permission of its primary lender, Nations Bank of
Texas (the "Bank"), in order to effect this Offering.
Accordingly, no funds will be released from the escrow account to
the Company unless the Bank's permission is obtained.
If all of the Units are sold, the Company will receive aggregate
gross proceeds of $1,600,000 less the expenses of this Offering
which management estimates will approximate $223,000, including
the fee and expense allowance payable to Coleman and Company
Securities, Inc. ("Coleman") described below. Coleman, a member
of the New York Stock Exchange, is acting as the placement agent
for the Company in placing this Offering. The Offering will
terminate on the sooner to occur of the sale of all of the Units
or August 15, 1996, unless extended for an additional 30 days by
the mutual consent of the Company and Coleman.
The undersigned understands that the information provided to him
with respect to the Company has not been independently verified
by Coleman. Accordingly, there is no representation by Coleman
as to the completeness or accuracy of such information.
Coleman will receive (i) a fee equal to 10% and a non-accountable
expense allowance equal to 3% of the aggregate purchase price of
the Units sold; and (ii) a number of Warrants equal to 10% of the
number Warrants issuable as part of Units sold. Ehud D. Laska, a
director of the Company, is also a principal of Coleman.. Neither
the Company nor Coleman has obtained any independent opinion
relating to the fairness of the terms of this Offering or the
compensation to be paid to Coleman for the services it will
render in connection herewith.
Payment for the Units shall be made by check payable to
"Citibank, N.A. - Intile Designs, Inc. Escrow Account" and
delivered to Coleman, together with all executed copy of this
Subscription Agreement and Investment Letter and the Purchaser
Questionnaire appended hereto as EXHIBIT A. Payment may be made
by wire transfer pursuant to instructions available on request
from Coleman.
The Company intends to obtain stockholder approval for a one for
two reverse split of its common stock, par value $0.0001 per
share, (the "Common Stock") after which there will be
approximately 3.22 million shares of Common Stock outstanding
including approximately 420,000 shares reserved for issuance
pursuant to the exercise of currently outstanding options and
currently authorized warrants. Each Unit consists of (i) a note
(collectively the "Notes") in the principal amount of $100,000;
and (ii) 50,000 warrants (the "Warrants"), each to purchase one
share of post split Common Stock at a price of $0.25 per share
for a period of seven years. The Notes and Warrants will be
immediately detachable.
The Notes will bear annual interest at the rate of 12% for the
first six months after issuance. Thereafter the interest rate
will increase by 2% each six months until the shares of Common
Stock underlying the Notes and the Warrants (the "Underlying
Shares") are registered as provided below, up to a maximum of
18%. Interest will be payable quarterly. The Notes will be
subordinated to "Senior Indebtedness" as defined therein. They
will not be personally guaranteed and there will be no sinking
fund, trustee or indenture with respect thereto.
The Notes will mature on the earlier or 36 months after issuance
or the closing of the "Public offering" as defined below. Each
Note will be immediately convertible into post split Common Stock
at the rate of $1.50 per share. The Notes will not be repayable
for up to six months after the date of issuance except for
repayment from the proceeds of the Public Offering. Thereafter,
they will be prepayable prior to maturity on 30 day's notice
without penalty unless such prepayment occurs before Underlying
Shares and the Warrant Shares are registered. In such event,
Note holders may convert their Notes during the 30 day notice
period into post split Common Stock at the lower of $1.50 per
share or 50% of the market value of the Common Stock as
determined in the Note. If prepayment is effected after
registration of the Underlying Shares and the Warrant Shares, the
Notes will be convertible only at the rate of $1.50 per share.
The Notes will also be convertible into the units to be sold in
the Public Offering at a discount of 50% from the Public Offering
price.
The conversion rate of the Notes and the exercise price of the
Warrants will be subject to adjustment in accordance with
appropriate anti-diltition provisions. In addition, in the event
that, prior to the repayment of the Notes, the Company is
acquired, or effects a merger where it is not the surviving
entity, or participates in a similar transaction, at the option
of the Note holders, the Notes will be repaid or converted into
two times the amount of the securities and/or other consideration
to be distributed to Common Stock holders upon consummation of
the transaction if the holders had converted their Notes
immediately before the effective date of the transaction.
The undersigned understands that the Company and Coleman have
entered into a letter of intent dated July 31, 1995, which
provides, in part, that Coleman may, but is not obligated to,
undertake to sell securities of the Company for its own account
("Firm Underwriting") in a public offering (the "Public
Offering") subsequent to the completion of the Private Placement.
The letter of intent further provides that any registration
statement ("Registration Statement") to be filed with the
Securities and Exchange Commission (the "Commission") will
include provisions for the registration of the Underlying Shares.
The undersigned acknowledges that no assurance can be given that
the Registration Statement, if filed, will be declared effective
by the Commission or, if it is, that the Public Offering will
ever be successfully completed. Accordingly, he warrants and
represents to the Company that he is purchasing the Units without
relying on the occurrence of the Public Offering.
If the Registration Statement is not declared effective by
December 31, 1996, the holders of a majority of the Underlying
Shares shall have the right, on one occasion only through one
year after the date on which all of the Notes have been repaid
and/or converted and all of the Warrants have expired and/or been
exercised, to demand that the Company register the Underlying
Shares with the Commission and use its best efforts to have such
registration statement declared effective. The Company will also
grant the Unit purchasers unlimited "piggy back" registration
rights with respect to the Underlying Shares.
The undersigned acknowledges that the Units, and the underlying
Notes and Warrants (the "Underlying Securities") he is
purchasing, as well as any Underlying Shares into which the Notes
may be converted and/or for which the Warrants may be exercised,
have not been registered under the Securities Act of 1933 (the
"Act") or qualified under applicable state securities laws and
that the transferability thereof is restricted by the
registration provisions of the Act as well as such state laws.
Based upon the representations and agreements being made by him
herein, the Units and Underlying Securities are being sold to him
pursuant to an exemption from such registration provided by
Section 4 (2) of the Act and applicable state securities law
qualification exemptions. The undersigned further acknowledges
that the basis for these exemptions may not be available if,
notwithstanding such representations, he intends merely acquiring
these securities for a fixed or determinable period in the
future, or for a. market rise, or for sale if the market does not
rise. The undersigned represents and warrants that he does not
have any such intention. The undersigned agrees that the
documentation representing the Underlying Securities to be
received by him, as well as the certificates representing any
Underlying Shares, will bear a legend indicating that transfer of
these securities is restricted by reason of the fact that they
have not been so registered or qualified.
The undersigned represents that he is acquiring the Units and
Underlying Securities, and will acquire the Underlying Shares if
he should convert the Notes and/or exercise the Warrants, solely
for his own account as principal and not as a nominee or agent,
for investment purposes only and not with a view to resale or
other distribution or fractionalization thereof, nor with the
intention of selling, transferring or otherwise disposing of all
or any part of such securities for any particular event or
circumstance, except selling, transferring or disposing of them
upon full compliance with all applicable provisions of the Act,
the Securities Exchange Act of 1934 (the "Exchange Act"), the
Rules and Regulations promulgated by the Commission thereunder,
and any applicable state securities laws. The undersigned
further understands and agrees that (i) the securities may be
sold only if they are subsequently registered under the Act and
qualified under any applicable state securities laws or, in the
opinion of the Company's counsel, an exemption from such
registration and qualification is available; (ii) any routine
sales of securities made in reliance upon Rule 144 can be made
only in the amounts set forth in and pursuant to the other terms
and conditions, including applicable holding periods, of that
Rule; and (iii) the Company is under no obligation to assist him
in complying with any exemption from registration under the Act,
or, except as otherwise set forth herein, to register the Units,
Underlying Securities or Underlying Shares on his behalf.
The undersigned represents and warrants that he has received (i)
a copy of the form of the Note appended hereto as EXHIBIT B; (ii)
a copy of the form of Warrant appended hereto as EXHIBIT C; (iii)
a copy of the Company's Form 10-KSB for the fiscal year ended
March 31, 1996 appended hereto as EXHIBIT D; (iv) a copy of the
Company's Form 8-K dated March 12, 1996 appended hereto as
EXHIBIT E; (v) a copy of the Company's Form 8-K dated March 29,
1996 appended hereto as EXHIBIT F; and (vi) a copy of the
Company's Proxy Statement for the Company's Annual Meeting to be
held on July 26, 1996 appended hereto as EXHIBIT G (collectively
the "Information Documents") and that he has read and understood
all of these documents.
The undersigned also represents and warrants that he (i) has
reviewed such other documents and obtained such other information
from the Company as he deems necessary in order for him to make
an informed investment decision; and (ii) is fully aware of the
Company's current business prospects, financial condition, and
operating history as set forth herein and in the Information
Documents. Except as may be provided in this Subscription
Agreement and Investment Letter and in the Information Documents,
he warrants that no representations, statements or inducements
were made to him to purchase the Units.
Based on the foregoing, the undersigned acknowledges that, among
other matters relating to the Company, he is aware of the
following:
The Company is an importer of foreign ceramic tile and marble and
a distributor of these products as well as domestic ceramic tile,
marble and other home design/building products. The Company's
products are distributed to a wide and varied retail and
wholesale customer base through 13 showroom/warehouse facilities
and three showrooms in seven states.
The Company markets its products to at least five general types
of customers. These include pool contractors, residential and
commercial remodeling contractors, new home builders, architects
and designers, and "do-it-yourself" consumers. A substantial
portion of the marketing to the contractor trade is effected by
retail sales to the ultimate consumer through the retail
showrooms. Sales are conducted in the showroom facilities by
trained, experienced tile sales personnel.
Merchandise is distributed by various methods depending upon the
warehouse support structure for a particular sales location.
Where a warehouse is attached to a showroom, the customer may
obtain products immediately, but where the showroom is
independent of a warehouse facility, the customer may wait as
long as two weeks to receive the merchandise. In cases of
special orders, or when a warehouse is out of stock, the delivery
time may exceed two weeks. The vast majority of the Company's
products are picked up by the customers or their contractors at
the Company's warehouse facilities or showrooms. Only a small
portion of orders are delivered or shipped directly to customers.
A number of other companies market tile and related products to
wholesale and retail customers. Many of them possess greater
financial and managerial resources as well as general market
acceptance. The Company's retail competitors include Color Tile,
Home Depot, Builders Square and other major retail warehouse
distributors. Major wholesale distributors include Florida Tile,
Dal Tile, American Olean, American Tile Supply, Arizona Tile,
Laufen and C.I.T. Intile competes on the basis of product quality
and selection, price and service. The Company's business is
seasonal, generally with more activity in the spring and summer
than in fall and winter.
The Company obtains its products from a diversified group of
domestic and international suppliers. In general, purchases can
be broken out as follows: 40% from Italy; 30% from the United
States; 15% from Japan; and 15% from a number of other countries.
The major domestic suppliers are Mutual Materials, Interstate
Brick, P&M Tile, and Laufen International. For the fiscal year
ended March 31, 1996, no single foreign or domestic source
provided the Cornpany with more than 10% of its products and no
single customer accounted for 10% or more of the Company's
revenues.
The Company currently has 88 full time employees in addition to
its seven executive officers. Of these, 28 are in
administration, 26 in sales and 34 in operations.
Intile has operations in seven states with retail showroom
locations in Houston, Dallas, Austin, The Woodlands, Webster and
Corpus Christi, Texas; Atlanta, Georgia; Orlando, Florida;
Boston, Massachusetts; Phoenix, Arizona; Anaheim, Northridge and
Los Angeles, California; and Denver, Colorado. The Company plans
to close its Boston operation shortly. Intile maintains a
100,000 square foot warehouse facility in Houston, Texas, where
the major portion of its inventory is located, and 20,000 square
foot satellite warehouse and showroom facilities in Anaheim,
California, Atlanta, Georgia and Dallas, Texas.
In February 1995 the Company acquired 100% of the common stock of
TCM Holdings Corporation ("TCM") in exchange for 644,276 of its
Common Stock. Management estimates that, in accordance with
certain final price adjustments provided by the terms of the
purchase agreement, 240,000 of these shares will be returned to
the Company. In August 1995, due to recurring losses, TCM was
required to cease its operations. In November 1995 TCM was
placed into a Chapter 7 filing under the U.S. Bankruptcy Code by
the U.S. Bankruptcy Court, District of Massachusetts, Eastern
Division (Case Number 94-10762-WCH). The Company has suffered a
significant loss ($4,351,837) during the fiscal year ended March
31, 1996, primarily attributable to the financial problems
encountered by its TCM subsidiary.
The Company is in violation of certain loan covenants of its
credit facility with the Bank. Consequently, the Bank may demand
repayment of the entire outstanding balance of the note
(currently $5,780,000), which is secured by all of the Company's
inventory and accounts receivable, and the debt must be recorded
in full as a current liability. This issue has caused the
Company's independent accountants to insert a "going concern"
qualification in their report. (See Report of Independent
Certified Public Accountants and Note 2 of Notes to the Company's
Consolidated Financial Statements, both contained in the
Company's Form 10-KSB for the year ended March 31, 1996 appended
hereto as EXIHIBIT D (the "March 31, 1996 Form 10-KSB").
Management believes that it has adequately accrued for all
remaining losses due to the closure of TCM. In addition, the
Company is seeking to refinance its existing credit facility and
secure additional financing such as that which it will receive if
this Offering is consummated. No assurance can be given,
however, that the Company will be successful in refinancing its
credit facility or obtaining additional financing sufficient to
support its continuing operations.
Reference is made to Item 6 (Management's Discussion and Analysis
of Financial Condition and results of operations) of the March
31, 1996 Form 10-KSB and Notes 2, 3 and 5 to Notes to the
Company's Consolidated Financial Statements included therein for
additional information relating to the transactions involving TCM
and their effect on the Company's financial condition.
The directors and executive officers of the Company are as
follows:
Name Age Position
C. William Cox 60 President, Chairman of the Board and
Chief Executive Officer
Barbara Ceman 58 Vice President-Retail Training and
Secretary
Donald J. Geiger 55 Vice President-Marketing
Milton C. Standifer 52 Vice President-Westem Region
James C. Hazlewood 49 Chief Financial Officer
Ehud D. Laska 46 Director
George C. Siller, Jr. 45 Vice President-General Manager
and
Director
Edward K. Paul, Jr. 58 Director
Peter Boogren 46 Vice President-consumer
Reference is made to Items 9 (Directors, Executive Officers,
Promoters and Control Persons), 10 (Executive Compensation) and
11 (Principal Stockholders) of the March 31, 1996 Form 10-KSB for
information relating to the background of the Company's officers
and directors, executive compensation, and ownership of the
Common Stock by the Company's principal shareholders. Reference
is also made to Item 12 (Certain Relationships with Related
Transactions) of the March 31, 1996 Form 10-KSB for information
relating to transactions with parties affiliated with the
Company, including a limited guarantee by Mr. Cox of the
Company's credit facility, and financial consulting agreements
between the Company and affiliates of Mr. Laska.
The Company is authorized to issue 10,000,000 shares of Common
Stock, $0.0001 par value per share, of which approximately 3.22
million shares will be issued and outstanding, including shares
reserved for options and warrants, after a one for two reverse
split of the Common Stock which, as noted above, is to be
completed prior to the consummation of this Offering. The shares
of Common Stock as set forth in the March 31, 1996 Form 10-KSB
and the Financial Statements included therein do not reflect the
effect of this reverse split.
Holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally
available therefor. They have no preemptive or other rights to
subscribe for additional shares and the Common Stock has no
redemption, sinking fund or conversion provisions. Each share of
Common Stock is entitled to one vote on any matter submitted to
the holders thereof and to equal rights in the assets of the
Company upon liquidation subject to the prior rights on
liquidation of creditors. The outstanding shares of Common Stock
are fully paid and non-assessable.
The shares of Common Stock have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of directors can elect all of the
directors of the Company. In such event, the holders of the
remaining shares will not be able to elect any of the directors.
The Company has initially reserved 1,946,667 shares of post split
Common Stock for issuance upon the conversion of the Notes and
the exercise of the Warrants. Should the Notes be convertible at
a price of less than $1.50 per qhare, the Company commits to
reserve such additional shares as are necessary to allow the
Notes to be converted fully. In addition, shares of post split
Common Stock have been reserved for issuance upon the exercise of
currently existing options as well as authorized warrants, only
some or which arc currcnfly outstanding.
The transfer agent for the Common Stock is lnterwest Transfer Co.
If all of the Units are sold, the undersigned understands that
the Company will receive aggregate net proceeds in the amount of
$1,377,000 which will be used for the following purposes:
Repayment of debt 1,000,000
Working capital $ 377,000*
Total $1,377,000
_______________________
* This amount will be reduced to the extent that less than the
maximum number of Units offered hereby is sold.
The undersigned is also aware of the following considerations
relating to his investment in the Units:
Potential Adverse Effect of Loan Covenant Default on Company's
Financial Condition. Because the Company is in violation
of'certain loan covenants of its credit facility with the Bank,
the Bank may demand repayment of the entire outstanding loan
balance (currently $5,780,000), which is secured by all of the
Company's inventory and accounts receivable. Although as of the
date hereof lntile has received no notice of demand from the Bank
for such repayment, no representation can be given that a demand
will not be made. The Company's operations and financial
condition would be significantly adversely affected should the
Bank require lntile to repay the loan in full. In such event, it
is unlikely that the Company could continue its business unless
it could obtain alternate financing of which there can be no
assurance.
Independent Auditors' Report. Because Intile suffered a
significant loss for the fiscal year ended March 31, 1996 and is
in violation of certain loan covenants of its credit facility,
the opinion of its independent auditors with respect to it
financial statements includes an explanatory paragraph as to the
uncertainty of the Company's ability to continue as a going
concern without refinancing its credit facility and obtaining
additional financing. The ability of lntile to continue as a
going concern is dependent upon its successful completion of this
Offering and the curing of its loan covenant defaults of which no
assurance can be given.
Additional Financing. Intile's prospects are dependent, among
other things, upon its ability to obtain adequate financing, such
as that contemplated by this Offering, and to generate sufficient
cash flow from its operations to satisfy its obligations on a
consistent basis. Management believes that the proceeds from the
sale of the Units offered hereby together with revenue to be
generated by the operation of the Company's business should be
adequate to finance Intile's intended level of operations for at
least the 12 months after the closing of the Offering. This
belief is based, in part, on management's belief that the Company
can obtain alternate credit financing which will permit the
servicing of its current credit line in a manner which will not
adversely affect the Company's operations and financial
condition. No assurance can be given, however, that such
alternate financing can be obtained or, even if it is, that
additional financing will not be required during this period. No
representation can be made that such financing will be available
if required or, if available, that it can be obtained on terms
acceptable to the Company.
Growth Stage Company. The Company is in the process of expanding
and developing its business. A portion of the net proceeds of
this Offering will be committed to that effort. It is not
possible to predict the Company's degree of success in
implementing this expansion. If the business is successfully
expanded, the Company will need to acquire the managerial and
support resources necessary to manage this expansion which may
require additional capital. There is no assurance that the
Company will be successful in assembling the financial,
managerial, and other resources needed to implement its expansion
plans.
Limited Market. The market for tile and related products in the
United States is limited in comparison with other parts of the
world. Development of this market depends, in part, on
acceptance of tile as a building material by consumers and
members of the construction industry. Although management
believes, based on information provided by a Distribution Profile
Survey conducted by the Ceramic Tile Dealers Association in
December 1994, that the acceptance of tile as a building material
in the United States is increasing, there is no assurance that
this trend will continue.
Risks of International Supply Factors. Approximately 70% of the
Company's products during the 1992 fiscal year were secured from
suppliers located outside of the United States. There are
significant risks in obtaining products from suppliers located in
foreign countries. These include, among others, exposure to
currency fluctuations and devaluations or restrictions on money
supplies, foreign and domestic export laws and regulations,
taxation, tariffs, import quotas and restrictions, shipping
interruptions, and other economic and political events totally
beyond the Company's control.
Competition. The business in which the Company competes is
subject to intense competition. A number of other companies
market tile and related products to wholesale and retail
customers, many of whom possess significantly greater financial
and managerial resources as well as general market acceptance
than does the Company. No assurance can be given that the
Company can continue to compete at a commercially acceptable
level.
Dependence on and Intense Competition for Key Personnel. Primary
responsibility for the conduct of the Company's affairs rests
with C. William Cox, the Company's President and Chief Executive
Officer. There can be no assurance that if the Company should
lose his services, a qualified replacement could be obtained.
There is a $1.5 million policy on Mr. Cox's life with the Company
as the beneficiary. No assurance can be given, however, that in
the event of Mr. Cox's death the proceeds of this policy would be
sufficient to retain personnel adequate to replace Mr. Cox.
Intile's future success also depends in large part on the
continued service of its key management, marketing and sales
personnel and on its ability to attract and retain qualified
employees. The competition for such personnel is intense and the
loss of key employees could have a materially adverse impact on
the Company. The Company does not have employment agreements
with any of its officers or employees.
Volatility of Share Price. The Common Stock is traded in the
over-the-counter market on the NASDAQ Electronic Bulletin Board.
The market price of these securities over the last two years has
been volatile. The most significant factor affecting the price
has been the substantial loss incurred by the Company during its
last fiscal year. As a result thereof the market price for the
pre split Common Stock has dropped from a high of $6.50 per share
during the summer of 1995 to a current low bid price of
approximately $0.25 per share. No assurance can be given that
the price of the Common Stock will increase or, if it does, that
it will not continue to be subject to severe volatility.
Absence of Public Market and Limited Transferability. There is
no public market for the Units, the Notes or the Warrants and
none is expected to develop. As previously noted, these
securities and the Underlying Shares have not been registered
under the Securities Act or qualified under any state securities
laws. Accordingly, they cannot be sold or otherwise transferred
unless they are subsequently registered under the Act and
qualified under any applicable state securities law or an
exemption from such registration and qualification is available.
Although the Unit holders have certain rights to register their
Underlying Shares, these rights are dependent upon the ability of
the Company to satisfy the requirements of applicable federal and
state securities laws. Circumstances could arise where the
Company is unable to meet these requirements so that the
Underlying Shares could not be registered. Even if registered,
there is no assurance that the market in the Common Stock will be
sufficiently active to permit a Unit holder to liquidate his
Underlying Shares at acceptable prices if at all.
Lack of Dividends. Intile has not paid dividends on its Common
Stock since its inception and does not intend to pay any cash
dividends on its Common Stock in the foreseeable future. It
currently intends to retain all earnings, if any, in its
business.
Subordination of Notes; Lack of Guarantees; Risk of Failure to
Service or Repay Notes. The Notes will be subordinated to all of
Intile's current and future Senior Debt (as defined therein) and
will not be personally guaranteed. As a result, Note holders
will be dependent upon the Company's resources and the Company's
ability to generate sufficient revenue from operations to satisfy
all of its obligations on such Debt in addition to servicing the
Notes. In view of the Company's recent substantial losses and
the other factors noted herein, there is a significant risk that
Intile may not be able to service the Notes in accordance with
their terms or repay them when they mature. In addition, if a
default were to occur, there is no assurance that Note holders
would be able to obtain repayment of the sums then due under
their Notes.
Limitation on Right to Pursue Remedies. In the event the Company
should default in payment under the terms of the Notes, unless
the holders of 25% of the principal amount of the Notes elect to
declare a default, no individual Note holder will have the right
to pursue his remedies thereunder.
Original Issue Discount; Portion of Repayment of Note Principal
Treated as Income to Note Holder. A portion of the Unit price
may be allocated to the Warrants causing the Notes to be issued
with an original issue discount. In such event, upon repayment
of Note principal, a Note holder would receive taxable income in
the amount equal to the original issue discount allocated to his
Note. Each prospective purchaser should consult his tax advisor
to determine the effect of this transaction on his personal tax
status.
Control By Management. Upon completion of this offering the
Company's officers and directors will own approximately 42% of
the outstanding Common Stock. The Company's Certificate of
Incorporation does not provide for cumulative voting.
Accordingly, the Company's current management, if they act as a
group, may be able to elect all of the Company's directors and
continue to control the Company's affairs and operations.
Anti Take Over Provisions of the Delaware Corporation Law. The
Delaware Corporation Law contains provisions which may enable
management to retain control and resist a takeover of the
Company. Accordingly, these provisions could discourage or make
more difficult a merger or other type of corporate reorganization
even if they could be favorable to the interests of the
stockholders.
Use of Proceeds to Repay Prior Debt. A significant portion of
the net proceeds to be obtained from this Offering (up to $1
million or 72.6% if all of the Units offered hereby are sold)
will be used to repay existing debt.
Broad Discretion in Use of Proceeds. A significant portion of
the net proceeds to be obtained from this Offering (up to
$377,000 or 27.4% if all of the Units offered hereby are sold)
will be used for working capital which will permit management
broad discretion with respect to the use of these funds.
No Firm Commitment to Purchase Units. No commitment has been
made by anyone to purchase all or any part of the Units being
offered hereby. The funds available to the Company from the
proceeds of this Offering will be reduced and the Company's
proposed operations will be limited to the extent that less than
the maximum number of Units is sold.
Retention of Subscribers' Funds. If the Offering is unsuccessful
because the minimum number of Units offered hereby is not sold,
subscribers' funds may be retained through August 30, 1996 and
then returned without interest.
The undersigned understands that, because of the significant risk
factors referred to herein and in the Information Documents, if
the Offering is consummated, he could lose his entire investment.
The undersigned also understands the following:
THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THESE LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY NOR
HAS THE COMMISSION OR ANY SUCH AUTHORITY PASSED UPON OR ENDORSED
THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS
SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER AND/OR THE
INFORMATION DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES
AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT, AND THE APPLICABLE STATE SECURITIES LAWS PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
FLORIDA RESIDENTS ARE ADVISED THAT THESE SECURITIES HAVE NOT BEEN
REGISTERED WITH THE STATE OF FLORIDA. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
PURSUANT TO SECTION 517.061 (11) (A) OF THE FLORIDA SECURITIES
AND INVESTOR PROTECTION ACT, THE SALE OF SHARES TO A FLORIDA
RESIDENT SHALL BE VOIDABLE BY THE PURCHASER EITHER (i) WITHIN
THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY THE
PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW
AGENT, OR (ii) WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE HAS BEEN COMMUNICATED TO THE PURCHASER, WHICHEVER
OCCURS FIRST, PROVIDED, HOWEVER, THAT THERE ARE MORE THAN FIVE
FLORIDA PURCHASERS. TO ACCOMPLISH SUCH WITHDRAWAL, A FLORIDA
RESIDENT NEED ONLY SEND A LETTER OR A TELEGRAM TO THE COMPANY AT
9716 OLD KATY ROAD, SUITE 110, HOUSTON, TEXAS 77055 INDICATING
HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM MUST
BE SENT AND POSTMARKED PRIOR TO THE END OF THE APPLICABLE PERIOD
NOTED ABOVE. IF A LETTER IS SENT, IT IS PRUDENT TO SEND IT BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO INSURE THAT IT IS
RECEIVED AND ALSO TO EVIDENCE THE TIME AND DATE OF MAILING. IF A
FLORIDA RESIDENT MAKES THIS REQUEST ORALLY, HE OR SHE SHOULD ASK
FOR WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED.
In connection with the subscription being made hereby the
undersigned also warrants and represents that:
(a) He has not received any general solicitation or
advertising regarding the Offering or been furnished with any
oral representation or oral information in connection with the
Offering which is not set forth herein or in the Information
Documents;
(b) He has sufficient knowledge and experience of financial
and business matters so that he is able to evaluate the merits
and risks of purchasing the Units and has determined that the
Units are a suitable investment for him;
(c) He has the means to provide for his personal needs,
possesses the ability to bear the economic risk hereunder
indefinitely, and can afford a complete loss of his investment;
(d) He has carefully read and reviewed this Subscription
Agreement and Investment Letter, the form of Note, the Security
Agreement, the form of Warrant and the other Information
Documents, and has asked such questions of the Company's
management and received from them such information as he deems
necessary in order for him to make an informed decision with
respect to the purchase of the Units;
(e) He understands the meaning of the ninth and tenth
paragraphs of this Subscription Agreement and Investment Letter
and that the Company will prohibit the transfer of the
undersigned's Units, Underlying Securities and Underlying Shares
absent full compliance with the Act, the Exchange Act and all
applicable state securities laws;
(f) He has had substantial experience in previous private
and public purchases of speculative securities and is not relying
on the Company or its affiliates with respect to economic
considerations involved in this investment; and
(g) He has reviewed carefully the definition of "accredited
investor" as set forth below and is an "accredited investor"
within that definition. The particular subparagraph or
subparagraphs by which the undersigned qualifies as such is (are)
filled in by him below.
Definition of Accredited Investor
The term "accredited investor" is defined in Rule 501 (a) of
Regulation D promulgated under the Act as follows:
(a) Certain banks, savings and loan institutions, broker-
dealers, investment companies and other entities
including an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security
Act of 1974 with total assets in excess of $5,000,000;
(b) Certain banks, savings and loan institutions, broker-
dealers, investment companies and other entities
including an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security
Act of 1974 with total assets in excess of $5,000,000;
(c) Any private business development company as defined in
Section 202 (a) (22) of the Investment Advisers Act of
1940;
(d) Any organization described in Section 501 (c) (3) of
the Internal Revenue Code, not formed for the specific
purpose of acquiring the Units, with total assets in
excess of $5,000,000;
(e) Any director, executive officer or general partner of
the issuer of the securities being offered or sold, or
any director, executive officer or general partner of a
general partner of that issuer;
(f) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his
purchase exceeds $ 1,000,000;
(g) Any natural person who had an individual income in
excess of $200,000 or, with that person's spouse a
joint income in excess of $300,000 in each of the two
most recent years and who reasonably expects an income
in excess of $200,000, or $300,000 with that person's
spouse, in the current year;
(h) Any trust with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Section 230.506
(b) (2) (ii) of Regulation D; or
(i) Any entity in which all of the equity owners are
accredited investors under any of the paragraphs above.
THE UNDERSIGNED SUBSCRIBER IS AN ACCREDITED INVESTOR BY REASON OF
SUBPARAGRAPH(S) ____________________ SET FORTH IN THE DEFINITION
ABOVE.
In connection with the foregoing representations the undersigned
has appended hereto as EXHIBIT A, a Purchaser Questionnaire which
he has completed and executed. He represents and warrants that
the information set forth therein as well as all other
information which he is furnishing to the Company with respect to
his financial condition and business experience is accurate and
complete as of the date hereof and he covenants that, in the
event a material change should occur in such information, he will
immediately provide the Company with such revised or corrected
information.
All notices, requests, demands and other communications under
this Subscription Agreement shall be in writing and shall be
deemed to have been given only when delivered in person or, if
mailed, when mailed by certified or registered mail prepaid, to
the parties at their respective addresses set forth herein, or at
such other address as my be given in writing in future by either
party to the other.
Thee undersigned acknowledges and agrees that:
(a) He has full power and authority to enter into this
Agreement which, upon his execution, will constitute a valid and
legally binding obligation by him;
(b) The Company may, in its sole discretion (i) reject this
Subscription Agreement in whole or in part; and (ii) accept
subscription agreements other than in the order received;
(c) If for any reason this Offering does not close or the
undersigned's subscription is not accepted by the Company, the
undersigned shall have no claims against the Company, Coleman, or
their respective officers, directors, employees or affiliates and
shall have no interest in the Units, Underlying Securities,
Underlying Shares or the Company;
(d) He shall indemnify and hold harmless the Company,
Coleman, and their respective officers, directors, employees and
affiliates against any loss, liability, claim, damage or expense,
(including, but not limited to, any and all expenses reasonably
incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim) arising out of
or based upon any false representation or warranty or breach or
failure by the undersigned to comply with any covenant or
agreement made by him herein or in any other document provided by
him to any of the foregoing in connection with this transaction;
(e) The representations, warranties and agreements made by
the undersigned set forth herein shall survive the closing of the
Offering;
(f) Neither this Subscription Agreement nor any provisions
hereof shall be modified, discharged or terminated except by an
instrument in writing signed by the party against whom any
waiver, change, discharge or termination is sought;
(g) The laws of the State of Texas shall govern the
interpretation and enforcement of this Subscription Agreement.
In the event of a dispute, the undersigned agrees that any law
suit brought to enforce or interpret the provisions hereof shall
be brought in state or federal courts, as appropriate, in Harris
County, Texas, and the undersigned agrees to submit to the
personal jurisdiction of such court;
(h) This Subscription Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which shall constitute the same instrument; and
(i) This Subscription Agreement constitutes the entire
agreement of the parties hereto, and supersedes all prior
understandings with respect to the subject matter hereof.
The undersigned hereby agrees to purchase ________ Unit(s) as set
forth in the first paragraph of this Subscription Agreement and
Investment Letter, and is tendering herewith his check therefor
in the amount of $________________ made payable to "Citibank,
N.A.- Intile Designs, Inc. Escrow Account."
THE UNDERSIGNED ACKNOWLEDGES THAT THIS SUBSCRIPTION AGREEMENT
CONSISTS OF 15 PAGES AND INCLUDES EXHIBITS A THROUGH G.
Very truly yours,
DATE: _____________________
____________________________
(Signature)
____________________________
(Please print name)
ADDRESS _______________________ TELEPHONE
NUMBER:____________________
_______________________ SOCIAL SECURITY OR
IRS IDENTIFICATION
_______________________ NUMBER:
_____________________________
DATE: _______________________
ACCEPTED:
INTILE DESIGNS, INC.
[SEAL] By
____________________________________
C. William Cox, President
ATTEST: __________________________
Barbara Cernan, Secretary
EXHIBIT A
TO
INTILE DESIGNS, INC.
SUBSCRIPTION AGREEMENT
AND
INVESTMENT LETTER
PURCHASER QUESTIONNAIRE
INSTRUCTIONS. Each prospective purchaser of Units (the "Units")
of Intile Designs, Inc. (the "Company") must complete and sign
this Purchaser Questionnaire.
If the prospective purchaser(s) will be joint owners, each person
involved (except a spouse with the same principal residence) must
complete Parts I, II and III of the Purchaser Questionnaire.
If the prospective purchaser is a corporation, partnership,
trust, or other entity, please complete Parts I, II and III with
reference to the individual who is authorized to sign on its
behalf, and complete Part IV of the Purchaser Questionnaire with
reference to the corporation, partnership, trust, or other
entity.
In order for a partnership or corporation to be treated as an
accredited investor, each of its equity owners must be an
accredited investor and complete Parts I, II and III of the
Purchaser Questionnaire.
All information will be treated confidentially; however, the
purpose of this Questionnaire is to assist the Company in
determining whether the prospective purchaser complies with the
requirements of Section 4 (2) under the Securities Act of 1933,
(the "1933 Act") and any applicable state securities laws.
Accordingly, the Company may present this Questionnaire to such
parties as it deems necessary in order to establish an exemption
from registration under the 1933 Act or any applicable state
securities laws.
Please complete all items, sign, date and return this
Questionnaire to Intile Designs, Inc., 9716 Old Katy Road, Suite
110, Houston, Texas 77055, together with any of the Verification
Documents that are called for on page 7.
Please print or type. If the answer to any question is "None" or
"Not Applicable," please so state.
I. GENERAL INFORMATION
Name of
purchaser:_______________________________________________________
_______
Social Security or Tax Identification
Number:_________________________________________
Home
address:_________________________________________________________
_________
Home telephone
number:_________________________________________________________
In which state do you maintain your legal residence and
domicile?_____________Age:________
Occupation or
profession:______________________________________________________
___
Name of
employer:________________________________________________________
______
Nature of
business:________________________________________________________
______
Position and general
duties:_______________________________________________________
Please describe your principal business activities during the
last five years:__________________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
Education and professional background (List your highest level of
education and any licenses):
Degree
School or License Year Major
(if any)
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
II. FINANCIAL DATA
1. My individual net worth, combined with that of my spouse, if
any, as of this date, is:
(a) including all residences, furnishings and automobiles (check
one):
_______ Less than $150,000 _______$150,000
to $499,000 _______$500,000 to $999,000
_______$1,000,000 or more
(b) excluding principal residence, furnishings and automobiles
(check one):
_______Less than $150,000
_______$150,000 to $499,000
_______$500,000 to $999,000
_______$1,000,000 or more
2. I had income individually from all sources in excess of
$200,000 in the year 1993:
Yes ________ No _______
3. I had income individually from all sources in excess of
$200,000 in the year 1994:
Yes ________ No _______
4. I had income individually from all sources in excess of
$200,000 in the year 1995:
Yes ________ No _______
5. My estimated 1996 income individually from all sources will
be in excess of (check one):
_______$80,000 _______$100,000
________$150,000 _______$200,000
_______$300,000 or more
6. My income combined with that of my spouse was at least
$300,000 in each of the years 1993, 1994 and 1995:
Yes _________ No _______
7. To the best of my knowledge, my income combined with that of
my spouse will be at least $300,000 in 1996:
Yes _________ No ________
8. I can afford the complete loss of my investment in the
Units, I have no need for liquidity of this investment, and this
investment will not affect my ability to provide for my current
needs and possible personal financial contingencies.
Yes _________ No _________
9. Stated below are my previous investments in other private,
high risk investments during the past five years.
Name of Type of Approx.
Issuer Business Amount
or Program Year or Program Invested
_________________________________________________________________
____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
III. METHOD OF INVESTMENT EVALUATION
1. I have by myself sufficient knowledge and experience in
financial and business matters to be capable of evaluating the
merits and risks of an investment in the Program.
Yes _______ No _______
2. I will have an attorney, accountant, investment advisor or
other consultant review this investment.
Yes _______ No _______
If Yes:
Name:
_________________________________________________________________
______
Firm:
_________________________________________________________________
_______
Telephone number:
_(____)______________________________________________________
Address:
_________________________________________________________________
_____
IV. ADDITIONAL INFORMATION FOR CORPORATION, PARTNER-SHIP TRUST OR
OTHER ENTITY
Name of organization:
___________________________________________________________
Business address:
_______________________________________________________________
Telephone number:
_____________________________________________________________
Send communications to the attention of:
____________________________________________
Date of organization:
____________________________________________________________
State of organization:
____________________________________________________________
Tax Identification Number:
_______________________________________________________
Form of organization:
Corporation ____________Company __________Trust _____________
Other ______________
If a corporation, the organization has has not elected to be
taxed as a small business corporation for Federal income tax
purposes under the provisions of Subchapter S of the Internal
Revenue Code of 1986, as amended.
The organization is actively engaged in the conduct of a trade or
business:
Yes _______ No _______
Describe purpose of formation or principal trade or business
activity:
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_________________________________________________________________
__________________________
Attach a complete list:
If a corporation, the names of all officers, directors, and
stockholders; or
If a partnership, the names of all partners indicating whether
each person is a general partner or limited partner.
V. PURCHASER'S REPRESENTATIONS AND ACKNOWLEDGMENTS
The foregoing statements are true and accurate to the best of my
information and belief, and I will promptly notify the Manager of
any changes therein.
I am duly authorized and empowered to legally represent and bind
the principal, person, trust, partnership, corporation or other
entity, if any, named herein as purchaser.
SIGNATURE
IN WITNESS WHEREOF, I have executed this Questionnaire this
______ day of __________, 19____.
____________________________________
SIGNATURE
____________________________________
Print Name
____________________________________
Title, if applicable
Place of Execution: _________________________
If other than individual, check one:
________Community Property ________Custodian ________Company
________Joint Tenants with ________Corporate
________Trust
Right of Survivorship
________Tenants in Common
VERIFICATION DOCUMENTS
The signed Purchaser Questionnaire must be accompanied by:
CORPORATE SUBSCRIBER
A certified copy of a resolution of the corporation's board of
directors designating the officer(s) of the corporation
authorized to sign on behalf of the corporation; and
A certified copy of a resolution of the corporation's board of
directors authorizing the contemplated investment.
PARTNERSHIP SUBSCRIBER
A certified copy of the partnership agreement; and
A certificate signed by all the general partners, authorizing the
general partner who has signed the signature page on behalf of
the partnership to sign and to make the contemplated investment
on behalf of the partnership.
TRUST SUBSCRIBER
A certified copy of the Trust instrument; and
A certificate signed by all the trustees authorizing the trustee
who has signed the signature page on behalf of the Trust to sign
and to make the contemplated investment on behalf of the Trust.
CUSTODIAN SUBSCRIBER
A certified copy of the instrument pursuant to which the
custodian is acting.
Exhibit No. 4.2
Intile Designs, Inc.
Form 10-KSB/ 1997
File No. 33-49854-A
INTILE DESIGNS, INC.
12% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
DUE JULY 31, 1999
$150,000.00
August 23, 1996
THIS NOTE IS ISSUED PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933
(THE "ACT") AND QUALIFICATION PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS. NEITHER IT NOR THE SHARES OF
COMMON STOCK INTO WHICH IT CAN BE CONVERTED CAN BE
SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED PURSUANT TO THE ACT AND QUALIFIED UNDER
APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO
MAKER, AN EXEMPTION THEREFROM IS AVAILABLE.
FOR VALUE RECEIVED, the undersigned, INTILE DESIGNS, INC., a
Delaware corporation with offices at 9716 Old Katy Road, Suite
110, Houston, Texas 77055 ("Maker"), promises to pay to Daniel K.
Weiskopf with an address at M H Capital, 237 Park Avenue, 8th
Floor, New York, New York 10017 ("Payee"), on the earlier of the
closing date of a "Public Offering" (as defined in Section 3
below) or July 31, 1999 except as otherwise provided herein (the
"Maturity Date"), the principal amount of One Hundred and Fifty
Thousand ($150,000.00) Dollars in lawful money of the United
States of America (the "Principal") together with the accrued
interest.
This Note is one of a series of notes (collectively the "Notes"),
all with the same terms and conditions as those set forth herein,
which may be issued by Maker up to the aggregate principal amount
of One Million Six Hundred Thousand ($1,600,000) Dollars. Each
Note is included in a unit (the "Unit") which is part of an
offering of up to 16 Units (the "Offering") being conducted by
Maker on a 12 Unit minimum or none to 16 Unit maximum best
efforts basis. The Offering will terminate on the sooner of the
sale of all of the Units or August 15, 1996 (unless extended to
August 30, 1996). Each Unit consists of (i) one Note in the
principal amount of One Hundred Thousand ($100,000) Dollars; and
(ii) 50,000 warrants (the "Warrants"), each to purchase one share
(collectively the "Warrant Shares") of Maker's post split common
stock, par value $0.0001 (the "Common Stock") at a price of $0.25
per share for a period of seven years. Accordingly, in
connection with the acquisition of this Note, Payee has also
received 75,000 Warrants.
The Note is (i) subordinated to certain of Maker's indebtedness
defined herein as "Senior Debt"; and (ii) convertible into
Maker's post split Common Stock, all as set forth below. It
bears simple interest (the "Interest") at the initial annual rate
of twelve percent (12%) through six (6) months after the date
hereof, fourteen percent (14%) through six (6) months thereafter,
sixteen percent (16%) through six (6) months thereafter, and
eighteen percent (18%) thereafter until the Principal and all
accrued Interest thereon (collectively the "Obligations") shall
be paid in full. Anything to the contrary not withstanding, the
rate of interest shall not increase after the Underlying Shares
and the Warrant Shares have been registered as provided below.
Interest is payable, in arrears, on the Interest Payment Dates
(as defined in Section 1 below), until the Principal and all
accrued Interest thereon (collectively the "Obligations") shall
be paid in full.
1. Interest.
Maker will pay Interest on the first day of each November,
February, May and August (the "Interest Payment Dates")
commencing on November 1, 1996. Interest on the Note will accrue
from the most recent date to which interest has been paid or, if
no interest has been paid, from the date of delivery of the Note.
Interest will be computed on the basis of a 360-day year of
twelve 30 day months.
2 . Method of Payment.
Maker will pay Principal and Interest in money of the United
States that at the time of payment is legal tender for the
payment of public and private debts. Maker may, however, pay
Principal and Interest by its check, subject to collection,
payable in such money. It may mail an Interest check to Payee's
address as it first appears on this Note or such other address as
Payee shall give by notice to Maker. Payee must surrender this
Note to Maker to collect Principal payments and the actual number
of days elapsed for fractions of months.
3. Public Offering.
Maker covenants and agrees with Payee to file a registration
statement pursuant to the registration provisions of the Act (the
"Registration Statement") in a timely manner with the Securities
and Exchange Commission (the "Commission") covering a public
offering (the "Public Offering") of its securities which will
include, among other things, the shares of Common Stock into
which this Note may be converted (the "Underlying Shares") and
for which the Warrants owned by Payee may be exercised (the
Warrant Shares").
4. Conversion.
(a) Payee's right to Convert. Payee shall have the right, at
any time from the date hereof until the Obligations are paid in
full, to cause the conversion of all or any portion (if such
portion is One Thousand [$1,000] Dollars or a whole multiple of
One Thousand [$1,000] Dollars) of the Principal outstanding and
accrued but unpaid Interest at the time such conversion is
effected (the "Convertible Obligations") into the Underlying
Shares. Except as set forth in the next following sentence and
Section 11 below, the price for conversion, subject to adjustment
as provided below, shall be $1.50 per share. In addition to the
foregoing, in the event that the Public Offering is consummated,
Payee shall have the right, exercisable by notice to Maker on or
prior to five trading days before the anticipated effective date
of the Registration Statement, to convert all but not any portion
of the Convertible Obligations into the units to be sold in the
Public Offering at a discount of 50% from the Public Offering
price. Maker shall provide Payee with no less than ten trading
day's notice of the anticipated effective date. If the Public
Offering is successfully completed, Payee must accept repayment
of this Note at the closing unless he has previously exercised
his right to convert as provided herein. On conversion Maker
shall round to the nearest share for any fractional share so that
if the fraction is less than 0.5 no share shall be issued and if
the fraction is 0.5 or higher Maker shall issue one full share.
(b) Manner of Conversion. Payee may exercise his conversion
right by giving notice thereof to Maker setting forth the amount
of the Convertible Obligations to be converted. Within 15 days
after the giving of such notice Maker shall issue the number of
Underlying Shares into which the Convertible Obligations are to
be converted in accordance with the conversion price and deliver
to Payee a certificate or certificates therefor, registered in
his name, representing such Shares against delivery to Maker of
this Note marked paid in full. If only a portion of the
Convertible Obligation then outstanding is converted, Maker shall
deliver to Payee, together with the aforesaid certificate(s), a
new promissory note, in form and substance identical to this
Note, except that the principal amount thereof shall equal that
portion of the Convertible Obligations then outstanding which has
not been converted. Payee shall represent in writing to Maker
prior to the receipt of the Underlying Shares that such Shares
will be acquired by him for investment only and not for resale or
with a view to the distribution thereof, and shall agree that any
certificates representing the Shares may bear a legend,
conspicuously noting such restriction, as Maker shall deem
reasonably necessary or desirable to enable it to comply with any
applicable federal or state laws or regulations.
5 . Adjustment in Conversion Price.
(a) Adjustment for Change in Capital Stock. Except as provided
in Paragraph 5 (m) below, if Maker shall (i) declare a dividend
on its outstanding Common Stock in shares of its capital stock,
(ii) subdivide its outstanding Common Stock, (iii) combine its
outstanding Common Stock into a smaller number of shares, or (iv)
issue any shares of its capital stock by reclassification of its
Common Stock (including any such reclassification in connection
with a consolidation or merger in which Maker is the continuing
corporation), then in each such case the conversion privilege and
the conversion price in effect immediately prior to such action
shall be adjusted so that if the Note is thereafter converted,
Payee may receive the number and kind of shares which he would
have owned immediately following such action if he had converted
the Note immediately prior to such action. Such adjustment shall
be made successively whenever such an event shall occur. The
adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately
after the effective date in the case of a subdivision,
combination or reclassification. If after an adjustment Payee
upon conversion of this Note may receive shares of two or more
classes of capital stock of Maker, Maker's Board of Directors
shall determine the allocation of the adjusted conversion price
between the classes of capital stock. After such allocation, the
conversion privilege and conversion price of each class of
capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Stock in this Section 5.
(b) Adjustment for Certain Issuances of Common Stock. If Maker
shall at any time or from time to time issue any shares of Common
Stock (other than shares issued as a dividend or distribution as
provided in Paragraph 5 (a) above) for a consideration per share
less than the conversion price in effect on the date of such
issue, forthwith upon such issue, the conversion price in effect
immediately prior to such action (the "Existing Conversion
Price") shall be reduced by dividing the number of shares so
issued by the total number of shares outstanding after such
issuance, multiplying the quotient by the difference between the
Existing Conversion Price and the price of the shares so issued
and subtracting the result from the Existing Conversion Price.
In the case of an issue of additional shares of Common Stock for
cash, the consideration received by Maker therefor shall be
deemed to be the gross cash proceeds received for such shares.
The term "issue" shall be deemed to include the sale or other
disposition of shares held in Maker's treasury. The number of
shares outstanding at any given time shall not include shares in
Maker's treasury.
(c) Subscription Offerings. In case Maker shall issue rights,
options, or warrants entitling the holders thereof to subscribe
for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a
conversion price per share, in the case of a security convertible
into or exchangeable for Common Stock) less than the Existing
Conversion Price on the record date for the determination of
stockholders entitled to receive such rights or the granting date
if such holders are not stockholders, then in each such case the
conversion price shall be adjusted by multiplying the conversion
price in effect immediately prior to such record or granting date
by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on such record or granting
date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common
Stock so to be offered (or the aggregate initial conversion price
of the convertible securities so to be offered) would purchase at
such Existing Conversion Price and of which the denominator shall
be the number of shares of Common Stock outstanding on such
record or granting date plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into
which the convertible or exchangeable securities so to be offered
are initially convertible or exchangeable). Such adjustment
shall become effective at the close of business on such record or
granting date; provided, however, that, to the extent the shares
of Common Stock (or securities convertible into or exchangeable
for shares of Common Stock) are not delivered, the conversion
price shall be readjusted after the expiration of such rights,
options, or warrants (but only to the extent that this Note is
not converted after such expiration), to the conversion price
which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or
securities convertible into or exchangeable for shares of Common
Stock) actually issued. In case any subscription price may be
paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as
determined in good faith by Maker's Board of Directors. Shares
of Common Stock owned by or held for the account of Maker or any
majority-owned subsidiary shall not be deemed outstanding for the
purpose of any such computation.
(d) Other Rights to Acquire Common Stock. In case Maker shall
distribute to all holders of Common Stock (including any such
distribution made to the stockholders of Maker in connection with
a consolidation or merger in which Maker is the continuing
corporation) evidences of its indebtedness or assets (other than
cash dividends or distributions and dividends payable in shares
of Common Stock), or 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 5 (c) above), then in each such case the conversion
price shall be adjusted by multiplying the conversion price in
effect immediately prior to the record date for the determination
of stockholders entitled to receive such distribution by a
fraction, of which the numerator shall be the Current Market
Price per share of Common Stock on such record date, less the
fair market value (as determined in good faith by Maker's Board
of Directors) of the portion of the evidences of indebtedness or
assets so to be distributed, or of such subscription rights,
options, or warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of
Common Stock, applicable to one share, and of which the
denominator shall be such Current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of
such distribution retroactive to the record date for the
determination of stockholders entitled to receive such
distribution.
(e) Current Market Price. For the purpose of any computation
under Paragraph 5 (d) above, the "Current Market Price" per share
of Common Stock on any date shall be deemed to be the average of
the daily closing prices for the 30 consecutive trading days
commencing 45 trading days before such date. The closing price
for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the
closing bid price regular way, in either case on the principal
national securities exchange on which the Common Stock is listed
or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the
highest reported bid price as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or similar
organization if NASDAQ is no longer reporting such information,
or by the National Daily Quotation Bureau or similar organization
if the Common Stock is not then quoted on an inter-dealer
quotation system. If on any such date the Common Stock is not
quoted by any such organization, the fair value of the Common
Stock on such date, as determined by Maker's Board of Directors,
shall be used.
(f) Minimum Adjustment. No adjustment in the conversion price
shall be required if such adjustment is less than $0.05;
provided, however, that any adjustments which by reason of this
Paragraph 5 (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may
be.
(g) Referral of Adjustment. In any case in which this Section 5
shall require that an adjustment in the conversion price be made
effective as of a record date for a specified event, if the Note
shall have been converted after such record date Maker may elect
to defer until the occurrence of such event issuing to Payee the
shares, if any, issuable upon such conversion over and above the
shares, if any, issuable upon such conversion on the basis of the
conversion price in effect prior to such adjustment; provided,
however, that Maker shall deliver to Payee a due bill or other
appropriate instrument evidencing Payee's right to receive such
additional shares upon the occurrence of the event requiring such
adjustment.
(h) Number of Shares. Upon each adjustment of the conversion
price as a result of the calculations made in Paragraphs 5 (a)
through (d) above, the Note shall thereafter evidence the right
to purchase, at the adjusted conversion price, that number of
shares (calculated to the nearest one-hundredth) obtained by
dividing (i) the product obtained by multiplying the number of
shares purchasable upon conversion of the Note prior to
adjustment of the number of shares by the conversion price in
effect prior to adjustment of the conversion price by (ii) the
conversion price in effect after such adjustment of the
conversion price.
(i) When No Adjustment Required. No adjustment need be made for
a transaction referred to in Paragraphs 5 (a) through (d) above
if Payee is permitted to participate in the transaction on a
basis no less favorable than any other party and at a level which
would preserve Payee's percentage equity participation in the
Common Stock upon conversion of the Note. No adjustment need be
made for sales of Common Stock pursuant to a Company plan for
reinvestment of dividends or interest, the granting of options
and/or the exercise of options outstanding under any of Maker's
currently existing stock option plans, the exercise of any other
of Maker's currently outstanding options, or any currently
authorized warrants, whether or not outstanding. No adjustment
need be made for a change in the par value or no par value of the
Common Stock. If the Note becomes convertible solely into cash,
no adjustment need be made thereafter. Interest will not accrue
on the cash.
(j) Notice of Adjustment. Whenever the conversion price is
adjusted, Maker shall promptly mail to Payee a notice of the
adjustment together with a certificate from Maker's independent
public accountants briefly stating the facts requiring the
adjustment and the manner of computing it. The certificate shall
be evidence that the adjustment is correct, absent manifest
error.
(k) Voluntary Reduction. Maker from time to time may reduce the
conversion price by any amount for any period of time if the
period is at least 20 days and if the reduction is irrevocable
during the period. Whenever the conversion price is reduced,
Maker shall mail to Payee a notice of the reduction. Maker shall
mail the notice at least 15 days before the date the reduced
conversion price takes effect. The notice shall state the
reduced conversion price and the period it will be in effect. A
reduction of the conversion price does not change or adjust the
conversion price otherwise in effect for purposes of Paragraphs 5
(a) through (d) above.
(l) Notice of Certain Transactions. If (i) Maker takes any
action that would require an adjustment in the conversion price
pursuant to this Section 5; or (ii) there is a liquidation or
dissolution of Maker, Maker shall mail to Payee a notice stating
the proposed record date for a distribution or effective date of
a reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. Maker shall mail the notice at least
15 days before such date. Failure to mail the notice or any
defect in it shall not affect the validity of the transaction.
(m) Reorganization of Company. If Maker and/or the holders of
Common Stock are parties to a merger, consolidation or a
transaction in which (i) Maker transfers or leases substantially
all of its assets; (ii) Maker reclassifies or changes its
outstanding Common Stock; or (iii) the Common Stock is exchanged
for securities, cash or other assets; the person who is the
transferee or lessee of such assets or is obligated to deliver
such securities, cash or other assets shall assume the terms of
this Note. If the issuer of securities deliverable upon
conversion of the Note is an affiliate of the surviving,
transferee or lessee corporation, that issuer shall join in such
assumption. The assumption agreement shall provide that the
Payee may convert the Convertible Obligations into twice the kind
and amount of securities, cash or other assets which he would
have owned immediately after the consolidation, merger, transfer,
lease or exchange if he had converted the Note immediately before
the effective date of the transaction. The assumption agreement
shall provide for adjustments which shall be as nearly equivalent
as may be practical to the adjustments provided for in this
Section 5. The successor company shall mail to Payee a notice
briefly describing the assumption agreement. If this Paragraph
applies, Paragraph 5 (a) above does not apply.
(n) Maker Determination Final. Any determination that Maker or
its Board of Directors must make pursuant to this Section 5 shall
be conclusive, absent manifest error.
6. Inclusion of Securities in Registration Statement: Right to
Registration.
(a) Payee's Right to Include Securities in Registration
Statement. Maker will include the Underlying Shares and the
Warrant Shares in the Registration Statement on the condition
that Payee provides Maker and its counsel, in a timely fashion,
with all information Maker's counsel may reasonably require in
order to effect such inclusion. Maker shall use its best efforts
to have the Registration Statement declared effective by the
Commission but no assurance to this effect can be given or, if
the Registration Statement is declared effective, that the Public
Offering will ever be successfully completed.
(b) Payee's Demand Right to Registration. If the Registration
Statement shall not be declared effective by December 31, 1996,
then, upon receipt of notice (the "Registration Request Notice")
requesting registration under the Act of the Underlying Shares
and the Warrant Shares from the holders of the majority of such
Shares, on only one occasion, after December 31, 1996, and
through one year after the date on which all of the Notes have
been repaid and/or converted and all of the Warrants have been
exercised or expired, Maker will offer to Payee the opportunity
to include his Underlying Shares and Warrant Shares (the
"Registerable Shares") in such registration. Maker will use its
best efforts to file with the Securities and Exchange Commission
(the "Commission") as promptly as practicable, a registration
statement (the "Demand Registration Statement"), utilizing year
end audited financial statements, and will use its best efforts
to have the Demand Registration Statement-declared effective an
remain effective, until the earlier of two years thereafter or
the date all the Registerable Shares registered thereby have been
sold. Maker will also use its best efforts to qualify the
Registerable Shares under the securities laws of the state where
Payee resides provided Maker is not required to execute a general
consent to service or to qualify to do business in such state.
This offer to Payee shall be made within 20 days after Maker
receives the Registration Request Notice. If Payee elects to
include his Registerable Shares in the Demand Registration
Statement, he will, in a timely fashion, provide Maker and its
counsel with such information and execute such documents as
Maker's counsel may reasonably require to prepare and process the
Demand Registration Statement. If Payee elects not to include
his Registerable Shares in the "Demand Registration Statement,"
he shall have no further rights to the registration of his
Registerable Shares under this Paragraph 6 (b).
(c) Payee's "Piggy Back" Registration Rights. If at any time
after the date hereof, Maker proposes to file a Registration
Statement under the Act with respect to any of its securities
(except one relating to employee benefit plans), Maker shall give
written notice of its intention to effect such filing to Payee at
least 30 days prior to filing such Registration Statement (the
"Piggy-Back Registration Statement"). If Payee desires to
include his Registerable Shares in the Piggy-Back Registration
Statement, he shall notify Maker in writing within 15 days after
receipt of such notice from Maker, in which event Maker shall
include Payee's Registerable Shares in the Piggy-Back
Registration Statement. If Payee elects to include his
Registerable Shares in the Piggy-Back Registration Statement as
set forth herein, he shall, in a timely fashion, provide Maker
and its counsel with such information and execute such documents
as its counsel may reasonably require to prepare and process the
Piggy-Back Registration Statement.
(d) Copies of Registration Statements and Prospectuses. Maker
will provide Payee with a copy of the Demand Registration
Statement or Piggy-Back Registration Statement, as the case may
be, and any amendments thereto, and copies of the final
prospectus included therein in such quantities as may reasonably
be required to permit Payee to sell his Registerable Shares after
the Demand Registration Statement or Piggy-Back Registration
Statement, as the case may be, is declared effective by the
Commission.
(e) Maker's Obligation to Bear Expenses of Registration. Maker
will bear all expenses (except underwriting discounts and
commission, if any, and the legal fees and expenses, if any, of
counsel to Payee) necessary and incidental to the performance of
its obligations under this Section 6.
(f) Indemnification. Maker and Payee, if Payee's Registerable
Shares are included in a Registration Statement pursuant to this
Section 6, shall provide appropriate cross indemnities to each
other covering the information supplied by the indemnifying party
for inclusion in the Registration Statement.
7 . Subordination, Pari Passu with other Notes.
This Note is subordinated to Senior Debt, which is the principal
of and premium, if any, and interest (including post-petition
interest, if any) on, and any other payment due pursuant to the
terms of instruments creating or evidencing Indebtedness of Maker
outstanding on the date of this Note or Indebtedness thereafter
created, incurred, assumed or guaranteed by Maker and all
renewals, extensions and refundings thereof, which is payable to
banks or other traditional long-term institutional lenders such
as insurance companies and pension funds, unless in the
instrument creating or evidencing such Indebtedness, it is not
provided that such Indebtedness is senior in right of payment to
this Note. Notwithstanding the foregoing, Senior Debt with
respect to Maker or any subsidiary thereof shall not include (i)
any Indebtedness of Maker to any such subsidiary for money
borrowed or advanced from such subsidiary, and (ii) any
Indebtedness representing the redemption price of any preferred
stock. "Indebtedness," as applied to any entity, means any
indebtedness, contingent or otherwise, in respect of borrowed
money (whether or not the recourse of the lender is to the whole
of the assets of such entity or only to a portion thereof), or
evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or representing the balance deferred and
unpaid of the purchase price of any property or interest therein,
except any such balance that constitutes a trade payable, if and
to the extent that such indebtedness would appear as a liability
upon a balance sheet of such entity prepared on a consolidated
basis in accordance with generally accepted accounting
principles. Senior Debt must be paid before the Note may be
paid. This Note shall be paid on a pari passu basis with all
other Notes. Upon request of Maker Payee shall execute such
subordination agreements with holders of Senior Debt as shall be
reasonably requested. Anything to the contrary not withstanding,
Senior Debt includes, but is not limited to, Indebtedness payable
by Maker to Nations Bank of Texas and/or any affiliates thereof
and is subordinated to such Indebtedness as set forth in the
Subordination Terms attached hereto as EXHIBIT A.
8. Covenants.
Maker covenants and agrees that from and after the date hereof
and until the date of repayment in full of the Obligations it
shall comply with the following conditions:
(i) Maintenance of Existence and Conduct of Business.
Maker shall, and shall cause each of its subsidiaries to (A)
do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and
rights; and (B) continue to conduct its business so that the
business carried on in connection therewith may be properly
and advantageously conducted at all times.
(ii) Books and Records. Maker shall, and shall cause each
of its subsidiaries to, keep adequate books and records of
account with respect to its business activities.
(iii) Insurance. Maker shall, and shall cause each of
its subsidiaries to, maintain insurance policies insuring
such risks as are customarily insured against by companies
engaged in businesses similar to those operated by Maker or
such subsidiaries, as the case may be. All such policies
are to be carried with reputable insurance carriers and
shall be in such amounts as are customarily insured against
by companies with similar assets and properties engaged in a
similar business.
(iv) Compliance with Law. Maker shall, and shall cause each
of its subsidiaries to, comply in all material respects with
all federal, state and local laws and regulations applicable
to it or such subsidiaries, as the case may be, which if
breached would have a material adverse effect on Maker's or
such subsidiaries', as the case may be, business or
financial condition.
9. Representations and Warranties of Maker.
Maker represents and warrants that it: (i) is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power to
carry on its business as now conducted and to own its properties
and assets it now owns; (ii) is duly qualified or licensed to do
business as a foreign corporation in good standing in the
jurisdictions in which ownership of property or the conduct of
its business requires such qualification except jurisdictions in
which the failure to qualify to do business will have no material
adverse effect on its business, prospects, operations,
properties, assets or condition (financial or otherwise); (iii)
has full power and authority to execute and deliver this Note,
and that the execution and delivery of this Note will not result
in the breach of or default under, with or without the giving of
notice and/or the passage of time, any other agreement,
arrangement or indenture to which it is a party or by which it
may be bound, or the violation of any law, statute, rule, decree,
judgment or regulation binding upon it; and (iv) has taken and
will take all acts required, including but not limited to
authorizing the signatory hereof on its behalf to execute this
Note, so that upon the execution and delivery of this Note, it
shall constitute the valid and legally binding obligation of
Maker enforceable in accordance with the terms thereof.
10. Defaults and Remedies.
(a) Events of Default. The occurrence or existence of any one
or more of the following events or conditions (regardless of
the reasons therefor) shall constitute an "Event of Default"
hereunder:
(i) Maker shall fail to make any payment of Principal or
Interest when due and payable or declared due and payable
pursuant to the terms hereof and such failure shall remain
uncured for a period of ten days after notice thereof has
been given by Payee to Maker;
(ii) Maker shall fail at any time to be in material
compliance with any of the covenants set forth in Section 8
of this Note, or shall fail at any time to be in material
compliance with or neglect to perform, keep or observe any
of the provisions of this Note to be complied with,
performed, kept or observed by Maker and such failure shall
remain uncured for a period of 15 days after notice thereof
has been given by Payee or the Agent to Maker;
(iii) Any representation or warranty made in this Note
by Maker shall be untrue or incorrect in any material
respect as of the date when made or deemed made;
(iv) Maker shall receive notice of acceleration of any of
its material indebtedness other than the Obligations which
notice shall not be rescinded within any grace period
applicable thereto;
(v) A case or proceeding shall have been commenced against
Maker, or any of its subsidiaries, in a court having
competent jurisdiction seeking a decree or order in respect
of Maker, or any of its subsidiaries, (A) under Title 11 of
the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign
bankruptcy or other similar law; (B) appointing a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or
similar official) of Maker, or any of its subsidiaries, or
any of their respective properties; or (C) ordering the
winding-up or liquidation of the affairs of Maker, or any of
its subsidiaries, and such case or proceeding shall remain
unstayed or undismissed for a period of 90 consecutive days
or such court shall enter a decree or order granting the
relief sought in such case or proceeding; or
(vi) Maker, or any of its subsidiaries, shall (A) file a
petition seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other
applicable federal, state or foreign bankruptcy or other
similar law; or (B) consent to the institution of
proceedings thereunder or to the filing of any such petition
or to the appointment of or the taking of possession by a
custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of Maker, or any of its
subsidiaries, or any of their respective properties.
Anything to the contrary not withstanding, neither the bankruptcy
proceeding currently involving TCM Holdings Corp. nor the failure
of Maker to file the Registration Statement or effect the Public
Offering as provided in Section 3 above shall be deemed an Event
of Default.
(b) Remedies. Upon the occurrence of an event of Default
specified in Paragraphs 10 (iv), (v) and (vi) above, all
Obligations then remaining unpaid hereunder shall immediately
become due and payable without notice. Upon the occurrence of
any other Event of Default, the holders of at least 25% in
principal amount of the Notes may thereafter, at their option
immediately by notice to Maker, declare all Obligations then
remaining unpaid hereunder immediately due and payable, whereupon
the same shall forthwith mature and become due and payable,
without any further notice to Maker and without presentment,
demand, protest or notice of protest, all of which are hereby
waived by Maker. Upon a declaration of acceleration, the entire
Obligations then remaining unpaid hereunder shall become
immediately due and payable in full plus all reasonable costs and
expenses of the collection and enforcement of this Note,
including reasonable attorney's fees and expenses, all of which
shall be added to the amount due under this Note. The rights,
powers, privileges and remedies of Payee pursuant to the terms
hereof are cumulative and not exclusive of any other rights,
powers, privileges and remedies which Payee may have under this
Note or any other instrument or agreement.
11. Maker's Right to Prepay.
Maker may not repay this Note or any portion thereof for up
to six months after the date hereof except for repayment from the
proceeds of the Public Offering. Thereafter, Maker may prepay
this Note or any portion thereof at any time after 30 day's
notice to Payee without incurring any penalty unless such
prepayment occurs before the Underlying Shares and the Warrant
Shares are registered. In such event, Payee may convert this
Note during the 30 day notice period into post split Common Stock
at the lower of $1.50 per share or 50% of the Current Market
Price as determined in Paragraph 5 (e) above commencing 45
trading days before the date of notice of conversion is given by
Payee to Maker. If prepayment is effected after registration of
the Underlying Shares the Warrant Shares, this Note will be
convertible only at the rate of $1.50 per share.
12. Acknowledgment of Payee's Investment Representations.
By accepting this Note Payee acknowledges that this Note has not
been and will not be registered under the Act or qualified under
any state securities laws and that the transferability thereof is
restricted by the registration provisions of the Act as well as
such state laws. Based upon the representations and agreements
being made by him herein, this Note is being issued to him
pursuant to an exemption from such registration provided by
Section 4 (2) of the Act and applicable state securities law
qualification exemptions. Payee represents that he is acquiring
the Note for his own account, for investment purposes only and
not with a view to resale or other distribution thereof, nor with
the intention of selling, transferring or otherwise disposing of
all or any part of it for any particular event or circumstance,
except selling, transferring or disposing of it only upon full
compliance with all applicable provisions of the Act, the
Securities Exchange Act of 1934, the Rules and Regulations
promulgated by the Commission thereunder, and any applicable
state securities laws. Payee further understands and agrees that
no transfer of this Note shall be valid unless made in compliance
with the restrictions set forth on the front of this Note,
effected on Maker's books by the registered holder hereof, in
person or by an attorney duly
authorized in writing, and similarly noted hereon. Maker may
charge Payee a reasonable fee for any re registration, transfer
or exchange of this Note.
13. Litigation of Liability.
A director, officer, employee or stockholder, as such, of Maker
shall not have any liability for any obligations of Maker under
this Note or for any claim based on, in respect or by reason of
such obligations or their creation. Payee, by accepting this
Note, waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of this
Note.
14. Litigation of Interest Payments.
Nothing contained in this Note or in any other agreement between
Maker and Payee requires Maker to pay or Payee to accept Interest
in an amount which would subject Payee to any penalty or
forfeiture under applicable law. In no event shall the total of
all charges payable hereunder, whether of Interest or of such
other charges which may or might be characterized as interest,
exceed the maximum rate permitted to be charged under the laws of
the States of New York or Texas. Should Payee receive any
payment which is or would be in excess of that permitted to be
charged under such laws, such payment shall have been and shall
be deemed to have been made in error and shall automatically be
applied to reduce the Principal outstanding on this Note.
15. Reservation of Shares
Maker shall at all times reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the
issuance of stock upon conversion of this Note, such number of
shares as shall from time to time be sufficient to effect the
issuance of shares of Common Stock upon conversion of this Note.
16. Miscellaneous.
(a) Effect of Forbearance. No forbearance, indulgence, delay or
failure to exercise any right or remedy by Payee with respect to
this Note shall operate as a waiver or as an acquiescence in any
default.
(b) Effect of Single or Partial Exercise of Right. No single or
partial exercise of any right or remedy by Payee shall preclude
any other or further exercise thereof or any exercise of any
other right or remedy by Payee.
(c) Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed
by, the internal laws of the State of Texas applicable to
contracts made and to be performed entirely within such State.
(d) Headings. The headings and captions of the various
paragraphs herein are for convenience of reference only and shall
in no way modify any of the terms or provisions of this Note.
(e) Loss, Theft, Destruction or Mutilation. Upon receipt by
Maker of evidence reasonably satisfactory to it of loss, theft,
destruction or mutilation of this Note, Maker shall make and
deliver or caused to be made and delivered to Payee a new Note of
like tenor in lieu of this Note.
(f) Modification of Note or Waiver of Terms Thereof Relating to
Payee. No modification or waiver of any of the provisions of
this Note shall be effective unless in writing and signed by
Payee and then only to the extent set forth in such writing, nor
shall any such modification or waiver be applicable except in the
specific instance for which it is given. This Note may not be
discharged orally but only in writing duly executed by Payee.
(g) Notice. All offers, acceptances, notices, requests, demands
and other communications under this Note shall be In writing and,
except as otherwise provided herein, shall be deemed to have been
given only when delivered in person, via facsimile transmission
if receipt thereof is confirmed by the recipient, or, if mailed,
when mailed by certified or registered mail prepaid, to the
parties at their respective addresses first set forth above, or
at such other address as may be given in writing in future by
either party to the other.
(h) Successors and Assigns. This Note shall be binding upon
Maker, its successors, assigns and transferees, and shall inure
to the benefit of and be enforceable by Payee and its successors
and assigns.
(i) Severability. If one or more of the provisions or portions
of this Note shall be deemed by any court or quasi-judicial
authority to be invalid, illegal or unenforceable in any respect,
the invalidity, Illegality or unenforceability of the remaining
provisions, or portions of provisions contained herein shall not
in any way be affected or impaired thereby, so long as this Note
still expresses the intent of the parties. If the intent of the
parties cannot be preserved, this Agreement shall either be
renegotiated or rendered null and void,
IN WITNESS WHEREOF, Maker has caused this Note to be executed on
its behalf by an officer thereunto duly authorized as of the date
set forth above.
Intile Designs, Inc.
a Delaware corporation
[SEAL]
By:_________________________________
C. William Cox, President
ATTEST: ___________________________
Barbara Cernan, Secretary
Exhibit No. 4.3
Intile Designs, Inc.
Form 10-KSB/ 1997
File No. 33-49854-A
CONVERSION CERTIFICATE
INTILE DESIGNS, INC.
The undersigned holder (the "Holder") is surrendering to
Intile Designs, Inc., a Delaware corporation (the "Company"), one
or more instruments representing Convertible Subordinate
Promissory Notes due July 31, 1999, listed at the foot of this
Agreement (the "Notes") for conversion into shares of the Common
Stock, par value $0.0001, of the Company set forth at the foot of
this Agreement (the "Common Stock"). In connection with the
conversion provided for in this Agreement, the Holder represents
and warrants to, and covenants and agrees with, the Company, as
follows:
(1) The Holder is acquiring the Common Stock for its own
account for investment only and not with a view towards
the public sale or distribution thereof and not with a
view to or for sale in connection with any distribution
thereof;
(2) The Holder is (a) an "accredited investor" as that term
is defined in Rule 501 of the General Rules and
Regulations under the Securities Act of 1933, as
amended ("Securities Act"); (b) experienced in making
investments of the kind described herein; (c) able, by
reason of the business and financial experience of
itself, its officers and directors (if applicable), its
general partners (if applicable), and professional
advisors (who are not affiliated with or compensated in
any way by the Company or its affiliates) to protect
its own interest in connection with the transactions
described herein; and (d) able to afford the entire
loss of its investment in the Common Stock;
(3) All subsequent offers and sales of Common Stock by the
Holder shall be made pursuant to registration of the
Common Stock under the Securities Act or pursuant to an
exemption from such registration;
(4) The Holder understands that the Notes, including the
Common Stock issuable on conversion, was offered and
sold to the Holder in reliance on specific exemptions
from the registration requirements of United States
federal and state securities laws and that the Company
is relying on the truth and accuracy of, and the
Holders compliance with, the representations,
warranties, agreements, acknowledgments and
understandings of the Holder set forth herein in order
to determine the availability of such exemptions;
(5) The Holder and its advisors, if any, have been
furnished with all materials relating to the business,
finances, and operations of the Company, and materials
related to the conversion of Notes to Common Stock
which have been requested by the Holder. The Holder
and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have
received complete and satisfactory answers to any such
inquiries;
(6) The Holder understands that its investment in the
Common Stock involves a high degree of risk;
(7) The Holder understands that no United States federal or
state agency or other government or governmental agency
has passed on or made any recommendation or endorsement
of the Common Stock; and
(8) This certificate has been duly and validly authorized,
executed and delivered on behalf of the Holder and is a
valid and binding agreement of the Holder enforceable
in accordance with its terms, subject as to
enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium, and other similar
laws affecting the enforcement of creditors' rights
generally.
On receipt of this certificate and the instruments
representing the Notes, the Company shall cancel all Notes,
neither the Company nor the Holder shall have any further right
or obligation in respect thereof, the Company shall immediately
cause to be issued to the Holder the Common Stock at the rate of
one share for each $0.33334 in principal amount of the Notes
($1.00 after giving effect to the reverse split on March 31,
1997), and the Company shall cause to be issued to the Holder the
warrants originally acquired with the Notes exerciseable at $0.25
per share (post-reverse split) . The Holder acknowledges that the
Common Stock has not been registered under the Securities Act,
the Company is under no obligation to register any of the Common
Stock under the Securities Act, and the Common Stock may not be
transferred unless subsequently registered under the Securities
Act or the Holder delivers to the Company an opinion of counsel
reasonably satisfactory to the Company in form, scope and
substance to the effect that the Common Stock to be sold or
transferred may be sold or transferred pursuant to an exemption
from registration. The Holder further acknowledges that
certificates representing the Common Stock will contain a legend
restricting transfer except in compliance with requirements of
the Securities Act and applicable state statutes, and similar
restrictions will be placed on the Company's stock records.
The conversion and exchange contemplated hereby is effective
for all purposes as of February 1, 1997, so that all principal of
the Notes is converted to Common Stock as of that date and no
further interest is due and payable to the Holder after February
1, 1997. The conversion and exchange is irrevocable by the
undersigned.
DATED this 18th day of March, 1997.
Print Name of Holder
__________________________________________
Signature of Holder
Exhibit No. 4.4
Intile Designs, Inc.
Form 10-KSB/ 1997
File No. 33-49854-A
WARRANTS
TO
PURCHASE 75,000 SHARES
OF
COMMON STOCK
OF
INTILE DESIGNS, INC.
THE WARRANTS UNDERLYING THIS WARRANT AGREEMENT ARE
ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
PROVISIONS OF THE SECURITIES ACT OF 1933 (THE "ACT")
AND QUALIFICATION PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS. NEITHER THE WARRANTS NOR THE SHARES
OF COMMON STOCK FOR WHICH THEY CAN BE EXERCISED CAN BE
SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED PURSUANT TO THE ACT AND QUALIFIED UNDER
APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL TO
THE COMPANY, AN EXEMPTION THEREFROM IS AVAILABLE.
WHEREAS, at a meeting of the Board of Directors of Intile
Designs, Inc., a Delaware corporation with offices at 9716 Old
Katy Road, Suite 110, Houston, Texas 77055 (the "Company") duly
called and held, the Board authorized the granting of 75,000
warrants (each one sometimes hereinafter referred to as a
"Warrant") to purchase 75,000 shares of the Company's post split
Common Stock, par value $0.0001 per share, (the "Common Stock")
to __________________, with an address at
________________________________ (the "Holder") in accordance
with the terms of the Subscription Agreement and Investment
Letter between the Company and the Holder dated August 23, 1996;
and
WHEREAS, each Warrant is one of a series of warrants
(collectively the "Warrants"), all with the same terms and
conditions as those set forth herein, which may be issued by the
Company exercisable for up to an aggregate 880,000 shares of post
split Common Stock (sometimes hereafter referred to as the
"Warrant Shares"); and
WHEREAS, each Warrant is included in a unit (the "Unit") which is
part of an offering of up to 16 Units being conducted by the
Company on a 12 Unit minimum or none to 16 Unit maximum best
efforts basis and each Unit consists of (i) one 12% Convertible
Subordinated Promissory Note (collectively the "Notes") in the
principal amount of $100,000; and (ii) 50,000 Warrants, each to
purchase one Warrant Share at a price of $0.25 per share for a
period of seven years; and
WHEREAS, the Company desires to set forth the terms of the
Warrants and the Holder desires to accept such terms.
NOW, THEREFORE, in consideration of the premises, the parties
hereto agree as follows:
1. Grant of Warrant.
The Company hereby grants to the Holder of each Warrant the right
to purchase one Warrant Share for $0.25 per share, subject to
adjustment as hereinafter provided (the "Exercise Price"). The
Warrant may be exercised in whole or in part at any time
commencing on August 24, 1996 until 5:00 P.M., New York time, on
August 23, 2003 (the "Expiration Date").
2. Manner of Exercise.
The Warrants underlying this Warrant Agreement may be exercised
in whole or in part by surrender of this Warrant Agreement, with
the form of subscription at the end hereof duly executed by the
Holder, to the Company at its principal office, accompanied by
payment in full in cash or by certified or official bank check to
the order of the Company of the Exercise Price of shares to be
purchased. As soon as practicable, but in no event more than 15
days after the Holder has given the aforesaid written notice and
made the aforesaid payment, the Company shall, without charging
stock issue or transfer taxes to the Holder, issue the number of
shares of duly authorized Common Stock issuable upon such
exercise, which shall be duly issued, fully paid and non-
assessable, and shall deliver to the Holder a certificate or
certificates therefor, registered in the Holder's name. In the
event of a partial exercise of this Warrant Agreement, the
Company shall also issue and deliver to the Holder a new Warrant
Agreement of like tenor, in the name of the Holder. for the
exercise of the number of Warrant Shares for which such Warrant
Agreement may still be exercised.
3. Investment Representation
The Holder acknowledges that Warrants underlying this Warrant
Agreement as well as the Warrant Shares for which these Warrants
may be exercised, have not been and, except as otherwise provided
herein, will not be registered under the Securities Act of 1933
(the "Act") or qualified under applicable state securities laws
and that the transferability thereof is restricted by the
registration provisions of the Act as well as such state laws.
The Holder represents that he is acquiring the Warrants and will
acquire the Warrant Shares for his own account, for investment
purposes only and not with a view to resale or other distribution
thereof, nor with the intention of selling, transferring or
otherwise disposing of all or any part of such securities for any
particular event or circumstance, except selling, transferring or
disposing of them upon full compliance with all applicable
provisions of the Act, the Securities Exchange Act of 1934 (the
"Exchange Act"), the Rules and Regulations promulgated by the
Securities and Exchange Commission (the "Commission") thereunder,
and any applicable state securities laws. The Holder further
understands and agrees that (i) the securities may be sold only
if they are subsequently registered under the Act and qualified
under any applicable state securities laws or, in the opinion of
the Company's counsel, an exemption from such registration and
qualification is available; (ii) any routine sales of securities
made in reliance upon Rule 144 promulgated by the Commission
under the Act can be made only in the amounts set forth in and
pursuant to the other terms and conditions including applicable
holding periods of that Rule; and (iii) except as otherwise set
forth herein, the Company is under no obligation to register this
Warrant or the Warrant Shares on his behalf or to assist him in
complying with any exemption from registration under the Act.
The Holder agrees that each certificate representing any Warrant
Shares for which the Warrants may be exercised will bear on its
face a legend in substantially the following form:
These securities have not been registered under the Securities
Act of 1933 or qualified under any state securities laws. They
may not be sold or transferred in the absence of an effective
registration statement under that Act or qualification under
applicable state securities laws without an opinion acceptable to
counsel to the Company that such registration and qualification
are not required.
4. Restrictions.
The Holder shall not be entitled to any dividend declared by the
Company except as may be provided in Section 5 below, and shall
not be entitled to any voting rights by virtue of the Warrant,
except with respect to any shares of Common Stock issued upon
the exercise hereof.
5. Warrant Adjustments.
The Exercise Price and the number of shares purchasable upon
exercise of each Warrant shall be subject to adjustment with
respect to events after August 24, 1996 hereof as follows:
(a) Subdivisions, Consolidation, etc. Except as provided
in Paragraph 5 (k) below, in case the Company shall (i) declare a
dividend on its outstanding Common Stock in shares of its capital
stock, (ii) subdivide its outstanding Common Stock, (iii) combine
its outstanding Common Stock in to smaller number of shares, or
(iv) issue any shares of its capital stock by reclassification of
its Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is
the continuing corporation), then in each such case the Exercise
Price and the number and kind of shares receivable upon exercise,
in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or
reclassification, shall be proportionately adjusted so that if
the Warrant is exercised after such time the Holder shall be
entitled to receive the aggregate number and kind of shares which
if the Warrant had been exercised immediately prior to such time,
he would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively
whenever such event shall occur. The adjustment shall become
effective immediately after the record date in the case of a
dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If after an adjustment the Holder upon exercise of this Warrant
may receive shares of two or more classes of capital stock of the
Company, the Company's Board of Directors shall determine the
allocation of the adjusted Exercise Price between the classes of
capital stock. After such allocation, the Exercise Price of each
class of capital stock shall thereafter be subject to adjustment
on terms comparable to those applicable to Common Stock in this
Section 5.
(b) Adjustment for Certain Issues of Common Stock. If the
Company shall at any time or from time to time issue any shares
of Common Stock (other than shares issued as a dividend or
distribution as provided in Paragraph 5 (a) above) for a
consideration per share less than the Exercise Price in effect on
the date of such issue, then, forthwith upon such issue, the
Exercise Price in effect immediately prior to such action (the
"Existing Exercise Price") shall be reduced by dividing the
number of shares so issued by the total number of shares
outstanding after such issuance, multiplying the quotient by the
difference between the Existing Exercise Price and the price of
the shares so issued and subtracting the result from the Existing
Exercise Price. In the case of an issue of additional shares of
Common Stock for cash, the consideration received by the Company
therefor shall be deemed to be the gross cash proceeds received
for such shares. The term "issue" shall be deemed to include the
sale or other disposition of shares held in the Company's
treasury. The number of shares outstanding at any given time
shall not include stores in the Company's treasury.
(c) Subscription Offerings. In case the Company shall
issue rights, options, or warrants entitling tile holders thereof
to subscribe for or purchase Common Stock (or securities
convertible into or exchangeable for Common Stock) at a price per
share (or having a conversion price per share, in the case of a
security convertible into or exchangeable for Common Stock) less
than the Exercise Price per share of Common Stock on the record
date for the determination of stockholders entitled to receive
such rights or the granting date if such holders are not
stockholders, then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately
prior to such record or granting date by a fraction, of which the
numerator shall be the number of shares of Common Stock
outstanding on such record or granting date plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so to be offered (or the
aggregate initial conversion price of the convertible securities
so to be offered) would purchase at such Exercise Price and of
which the denominator shall be the number of shares of Common
Stock outstanding on such record or granting date plus the number
of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible or
exchangeable securities so to be offered are initially
convertible or exchangeable). Such adjustment shall become
effective at the close of business on such record or granting
date; provided, however, that, to the extent the shares of Common
Stock (or securities convertible into or exchangeable for shares
of Common Stock) are not delivered, the Exercise Price shall be
readjusted after the expiration of such rights, options, or
warrants (but only if the Warrant is exercised after such
expiration), to the Exercise Price which would then be in effect
had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number
of shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) actually issued. In
case any subscription price may be paid in a consideration part
or all of which shall be in a form other than cash, the value of
such consideration shall be as determined in good faith by the
Company's Board of Directors. Shares of Common Stock owned by or
held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any
such computation.
(d) Other Rights to Acquire Common Stock. In case the
Company shall distribute to all holders of Common Stock
(including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the
Company is the continuing corporation) evidences of its
indebtedness or assets (other than cash dividends or
distributions and dividends payable in shares of Common Stock),
or 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 (c) of
this Section 5), then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of
stockholders entitled to receive such distribution by a fraction,
of which the numerator shall be the Current Market Price per
share of Common Stock on such record date, less the fair market
value (as determined in good faith by the Company's Board of
Directors) of the portion of the evidences of indebtedness or
assets so to be distributed, or of such subscription rights,
options, or warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of
Common Stock, applicable to one share, and of which the
denominator shall be such Current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of
such distribution retroactive to the record date for the
determination of stockholders entitled to receive such
distribution.
(e) Current Market Price. For the purpose of any
computation under Paragraph (d) of this Section 5, the Current
Market Price per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices for the 30
consecutive trading days commencing 45 trading days before such
date. The closing price for each day shall be the last reported
sales price regular way or, in case no such reported sale takes
place on such day, the closing bid price regular way, in either
case on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national
securities exchange, the highest reported bid; price as furnished
by the National Association of Securities Dealers, Inc. through
NASDAQ or similar organization if NASDAQ is no longer reporting
such information, or by the National Daily Quotation Bureau or
similar organization if the Common Stock is not then quoted on an
inter-dealer quotation system. If on any such date the Common
Stock is not quoted by any such organization, the fair value of
the Common Stock on such date, as determined by the Company's
Board of Directors, shall be used.
(f) Minimum Adjustment. No adjustment in the Exercise
Price shall be required if such adjustment is less than $0.05;
provided, however, that any adjustments which by reason of this
Paragraph (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may
be.
(g) Referral of Adjustment. In any case in which this
Section 5 shall require that an adjustment in the Exercise Price
be made effective as of a record date for a specified event, if
the Warrant shall have been exercised after such record date the
Company may elect to defer until the occurrence of such event
issuing to the Holder the shares, if any, issuable upon such
exercise over and above the shares, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to
such adjustment; provided, however, that the Company shall
deliver to the Holder a due bill or other appropriate instrument
evidencing the Holder's right to receive such additional shares
upon the occurrence of the event requiring such adjustment.
(h) Number of Shares. Upon each adjustment of the Exercise
Price as a result of the calculations made in Paragraphs (a)
through (d) of this Section 5, the Warrant shall thereafter
evidence the right to purchase, at the adjusted Exercise Price,
that number of shares (calculated to the nearest thousandth)
obtained by dividing (i) the product obtained by multiplying the
number of shares purchasable upon exercise of the Warrant prior
to adjustment of the number of shares by the Exercise Price in
effect prior to adjustment of the Warrant Price by (ii) the
Exercise Price in effect after such adjustment of the Exercise
Price.
(i) Transactions Not Requiring Adjustments. No adjustment
need be made for a transaction referred to in Paragraphs (a)
through (d) of this Section 5 if the Holder is permitted to
participate in the transaction on a basis no less favorable than
any other party and at a level which would preserve the Holder's
percentage equity participation in the Common Stock upon exercise
of the Warrant. No adjustment need be made for sales of Common
Stock pursuant to a Company plan for reinvestment of dividends or
interest, the granting of options and/or the exercise of options
outstanding under any of the Company's currently existing stock
option plans, or the exercise of any other of the Company's
currently outstanding options. No adjustment need be made for a
change in the par value or no par value of the Common Stock. If
the Warrant becomes exercisable solely into cash, no adjustment
need be made thereafter. Interest will not accrue on the cash.
(j) Notice of Adjustment. Whenever the Exercise Price is
adjusted, the Company shall promptly mail to the Holder a notice
of the adjustment together with a certificate from the Company's
independent public accountants briefly stating the facts
requiring the adjustment and the manner of computing it. The
certificate shall be prima facia evidence that the adjustment is
correct, absent manifest error.
(k) Reorganization of Company. If the Company and/or the
holders of Common Stock are parties to a merger, consolidation
or a transaction in which (i) the Company transfers or leases
substantially all of its assets; (ii) the Company reclassifies or
changes its outstanding Common Stock; or (iii) the Common Stock
is exchanged for securities, cash or other assets; the person who
is the transferee or lessee of such assets or is obligated to
deliver such securities, cash or other assets shall assume the
terms of this Warrant. If the issuer of securities deliverable
upon exercise of the Warrant is an affiliate of the surviving,
transferee or lessee corporation, that issuer shall join in such
assumption. The assumption agreement shall provide that the
Holder may exercise this Warrant into the kind and amount of
securities, cash or other assets which he would have owned
immediately after the consolidation, merger, transfer, lease or
exchange if he had exercised the Warrant immediately before the
effective date of the transaction. The assumption agreement
shall provide for adjustments which shall be as nearly equivalent
as may be practical to the adjustments provided for in this
Section 5. The successor company shall mail to the Holder a
notice briefly describing the assumption agreement. If this
Paragraph applies, Paragraph 5 (a) above does not apply.
(l) Voluntary Reduction. The Company from time to time may
reduce the Exercise Price by any amount for any period of time if
the period is at least 20 days and if the reduction is
irrevocable during the period. Whenever the Exercise Price is
reduced, the Company shall mail to the Holder a notice of the
reduction. The Company shall mail the notice at least 15 days
before the date the reduced Exercise Price takes effect. The
notice shall state the reduced Exercise Price and the period it
will be in effect. A reduction of the Exercise Price does not
change or adjust the Exercise Price otherwise in effect for
purposes of Paragraphs 5 (a) through (d) above.
(m) Dissolution, Liquidation. In the event of the
dissolution or total liquidation of the Company, then after the
effective date thereof, the Warrant and all rights thereunder
shall expire.
(n) Notices. If (i) the Company takes any action that
would require an adjustment in the conversion price pursuant to
this Section 5; or (ii) there is a liquidation or dissolution of
the Company, the Company shall mail to the Holder a notice
stating the proposed record date for a distribution or effective
date of a reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company shall mail the
notice at least 15 days before such date. Failure to mail the
notice or any defect in it shall not affect the validity of the
transaction.
(o) Determination by Company Conclusive. Any determination
that the Company or its Board of Directors must make pursuant to
this Section 5 shall be conclusive, absent manifest error.
6. Fractional Shares.
If the number of shares of Common Stock purchasable upon the
exercise of this Warrant is adjusted pursuant to Section 5
hereof, the Company shall nevertheless not be required to issue
fractions of shares upon exercise of the Warrant or otherwise, or
to distribute certificates that evidence fractional shares. With
respect to any fraction of a share called for upon any exercise
hereof, the Company shall round to the nearest share so that if
the fraction is less than 0.5 no share shall be issued and if the
fraction is 0.5 or higher the Company shall issue one full share.
7. Inclusion of Warrant Shares in Registration Statement:
Right to Registration.
The Holder's rights and the Company's obligations with respect to
the registration and qualification of the Warrant Shares under
the Act and applicable state securities laws are set forth in
Sections 3 and 6 of the Notes.
8. Holder Not Deemed Stockholder.
The Holder shall not, as holder of this Warrant, be entitled to
vote or to receive dividends or be deemed the holder of Common
Stock that may at any time be issuable upon exercise of this
Warrant for any purpose whatsoever, nor shall anything contained
herein be construed to confer upon the Holder, as holder of this
Warrant, 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 or reclassification of stock, change of
par value or change of stock to no par value, consolidation,
merger or conveyance or otherwise), or to receive notice of
meetings, or to receive dividends or subscription rights, until
the Holder shall have exercised this Warrant and been issued
shares of Common Stock in accordance with the provisions hereof.
9. Reservation of Shares.
The Company shall at all times reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting
the issuance of stock upon exercise of this Warrant, such number
of shares as shall from time to time be sufficient to effect the
issuance of shares of Common Stock upon exercise of this Warrant.
10. Amendment.
This Agreement shall not be amended, modified or revoked except
by agreement in writing, signed by the Company and the Holder.
11. Governing Law.
This Warrant shall be governed by the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed on its behalf by an officer thereunto duly authorized
and the Holder has executed this Agreement as of August 23, 1996.
INTILE DESIGNS, INC.
By:________________________________
____________________________________
C. William Cox, President
SUBSCRIPTION FORM
To Be Executed by the Holder
in Order to Exercise Warrant
The undersigned Holder hereby irrevocably elects to exercise this
Warrant, and to purchase the shares of Common Stock issuable upon
the exercise thereof, and requests that certificates for such
shares shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
________________________________________________________
________________________________________________________
________________________________________________________
[please print or type name and address]
and be delivered to
________________________________________________________
________________________________________________________
________________________________________________________
[please print or type name and address]
and if such number of shares of Common Stock shall not be all the
shares issuable upon the exercise of this Warrants, that a new
Warrant exercisable for the balance of the shares issuable upon
the exercise of this Warrants be delivered to the Holder at the
address stated below.
Dated: ___________________
x ______________________________
______________________________
______________________________
Address
______________________________
Taxpayer Identification
Number
______________________________
Signature Guaranteed
______________________________
Exhibit No. 4.5
Intile Designs, Inc.
Form 10-KSB/ 1997
File No. 33-49854-A
SUBSCRIPTION AGREEMENT
AND INVESTMENT LETTER
______________
Date
To the Board of Directors
lntile Designs, Inc.
9716 Old Katy Road
Suite 110
Houston, Texas 77055
Re: Subscription to Purchase Units
of Intile Designs, Inc.
Gentlemen:
This will acknowledge that the undersigned hereby agrees to
irrevocably purchase from Intile Designs, Inc. (the "Company" or
"lntile"), a corporation formed in July 1991 and now organized
under the laws of the State of Delaware, ________________ unit(s)
(collectively the "Units") at a price of $50,000 per Unit. Each
Unit consists of 150,000 shares (collectively the "Shares") of
the Company's common stock, par value $0.0001 per share, (the
"Common Stock")
The Unit(s) to be purchased by the undersigned is (are) part of a
private placement of securities (the "Offering") by the Company
of up to 47 Units which is being made only to "accredited
investors" as defined herein on a five Unit minimum or none to 47
Unit maximum best efforts basis by the Company through February
28, 1997. Based thereon, if five Units are not sold and paid for
on or prior to February 28, 1997 (unless extended as provided
below), the Offering will not become effective and all funds
collected from subscribers will be promptly returned to them
without interest thereon or deduction therefrom. The Company
reserves the right to sell fractions of a Unit. All funds
collected from subscribers pending consummation or termination of
the Offering as set forth herein will be held in the escrow
account described below.
If all of the Units are sold, the Company will receive aggregate
gross proceeds of $2,350,000 less the expenses of this Offering
which management estimates will be approximately $335,000,
including the fee and expense allowance payable to Coleman and
Company Securities, Inc. ("Coleman") described below. Coleman, a
member of the New York Stock Exchange, is acting as the placement
agent for the Company in placing this Offering. The Offering
will terminate on the sooner to occur of the sale of all of the
Units or February 28, 1997, unless extended for an additional 30
days by the mutual consent of the Company and Coleman.
The undersigned understands that the information provided to him
with respect to the Company has not been independently verified
by Coleman. Accordingly, there is no representation by Coleman as
to the completeness or accuracy or such information.
Coleman will receive a fee equal to 10% and a non-accountable
expense allowance equal to 3% of the aggregate purchase price of
the Units sold. Ehud D. Laska, a former director of the Company,
is also a principal of Coleman. Neither the Company nor Coleman
has obtained any independent opinion relating to the fairness of
the terms of this Offering or the compensation to be paid to
Coleman for the services it will render in connection herewith.
Mr. Laska owns warrants to purchase 20,000 shares of Common Stock
at $1.80.
Payment for the Units shall be made by check payable to
"Citibank, N.A.- Intile Designs, Inc. Escrow Account" and
delivered to Coleman, together with an executed copy of this
Subscription Agreement and Investment Letter and the Purchaser
Questionnaire appended hereto as EXHIBIT A. Payment may be made
by wire transfer pursuant to instructions available on request
from Coleman.
A forbearance agreement between the Company and its primary
lender, NationsBank of Texas (the "Bank"), expired on January 20,
1997. Accordingly, the balance of the debt owed by the Company to
the Bank in the amount of approximately $4.78 million is
currently due and payable in full. This debt is secured by all
of the Company's Inventory and accounts receivable. The Bank has
Informed the Company that It does not Intend to renew the
agreement and has sent a letter demanding payment of the
aforesaid balance. Intile is currently attempting to secure a
payment extension and/or an alternative credit facility. There
can be no assurance that such an extension or alternative credit
facility can be obtained on acceptable terms, if at all. If It
is unable to do so, the Company most likely will be required to
seek protection under applicable bankruptcy laws or cease
operations. In either event, the undersigned understands that he
will lose is entire investment.
Intile intends to seek stockholder approval for a one for three
reverse split (the "Reverse Split") of its Common Stock after
which, assuming all of the Units offered hereby are sold, there
will be approximately 5.85 shares of Common Stock outstanding on
a fully diluted basis, including approximately 2,566,000 shares
reserved for issuance pursuant to the conversion of the
subordinated notes issued in connection with a private financing
(the "Prior Private Financing") described below, and the exercise
of currently outstanding options and warrants, including warrants
issued in the Prior Private Financing.
In August 1996 Intile sold 16 units in the Prior Private
Financing pursuant to which it obtained gross proceeds of $1.6
million. Each unit consisted of (i) a subordinated note
(collectively the "Notes") in the principal amount of $100,000;
and (ii) 50,000 warrants (the "Warrants"), each to purchase one
share of Common Stock at a price of $0.25 per share for a period
of seven years. The Notes, which are currently convertible into
Common Stock at the rate of $1.50 per share, bear annual interest
at the rate of 12%. This rate will increase by 2% each six
months, up to a maximum of 18%, until the shares of Common Stock
underlying the Notes and the warrants are registered. A portion
of the proceeds to be obtained from this Offering ($48,000) will
be used to pay currently due interest on the Notes. Coleman
acted as the placement agent for the Prior Private Financing and,
in connection therewith, was granted 80,000 Warrants.
For a period of 20 calendar days after the Reverse Split is
effected, the Company intends to (i) reduce the conversion price
of the Notes to $1.00 per share so that the $1.6 million
principal amount of the Notes will be convertible into an
aggregate of 1.6 post split shares of Common Stock; and (ii)
reduce the Warrant exercise price to $0.25 per share so that the
Warrants will be exercisable for an aggregate of 800,000 million
post split shares of Common Stock. If the Notes are converted
the Company will be required to write off the placement costs of
the Prior Private Financing, which approximate $196,000, an
amount which it is currently amortizing through August 2005, the
Note maturity date.
The undersigned understands that the Company and Coleman have
entered into a letter of intent dated September 17, 1996, which
provides, in part, that Coleman may, but is not obligated to,
undertake to sell securities of the Company for its own account
("Firm Underwriting") in a public offering (the "Public
Offering") subsequent to the completion of this Offering. The
Company is obligated to include in any registration statement
("Registration Statement") to be filed with the Securities and
Exchange Commission (the "Commission") relating to the Public
Offering, all of the Shares offered hereby and the shares of
Common Stock underlying the Note and the Warrants (the
"Underlying Shares"). The undersigned acknowledges that no
assurance can be given that the Registration Statement, if filed,
will be declared effective by the Commission or, if it is, that
the Public Offering will ever be successfully completed.
Accordingly, he warrants and represents to the Company that he is
purchasing the Units without relying on the occurrence of the
Public Offering.
If the Registration Statement is not declared effective by June
30, 1997, the holders of a majority of the Shares offered hereby
shall have the right, on one occasion only through two years
after the date of the closing of this Offering, to demand that
the Company register the Shares with the Commission and use its
best efforts to have such registration statement declared
effective. The Company will also grant the Unit purchasers
unlimited "piggy back" registration rights with respect to the
Shares. The Note and Warrant holders also have certain demand
and "piggy back" registration rights with respect to the
Underlying Shares.
The undersigned acknowledges that the Units, and the underlying
Shares (the "Underlying Securities") he is purchasing, have not
been registered under the Securities Act of 1933 (the "Act") or
qualified under applicable state securities laws and that the
transferability thereof is restricted by the registration
provisions of the Act as well as such state laws. Based upon the
representations and agreements being made by him herein, the
Units and Underlying Securities are being sold to him pursuant to
an exemption from such registration provided by Section 4 (2) of
the Act and applicable state securities law qualification
exemptions. The undersigned further acknowledges that the basis
for these exemptions may not be available if, notwithstanding
such representations, he intends merely acquiring these
securities for a fixed or determinable period in the future, or
for a market rise, or for sale if the market does not rise. The
undersigned represents and warrants that he does not have any
such intention. The undersigned agrees that the documentation
representing the Underlying Securities will bear a legend
indicating that transfer of these securities is restricted by
reason of the fact that they have not been so registered or
qualified.
The undersigned represents that he is acquiring the Units and
Underlying Securities solely for his own account as principal and
not as a nominee or agent, for investment purposes only and not
with a view to resale or other distribution or fractionalization
thereof, nor with the intention of selling, transferring or
otherwise disposing of all or any part of such securities for any
particular event or circumstance, except selling, transferring or
disposing of them upon full compliance with all applicable
provisions of the Act, the Securities Exchange Act of 1934 (the
"Exchange Act"), the Rules and Regulations promulgated by the
Commission thereunder, and any applicable state securities laws.
The undersigned further understands and agrees that (i) the
securities may be sold only if they arc subsequently registered
under the Act and qualified under any applicable state securities
laws or, In the opinion of the Company's counsel, an exemption
from Such registration and qualification is available; (ii) any
routine sales of securities made in reliance upon Rule 144 can be
made only in the amounts set forth in and pursuant to the other
terms and conditions, including applicable holding periods, of
that Rule; and (iii) the Company is under no obligation to assist
him in complying with any exemption from registration under the
Act, or, except as otherwise set forth herein, to register the
Units or Underlying Securities on his behalf.
The undersigned represents and warrants that he has received (i)
a copy of the Company's Form 10-KSB for the fiscal year ended
March 31, 1996 appended hereto as EXHIBIT B; (ii) a copy of the
Company's Form 8-K dated March 12, 1996 appended hereto as
EXHIBIT C; (iii) a copy of the Company's Form 8-K dated March 29,
1996 appended hereto as EXHIBIT D; (iv) a copy of the Company's
Proxy Statement for the Company's Annual Meeting which was held
on July 26, 1996 appended hereto as EXHIBIT E; (v) ADD JUNE 30,
1996 Q a copy of the Company's Form 10-QSB for the quarterly
period ended September 30, 1996 appended hereto as EXHIBIT F; and
(iv) a copy of a "Management Discussion" relating to certain
events which have occurred subsequent the filing of EXHIBIT F
with the Commission and a "Use of Proceeds" appended hereto as
EXHIBIT G (collectively the "Information Documents") and that he
has read and understood all of these documents.
The undersigned also represents and warrants that he (i) has
reviewed such other documents and obtained such other information
from the Company as he deems necessary in order for him to make
an informed investment decision; and (ii) is fully aware of the
Company's current business prospects, financial condition and
operating history as set forth herein and in the Information
Documents. Except as may be provided in this Subscription
Agreement and Investment Letter and in the Information Documents,
he warrants that no representations, statements or inducements
were made to him to purchase the Units.
Based on the foregoing, the undersigned acknowledges that, among
other matters relating to the Company, he is aware of the
following:
lntile is an importer of foreign ceramic tile and marble and a
distributor of these products as well as domestic ceramic tile,
marble and other home design/building products. The Company's
products are distributed to a wide and varied retail and
wholesale customer base through nine showroom/warehouse
facilities and three showrooms in seven states.
Intile markets its products to at least five general types of
customers. These include pool contractors, residential and
commercial remodeling contractors, new home builders, architects
and designers, and "do-it-yourself" consumers. A substantial
portion of the marketing to the contractor trade is effected by
retail sales to the ultimate consumer through the retail
showrooms. Sales are conducted in the showroom facilities by
trained, experienced tile sales personnel.
Merchandise is distributed by various methods depending upon the
warehouse support structure for a particular sales location.
Where a warehouse is attached to a showroom, the customer may
obtain products immediately, but where the showroom is
independent of a warehouse facility, the customer may wait as
long as one week to receive the merchandise. In cases of special
orders, or when a warehouse is out of stock, the delivery time
may exceed two weeks. The vast majority of the Company's
products are picked up by the customers or their contractors at
the Company's warehouse facilities or showrooms. Only a small
portion of orders are delivered or shipped directly to customers.
A number of other companies market tile and related products to
wholesale and retail customers. Many of them possess great
financial and managerial resources as well as general market
acceptance. The Company's retail competitors include Color Tile,
Home Depot, Builders Square and other major retail warehouse
distributors. Major wholesale distributors include Florida Tile,
Dal Tile, American Olean, American Tile Supply, Arizona Tile,
Laufen and C.I.T. lntile competes on the basis of product
quality and selection, price and service. The Company's business
is seasonal, generally with more activity in the spring and
summer than in fall and winter.
The Company obtains its products from a diversified group of
domestic and international suppliers. In general, purchases can
be broken out as follows: 40% from Italy; 30% from the United
States; 15% from Japan; and 15% from a number of other countries.
The major domestic suppliers are Mutual Materials, Interstate
Brick, P&M Tile, and Laufen International. For the fiscal year
ended March 31, 1996, no single foreign or domestic source
provided the Company with more than 10% of its products and no
single customer accounted for 10% or more of the Company's
revenues.
The Company currently has 79 full time employees in addition to
its seven executive officers. Of these, 24 are in
administration, 23 in sales and 32 in operations.
lntile has operations in seven states with retail showroom
locations in Houston, Dallas, Austin, The Woodlands, Webster and
Corpus Christi, Texas; Atlanta, Georgia; Orlando, Florida;
Phoenix, Arizona; Anaheim, California; and Denver, Colorado.
Intile maintains a 100,000 square foot warehouse facility in
Houston, Texas, where the major portion of its inventory is
located, and 20,000 square foot satellite warehouse and showroom
facilities in Anaheim, California, Atlanta, Georgia and Dallas,
Texas.
On January 24, 1997, the Company closed three of its four
California locations. These locations accounted for
approximately 9% of the Company's annual gross sales revenue and
approximately 15% of its annual operating expenses.
During the Company's fiscal year ended March 31, 1996 and since
then, the Company has been in violation of certain loan covenants
of its credit facility with the Bank. Consequently, as of March
31, 1996 the Bank had the right to demand repayment of the entire
outstanding balance of the note, which required the debt to be
recorded in full as a current liability. This debt is secured by
all of the Company's inventory and accounts receivable. This
issue caused the Company's independent accountants to insert a
"going concern" qualification in their report. See Report of
Independent Certified Public Accountants and Note 2 of Notes to
the Company's Consolidated Financial Statements, both contained
in the Company's Form 10-KSB for the year ended March 31, 1996
appended hereto as EXHIBIT B (the "March 31, 1996 Form 10-KSB").
As previously noted, the agreement between the Company and the
Bank on which the credit facility is based expired on January 20,
1997 and the Bank has demanded full payment of the currently
existing $4.78 million outstanding balance. One million dollars
from the proceeds of this Offering will be used to reduce this
balance.
In February 1995 the Company acquired 100% of the common stock of
TCM Holdings Corporation ("TCM") in exchange for 322,138 shares
of its Common Stock. One hundred and twenty thousand of these
shares are currently held in escrow pending the resolution of the
terms of an indemnity agreement. In August 1995, due to
recurring losses, TCM was required to cease its operations. In
November 1995 TCM was placed into a Chapter 7 filing under the
U.S. Bankruptcy Code by the U.S. Bankruptcy Court, District of
Massachusetts, Eastern Division (Case Number 94-10762-WCH). The
Company has suffered a significant loss ($4,351,837) during the
fiscal year ended March 31, 1996. primarily attributable to the
financial problems encountered by its TCM subsidiary.
Management believes that it has adequately accrued for all
remaining losses due to the closure of TCM. In addition, the
Company is seeking to refinance its existing credit facility and
secure additional financing such as that which it will receive if
this Offering is consummated. No assurance can be given,
however, that the Company will be successful in refinancing its
credit facility or obtaining additional financing sufficient to
support its continuing operations. In this connection, it should
be noted that management estimates the Company's business will
incur (i) an operating loss in the amount of approximately
$550,000 for the quarter ended December 31, 1996; (ii) an
operating loss of approximately $350,000 for the current fiscal
year ending March 31, 1997; (iii) a one time charge off of up to
$600,000 in the fourth quarter resulting from the termination of
the California operations; and (iv) total losses for the current
fiscal year approximating $1.2 million, including a $196,000
write off relating the conversion of the Notes referred to above.
No assurance can be given, however, that actual losses will not
exceed these estimates.
Reference is made to Item 6 (Management's Discussion and Analysis
of Financial Condition and results of operations) of the March
31, 1996 Form 10-KSB and Notes 2, 3 and 5 to Notes to the
Company's Consolidated Financial Statements included therein for
additional information relating to the transactions involving TCM
and their effect on the Company's financial condition.
The directors and executive officers of the Company are as
follows:
Name Age Position
C. William Cox 61 President, Chairman of the Board and
Chief Executive Officer
Barbara Ceman 59 Vice President-Retail Training and
Secretary
Milton C. Standifer 53 Vice President-Western Region
C. Doyle Smith 49 Chief Financial Officer
George C. Siller, Jr. 45 Vice President-General Manager
Edward K. Paul, Jr. 58 Director
Walter B. Rae 69 Director
Peter Boogren 46 Vice President-Consumer
Except for Messrs Smith and Rae, reference is made to Items 9
(Directors, Executive Officers, Promoters and Control Persons),
10 (Executive Compensation) and 11 (Principal Stockholders) of
the March 31, 1996 Form 10-KSB for information relating to the
background of the Company's officers and directors, executive
compensation, and ownership of the Common Stock by the Company's
principal shareholders. Reference is also made to Item 12
(Certain Relationships with Related Transactions) of the March 3
1, 1996 Form 10-KSB for information relating to transactions with
parties affiliated with the Company, including a limited
guarantee by Mr. Cox of the Company's credit facility, and
financial consulting agreements between the Company and
affiliates of Mr. Laska, a former director of the Company.
Mr. Smith joined the Company in October 1996. Prior thereto from
September 1995 through September 1996 he was employed as Chief
Financial Officer by Fradigial, Inc. a restaurant operator
located Kemah, Texas. From June 1993 through August 1995 Mr.
Doyle was a business consultant in Houston, Texas. For the 13
years prior thereto he was employed as controller and from 1989
through 1993 as Chief Financial Officer by Kettle Restaurants,
Inc. an operator of family restaurants in the southern United
States.
Mr. Rae was the founder and for 24 years the president of Scan
Graphics, Inc., a silk screening company located in Houston,
Texas which he sold in 1989. He has been retired since 1991.
The Company is authorized to issue 10,000,000 shares of Common
Stock, $0.0001 par value per share, of which approximately 5.85
million shares will be issued and outstanding, assuming all of
the Units offered hereby are sold, including shares reserved for
conversion of the Notes and exercise of options and warrants,
after a one for three reverse split of the Common Stock which, as
noted above, is to be effected, subject to stockholder approval,
after the consummation of this Offering. The shares of Common
Stock as set forth in the March 31, 1996 Form 10-KSB and the
Financial Statements included therein do not reflect the effect
of this reverse split or the one for two reverse split effected
by the Company in August 1996.
Holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally
available therefor. They have no preemptive or other fights to
subscribe for additional shares and the Common Stock has no
redemption, sinking fund or conversion provisions. Each share of
Common Stock is entitled to one vote on any matter submitted to
the holders thereof and to equal rights in the assets of the
Company upon liquidation subject to the prior rights on
liquidation of creditors. The outstanding shares of Common Stock
are fully paid and non-assessable.
The shares of Common Stock have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of directors can elect all of the
directors of the Company. In such event, the holders of the
remaining shares will not be able to elect any of the directors.
The transfer agent for the Common Stock is Interwest Transfer Co.
If all of the Units are sold, the undersigned understands that
the Company will receive aggregate net proceeds in the amount of
$2,015,000 which will be used for the following purposes:
Payment of accrued interest
on the Notes $48,000
Repayment of Bank debt 1,000,000*
Purchase of inventory 750,000*
Working capital 217,000*
Total $ 2,015,000
_______________________
* This amount may be reduced to the extent that less than the
maximum number or Units offered hereby is sold.
The undersigned is also aware of the following considerations
relating to his investment in the Units:
the acceptance of tile as a building material in the United
States is increasing, there is no assurance that this trend, if
it still exists, will continue.
Risks of International Supply Factors. Approximately 70% of the
Company's products during the 1996 fiscal year were secured from
suppliers located outside of the United States. There arc
significant risks in obtaining products from suppliers located in
foreign countries. These include, among others, exposure to
currency fluctuations and devaluations or restrictions on money
supplies, foreign and domestic export laws and regulations,
taxation, tariffs, import quotas and restrictions, shipping
interruptions, and other economic and political events totally
beyond the Company's control.
Dependence Upon Building Industry. Intile's business depends
primarily upon tile economic viability of the building industry
which, in turn, is affected by general economic factors beyond
the Company's control. These include, among others, the late of
inflation and the cost of labor, building supplies and financing.
Accordingly, a material increase in any of the foregoing or a
decrease in the rate of economic expansion which has a negative
effect on the building industry would adversely impact the
Company's business.
Competition. The business In which the Company competes is
subject to intense competition. A number of other companies
market tile and related products to wholesale and retail
customers, many of whom possess significantly greater financial,
marketing distribution, managerial and other resources as well as
general market acceptance than does the Company. No assurance
can be given that the Company can continue to compete at a
commercially acceptable level.
Dependence on and Intense Competition for Key Personnel. Primary
responsibility for the conduct of the Company's affairs rests
with C. William Cox, the Company's President and Chief Executive
Officer. There can be no assurance that if the Company should
lose his services, a qualified replacement could be obtained.
There is a $1.5 million policy on Mr. Cox's life with the Company
as the beneficiary. No assurance can be given, however, that in
the event of Mr. Cox's death the proceeds of this Policy would be
sufficient to retain personnel adequate to replace Mr. Cox.
Intile's future success also depends in large part on the
continued service or its key management, marketing and sales
personnel and on its ability to attract and retain qualified
employees. The competition for such personnel is intense and the
loss of key employees could have a material adverse impact on the
Company. The Company does not have employment agreements with
any of its officers or employees.
Volatility of Share Price; Limited Market. The Common Stock is
traded in the over-the-counter market on the NASDAQ Electronic
Bulletin Board. There is a limited market for the Shares. In
addition, the market price of these securities over the last two
years has been volatile. The most significant factor affecting
the price has been the substantial loss incurred by the Company
during its last fiscal year. As a result thereof the market
price for the pre split Common Stock has dropped from a high of
$6.50 per share during the summer of 1995 to a current low bid
price of approximately $0.62 per share. No assurance call be
given that the price of the Common Stock will increase or, if it
does, that it will not continue to be subject to severe
volatility.
Absence of Public Market and Limited Transferability. As
previously noted, the Shares have not been registered tinder the
Securities Act or qualified tinder any state securities laws.
Accordingly, they cannot be sold or otherwise transferred unless
they are subsequently registered under the Act and qualified
under any applicable state securities law.
Potential Significant Adverse Effect of Loan Repayment Demand on
Company's Financial Condition. Intile has received a notice of
demand from the Bank for repayment of its currently outstanding
$4.78 million loan balance which is secured by all of the
Company's inventory and accounts receivable. It is unlikely that
the Company can continue its business unless it can obtain an
extension from the Bank and/or alternate financing as to which
there can be no assurance.
Significant Operating Losses; Accumulated Deficit, Uncertainty of
Future Profitability. lntile's business generated net income of
approximately $35,000 for the fiscal year ended March 31, 1995
but incurred a net loss of approximately $4,250,000 for the
fiscal year ended March 31, 1996. Management estimates that
Intile will incur (i) an operating loss in the amount of
approximately $550,000 for the quarter ended December 31, 1996;
(ii) an operating loss of approximately $350,000 for the current
fiscal year ending March 31, 1997; (iii) a one time charge off of
up to $600,000 in the fourth quarter resulting from the
termination of the California operations; and (iv) total losses
for the current fiscal year approximating $1.2 million, including
a $196,000 write off relating the conversion of the Notes
referred to above. No assurance can be given, however, that
actual losses will not exceed these estimates. At December 31,
1996, the Company had an accumulated deficit of approximately
$3.5 million. lntile's financial performance could limit its
ability to attract additional financing and to compete
effectively. There can be no assurance that the Company will
achieve significantly increased revenues or will be profitable in
the future. Future operating results will depend on many
factors, including the Company's ability to control costs.
Independent Auditors' Report. Because, among other things,
Intile suffered a significant loss for the fiscal year ended
March 31, 1996, the opinion of its independent auditors with
respect to it financial statements includes an explanatory
paragraph as to the uncertainty of the Company's ability to
continue as a going concern without refinancing its credit
facility and obtaining additional financing. The ability of
lntile to continue as a going concern is dependent upon its
successful completion of this Offering and the satisfactory
replacement of its current loan facility, of which no assurance
can be given.
Additional Financing. Intile's prospects are dependent, among
other things, upon its ability to obtain adequate financing, such
as that contemplated by this Offering, and to generate sufficient
cash flow from its operations to satisfy its obligations on a
consistent basis. Management believes that the proceeds from the
sale of the Units offered hereby together with cash flow to be
generated by the operation or the Company's business should be
adequate to finance Intile's intended level of operations for at
least the 12 months after the closing of the Offering. This
belief is based, in part, on management's belief that the Company
can obtain alternate credit financing which will permit the
servicing of its current credit line in a manner which will not
adversely affect the Company's operations and financial
condition. No assurance can be given, however, that such
alternate financing can be obtained or, even if it is, that
additional financing will not be required during this period. No
representation can be made that such financing will be available
if required or, if available, that it can be obtained on terms
acceptable to the Company especially in view of the fact that all
of the Company's material assets are currently pledged.
Limited Market. The market for tile and related products in the
United States is limited in comparison with other parts of the
world. Development of this market depends, in part, on
acceptance of tile as a building material by consumers and
members of the construction industry. Although management
believes, based on information provided by a Distribution Profile
Survey conducted by the Ceramic Tile Dealers Association in
December 1994, that or an exemption from such registration and
qualification is available. Although the Unit holders have
certain rights to register their Shares, these rights are
dependent upon the ability of the Company to satisfy the
requirements of applicable federal and state securities laws.
Circumstances could arise where the Company is unable to meet
these requirements so that the Shares could not be registered.
Even if registered, there is no assurance that tile market in the
Common Stock will be sufficiently active to permit a Unit holder
to liquidate his Shares at acceptable prices if at all.
Lack of Dividends. Intile has not paid dividends on its Common
Stock since its inception and does not intend to pay any cash
dividends on its Common Stock in the foreseeable future. It
currently intends to retain all earnings, if any, in its
business. In addition, the Company's loan agreement with the
Bank prohibits the payment of cash dividends.
Anti Take Over Provisions of the Delaware Corporation Law. The
Delaware Corporation Law contains provisions which may enable
management to retain control and resist a takeover of the
Company. Accordingly, these provisions could discourage or make
more difficult a merger or other type of corporate reorganization
even if they could be favorable to the interests of the
stockholders.
Use of Proceeds to Repay Prior Debt. A significant portion of
the net proceeds to be obtained from this Offering (up to $1
million or 50% if all of the Units offered hereby are sold) will
be used to repay existing debt.
Broad Discretion in Use of Proceeds. A significant portion of
the net proceeds to be obtained from this Offering (up to
$250,000 or approximately 11% if all of the Units offered hereby
are sold) will be used for working capital which will permit
management broad discretion with respect to the use of these
funds.
No Firm Commitment to Purchase Units. No commitment has been
made by anyone to purchase all or any part of the Units being
offered hereby. The funds available to the Company from the
proceeds of this Offering will be reduced and the Company's
proposed operations will be limited to the extent that less than
the maximum number of Units is sold.
Retention of Subscribers' Funds. If the Offering is unsuccessful
because the minimum number of Units offered hereby is not sold,
subscribers' funds may be retained through March 28, 1997 and
then returned without interest.
The undersigned understands that, because of the significant risk
factors referred to herein and in the Information Documents, If
the Offering Is consummated, he could lose his entire Investment.
The undersigned also understands the following:
THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THESE LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY NOR
HAS THE COMMISSION OR ANY SUCH AUTHORITY PASSED UPON OR ENDORSED
THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS
SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER AND/OR THE
INFORMATION DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES
AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL, OFFENSE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
FLORIDA RESIDENTS ARE ADVISED THAT THESE SECURITIES HAVE NOT BEEN
REGISTERED WITH THE STATE OF FLORIDA. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
PURSUANT TO SECTION 517.061 (11) (A) OF THE FLORIDA SECURITIES
AND INVESTOR PROTECTION ACT, THE SALE OF SHARES TO A FLORIDA
RESIDENT SHALL BE VOIDABLE BY THE PURCHASER EITHER (i) WITHIN
THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY THE
PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW
AGENT, OR (ii) WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE HAS BEEN COMMUNICATED TO THE PURCHASER, WHICHEVER
OCCURS FIRST, PROVIDED, HOWEVER, THAT THERE ARE MORE THAN FIVE
FLORIDA PURCHASERS. TO ACCOMPLISH SUCH WITHDRAWAL, A FLORIDA
RESIDENT NEED ONLY SEND A LETTER OR A TELEGRAM TO THE COMPANY AT
9716 OLD KATY ROAD, SUITE 110, HOUSTON, TEXAS 77055 INDICATING
HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM MUST
BE SENT AND POSTMARKED PRIOR TO THE END OF THE APPLICABLE PERIOD
NOTED ABOVE. IF A LETTER IS SENT, IT IS PRUDENT TO SEND IT BY
CERTIFIED MAIL,, RETURN RECEIPT REQUESTED, TO INSURE THAT IT IS
RECEIVED AND ALSO TO EVIDENCE THE TIME AND DATE OF MAILING. IF A
FLORIDA RESIDENT MAKES THIS REQUEST ORALLY, HE OR SHE SHOULD ASK
FOR WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED.
THIS SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER AND THE
INFORMATION DOCUMENTS HAVE NOT BEEN FILED WITH OR REVIEWED BY THE
NEW JERSEY BUREAU OF SECURITIES OR THE DEPARTMENT OF LAW AND
PUBLIC SAFETY OF THE STATE OF NEW JERSEY PRIOR TO ITS ISSUANCE
AND USE. NEITHER THE ATTORNEY GENERAL NOR THE BUREAU OF
SECURITIES OF THE STATE OF NEW JERSEY HAS PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
THIS SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER AND THE
INFORMATION DOCUMENTS HAVE NOT BEEN REVIEWED BY THE ATTORNEY
GENERAL OF THE STATE OF NEW YORK PRIOR TO THEIR ISSUANCE AND USE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
In connection with the subscription being made hereby the
undersigned also warrants and represents that:
(a) He has not received any general solicitation or
advertising regarding the Offering or been furnished with any
oral representation or oral information in connection with the
Offering which is not set forth herein or in the Information
Documents;
(b) He has sufficient knowledge and experience of financial
and business matters so that he is able to evaluate the merits
and risks of purchasing the Units and has determined that the
Units are a suitable investment for him;
(c) He has the means to provide for his personal needs,
possesses the ability to bear the economic risk hereunder
indefinitely, and can afford a complete loss of his investment;
(d) He has carefully read and reviewed this Subscription
Agreement and Investment Letter and the other Information
Documents, and has asked such questions of the Company's
management and received from them such information as he deems
necessary in order for him to make an informed decision with
respect to the purchase of the Units;
(e) He understands the meaning of the 13th and 14th
paragraphs of this Subscription Agreement and Investment Letter
and that the Company will prohibit the transfer of the
undersigned's Units and Underlying Securities absent full
compliance with the Act, the Exchange Act and all applicable
state securities laws;
(f) He has had substantial experience in previous private
and public purchases of speculative securities and is not relying
on the Company or its affiliates with respect to economic
considerations involved in this investment; and
(g) He has reviewed carefully the definition of "accredited
investor" as set forth below and is an "accredited investor"
within that definition. The particular subparagraph or
subparagraphs by which the undersigned qualifies as such is (are)
filled in by him below.
Definition of Accredited Investor
The term "accredited Investor-" is defined in Rule 501 (a) of
Regulation D promulgated under
the Act as follows:
(a) Certain banks, savings and loan institutions, broker-
dealers, investment companies and other entities
including an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security
Act of 1974 with total assets in excess of $5,000,000;
(b) Certain banks, savings and loan institutions, broker-
dealers, investment companies and other entities
including an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security
Act of 1974 with total assets in excess of $5,000,000;
(c) Any private business development company as defined in
Section 202 (a) (22) of the Investment Advisers Act of
1940;
(d) Any organization described in Section 501 (c) (3) of
the Internal Revenue Code, not formed for the specific
purpose of acquiring the Units, with total assets in
excess of $5,000,000;
(e) Any director, executive officer or general partner of
the issuer of the securities being offered or sold, or
any director, executive officer or general partner of a
general partner of that issuer;
(f) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his
purchase exceeds $1,000,000;
(g) Any natural person who had an individual income in
excess of $200,000 or, with that person's spouse a
joint income in excess of $300,000 in each of the two
most recent years and who reasonably expects an income
in excess of $200,000, or $300,000 with that person's
spouse, in the current year;
(h) Any trust with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Section 230.506
(b) (2) (ii) of Regulation D; or
(i) Any entity in which all of the equity owners are
accredited investors under any of the paragraphs above.
THE UNDERSIGNED SUBSCRIBER IS AN ACCREDITED INVESTOR BY REASON OF
SUBPARAGRAPH(S) ___________________ SET FORTH IN THE DEFINITION
ABOVE.
In connection with the foregoing representations the undersigned
has appended hereto as EXHIBIT A, a Purchaser Questionnaire which
he has completed and executed. He represents and warrants that
the information set forth therein as well as all other
information which he is furnishing to the Company with respect to
his financial condition and business experience is accurate and
complete as of the date hereof and he covenants that, in the
event a material change should occur in such information, he will
immediately provide the Company with such revised or corrected
information.
All notices, requests, demands and other communications under
this Subscription Agreement shall be in writing and shall be
deemed to have been given only when delivered in person or, if
mailed, when mailed by certified or registered mail prepaid, to
the parties at their respective addresses set forth herein, or at
such other address as my be given in writing in future by either
party to the other.
The undersigned acknowledges and agrees that:
(a) He has full power and authority to enter into this
Agreement which, upon his execution, will constitute a valid and
legally binding obligation by him;
(b) The Company may, in its sole discretion (i) reject this
Subscription Agreement in whole or in part; and (ii) accept
subscription agreements other than in the order received;
(c) If for any reason this Offering does not close or the
undersigned's subscription is not accepted by the Company, the
undersigned shall have no claims against the Company or Coleman,
or their respective officers, directors, employees or affiliates
and shall have no interest in the Units, Underlying Securities,
Underlying Shares or the Company;
(d) Neither he nor any affiliate of his is an officer,
director, employee or affiliate
of any member of the National Association of Securities Dealers,
Inc.;
(e) He shall indemnify and hold harmless the Company,
Coleman, and their respective officers, directors, employees and
affiliates against any loss, liability, claim, damage or expense,
(including, but not limited to, any and all expenses reasonably
incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim) arising out of
or based upon any false representation or warranty or breach or
failure by the undersigned to comply with any covenant or
agreement made by him herein or in any other document provided by
him to any of the foregoing in connection with this transaction;
(f) The representations, warranties and agreements made by
the undersigned set forth herein shall survive the closing of the
Offering;
(g) Neither this Subscription Agreement nor any provisions
hereof shall be modified, discharged or terminated except by an
instrument in writing signed by the party against whom any
waiver, change, discharge or termination is sought;
(h) The laws of the State or Texas shall govern the
interpretation and enforcement of this Subscription Agreement.
In the event of a dispute, the undersigned agrees that any law
suit brought to enforce or interpret the provisions hereof shall
be brought in state or federal courts, as appropriate, in Flares
County, Texas, and the undersigned agrees to submit to the
personal Jurisdiction of such court;
(I) This Subscription Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which shall constitute the same instrument; and
(j) This Subscription Agreement constitutes the entire
agreement of the parties hereto, and supersedes all prior
understandings with respect to the subject matter hereof.
The undersigned hereby agrees to purchase _______ Unit(s) as set
forth in the first paragraph of this Subscription Agreement and
Investment Letter, and is tendering herewith his check therefor
in the amount of $____________ , made payable to "Citibank, N.A.-
Intile Designs, Inc. Escrow Account."
THE UNDERSIGNED ACKNOWLEDGES THAT THIS SUBSCRIPTION AGREEMENT
CONSISTS OF 15 PAGES AND INCLUDES EXHIBITS A THROUGH G.
Very truly yours,
DATE: _______________________
______________________________
(Signature)
______________________________
(Please print name)
ADDRESS _________________________ TELEPHONE
NUMBER:___________________
_________________________ SOCIAL SECURITY OR
IRS IDENTIFICATION
_________________________ NUMBER:
_____________________________
DATE _________________________
ACCEPTED:
INTILE DESIGNS, INC.
[SEAL] By
_________________________________
C. William Cox,
President
ATTEST:_______________________
Barbara Ceman, Secretary
EXHIBIT A
TO
INTILE DESIGNS, INC.
SUBSCRIPTION AGREEMENT
AND
INVESTMENT LETTER
PURCHASER QUESTIONNAIRE
INSTRUCTIONS. Each prospective purchaser of Units (the "Units")
of Intile Designs, Inc. (the "Company") must complete and sign
this Purchaser Questionnaire.
If the prospective purchaser(s) will be joint owners, each person
involved (except a spouse with the same principal residence) must
complete Parts I, II and III of the Purchaser Questionnaire.
If the prospective purchaser is a corporation, partnership,
trust, or other entity, please complete Parts I, II and III with
reference to the individual who is authorized to sign on its
behalf, and complete Part IV of the Purchaser Questionnaire with
reference to the corporation, partnership, trust, or other
entity.
In order for a partnership or corporation to be treated as an
accredited investor, each of its equity owners must be an
accredited investor and complete Parts I, II and III of the
Purchaser Questionnaire.
All information will be treated confidentially; however, the
purpose of this Questionnaire is to assist the Company in
determining whether the prospective purchaser complies with the
requirements of Section 4 (2) under the Securities Act of 1933,
(the "1933 Act") and any applicable state securities laws.
Accordingly, the Company may present this Questionnaire to such
parties as it deems necessary in order to establish an exemption
from registration under the 1933 Act or any applicable state
securities laws.
Please complete all items, sign, date and return this
Questionnaire to Intile Designs, Inc., 9716 Old Katy Road, Suite
110, Houston, Texas 77055, together with any of the Verification
Documents that are called for on page 7.
Please print or type. If the answer to any question is "None" or
"Not Applicable," please so state.
I. GENERAL INFORMATION
Name of purchaser:
_____________________________________________________________
Social Security or Tax Identification Number:
________________________________________
Home address:
_________________________________________________________________
Home telephone number:
__(_____)________________________________________________
In which state do you maintain your legal residence and
domicile?____________ Age: _______
Occupation or profession:
________________________________________________________
Name of employer:
_____________________________________________________________
Nature of business:
_____________________________________________________________
Position and general duties:
_______________________________________________________
Please describe your principal business activities during the
last five years: _________________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
Education and professional background (List your highest level of
education and any licenses):
Degree
School or License Year
Major (if any)
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
II. FINANCIAL DATA
1. My individual net worth, combined with that of my spouse, if
any, as of this date, is:
(a) including all residences, furnishings and automobiles (check
one):
_______Less than $150,000 _______$150,000 to
$499,000
_______$500,000 to $999,000 _______$1, 000, 000 or
more
(b) excluding principal residence, furnishings and automobiles
(check one):
_______Less than $150,000 _______$150,000 to
$499,000
_______$500,000 to $999,000 _______$1,000,000 or more
2. I had income individually from all sources in excess of
$200,000 in the year 1994:
Yes_______ No_______
3. I had income individually from all sources in excess of
$200,000 in the year 1995:
Yes_______ No_______
4. I had income individually from all sources in excess of
$200,000 in the year 1996:
Yes_______ No_______
5. My estimated 1997 income individually from all sources will
be in excess of (check one):
_______$80,000 _______$100,000 _______$150,000
_______$200,000
_______$300,000 or more
6. My income combined with that of my spouse was at least
$300,000 in each of the years 1994, 1995 and 1996:
Yes_______ No_______
7. To the best of my knowledge, my income combined with that of
my spouse will be at least $300,000 in 1996:
Yes_______ No_______
8. I can afford the complete loss of my investment in the
Units, I have no need for liquidity of this investment, and this
investment will not affect my ability to provide for my current
needs and possible personal financial contingencies.
Yes_______ No_______
9. Stated below are my previous investments in other private,
high risk investments during the past five years.
Name of Type of Approx.
Issuer Business Amount
or Program Year or Program Invested
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
III. METHOD OF INVESTMENT EVALUATION
1. I have by myself sufficient knowledge and experience in
financial and business matters to be capable of evaluating the
merits and risks of an investment in the Program.
Yes_______ No_______
2. I will have an attorney, accountant, investment advisor or
other consultant review this investment.
Yes_______ No_______
If Yes:
Name:
_________________________________________________________________
_______
Firm:
_________________________________________________________________
________
Telephone number:
_____________________________________________________________
Address:
_________________________________________________________________
_____
IV. ADDITIONAL INFORMATION FOR CORPORATION, PARTNER-SHIP TRUST OR
OTHER ENTITY
Name of organization:
___________________________________________________________
Business address:
_______________________________________________________________
Telephone number:
_____________________________________________________________
Send communications to the attention of:
____________________________________________
Date of organization:
____________________________________________________________
State of organization:
____________________________________________________________
Tax Identification Number:
_______________________________________________________
Form of organization:
Corporation_______ Company _______ Trust_______
Other_______
If a corporation, the organization has ______has not
______elected to be taxed as a small business corporation for
Federal income tax purposes under the provisions of Subchapter S
of the Internal Revenue Code of 1986, as amended.
The organization is actively engaged in the conduct of a trade or
business:
Yes_______ No_______
Describe purpose of formation or principal trade or business
activity:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
____________________________________________________
Attach a complete list:
If a corporation, the names of all officers, directors, and
stockholders; or
If a partnership, the names of all partners indicating whether
each person is a general partner or limited partner.
V. PURCHASER'S REPRESENTATIONS AND ACKNOWLEDGMENTS
The foregoing statements are true and accurate to the best of my
information and belief, and I will promptly notify the Manager of
any changes therein.
I am duly authorized and empowered to legally represent and bind
the principal, person, trust, partnership, corporation or other
entity, if any, named herein as purchaser.
SIGNATURE
IN WITNESS WHEREOF, I have executed this Questionnaire this
______day of __________, 19_____.
____________________________________
SIGNATURE
____________________________________
Print Name
____________________________________
Title, if applicable
Place of Execution: __________________________
If other than individual, check one:
_______Community Property _____Custodian _______Company
_______Joint Tenants with _____Corporate _______Trust
Right of Survivorship
_______Tenants in Common
VERIFICATION DOCUMENTS
The signed Purchaser Questionnaire must be accompanied by:
CORPORATE SUBSCRIBER
A certified copy of a resolution of the corporation's board of
directors designating the officer(s) of the corporation
authorized to-sign on behalf of the corporation; and
A certified copy of a resolution of the corporation's board of
directors authorizing the contemplated investment
PARTNERSHIP SUBSCRIBER
A certified copy of the partnership agreement; and
A certificate signed by all the general partners, authorizing the
general partner who has signed the signature page on behalf of
the partnership to sign and to make the contemplated investment
on behalf of the partnership.
TRUST SUBSCRIBER
A certified copy of the Trust instrument; and
A certificate signed by all the trustees authorizing the trustee
who has signed the signature page on behalf of the Trust to sign
and to make the contemplated investment on behalf of the Trust.
CUSTODIAN SUBSCRIBER
A certified copy of the instrument pursuant to which the
custodian is acting.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 179,157
<SECURITIES> 0
<RECEIVABLES> 1,714,971
<ALLOWANCES> 340,315
<INVENTORY> 6,074,110
<CURRENT-ASSETS> 8,050,874
<PP&E> 1,790,120
<DEPRECIATION> 1,146,183
<TOTAL-ASSETS> 8,944,742
<CURRENT-LIABILITIES> 8,591,564
<BONDS> 0
0
0
<COMMON> 469
<OTHER-SE> 8,704,974
<TOTAL-LIABILITY-AND-EQUITY> 8,944,742
<SALES> 15,936,681
<TOTAL-REVENUES> 15,936,681
<CGS> 11,864,464
<TOTAL-COSTS> 21,320,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 256,557
<INTEREST-EXPENSE> 1,419,512
<INCOME-PRETAX> (5,352,967)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,352,967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,352,967)
<EPS-PRIMARY> (4.66)
<EPS-DILUTED> (4.66)
</TABLE>
