<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE MAXIM GROUP, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 58-2060334
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
210 TOWNPARK DRIVE, KENNESAW, GEORGIA 30144
(770) 590-9369
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
A. J. NASSAR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
210 TOWNPARK DRIVE, KENNESAW, GEORGIA 30144
(770) 590-9369
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<S> <C>
HELEN T. FERRARO, ESQ. JOHN J. KELLEY, III, ESQ.
SMITH, GAMBRELL & RUSSELL, LLP ANDREW M. TUCKER, ESQ.
3343 PEACHTREE ROAD, N.E., SUITE 1800 KING & SPALDING
ATLANTA, GEORGIA 30326-1010 191 PEACHTREE STREET, N.E.
(404) 264-2620 ATLANTA, GEORGIA 30303-1763
(404) 572-4600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) FEE
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<S> <C> <C>
Common Stock, par value
$.001 per share....................... $69,345,000 $21,013.64
================================================================================================================
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(1) Includes 540,000 shares that are issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the filing fee pursuant to
Rule 457(o) under the Securities Act of 1933.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JANUARY 21, 1997
PROSPECTUS
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THE MAXIM GROUP INC. LOGO
3,600,000 Shares
THE MAXIM GROUP, INC.
Common Stock
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Of the 3,600,000 shares of common stock, par value $.001 per share (the "Common
Stock"), offered hereby, 3,175,773 are being sold by The Maxim Group, Inc. (the
"Company") and 424,227 are being sold by certain selling stockholders of the
Company (the "Selling Stockholders"). The Company will not receive any of the
proceeds from the sale of shares sold by the Selling Stockholders. See
"Principal and Selling Stockholders."
The Common Stock is included in The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol "MAXM." On January 17, 1997 the last
reported sales price for the Common Stock on the Nasdaq National Market was
$16.875 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" ON PAGES 7 THROUGH 10 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholders(3)
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<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
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Total (4)............. $ $ $ (3) $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933 (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated offering expenses of $282,000 payable by the
Company.
(3) The Company has agreed to reimburse one of the Selling Stockholders for
underwriting discounts and commissions.
(4) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 540,000 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ , the total Proceeds to Company will be $ and the total
Proceeds to Selling Stockholders will be $ . See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the offices of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about , 1997.
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
,1997
<PAGE> 3
[FRONT COVER PHOTOS]
[Artist rendering of CARPETMAX Flooring Idea Gallery(TM) Store]
The CARPETMAX Flooring Idea Gallery(TM) store is designed to create a more
comfortable, enjoyable and productive floorcovering shopping experience.
[Photograph of in-store advertising displays]
The CARPETMAX Flooring Idea Gallery(TM) offers customers commitment to service,
everday low pricing, complete product selection, unconditional satisfaction
guarantees and national buying power.
[Photograph of carpet selection display]
The Image color wall displays a broad spectrum of the Company's high-quality
proprietary carpets with complimentary hard surface products for effective
cross-selling.
[Photograph of area rug display]
In store galleries display an extensive collection of area rugs and hard
surface products such as hardwood and laminates.
[Photograph of hardwood flooring display]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934 (THE "1934
ACT"). SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements appearing elsewhere and
incorporated by reference in this Prospectus. Except as otherwise indicated, the
information in this Prospectus assumes the Underwriters' over-allotment option
will not be exercised. The term "fiscal" when used in this Prospectus shall mean
the twelve-month period ending March 31 for the fiscal years ending March 31,
1995 and prior, the ten-month period ending January 31 for the ten-month period
ending January 31, 1996, and the twelve-month period ending January 31 of the
calendar year otherwise indicated. The consolidated financial statements of the
Company give retroactive effect to the merger of the Company and GCO, Inc. on
September 28, 1994 and the merger of the Company and Image Industries, Inc.
("Image") on August 30, 1996, which transactions were accounted for as
poolings-of-interests.
THE COMPANY
The Company operates and franchises one of the largest retail floorcovering
networks in North America through two retail floorcovering concepts: the
CARPETMAX Division ("CARPETMAX"), which operates full-service floorcovering
stores, and the Georgia Carpet Outlet Division ("GCO"), which operates cash-and-
carry discount floorcovering stores. The Company has built an integrated
floorcovering distribution network, consisting of both Company-owned and
franchised retail stores, supported by the Company's extensive specialty
retailing capabilities in product sourcing, store development, marketing and
advertising, credit and personnel training. As of January 1, 1997, the Company's
retail network consisted of 50 Company-owned CARPETMAX stores, seven
Company-owned GCO stores and 399 franchise dealers operating approximately 465
CARPETMAX stores and 99 GCO stores. The Company's retail floorcovering revenues
increased 22.4% to $87.0 million for the nine months ended October 31, 1996 from
$71.1 million for the nine months ended September 30, 1995 and total revenues,
including manufacturing revenues, increased 20.6% to $231.5 million for the nine
months ended October 31, 1996 from $192.0 million for the nine months ended
September 30, 1995.
The domestic retail floorcovering industry is highly-fragmented with
independent retail floorcovering dealers operating over 14,000 locations. Other
floorcovering vendors such as home centers, furniture stores, department stores
and mass merchants operate over 23,000 locations nationwide. The Company
estimates total retail floorcovering sales approximated $20 billion in 1995. The
Company believes that the industry is characterized by a large number of small
local and regional companies, none of which has a national brand name, and a
small number of national chains. The typical independent floorcovering retailer
operates one store with limited product selection and service. As a result, the
Company believes that most independent floorcovering retailers face distinct
competitive disadvantages.
The Company's objective is to establish the largest and most profitable
residential and commercial floorcovering distribution network in North America.
To achieve this objective, the Company pursues the following business
strategies: (i) offer a broad selection of products and services; (ii) locate
stores in prime retail locations; (iii) provide a customer friendly environment
and superior customer service; (iv) build the leading national brand; (v)
leverage product sourcing capabilities; and (vi) leverage retailing resources
and capabilities.
The cornerstone of the Company's business and growth strategies is the
CARPETMAX Flooring Idea Gallery store (the "Gallery Store"), a refinement of its
initial CARPETMAX store concept. The Gallery Store prototype has 6,500 square
feet of retail selling space in a "Class A" retail location. The Company
believes the Gallery Store has one of the most extensive product offerings in
the industry, featuring approximately 8,000 SKUs of carpet, area rugs, hardwood
flooring, vinyl flooring, ceramic tile, laminates, stone and resilient surfaces
produced by the leading floorcovering manufacturers worldwide. The Gallery Store
is designed to create a more comfortable, enjoyable and productive shopping
experience supported by a well-trained professional staff. Each floorcovering
category is featured in a separate in-store gallery as well as in coordinated
multi-category displays throughout the store.
The Company intends to expand its floorcovering distribution network to
more fully utilize its retailing resources and capabilities. The Company's
growth strategy includes: (i) opening 70 new Gallery Stores during
3
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fiscal 1998 and 1999; (ii) increasing the Company's presence in all market
segments; (iii) expanding product offerings and services for each distribution
format; and (iv) pursuing strategic acquisitions.
To enhance its ability to offer high-quality and high-margin products and
services, in August 1996, the Company merged with Image, a leading producer of
polyester broadloom carpet. The Company believes that Image's product line will
provide the Company's retail and commercial customers with a greater selection
of high-quality carpet at a lower cost than would otherwise be available.
RECENT DEVELOPMENTS
The Company has recently begun to expand its floorcovering distribution
network to target large commercial projects for institutional customers such as
hospitals, hotels, governments, the military and schools (the "specified
contract" market) and smaller commercial and residential construction and
renovation projects managed by a general contractor (the "builder" market). On
November 22, 1996 and on November 26, 1996, the Company acquired Bailey &
Roberts Flooring, Inc. ("Bailey & Roberts") and Sexton Floor Covering, Inc.
("Sexton"), respectively. Bailey & Roberts is a specified contract floorcovering
business and Sexton is a floorcovering business catering to the builder market,
each with an excellent reputation in their respective markets. The Company
intends to build market share in these segments primarily by leveraging off of
its existing distribution network and established floorcovering distribution and
retail resources. See "Business -- Retail Operations -- Specified Contract
Market and -- Builder Market."
The Company was originally organized under the laws of the State of New
York on April 21, 1989 and subsequently reincorporated under the laws of the
State of Delaware on July 29, 1993. The principal executive offices of the
Company are located at 210 TownPark Drive, Kennesaw, Georgia 30144, and its
telephone number is (770) 590-9369.
THE OFFERING
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Common Stock Offered by the Company.............. 3,175,773 shares
Common Stock Offered by the Selling
Stockholders................................... 424,227 shares
Common Stock to be Outstanding after the
Offering(1).................................... 16,034,852 shares
Use of Proceeds.................................. To reduce amounts outstanding under the
Company's credit facilities. See "Use of
Proceeds."
Nasdaq National Market Symbol.................... MAXM
</TABLE>
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(1) Excludes (i) 1,730,740 shares of Common Stock issuable as of January 16,
1997 upon the exercise of outstanding stock options under the Company's
1993 Stock Option Plan at a weighted average exercise price of
approximately $9.14 per share, of which 1,071,138 options to purchase
shares are exercisable as of January 16, 1997, (ii) 932,615 shares of
Common Stock issuable as of January 16, 1997 upon the exercise of
outstanding options under the Company's RSO Plan at an exercise price of
$.01 per share, all of which are exercisable as of January 16, 1997, and
(iii) 269,260 shares reserved for future issuances under the Company's 1993
Stock Option Plan. See "Shares Eligible For Future Sale."
CARPETMAX(R) is a registered trademark of the Company and the Company has
applied for registration of the mark CARPETMAX Flooring Idea Gallery(TM).
Whenever such trademarks appear in this Prospectus, such names shall be deemed
to refer to the corresponding registered trademark or to the mark for which the
Company has applied for registration, as the case may be.
Except as otherwise indicated, industry data in this Prospectus is derived from
selected reports prepared by FloorCovering Weekly.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
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TEN
MONTHS
ENDED NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, JANUARY 31, SEPTEMBER 30, OCTOBER 31,
------------------------------------------ ----------- ----------------------------
1992 1993 1994 1995 1996(1) 1995(2) 1996(2)
------- ------- -------- -------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE, STORE AND TERRITORY DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues
Sales of floorcovering products.... $74,809 $88,676 $106,237 $174,935 $ 186,568 $ 161,733 $ 185,735
Fees from franchise services....... 2,167 5,113 9,688 13,876 13,432 12,146 19,684
Fiber and PET sales................ 7,193 4,583 5,297 12,886 24,072 15,928 23,458
Other.............................. 388 479 1,369 1,644 3,479 2,208 2,585
------- ------- ------- ------- -------- -------- --------
Total revenues................... 84,557 98,851 122,591 203,341 227,551 192,015 231,462
Cost of sales........................ 63,465 71,570 85,847 139,521 161,723 132,351 166,934
------- ------- ------- ------- -------- -------- --------
Gross profit..................... 21,092 27,281 36,744 63,820 65,828 59,664 64,528
Selling, general, and administrative
expenses........................... 13,185 17,417 23,669 46,870 59,197 47,053 54,104
Replacement stock option charge...... -- -- 10,388(3) -- -- -- --
Goodwill impairment charge........... -- -- -- -- 6,569(4) -- --
Merger-related costs................. -- -- -- 500(5) -- -- 4,700(6)
Interest expense, net................ 4,487 3,824 1,579 1,442 4,280 3,026 4,588
Other expense (income)............... 532 98 263 (421) (78) (417) (426)
------- ------- ------- ------- -------- -------- --------
Earnings (loss) before income taxes
and extraordinary income........... 2,888 5,942 845 15,429 (4,140) 10,002 1,562
Income tax expense................... 306 947 376 5,787 105 3,656 1,514
------- ------- ------- ------- -------- -------- --------
Net earnings (loss) before
extraordinary income............... 2,582 4,995 469 9,642 (4,245) 6,346 48
Extraordinary income................. -- -- 190 -- -- -- --
------- ------- ------- ------- -------- -------- --------
Net earnings (loss).............. $ 2,582 $ 4,995 $ 659 $ 9,642 $ (4,245) $ 6,346 $ 48
======= ======= ======= ======= ======== ======== ========
Net earnings (loss) per common
share(7)........................... $ 0.29 $ 0.56 $ 0.06 $ 0.72 $ (0.32) $ 0.47 $ 0.00
======= ======= ======= ======= ======== ======== ========
Weighted average shares
outstanding(7)..................... 8,963 8,903 11,161 13,301 13,301 13,546 13,791
======= ======= ======= ======= ======== ======== ========
SELECTED OPERATING DATA:
Revenues attributable to:
CARPETMAX operations............... $ 1,325 $ 3,766 $ 10,051 $ 63,933 $ 85,278 $ 73,244 $ 91,245
GCO operations..................... 3,655 5,605 9,283 12,158 14,012 11,381 16,958
Image operations................... 79,577 89,480 103,257 127,250 128,261 107,390 123,259
End of period:
Company-owned stores............... 4 8 8 51 59 64 53
Franchise territories.............. 98 148 233 325 377 364 397
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OCTOBER 31, 1996
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ACTUAL AS ADJUSTED(8)
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Working capital....................................................................... $ 54,551 $ 54,551
Total assets.......................................................................... 210,144 210,144
Long-term debt and capital leases..................................................... 92,658 42,564
Stockholders' equity.................................................................. 72,937 123,031
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5
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(1) On January 31, 1996, the Company changed its fiscal year end from March 31
to January 31.
(2) These periods are not entirely comparable as the period ended October 31,
1996 does not include the month of January, which is one of the two weakest
sales months of the year. See "Risk Factors -- Fluctuations in Quarterly
Results, Seasonality and Cyclical Nature of the Floorcovering Industry."
(3) Image granted replacement stock options on August 10, 1993, in replacement
of a like number of unvested stock appreciation units and vested and
unvested stock options. As a result of this exchange, Image recognized a
non-cash, non-recurring charge of $10.4 million in its fiscal year ending
March 31, 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year Ended March 31, 1995 Compared to
Year Ended March 31, 1994 -- Replacement Stock Option Charge" and Note 13 of
"Notes to Consolidated Financial Statements."
(4) Certain of the Company's acquired stores have not performed as anticipated
at the time of purchase. The results from these operations through the end
of fiscal 1996 led management to assess the realizability of the goodwill
recorded in connection with these acquisitions, the result of which
indicated a permanent impairment of goodwill necessitating a write-off
totaling $6.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Ten-Month Period Ended
January 31, 1996 Compared to Year Ended March 31, 1995 -- Goodwill
Impairment" and Note 2 of "Notes to Consolidated Financial Statements."
(5) Represents a non-recurring charge of $500,000 related to the merger with
GCO, Inc.
(6) Represents a non-recurring charge of $4.7 million related to the merger with
Image.
(7) Net earnings per share is computed on a fully diluted basis as described in
Note 1 to the Consolidated Financial Statements of the Company.
(8) As adjusted to give effect to the sale of 3,175,773 shares of Common Stock
offered by the Company hereby at the assumed public offering price of
$16.875 per share (the last reported sales price for the Common Stock on
January 17, 1997) after deducting underwriting discounts and commissions and
estimated offering expenses, and the application of the net proceeds
therefrom. See "Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus, in
connection with an investment in the Common Stock offered hereby.
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the 1934 Act. Those statements appear in a number of places in this
Prospectus and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) the timing, magnitude and costs of the roll-out of the
Gallery Stores; (ii) potential acquisitions by the Company; (iii) the use of the
proceeds of this offering; (iv) the Company's financing plans; (v) trends
affecting the Company's financial condition or results of operations; (vi) the
Company's business and growth strategies; and (vii) the declaration and payment
of dividends. Prospective investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including without
limitation the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business," identifies important factors that could cause such
differences.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH. The Company has experienced
significant growth, principally by acquiring floorcovering retailers, adding new
franchisees, opening new retail stores and entering into the carpet
manufacturing business. The Company intends to continue to pursue an aggressive
growth strategy for the foreseeable future, and its future operating results
will depend largely upon its ability to open and operate new stores
successfully, conduct its newly acquired carpet manufacturing business
profitably, expand its franchise network and acquire and integrate floorcovering
retailers. There can be no assurance that the Company's accounting systems,
purchasing systems, internal controls and management information systems will be
adequate or that the Company will be able to upgrade or reconfigure its systems
and controls to respond to the Company's growth, the inability of which could
have a material adverse effect on the successful operation of the Company's
business, implementation of its growth strategy and future operating results.
The change in the Company's business mix to emphasize the opening of new
Company-owned stores will require the expansion of the capabilities of the
Company's management information systems. To support its growth, the Company is
currently developing a centralized information system to integrate the Company's
store operations and financial data. There can be no assurance, however, that
the development of such an information system will be successful, or
accomplished within a time frame sufficient to accommodate planned growth. There
can also be no assurance that the Company will be able to expand its market
presence in its existing markets or successfully enter new or contiguous markets
by opening new stores or through acquisitions or that any such expansion will
not adversely affect the Company's profitability and results of operations. In
addition, there can be no assurance that the Company will be able to increase
the number of franchisees or that new franchisees will be as profitable to the
Company as existing franchisees. If the Company's management is unable to manage
this growth effectively, the Company's business, results of operations and
financial condition could be materially adversely affected.
LIMITED HISTORY OF OPENING COMPANY-OWNED STORES. The Company's growth
strategy focuses on the opening of its newly-designed Gallery Store. As of
January 1, 1997, the Company had opened 13 initial prototype CARPETMAX stores,
including one Gallery Store. The Company plans to open approximately 70 new
Gallery Stores during fiscal 1998 and 1999. The Company's ability to
successfully open new Gallery Stores is dependent on a number of factors
including its ability to hire, train and assimilate management and store-level
employees, the adequacy of the Company's financial resources, the Company's
ability to identify new and contiguous markets, to locate and construct suitable
store sites, to negotiate acceptable lease terms and to successfully compete in
new and contiguous markets. There can be no assurance that the Company will be
able to achieve the planned expansion, that the new Gallery Store concept will
be accepted in the marketplace or that it will achieve planned operating results
or results comparable with the existing CARPETMAX stores. The Company intends to
own certain of its store sites and may encounter substantial delay, increased
expenses or loss of potential sites due to the complexities associated with the
regulatory and permitting processes in the markets in which the Company intends
to locate its stores. The Company intends to offer certain of its existing
CARPETMAX franchisees the opportunity to upgrade their existing
7
<PAGE> 9
CARPETMAX stores to Gallery Stores in return for the ability to open
Company-owned stores in their exclusive territory. There can be no assurance
that franchisees will permit the Company to establish Company-owned Gallery
Stores in their exclusive territories or accept the Company's Gallery Store
franchise program. See "Business -- Retail Operations -- CARPETMAX Flooring Idea
Gallery Stores."
HIGHLY COMPETITIVE NATURE OF THE FLOORCOVERING INDUSTRY. Competition in
the retail floorcovering market is intense due to the significant number of
retailers. In December 1995, Shaw Industries, Inc. ("Shaw"), the world's largest
carpet manufacturer, announced its decision to move into the retail
floorcovering sector and has since acquired Carpetland USA, Inc. and New York
Carpet World, Inc. Although Shaw is in the early stages of developing its retail
operations, there can be no assurance that it will not become a major competitor
in the future. In addition, large retailers also provide significant
competition, including The Home Depot, Inc. and Sears, Roebuck & Co. The
principal methods of competition within the retail floorcovering industry
include store location, product selection and merchandising, customer service
and price.
The Company's carpet manufacturing business competes with other carpet
manufacturers and manufacturers of alternative floorcoverings such as wood or
tile. Certain of the Company's competitors in the carpet manufacturing business
have greater financial and other resources than the Company. It is estimated
that the two largest carpet manufacturers accounted for approximately 45% of
total carpet industry sales for 1995. No assurance can be given that the
Company's competitors will not substantially increase resources devoted to the
production and marketing of products competitive with those of the Company,
which could require the Company to reduce prices or increase spending on product
development, marketing and sales, any of which could have a material adverse
affect on the Company. See "Business -- Competition."
FLUCTUATIONS IN QUARTERLY RESULTS, SEASONALITY AND CYCLICAL NATURE OF THE
FLOORCOVERING INDUSTRY. The Company's quarterly operating results have
fluctuated in the past and are expected to fluctuate in the future as a result
of a variety of factors, including the timing of store openings and related
pre-opening expenses, weather conditions, price increases by suppliers, actions
by competitors, conditions in the carpet manufacturing, home building and
improvement markets and the floorcovering industry in general, regional and
national economic conditions and other factors. Moreover, the Company expects
its business to continue to exhibit some measure of seasonality, which the
Company believes is typical of the floorcovering industry. Individual stores
generally experience lower net sales, operating income and cash flow from
operations and the Company experiences lower sales of manufactured carpets in
the first and fourth fiscal quarters than in any other fiscal quarter, due
primarily to the effect of winter weather on home improvement projects.
The floorcovering industry historically has been adversely impacted by
economic downturns. The Company believes that the industry is significantly
influenced by economic conditions generally and particularly by consumer
behavior, consumer confidence, the level of personal discretionary spending, the
condition of the residential and commercial construction industries, interest
rates, credit availability and the overall strength of the economy. There can be
no assurance that a prolonged economic downturn would not have a material
adverse effect on the Company.
DEPENDENCE ON SENIOR MANAGEMENT. The success of the Company is largely
dependent on the skills, experience and efforts of its senior management and
especially its President and Chief Executive Officer, A.J. Nassar, and its Chief
Operating Officer, James W. Inglis. The loss of the services of Mr. Nassar, Mr.
Inglis or other members of the Company's senior management could have a material
adverse effect on the Company's business and prospects. The Company is presently
negotiating a new employment agreement with Mr. Nassar and maintains a key man
life insurance policy on Mr. Nassar in the amount of $2.0 million. The Company
believes that its future success will also depend in part upon its ability to
attract, retain and motivate qualified personnel. Competition for such personnel
is intense. Although the Company has recently hired several senior level
management personnel with extensive retail experience, there can be no assurance
that the Company will continue to be successful in attracting and retaining such
personnel. See "Management."
RISKS ASSOCIATED WITH PRICE AND AVAILABILITY OF RAW MATERIALS. The
availability of low-cost materials, particularly post-consumer polyethylene
terephthalate ("PET") bottles, is important to the profitability of the
Company's carpet manufacturing operations. An increase in the demand for PET
bottles could increase prices for PET bottles, thereby increasing the Company's
manufacturing costs. Such increased costs could have an adverse effect on the
profitability of the Company's manufacturing operations. In recent years, PET
bottle prices have fluctuated dramatically, most notably in fiscal 1996 when PET
prices increased 150% and
8
<PAGE> 10
subsequently returned to historical price levels. There can be no assurance that
such prices will not continue to experience significant volatility. The Company
has not entered into long-term contracts with any suppliers for its raw
materials. The unavailability, scarcity or increased cost of such raw materials
could disrupt the Company's manufacturing operations which would have a material
adverse effect on these operations. In addition, any significant change in the
proportion of PET in the waste bottles supplied to the Company's manufacturing
operations, or the introduction of alternatives to PET bottles for food
packaging, could also disrupt the Company's manufacturing operations and have a
material adverse effect on the Company. For the nine months ended October 31,
1996, the Company's manufacturing operations comprised approximately 53% of its
total revenues. Any decrease in the profitability of these manufacturing
operations would have an adverse effect on the Company's overall results of
operations.
DEPENDENCE ON SUPPLIERS FOR FLOORCOVERING PRODUCTS AND DISTRIBUTION. The
Company relies on several large independent floorcovering manufacturers for the
production of the CARPETMAX Division's floorcoverings, including Shaw which
supplied approximately 23% of the Company's floorcovering purchases for the nine
months ended October 31, 1996. In addition, the Company's retail inventory
management is highly dependent on the delivery capabilities of these
manufacturers. Any significant change in the Company's relationships with
manufacturers, or in the manner in which these manufacturers produce or
distribute their products, could have a material adverse effect on the Company.
Although these manufacturers have been reliable, high-quality producers, there
can be no assurance that in the future these manufacturers will be willing or
able to meet the Company's requirements and those of its franchisees on a timely
basis or that their pricing and rebate policies will remain competitive. While
the Company believes there are a number of alternative manufacturers capable of
supplying and distributing the Company's floorcovering products, any delays in
obtaining alternative suppliers could have a material adverse effect on the
Company's operations and those of its franchisees. In addition, the Company
expects that suppliers will substantially contribute to the opening expenses of
new Gallery Stores. However, there can be no assurance that these suppliers will
contribute to such expenses and, to the extent they do not, the Company's
ability to maintain its Gallery Store roll-out may be adversely affected. See
"Business -- Retail Infrastructure -- Supplier Relationships."
ENVIRONMENTAL AND REGULATORY MATTERS. The Company's carpet manufacturing
and recycling operations and facilities are subject to numerous federal, state
and local laws and regulations designed to protect the environment from wastes
and emissions of hazardous substances and to provide a safe workplace for the
Company's employees. The Company believes it is either in material compliance
with all currently applicable laws and regulations or is operating in accordance
with appropriate variances or similar arrangements. The Company believes that
compliance with current laws and regulations will not require significant
capital expenditures or have a material adverse effect on its operations.
However, such laws and regulations are subject to change in the future, and any
failure by the Company to comply with present or future regulations could
subject it to future liabilities or the suspension of production which could
have a material adverse effect on the Company's business. In addition, changes
in environmental regulations could restrict the Company's ability to expand its
facilities or could require the Company to incur substantial unexpected other
expenses to comply with such regulations.
INDOOR AIR QUALITY. The effect of carpeting and other floorcovering
products on indoor air quality has been the subject of debate in recent years.
Although it is uncertain whether emissions from carpet pose a health hazard,
there can be no assurance that researchers will not detect hazardous levels of
emissions from carpet. The discovery of adverse health effects resulting from
carpeting, or the public perception thereof, could have a material adverse
effect on the Company's operations and those of its franchisees.
ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation, as
amended (the "Certificate of Incorporation"), contains provisions requiring
supermajority stockholder approval to effect certain extraordinary corporate
transactions which are not approved by the Board of Directors. These provisions
make it more difficult to effect a merger, sale of control or similar
transaction involving the Company even though a majority of the Company's
stockholders may vote in favor of such a transaction. The Company is also
subject to the provisions of Section 203 of the Delaware General Corporation
Law, which may have the effect of delaying, deferring, or preventing a change in
control of the Company by limiting transactions between the Company and
"interested stockholders" (generally, those stockholders who, together with
their affiliates and associates, own 15% or more of a company's outstanding
capital stock). In addition, the Company's Certificate of Incorporation includes
a number of additional anti-takeover provisions which, among other things,
require a
9
<PAGE> 11
staggered Board of Directors, limit the ability of stockholders to call special
meetings, eliminate stockholder action by unanimous consent, restrict the
ability of the stockholders to amend certain provisions of the Certificate of
Incorporation, permit the Board of Directors to amend the Bylaws without
stockholder consent and authorize the issuance of up to 1,000,000 shares of
preferred stock, issuable in series, the relative rights and preferences of
which may be designated by the Board of Directors. The effect of these
provisions is to make it more difficult to effect a change in control of the
Company through the acquisition of a large block of the Company's Common Stock
and may have the effect of encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with the Company's
Board of Directors rather than pursue non-negotiated takeover attempts.
VOLATILITY OF STOCK PRICE. The market price of the Common Stock could be
subject to significant fluctuations in response to the Company's operating
results and other factors, and there can be no assurance that the market price
of the Common Stock will not decline below the public offering price herein.
Developments in the floorcovering industry or changes in general economic
conditions could adversely affect the market price of the Common Stock. In
addition, the stock market has from time to time experienced extreme price and
volume volatility. These fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded and may adversely
affect the market price of the Common Stock. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have 16,034,852 shares of Common Stock outstanding. Of these
shares, a total of 12,281,498 shares, including the 3,600,000 shares offered
hereby, will be freely tradable without restrictions or further registration
under the Securities Act. All the remaining 3,753,354 shares of Common Stock are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act. In general, under Rule 144 as currently in effect, an
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with Rule 144) who has beneficially owned such restricted
securities for at least two years would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of 1% of the
outstanding shares of Common Stock (approximately 160,349 shares based upon the
number of shares outstanding after this offering) or the reported average weekly
trading volume in the over-the-counter market for the four weeks preceding the
sale. Sales under Rule 144 are also subject to certain manner of sale
restrictions and notice requirements and to the availability of current public
information concerning the Company. Persons who have not been affiliates of the
Company for at least three months and who have held these shares for more than
three years are entitled to sell such restricted securities without regard to
the volume, manner of sale, notice and public information requirements of Rule
144. Of these restricted securities, approximately 3,378,236 shares are
currently eligible for sale in the public market pursuant to Rule 144.
Additional shares of Common Stock, including shares issuable upon exercise of
options, will also become eligible for sale in the public market pursuant to
Rule 144 from time to time. The Company has registered 2,663,355 shares of
Common Stock issuable upon the exercise of stock options which will be available
for sale in the open market upon exercise. As of January 16, 1997, an aggregate
of 2,003,753 shares were subject to presently exercisable stock options. The
Company, its directors and executive officers and each of the Selling
Stockholders who, upon completion of this offering will own in the aggregate
4,059,582 shares, have each agreed that they will not directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock or any
security convertible into, or exercisable or exchangeable for, any shares of
Common Stock or other capital stock of the Company, for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Prudential Securities Incorporated on behalf of the Underwriters except for bona
fide gifts or transfers effected by such stockholder other than on any
securities exchange or in the over-the-counter market to donees or transferees
that agree to be bound by similar agreements and except for issuances by the
Company pursuant to the exercise of certain stock options outstanding upon
completion of this Offering. The Company is unable to predict the effect, if
any, that future sales of shares, or the availability of shares for future sale,
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely effect the market price for the Common Stock and
could impair the Company's future ability to obtain capital through offerings of
equity securities. See "Principal and Selling Stockholders," "Shares Eligible
for Future Sale" and "Underwriting."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,175,773 shares of Common
Stock offered by the Company hereby (the "Offering"), based on an assumed
offering price of $16.875 per share of Common Stock (the last reported sales
price for the Common Stock on the Nasdaq National Market on January 17, 1997)
and after deducting underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $50.0 million
(approximately $58.6 million if the Underwriters' over-allotment option is
exercised in full). The Company will not receive any of the proceeds from the
sale of shares of Common Stock by the Selling Stockholders.
The Company intends to use the net proceeds from the Offering primarily to
repay a portion of the Company's outstanding borrowings under its credit
facilities. As of January 15, 1997, the Company's credit facilities had
outstanding balances totaling approximately $91.1 million at a weighted average
interest rate of 8.25%. Amounts outstanding under the credit facilities mature
at various dates through September 30, 2003. The indebtedness under the credit
facilities was incurred primarily to refinance the existing debt of the Company
and Image as well as to provide the Company with additional working capital.
Upon completion of the Offering and application of the net proceeds therefrom,
the Company intends to renegotiate the terms of the credit facilities.
Pending such use, the net proceeds will be invested in short-term,
investment-grade securities, certificates of deposit, or direct or guaranteed
obligations of the United States government.
PRICE RANGE OF COMMON STOCK
The Common Stock is included in the Nasdaq National Market under the symbol
"MAXM." The following table sets forth the range of the high and low sales
prices of the Common Stock as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1995
First Quarter........................................................ $15 1/2 $ 9 3/4
Second Quarter....................................................... 16 1/2 10 1/2
Third Quarter........................................................ 17 1/8 12 1/8
Fourth Quarter....................................................... 16 11 1/4
FISCAL PERIOD ENDED JANUARY 31, 1996
First Quarter........................................................ $13 1/2 $ 9 1/4
Second Quarter....................................................... 13 3/4 9 3/4
Third Quarter........................................................ 15 1/4 11 3/4
Fourth Quarter(1).................................................... 14 9
FISCAL YEAR ENDING JANUARY 31, 1997
First Quarter........................................................ $12 1/2 $ 9 3/8
Second Quarter....................................................... 15 1/2 11 3/4
Third Quarter........................................................ 17 12
Fourth Quarter (through January 17, 1997)............................ 17 7/8 14
</TABLE>
- ---------------
(1) Includes only the month of January 1996 due to a change in the Company's
fiscal year end from March 31 to January 31.
On January 17, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $16.875 per share.
11
<PAGE> 13
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock.
The Company does not intend to declare or pay any cash dividends for the
foreseeable future, and intends to retain earnings, if any, for the future
operation and expansion of the Company's business. Future cash dividends, if
any, will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the Company's future earnings, operations,
capital requirements and surplus, availability of cash, general financial
condition, contractual restrictions and such other factors as the Board of
Directors may deem relevant. Currently, the Company is restricted in its ability
to declare or pay cash dividends under the terms of its credit facility.
CAPITALIZATION
The following table sets forth the capitalization of the Company at October
31, 1996 and as adjusted to give effect to the sale of the 3,175,773 shares of
Common Stock offered by the Company hereby (at an assumed offering price of
$16.875 per share, the last reported sales price for the Common Stock on January
17, 1997) and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................................ $ 90,447 $ 40,353
Capital lease obligations............................................. 2,211 2,211
Stockholders' equity:
Preferred stock, par value $.001 per share; 1,000,000 shares
authorized; no shares issued and outstanding..................... -- --
Common stock, par value $.001 per share; 25,000,000 shares
authorized; 12,489,180 and 15,724,955 shares issued and
outstanding on an actual and as adjusted basis,
respectively(1).................................................. 12 16
Additional paid-in capital.......................................... 61,131 111,221
Retained earnings................................................... 11,794 11,794
-------- --------
Total stockholders' equity....................................... 72,937 123,031
Total capitalization............................................. $165,595 $ 165,595
======== ========
</TABLE>
- ---------------
(1) Excludes (i) 1,567,040 shares of Common Stock issuable as of October 31,
1996 upon the exercise of outstanding stock options under the Company's
1993 Stock Option Plan, of which 1,071,138 options were presently
exercisable on that date, (ii) 932,615 shares of Common Stock issuable as
of October 31, 1996 upon the exercise of outstanding stock options under
the Company's RSO Plan, all of which were presently exercisable on that
date, and (iii) 432,960 shares reserved for future issuance under the
Company's 1993 Stock Option Plan, as amended.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth certain selected consolidated financial data
of the Company for the periods indicated, which data has been derived from the
consolidated financial statements of the Company. The consolidated financial
statements of the Company as of January 31, 1996 and for the ten month period
ended January 31, 1996 have been audited by Arthur Andersen LLP, independent
public accountants. The consolidated financial statements of the Company as of
March 31, 1995 and for each of the years in the two year period ended March 31,
1995 have been audited by KPMG Peat Marwick LLP, independent auditors. The
selected financial data for the years ended March 31, 1992 and 1993 and for the
nine month periods ended September 30, 1995 and October 31, 1996 are derived
from the unaudited consolidated financial statements of the Company. The
unaudited consolidated financial statements include all adjustments, consisting
of normal recurring accruals, which the Company considers necessary for a fair
presentation of the consolidated financial condition and results of operations
for these periods. Operating results for the nine months ended October 31, 1996
are not necessarily indicative of the results that may be expected for the
entire year ending January 31, 1997. This selected consolidated financial data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included and incorporated by
reference herein. Financial data gives retroactive effect to the merger of the
Company and GCO, Inc. on September 28, 1994 and the merger of the Company and
Image on August 30, 1996, which transactions were accounted for as
poolings-of-interests.
<TABLE>
<CAPTION>
TEN
FISCAL YEAR ENDED MARCH 31, MONTHS
------------------------------------------ ENDED
JANUARY 31, NINE MONTHS ENDED
----------- SEPTEMBER 30, OCTOBER 31,
------------------------
1992 1993 1994 1995 1996(1) 1995(2) 1996(2)
------- ------- -------- -------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE, STORE AND TERRITORY DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues
Sales of floorcovering products.... $74,809 $88,676 $106,237 $174,935 $ 186,568 $ 161,733 $ 185,735
Fees from franchise services....... 2,167 5,113 9,688 13,876 13,432 12,146 19,684
Fiber and PET sales................ 7,193 4,583 5,297 12,886 24,072 15,928 23,458
Other.............................. 388 479 1,369 1,644 3,479 2,208 2,585
------- ------- -------- -------- -------- -------- --------
Total revenues................... 84,557 98,851 122,591 203,341 227,551 192,015 231,462
Cost of sales........................ 63,465 71,570 85,847 139,521 161,723 132,351 166,934
------- ------- -------- -------- -------- -------- --------
Gross profit..................... 21,092 27,281 36,744 63,820 65,828 59,664 64,528
Selling, general, and administrative
expenses........................... 13,185 17,417 23,669 46,870 59,197 47,053 54,104
Replacement stock option charge...... -- -- 10,388(3) -- -- -- --
Goodwill impairment charge........... -- -- -- -- 6,569(4) -- --
Merger-related costs................. -- -- -- 500(5) -- -- 4,700(6)
Interest expense, net................ 4,487 3,824 1,579 1,442 4,280 3,026 4,588
Other expense (income)............... 532 98 263 (421) (78) (417) (426)
------- ------- -------- -------- -------- -------- --------
Earnings (loss) before income taxes
and extraordinary income........... 2,888 5,942 845 15,429 (4,140) 10,002 1,562
Income tax expense................... 306 947 376 5,787 105 3,656 1,514
------- ------- -------- -------- -------- -------- --------
Net earnings (loss) before
extraordinary income............... 2,582 4,995 469 9,642 (4,245) 6,346 48
Extraordinary income................. -- -- 190 -- -- -- --
------- ------- -------- -------- -------- -------- --------
Net earnings (loss).............. $ 2,582 $ 4,995 $ 659 $ 9,642 $ (4,245) $ 6,346 $ 48
======= ======= ======== ======== ======== ======== ========
Net earnings (loss) per common
share(7)........................... $ 0.29 $ 0.56 $ 0.06 $ 0.72 $ (0.32) $ 0.47 $ 0.00
======= ======= ======== ======== ======== ======== ========
Weighted average shares
outstanding(7)..................... 8,963 8,903 11,161 13,301 13,301 13,546 13,791
======= ======= ======== ======== ======== ======== ========
SELECTED OPERATING DATA:
Revenues attributable to:
CARPETMAX operations............... $ 1,325 $ 3,766 $ 10,051 $ 63,933 $ 85,278 $ 73,244 $ 91,245
GCO operations..................... 3,655 5,605 9,283 12,158 14,012 11,381 16,958
Image operations................... 79,577 89,480 103,257 127,250 128,261 107,390 123,259
End of period:
Company-owned stores............... 4 8 8 51 59 64 53
Franchise territories.............. 98 148 233 325 377 364 397
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
MARCH 31, JANUARY 31, OCTOBER 31,
------------------------------------------ ----------- -----------
1992 1993 1994 1995 1996(1) 1996
------- ------- -------- -------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $ 8,495 $12,297 $ 26,489 $ 44,844 $ 61,456 $ 54,551
Total assets........................ 54,074 63,809 95,281 162,473 202,085 210,144
Long-term debt and capital leases... 36,418 29,908 21,083 56,035 92,710 92,658
Stockholders' equity................ 28,378 30,960 50,053 71,424 72,150 72,937
</TABLE>
- ---------------
(1) On January 31, 1996, the Company changed its fiscal year end from March 31
to January 31.
(2) These periods are not entirely comparable as the period ended October 31,
1996 does not include the month of January, which is one of the two weakest
sales months of the year. See "Risk Factors -- Fluctuations in Quarterly
Results, Seasonality and Cyclical Nature of the Floorcovering Industry."
(3) Image granted replacement stock options on August 10, 1993, in replacement
of a like number of unvested stock appreciation units and vested and
unvested stock options. As a result of this exchange, Image recognized a
non-cash, non-recurring charge of $10.4 million in its fiscal year ending
March 31, 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year Ended March 31, 1995 Compared to
Year Ended March 31, 1994 -- Replacement Stock Option Charge" and Note 13 of
"Notes to Consolidated Financial Statements."
(4) Certain of the Company's acquired stores have not performed as anticipated
at the time of purchase. The results from these operations through the end
of fiscal 1996 led management to assess the realizability of the goodwill
recorded in connection with these acquisitions, the result of which
indicated a permanent impairment of goodwill necessitating a write-off
totaling $6.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Ten-Month Period Ended
January 31, 1996 Compared to Year Ended March 31, 1995 -- Goodwill
Impairment" and Note 2 of "Notes to Consolidated Financial Statements."
(5) Represents a non-recurring charge of $500,000 related to the merger with
GCO, Inc.
(6) Represents a non-recurring charge of $4.7 million related to the merger with
Image.
(7) Earnings per share is computed on a fully diluted basis as described in Note
1 to the Consolidated Financial Statements of the Company.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company (including the notes thereto)
contained elsewhere in this Prospectus. In January 1996, the Company changed its
fiscal year end from March 31 to January 31. The following discussion compares
results of operations for the nine months ended October 31, 1996 with the nine
months ended September 30, 1995 and compares the ten month period ended January
31, 1996 with the twelve month period ended March 31, 1995. Thus, comparisons
are not entirely comparable. On August 30, 1996 the Company merged with Image,
which transaction was accounted for as a pooling-of-interests.
GENERAL
From fiscal 1991 through fiscal 1994, the Company's operations consisted of
selling floorcovering products, securing franchise dealers and brokering the
purchase of floorcovering products, principally carpet, from major suppliers on
behalf of its franchisees. During this period, the Company derived the majority
of its revenues and operating profits from sales of floorcovering products,
franchise fees and royalties, as well as fees from the provision of various
services to the franchisees. In May 1994, the Company commenced a strategy of
acquiring independent floorcovering retailers, with the goal of building a
network of Company-owned stores in addition to its franchise network. This
acquisition program included selected CARPETMAX franchisees, other independent
dealers and GCO (accounted for as a pooling-of-interests). Acquisitions
accounted for under the purchase method of accounting resulted in the Company
originally recording goodwill of $16.2 million, which was adjusted for the
goodwill impairment charge of $6.6 million recorded in fiscal 1996. See " --
Results of Operations."
In April 1995, the Company commenced opening additional Company-owned
stores to expand its market share. Furthermore, in June 1995 the Company opened
its new distribution center and headquarters facility. Accordingly, the
Company's results of operations for the ten months ended January 31, 1996 and
for the nine months ended October 31, 1996 reflect the costs and expenses
associated with the new store openings and the new distribution center and
headquarters.
On December 12, 1995, the Company announced the execution of a letter of
intent for the merger of the Company into Shaw. On January 12, 1996, the Company
terminated its negotiations with Shaw resulting in non-recurring merger
transaction costs and material interruptions to advertising, brokerage and
franchise revenue in fiscal 1996.
As of January 1, 1997, the Company's retail network consisted of 50
Company-owned CARPETMAX stores, including one Gallery Store, seven Company-owned
GCO stores and 399 franchise dealers operating approximately 465 CARPETMAX
stores and 99 GCO stores.
15
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations
expressed as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, JANUARY 31, SEPTEMBER 30, OCTOBER 31,
------------------------------ ------------- -----------------------------
1994 1995 1996(1) 1995(2) 1996(2)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues
Sales of floorcovering products......... 86.7% 86.0% 82.0% 84.2% 80.2%
Fees from franchise services............ 7.8 6.7 5.9 6.3 8.5
Fiber and PET sales..................... 4.3 6.3 10.6 8.3 10.1
Other................................... 1.2 1.0 1.5 1.2 1.2
------ ------ ------ ------ ------
Total revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
Cost of sales............................. 70.0% 68.6% 71.1% 68.9% 72.1%
------ ------ ------ ------ ------
Gross profit............................ 30.0 31.4 28.9 31.1 27.9
Selling, general, and administrative
expenses................................ 19.3 23.1 26.0 24.5 23.4
Replacement stock option charge........... 8.5(3) -- -- -- --
Goodwill impairment charge................ -- -- 2.9(4) -- --
Merger-related costs...................... -- 0.2(5) -- -- 2.0(6)
Interest expense, net..................... 1.3 0.7 1.9 1.6 2.0
Other expense (income).................... 0.2 (0.2) (0.1) (0.2) (0.2)
------ ------ ------ ------ ------
Earnings (loss) before income taxes and
extraordinary income.................... 0.7 7.6 (1.8) 5.2 0.7
Income tax expense........................ 0.3 2.9 0.1 1.9 0.7
------ ------ ------ ------ ------
Net earnings (loss) before extraordinary
income.................................. 0.4 4.7 (1.9) 3.3 --
Extraordinary income...................... 0.1 -- -- -- --
------ ------ ------ ------ ------
Net earnings (loss)................... 0.5% 4.7% (1.9)% 3.3% --%
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) On January 31, 1996, the Company changed its fiscal year end from March 31
to January 31.
(2) These periods are not entirely comparable as the period ended October 31,
1996 does not include the month of January, which is one of the two weakest
sales months of the year. See "Risk Factors -- Fluctuations in Quarterly
Results, Seasonality and Cyclical Nature of the Floorcovering Industry."
(3) Image granted replacement stock options on August 10, 1993, in replacement
of a like number of unvested stock appreciation units and vested and
unvested stock options. As a result of this exchange, Image recognized a
non-cash, non-recurring charge of $10.4 million in its fiscal year ending
March 31, 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year Ended March 31, 1995 compared to
Year Ended March 31, 1994 -- Replacement Stock Option Charge" and Note 13 of
"Notes to Consolidated Financial Statements."
(4) Certain of the Company's acquired stores have not performed as anticipated
at the time of purchase. The results from these operations through the end
of fiscal 1996 led management to assess the realizability of the goodwill
recorded for these acquisitions, the result of which indicated a permanent
impairment of goodwill necessitating a write-off totaling $6.6 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Ten-Month Period Ended January 31, 1996 Compared to Year Ended
March 31, 1995 -- Goodwill Impairment" and Note 2 of "Notes to Consolidated
Financial Statements."
(5) Represents a non-recurring charge of $500,000 related to the merger with
GCO, Inc.
(6) Represents a non-recurring charge of $4.7 million related to the merger with
Image.
NINE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Total Revenues. Total revenues increased 20.6% to $231.5 million for the
nine months ended October 31, 1996 from $192.0 million for the nine months ended
September 30, 1995. The components of total revenues are discussed below.
Sales of Floorcovering Products. Sales of floorcovering products
increased 14.8% to $185.7 million for the nine months ended October 31,
1996 from $161.7 million for the nine months ended September 30, 1995.
Sales of floorcovering products in Company-owned stores increased 24.3% to
$84.3 million for the nine months ended October 31, 1996 from $67.8 million
for the nine months ended September 30, 1995. The growth in retail sales of
floorcovering products was primarily due to the impact
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of the acquisitions of floorcovering retailers and, to a lesser extent, to
internal growth. The results of these acquired retailers are not fully
reflected in the prior year periods as such acquisitions were made at
various times during the year. Sales of manufactured carpet increased 8.9%
to $98.8 million for the nine months ended October 31, 1996 from $90.7
million for the nine months ended September 30, 1995. Unit sales of
manufactured carpet increased 7.2% to 16.4 million square yards for the
nine months ended October 31, 1996 from 15.3 million square yards for the
nine months ended September 30, 1995. Also contributing to the overall
increase in total sales was a 1.7% increase in the average unit selling
price of manufactured carpet. The Company opened a new distribution
facility in Kennesaw, Georgia in June of 1995. Sales from the distribution
center amounted to $2.7 million for the nine months ended October 31, 1996
and $3.3 million for the nine months ended September 31, 1995, largely
representing sales to the Company's franchisees.
Fees from Franchise Services. Fees from franchise services, which
include franchise license fees and royalties, brokering of floorcovering
products, and advertising, increased 62.8% to $19.7 million for the nine
months ended October 31, 1996 from $12.1 million for the nine months ended
September 30, 1995. This increase was attributable to increases in
brokering activity generated from new CARPETMAX and GCO franchisees, growth
in demand for franchise services from existing CARPETMAX and GCO
franchisees, greater utilization of advertising and other services offered
to franchisees and an expansion of advertising services offered by the
Company.
Fiber and PET Sales. Sales of fiber and PET increased 47.8% to $23.5
million for the nine months ended October 31, 1996 from $15.9 million for
the nine months ended September 30, 1995. Unit sales increased 57.1% to
44.3 million pounds for the nine months ended October 31, 1996 from 28.2
million pounds for the nine months ended September 30, 1995 as a result of
increased fiber production capacity from the addition of a second polyester
fiber extruder. The unit sales increase was partially offset by a 6.0%
decline in the average selling price per pound of fiber and PET sales for
the nine months ended October 31, 1996 compared to the nine months ended
September 30, 1995.
Gross Profit. Gross profit increased 8.0% to $64.5 million for the nine
months ended October 31, 1996 from $59.7 million for the nine months ended
September 30, 1995. As a percentage of sales, gross profit was 27.9% for the
nine months ended October 31, 1996 compared to 31.1% for the nine months ended
September 30, 1995. The decrease in gross profit as a percentage of sales is
primarily a result of the recognition of higher raw material costs associated
with manufacturing operations. Also contributing to the decrease in gross profit
as a percentage of sales was the continuing change in the retail business mix of
the Company to a revenue base consisting principally of the net sales of
floorcovering products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 14.9% to $54.1 million for the nine months
ended October 31, 1996 from $47.1 million for the nine months ended September
30, 1995. As a percentage of revenues, selling, general and administrative
expenses decreased to 23.4% for the nine months ended October 31, 1996 from
24.5% for the nine months ended September 30, 1995 as a result of spreading
fixed costs over a larger revenue base. Additionally, the Company reduced
certain note receivable reserves totaling $350,000 which favorably affected net
earnings by approximately $210,000.
Merger-Related Costs. The Company recorded merger-related costs of $4.7
million for the nine months ended October 31, 1996 relating to the merger with
Image. The charge includes both transaction costs, as well as severance costs
and the elimination of redundant systems.
Interest Expense, net. Interest expense increased 53.3% to $4.6 million
for the nine months ended October 31, 1996 from $3.0 million for the nine months
ended September 30, 1995 due principally to financing associated with capital
expenditures in the manufacturing operations and increased working capital
requirements.
Income Tax Expense. The Company recorded income tax expense of $1.5
million for the nine months ended October 31, 1996 compared to $3.7 million for
the nine months ended September 30, 1995. Income tax
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expense for the nine months ended October 31, 1996 reflects the impact of
non-deductible expenses associated with the merger with Image. The effective tax
rate for the nine months ended September 30, 1995 was 36.6%.
Net Earnings. As a result of the foregoing factors, the Company recorded
net earnings of $48,000 for the nine months ended October 31, 1996 compared to
net earnings of $6.3 million for the nine months ended September 30, 1995.
TEN-MONTH PERIOD ENDED JANUARY 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
Total Revenues. Total revenues increased 12.0% to $227.6 million for
fiscal 1996 from $203.3 million for fiscal 1995. The components of total
revenues are discussed below.
Sales of Floorcovering Products. Sales of floorcovering products
increased 6.7% to $186.6 million for fiscal 1996 from $174.9 million for
fiscal 1995. Sales of floorcovering products in Company-owned stores
increased 41.0% to $80.8 million for fiscal 1996 from $57.3 million for
fiscal 1995. The growth in retail revenues for fiscal 1996 largely
reflected increases in direct sales resulting from acquired retailers in
the prior fiscal year which were only included in the Company's sales for
part of fiscal 1995. Sales of manufactured carpet decreased 10.4% to $102.0
million for fiscal 1996 from $113.8 million from fiscal 1995. Units sales
decreased 15.8% to 17.0 million square yards for fiscal 1996 from 20.2
million square yards for fiscal 1995. Expressed on a per week basis (total
sales divided by number of weeks in the fiscal year), sales of manufactured
carpet represented an increase of 5.9% resulting from an increase in
average unit selling price for domestic markets. Expressed on a per week
basis (total units divided by number of weeks in the fiscal year), unit
sales decreased 0.7%. Therefore, the increase in sales was attributable
solely to increased average unit selling prices. Sales from the
distribution center amounted to $3.8 million during each of fiscal 1996 and
fiscal 1995, largely representing sales to the Company's franchisees.
Fees from Franchise Services. Fees from franchise services decreased
3.6% to $13.4 million for fiscal 1996 from $13.9 million for fiscal 1995.
The overall decrease resulted from fewer CARPETMAX franchises granted in
fiscal 1996.
Fiber and PET Sales. Sales of fiber and PET increased 86.8% to $24.1
million for fiscal 1996 from $12.9 million for fiscal 1995. Unit sales
increased 25.6% to 38.3 million pounds for fiscal 1996 from 30.5 million
pounds for fiscal 1995 as a result of increased fiber production capacity
from the addition of a second polyester fiber extruder. The remainder of
the total increase was due to increased average unit selling prices.
Gross Profit. Gross profit increased 3.1% to $65.8 million for fiscal 1996
from $63.8 million for fiscal 1995. As a percentage of sales, gross profit was
28.9% in fiscal 1996 compared to 31.4% for fiscal 1995. Gross profit as a
percentage of sales for manufacturing decreased to 19.8% for fiscal 1996 from
24.2% in fiscal 1995 as a result of increased costs of PET raw materials, which
were only partially offset by increased selling prices of fiber, PET and
polyester carpet.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 26.2% to $59.2 million for fiscal 1996 from
$46.9 million for fiscal 1995. As a percentage of revenues, selling, general and
administrative expenses increased to 26.0% for fiscal 1996 from 23.1% for fiscal
1995. This increase was largely due to the Company's recording additional
reserves on accounts receivables, costs associated with the closing of certain
under-performing stores as well as additional inventory reserves recorded in
order to reflect lower inventory market prices, and costs associated with the
proposed merger with Shaw. In addition, the Company incurred additional expenses
resulting from the move to the Kennesaw facility as well as additional expenses
associated with the opening of new stores and significant growth in personnel.
Goodwill Impairment. Certain of the Company's acquired stores have not
performed as anticipated at the time of purchase. The results from these
operations through the end of fiscal 1996 led management to a re-evaluation of
operations that indicated significant strategic and operational changes would be
necessary at certain stores, including changes in the customer mix, changes of
location, and changes in store design and merchandising. These factors caused
management to assess the realizability of the goodwill recorded for these
acquisitions, the result of which indicated a permanent impairment of goodwill
resulting in the Company recording a goodwill impairment charge of $6.6 million.
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Merger-related Costs. The Company recorded merger-related costs of
$500,000 for fiscal 1995, relating to transaction costs associated with the
merger with GCO, Inc.
Interest Expense, net. Interest expense increased 207.1% to $4.3 million
for fiscal 1996 from $1.4 million for fiscal 1995 due principally to increased
borrowings related to the acquisition and operation of Company-owned stores and
Pharr Yarns of Georgia, Inc., the funding of operating losses in certain
Company-owned stores, increased borrowings resulting from the move to the new
facility in Kennesaw, Georgia, as well as additions of fixed assets and
leasehold improvements associated with new stores and plant facilities.
Income Tax Expense. The Company recorded income tax expense of $105,000
for fiscal 1996 compared to $5.8 million for fiscal 1995. Income tax expense for
fiscal 1996 reflects the impact of certain non-deductible goodwill. The
Company's effective tax rate for fiscal 1995 was 37.5%.
Net (Loss) Earnings. As a result of the foregoing factors, the Company
recorded a net loss of $4.2 million for fiscal 1996 compared to net earnings of
$9.6 million for fiscal 1995.
YEAR ENDED MARCH 31, 1995 COMPARED TO YEAR ENDED MARCH 31, 1994
Total Revenues. Total revenues increased 65.8% to $203.3 million in fiscal
1995 from $122.6 million in fiscal 1994. The components of total revenues are
discussed below.
Sales of Floorcovering Products. Sales of floorcovering products
increased 64.7% to $174.9 million for fiscal 1995 from $106.2 million for
fiscal 1994. Sales of floorcovering products in Company-owned stores
increased 664.0% to $57.3 million for fiscal 1995 from $7.5 million for
fiscal 1994. The growth in retail sales of floorcovering products was
primarily due to direct sales from retailers acquired in the prior fiscal
year which were only included in the Company's sales for a portion of
fiscal 1994. Sales of manufactured carpet increased 16.5% to $113.8 million
for fiscal 1995 from $97.7 million for fiscal 1994. Unit sales of
manufactured carpet increased 13.5% to 20.2 million square yards for fiscal
1995 from 17.8 million square yards for fiscal 1994. Also contributing to
the overall increase in total sales of manufactured carpet was a 2.4%
increase in the average unit selling price of manufactured carpet. Sales
from the distribution center amounted to $3.8 million for fiscal 1995 and
$967,000 for fiscal 1994, largely representing sales to the Company's
franchises.
Fees from Franchise Services. Fees from franchise services increased
43.3% to $13.9 million for fiscal 1995 from $9.7 million for fiscal 1994.
This increase was attributable to increases in brokering activity generated
from new CARPETMAX franchisees, growth in demand for franchise services
from existing CARPETMAX and GCO franchisees, greater utilization of
advertising and other services offered to franchisees and an expansion of
advertising services offered by the Company.
Fiber and PET Sales. Sales of fiber and PET increased 143.4% to $12.9
million for fiscal 1995 from $5.3 million for fiscal 1994. Unit sales
increased 100.7% to 30.5 million pounds for fiscal 1995 from 15.2 million
pounds for fiscal 1994 resulting from increased fiber production capacity
from the addition of a second fiber extruder. Also contributing to the
overall increase in total sales was a 20% increase in average unit selling
price for fiscal 1995 compared to fiscal 1994.
Gross Profit. Gross profit increased 73.8% to $63.8 million for fiscal
1995 from $36.7 million for fiscal 1994. As a percentage of revenues, gross
profit was 31.4% for fiscal 1995 compared to 30.0% for fiscal 1994. This
increase was primarily the result of increased efficiencies in the manufacturing
operations partially offset by a decline in gross profit as a percentage of
revenues from retail operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 97.9% to $46.9 million for fiscal 1995 from
$23.7 million for fiscal 1994. As a percentage of revenues, selling, general and
administrative expenses increased to 23.1% for fiscal 1995 from 19.3% for fiscal
1994 as a result of the Company's greater emphasis in fiscal 1995 on operating
Company-owned rather than franchise retail stores and the corresponding
additional costs associated with operating additional retail stores in fiscal
1995.
Replacement Stock Option Charge. In fiscal 1994, Image adopted a Plan and
Agreement of Conversion in which all previously outstanding vested and unvested
stock options and unvested stock appreciation units were canceled and a like
number of fully vested replacement stock options were issued. These options have
an
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<PAGE> 21
exercise price of $.01 per share and expire March 30, 2006. In connection with
the grant of the replacement stock options, Image recognized a non-cash,
non-recurring charge of $10.4 million.
Income Tax Expense. The Company recorded income tax expense of $5.8
million for fiscal 1995 compared to $376,000 for fiscal 1994. The Company's
effective tax rate decreased to 37.5% for fiscal 1995 from 44.4% for fiscal 1994
due to the reduction in non-deductible expenses for tax purposes. In addition,
the Company recognized a $3.9 million deferred tax benefit in fiscal 1994 in
connection with the replacement stock option charge.
Net Earnings. As a result of the foregoing factors, the Company recorded
net earnings of $9.6 million for fiscal 1995 compared to $659,000 for fiscal
1994.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's primary capital requirements are for new store
openings, investments in the manufacturing operations, working capital and
acquisitions. The Company historically has met its capital requirements through
a combination of cash flow from operations, equity transactions, bank lines of
credit and credit terms from suppliers.
Credit Facilities. In connection with the Image merger, the Company
established three credit facilities aggregating $125 million, (the "Credit
Facility"). The Credit Facility consists of (i) a $65 million revolving facility
of which $6.6 million was available for borrowings on January 15, 1997, and
which matures in August 1999, (ii) a $30 million term facility that matures in
December 2001, and (iii) a $30 million term facility that matures in September
2003. As of January 15, 1997, the Company had fully borrowed amounts available
under both term facilities. Amounts outstanding under the Credit Facility bear
interest at a variable rate based on LIBOR or the prime rate, at the Company's
option. As of January 15, 1997, the weighted average interest rate on amounts
outstanding under the Credit Facility was 8.25%. The Credit Facility contains
customary covenants. As of January 15, 1997, the Company was in compliance with
all covenants under the Credit Facility. The Company intends to renegotiate the
Credit Facility upon completion of the Offering.
As of January 15, 1997, the Company also has approximately $1.0 million of
debt outstanding under various term loans at interest rates ranging from 5.9% to
10.5%.
Cash Flows. During the nine months ended October 31, 1996, operating
activities provided $13.1 million compared to a use of $13.2 million for the
nine months ended September 30, 1995. The increase in cash provided by operating
activities resulted primarily from a decrease in inventories, which was
principally attributable to substantially reduced raw material unit costs and
reduced raw material quantities and an increase in depreciation and
amortization. The decrease in inventory was also partially due to higher sales
of floorcovering products to franchisees and other carpet retailers.
During the nine months ended October 31, 1996, investing activities used
$12.4 million compared to $32.7 million for the nine months ended September 30,
1995. The decrease is primarily due to a decrease in acquisitions during fiscal
1997, the completion of Image's second polyester fiber extruder in fiscal 1995
and the completion of a new main office/distribution facility in fiscal 1996.
During the nine months ended October 31, 1996, financing activities
provided cash of $273,000 compared to cash provided of $43.0 million in the
prior year period. This decrease is primarily due to decreased borrowings during
the fiscal 1997 period, in connection with reduced uses for investing activities
and improved cash flows from operations.
Capital Expenditures. The Company anticipates that it will require
approximately $40.0 million in fiscal 1998 to open new Gallery Stores,
reconfigure existing CARPETMAX stores, expand its manufacturing capacity and
upgrade its management information systems. The Company expects to open
approximately 30 new Gallery Stores in fiscal 1998. The Company estimates that
capital expenditures to open a new Gallery Store will average approximately
$100,000 net of landlord allowances and supplier participations. Pre-opening
expenses will be approximately $50,000 per store. The actual costs that the
Company will incur in opening a new Gallery Store cannot be predicted with
precision because the Company has opened only one Gallery Store and opening
costs will vary based upon geographic location, the size of the store, the
amount of supplier contributions and the extent of the build-out required at the
selected site.
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BUSINESS
GENERAL
The Company operates and franchises one of the largest retail floorcovering
networks in North America through two retail floorcovering concepts: CARPETMAX,
which operates full-service floorcovering stores, and GCO, which operates
cash-and-carry discount floorcovering stores. As of January 1, 1997, the
Company's retail network consisted of 50 Company-owned CARPETMAX stores,
including one Gallery Store, seven Company-owned GCO stores, and 399 franchise
dealers operating approximately 465 CARPETMAX stores and 99 GCO stores. In
addition, the Company has recently begun to expand its floorcovering
distribution network to target large commercial projects for institutional
customers such as hospitals, hotels, governments, the military and schools (the
"specified contract" market) and smaller commercial and residential construction
and renovation projects managed by a general contractor (the "builder" market).
The Company's retail floorcovering revenues increased 22.4% to $87.0 million for
the nine months ended October 31, 1996 from $71.1 million for the nine months
ended September 30, 1995 and total revenues, including manufacturing revenues,
increased 20.6% to $231.5 million for the nine months ended October 31, 1996
from $192.0 million for the nine months ended September 30, 1995.
In 1991, the Company commenced franchising the CARPETMAX brand name and
concept and, through fiscal 1994, had established 187 franchisees in 233
territories. In fiscal 1995, the Company began to establish its Company-owned
stores by acquiring existing CARPETMAX franchisees and additional independent
floorcovering retailers. In September 1994, the Company acquired GCO, Inc., a
franchisor and operator of cash-and-carry discount floorcovering stores with 11
owned and 56 franchised stores.
In April 1995, the Company began opening Company-owned CARPETMAX stores
utilizing a consistent format to expand its floorcovering retail market share
and leverage its specialty retailing strategies and resources. The initial
prototype CARPETMAX store is typically in a "Class A" retail location and ranges
in size from 6,500 to 7,000 square feet of retail selling space. Each store
carries a broad range of floorcovering selections featuring every major
floorcovering category in separate in-store galleries. With the exception of
area rugs, the Company merchandises its hard surface and carpet lines using
product sample displays rather than in-stock inventories in order to minimize
store investment and inventory risks. These CARPETMAX stores leverage the
Company's strong supplier relationships, state-of-the-art advertising and
promotion production and media placement capabilities, advanced store personnel
training systems and programs and proprietary consumer credit program, thereby
maximizing store productivity and profitability. The Company opened 12 initial
prototype CARPETMAX stores from April 1995 through June 1996.
In May 1996, the Company began expanding its retail management team and
initiated certain refinements to its CARPETMAX store concept. In November 1996,
the Company opened its first Gallery Store. The Gallery Store prototype has
6,500 square feet of retail selling space in a "Class A" retail location. The
Company believes the Gallery Store has one of the most extensive product
offerings in the industry, featuring approximately 8,000 SKUs of carpet, area
rugs, hardwood flooring, vinyl flooring, ceramic tile, laminates, stone and
resilient surfaces produced by the leading floorcovering manufacturers
worldwide. The Gallery Stores are designed to create a more comfortable,
enjoyable and productive shopping experience supported by a well-trained
professional staff. Each floorcovering category is featured in a separate
in-store gallery as well as in coordinated multi-category displays throughout
the store. The Company has introduced the Gallery Store prototype in conjunction
with a coordinated national advertising program to establish CARPETMAX as the
"first-in-mind" floorcovering brand with the consumer. The Company plans to open
70 Gallery Stores during fiscal 1998 and 1999 in existing, contiguous and
targeted new markets as well as convert certain of its 12 initial prototype
CARPETMAX stores to Gallery Stores.
To enhance its ability to offer high-quality and high-margin products and
services, in August 1996, the Company merged with Image, a leading producer of
polyester broadloom carpet. The Company believes that Image's product line will
provide the Company's retail and commercial customers with a greater selection
of high-quality carpet at a lower cost than would otherwise be available. Due to
the niche nature of polyester carpet manufacturing, the Image merger has not
adversely impacted the Company's relationships with its
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other carpet suppliers. In addition, the Company intends to develop and offer
proprietary floorcovering maintenance and cleaning services throughout its
retail network.
INDUSTRY OVERVIEW
The floorcovering market is divided into three distinct segments:
residential replacement (including full-service and cash-and-carry), specified
contract and builder. Management believes that the residential replacement
segment comprises approximately 50% of the total North American floorcovering
market with the specified contract and builder segments making up the remainder
of the floorcovering market. Management estimates total retail floorcovering
sales approximated $20 billion in 1995.
The domestic retail floorcovering industry is highly fragmented with
independent retail floorcovering dealers operating over 14,000 locations. Other
floorcovering vendors such as home centers, furniture stores, department stores
and mass merchants operate over 23,000 locations nationwide. The Company
believes that the industry is characterized by a large number of small local and
regional companies, none of which has a national brand name, and a small number
of national chains. The typical independent floorcovering retailer operates one
store with limited product selection and service. As a result, the Company
believes that most independent floorcovering retailers face distinct competitive
disadvantages and challenges, including limited purchasing power for products
and services, lack of product breadth and knowledge, and ineffective asset
management, merchandising, selling and store-management techniques. The Company
plans to capitalize on these competitive disadvantages through its buying power
and professional retailing operations. The Company believes that the
manufacturing component of the floorcovering industry has substantially
consolidated and that the retail component is in its initial stages of
consolidation. In addition, Shaw, the largest domestic carpet manufacturer, has
entered the retail floorcovering market principally through the acquisition of
several independent floorcovering dealers.
BUSINESS STRATEGY
The Company's objective is to establish the largest and most profitable
residential and commercial floorcovering distribution network in North America.
The Company has built an integrated floorcovering distribution network,
consisting of both Company-owned and franchised retail stores, supported by the
Company's extensive specialty retailing capabilities in product sourcing, store
development, marketing and advertising, credit and personnel training.
The cornerstone of the Company's strategy is focused on CARPETMAX, a
full-service floorcovering retail concept that is designed to address the
competitive disadvantages of traditional floorcovering stores. After opening 12
initial prototype CARPETMAX stores through June 1996, the Company refined its
CARPETMAX retailing concept and opened the first Gallery Store in November 1996.
The principal elements of the CARPETMAX strategy include:
Offer Broad Selection of Products and Services. CARPETMAX is a one-stop,
full-service floorcovering store for customers seeking a broad selection of
carpet and other floorcovering products. Each store offers approximately 8,000
SKUs of floorcovering products, including carpets, area rugs, hardwood flooring,
ceramic tile, vinyl flooring, laminates, and stone and resilient surfaces from
leading floorcovering manufacturers worldwide. CARPETMAX stores, in particular
the Gallery Store format, carry a much broader selection of floorcovering
products and offer a more comprehensive range of related services than those
featured at traditional floorcovering dealers.
Locate Stores in Prime Retail Locations. The Company's strategy is to
locate its new CARPETMAX stores in "Class A" retail locations, preferably as
freestanding stores in locations with high consumer visibility. The Company
intends to open multiple stores within a market to achieve management, operating
and advertising efficiencies and to create barriers to competitive entry or
expansion.
Provide Customer Friendly Environment and Superior Service. The Company
believes that a customer friendly shopping environment and high level of
customer service are important competitive advantages. The size and format of
the CARPETMAX prototype emphasize customer intimacy and are designed to create a
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more comfortable, enjoyable and productive shopping experience supported by a
well-trained professional staff. In addition, the Company offers customers added
conveniences including a proprietary credit program, interior design consulting,
delivery and installation services and a 100% satisfaction guarantee.
Build Leading National Brand. The Company intends to establish CARPETMAX
as the "first-in-mind" floorcovering brand by (i) increasing its offering of
proprietary, CARPETMAX branded products, (ii) utilizing both local and national
advertising campaigns reinforcing the CARPETMAX name, and (iii) opening
consistent CARPETMAX stores in highly visible locations.
Leverage Product Sourcing Capabilities. As a leading purchaser of
floorcoverings, the Company is able to obtain advantageous pricing, delivery
terms and merchandising programs. The Company has established close
relationships with its major suppliers across all floorcovering categories. By
capitalizing on these suppliers' production and delivery capabilities, the
Company is able to offer what it believes is one of the largest selections of
high-quality floorcovering products, generally on a private-label and
just-in-time basis, which minimizes inventory risk and maximizes retail
profitability. Furthermore, the Company merged with Image to ensure and enhance
its ability to provide a reliable, low-cost proprietary source of carpet to
support its expanding retail network.
Leverage Retailing Resources and Capabilities. In addition to its product
sourcing capabilities, the Company has invested in extensive retailing resources
to support the growth and operation of its floorcovering distribution network.
Specific resources include (i) highly-experienced retailing management, (ii)
in-house media studios to produce advertising and promotion programs and
point-of-sale merchandising materials, (iii) a media placement staff servicing
all major markets, (iv) a satellite communication system for store-level
training and product promotions, (v) proprietary training programs to develop
store personnel, and (vi) a proprietary consumer credit program. The Company
will continue to leverage these resources to support the opening of new
CARPETMAX stores and the expansion of its other distribution channels.
GROWTH STRATEGY
While the Company intends to use the CARPETMAX concept, in particular the
Gallery Store prototype, as its primary growth vehicle, the Company will
continue to expand its floorcovering distribution network to more fully utilize
its distribution and retailing resources and capabilities. Specifically, the
Company intends to grant additional GCO franchises to further penetrate the
cash-and-carry market and to expand its presence in the specified contract and
builder markets through both internal growth and acquisitions. The principal
elements of the Company's growth strategy include:
Roll Out New Gallery Stores. The Company intends to open 70 Gallery Stores
in existing, contiguous and targeted new markets during fiscal 1998 and 1999.
The Company intends to target areas with significant new residential building
activity or older, more established communities where remodeling is likely to
occur. The Company plans to open multiple stores within each market to achieve
management, operating and advertising efficiencies and to create barriers to
competitive entry or expansion.
Expand the GCO Franchise Network. GCO stores principally target the
cash-and-carry residential replacement and builder segments. The Company intends
to continue to franchise GCO stores as opposed to opening Company-owned GCO
stores because of capital investment requirements. Currently, the Company has
GCO franchise dealers operating 99 stores in approximately 55 of the 259 areas
of dominant influence ("ADI") in the United States. As a result, the Company
believes there exists opportunities to open GCO stores in contiguous and
targeted new markets and expects to grant approximately 25 new GCO franchises in
fiscal 1998.
Expand Product Offerings and Services for Each Distribution Format. The
Company believes that by offering new products and services to its customers,
such as consumer credit programs, installation and post-sale maintenance
products and services, the Company will increase retail productivity through
more frequent and larger customer transactions. The Company has developed its
"Wall-to-Wall" credit program to provide attractive financing arrangements for
customers.
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Expand Specified Contract and Builder Distribution Capabilities. The
Company has expanded its presence in the specified contract and builder markets
through recent acquisitions. The Company intends to build market share in these
segments primarily by leveraging its existing distribution network and
established floorcovering distribution and retail resources to target these
segments. Management believes that the Company's existing infrastructure and
proprietary, low-cost carpet products will support the growth of the Company's
complementary specified contract and builder businesses.
Strategic Acquisitions. The Company intends to selectively pursue the
acquisition of floorcovering dealers in markets which offer the potential for
the Company to build substantial market share and provide a platform for new
store openings. The Company's acquisition prospects include both independent
retailers and existing CARPETMAX franchisees. The Company will also selectively
pursue the acquisition of complementary businesses and services.
RETAIL OPERATIONS
CARPETMAX Stores. CARPETMAX stores currently operate under a variety of
formats. All CARPETMAX stores carry a broad variety of CARPETMAX private-label
floorcoverings from leading manufacturers, including high-quality polyester
carpets manufactured by Image. In May 1994, the Company commenced a store
acquisition strategy and as of January 1, 1997, the Company had acquired 13
full-service floorcovering operations currently representing 36 stores operating
under the CARPETMAX brand name in 11 markets (the "Acquired CARPETMAX Stores").
In April 1995, the Company began opening Company-owned CARPETMAX stores and as
of January 1, 1997, the Company had opened 12 initial prototype CARPETMAX
stores.
CARPETMAX Flooring Idea Gallery Stores. In November 1996, the Company
opened its first Gallery Store, offering an extensive merchandise mix, including
carpet, area rugs, hardwood flooring, ceramic tile, vinyl flooring, laminates
and stone and resilient surfaces, and a wide range of services, including
interior design consulting, measuring, delivery, installation and satisfaction
guarantees. The Company intends to use the Gallery Store as its primary growth
vehicle and plans to open 70 Gallery Stores during fiscal 1998 and 1999 in
existing, contiguous and targeted new markets as well as convert certain of its
12 initial prototype CARPETMAX stores into Gallery Stores.
Store Format. The Gallery Store provides customers with a "one-stop"
shopping experience for all of their floorcovering needs, catering
primarily to consumers seeking a wide selection of high-quality products.
The typical Gallery Store will be free-standing with 6,500 square feet of
retail selling space located in a prime retail location. Gallery Stores
feature a race-track design and are outfitted with innovative merchandising
fixtures and displays, attractive in-store signage, a child-play area, and
customer conference and work areas. Gallery Stores are designed to create a
more comfortable, enjoyable and productive shopping experience supported by
a well-trained professional staff. Each Gallery Store displays
approximately 8,000 SKUs of floorcovering products, with departmentalized
product displays dedicated to particular floorcovering products as well as
cross-merchandise displays exhibiting a combination of floorcovering
products. With a greater emphasis on hard surface floorcovering products
than its initial prototype CARPETMAX store, the Company believes that the
Gallery Store will meet increasing consumer demand for alternatives to
traditional carpet products.
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<PAGE> 26
A schematic drawing of the Company's Gallery Store prototype is
illustrated below.
[Schematic diagram depicting the interior design and store layout of the
Company's Gallery Store.]
Site Selection and Targeted Markets. In locating new store sites, the
Company relies on its in-house store development department to identify
markets and store sites with high sales potential. In evaluating potential
markets, the Company considers the target market's economy, demographics,
growth potential and customer base as well as potential competition. The
Company also targets areas with significant new residential building
activity or older, more established communities where remodeling is likely
to occur. In addition to performing internal market analyses, the Company
has used a nationally recognized market research group to validate internal
forecasts and to conduct additional market studies based on specific
criteria established by the store development department. Within each
market, the Company seeks to locate stores in prime retail locations with
high consumer visibility. The Company intends to open multiple stores
within each market to achieve management, operating and advertising
efficiencies and to create barriers to competitive entry or expansion.
The Company also intends to offer certain of its existing CARPETMAX
franchisees the opportunity to upgrade their existing CARPETMAX stores to
Gallery Stores. See "-- Franchise Store Operations -- CARPETMAX Franchise
Network."
Conversion of Company-Owned Stores. The Company intends to convert
certain of its 12 Company-opened initial prototype CARPETMAX stores into
Gallery Stores. Also, where economically feasible, the Company intends to
initiate a store remodeling program to upgrade certain of the remaining 36
Acquired CARPETMAX Stores to be consistent with the Gallery Store format.
Where it is not economically feasible, the Company will utilize such stores
as service centers to expand its builder business. The Company may also
convert such stores, on a limited basis, into a factory direct cash-and-
carry format.
Georgia Carpet Outlet Stores. GCO operates and franchises discount
floorcovering stores under the name "GCO Carpet Outlets" catering to the
cash-and-carry floorcovering market. As of January 1, 1997, GCO operated seven
Company-owned GCO stores and had 99 franchise stores. GCO stores have a
consistent format with approximately 10,000 square feet of retail selling space.
Unlike CARPETMAX or Gallery Stores, a GCO store maintains all of its products in
inventory. Replacement inventory is provided through the
25
<PAGE> 27
Company's distribution center in Kennesaw, Georgia. GCO stores derive more than
75% of their revenues from the sale of carpet, with the balance consisting of
pad, hardwood and vinyl flooring sales. GCO caters primarily to consumers with a
higher degree of price sensitivity who do not require the higher levels of
customer service and broad selection of products provided by CARPETMAX stores.
Customers typically include "do-it-yourself" homeowners, home builders, rental
property owners and property managers. In contrast to the full service
operations of the CARPETMAX stores, GCO does not offer delivery or installation
services. Instead, customers requiring these services, principally installation,
are provided a list of recommended independent contractors. Floorcovering
products are sold on a limited warranty basis. The Company intends to focus its
expansion of the GCO network through franchises. See "-- Franchise Store
Operations -- GCO Franchise Network."
SPECIFIED CONTRACT OPERATIONS
To expand its market share in the specified contract segment of the
floorcovering industry, in November 1996 the Company acquired Bailey & Roberts,
a Knoxville, Tennessee-based company with a significant presence in the
specified contract market and an excellent reputation for attracting and
maintaining specified contract business. The specified contract business caters
primarily to the floorcovering requirements of larger commercial customers. As a
result, it is possible to manage the specified contract segment from relatively
few regional offices. The Company serves specified contract customers beginning
at the project specification stage and continuing through securing, delivering,
installing and maintaining the floorcovering product. The Company currently has
approximately 25 salespeople whose primary responsibility is to develop
specified contract business and service specified contract customers and plans
to add salespeople in regional markets.
BUILDER OPERATIONS
To expand its market share and enhance its management expertise in the
builder segment of the floorcovering industry, in November 1996 the Company
acquired Sexton, a Knoxville, Tennessee-based company with an excellent
reputation in the builder market. The Company services the builder segment
primarily in local markets where it has established regional service centers and
a base of CARPETMAX stores. Leveraging the established infrastructure available
in these local markets, the Company utilizes its extensive merchandise mix,
product displays, sales personnel and customer service capabilities in catering
to the builder customer's needs. The Company currently has approximately 40
salespeople whose primary responsibility is to service the builder customer.
FRANCHISE OPERATIONS
CARPETMAX Franchise Network. The Company generates revenues from CARPETMAX
franchisees through three primary sources: franchise fees, brokerage fees from
purchases of floorcovering products and additional services provided on a fee
basis. The current one-time franchise fee payable by a new CARPETMAX franchisee
is $35,000 for the operation of a CARPETMAX franchise in an exclusive territory.
The franchise agreement requires CARPETMAX franchisees to purchase at least 50%
of their floorcovering products through suppliers designated by the Company on
which the Company earns a brokerage fee paid by the supplier. In addition to
having better and lower-cost access to industry floorcovering products,
CARPETMAX franchisees also have access to CARPETMAX private-label products and
specials. Additional services, including customized merchandising programs,
advertising and promotion, credit and training programs are offered on a
fee-for-service basis.
CARPETMAX franchisees have the exclusive right to use the CARPETMAX
business concept and service marks, logos, slogans and other identifying
features within a specific geographic area (the "Exclusive Area"). Provided that
the dealer is not in default, the Company may not grant more than one franchise
within an Exclusive Area, nor may the Company or any affiliate of the Company
operate a Company-owned store within an Exclusive Area without the franchisee's
consent. Major metropolitan market areas, however, may be divided into a number
of Exclusive Areas. In addition, because of the different nature of their
business, CARPETMAX and GCO franchises may be established in the same territory.
While there are currently no
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<PAGE> 28
franchisees with rights to open and operate Gallery Stores, the Company intends
to offer certain of its existing CARPETMAX franchisees the opportunity to
upgrade their existing CARPETMAX stores to Gallery Stores in return for allowing
the Company to open stores in their exclusive territory.
As of January 1, 1997, the Company had 300 franchise dealers operating
approximately 465 CARPETMAX stores. The Company does not expect its CARPETMAX
franchise network to grow materially in the future, as its strategy is to open
Company-owned Gallery Stores to expand its retail network.
GCO Franchise Network. GCO generates revenues from franchise fees and
franchise royalty fees based on franchise store sales. The current one-time
franchise fee payable by each new GCO franchisee is $25,000. In addition, the
GCO franchisee pays the Company a royalty at the rate of 5% on the first
$500,000 of gross sales and 3% on gross sales over $500,000 during a year. GCO
franchisees have the exclusive right to use the GCO business concept and service
marks, logos, slogans and other identifying features within a specific
geographic area. The Company has continued to expand the scope of services
available to GCO franchisees. The Company now offers services relating to site
selection and merchandising, advertising and promotion, management and sales
training, credit, information systems and other store operations. Although the
Company markets GCO franchises to CARPETMAX franchisees, the Company does not
permit GCO's franchisees to use the CARPETMAX store format and services, the
Company's CARPETMAX proprietary marks or to sell CARPETMAX private-label
products. Currently there are four franchisees operating both GCO and CARPETMAX
franchises.
As of January 1, 1997, the Company had 99 GCO franchise stores operating in
55 of the 259 ADI markets in the United States.
RETAIL INFRASTRUCTURE
Supplier Relationships. Management believes that the Company obtains
high-quality products at a lower cost than its competitors due to the
floorcovering purchasing volume of the Company's retail network and its
relationships with major floorcovering suppliers. The ability of the Company to
purchase and inventory private label products creates significant buying
opportunities and competitive advantages for the Company. In addition, the
Company's use of its vendors' efficient distribution networks permits it to
maintain low inventory levels, providing the Company with an important
competitive advantage. Management believes that the Company is not dependent
upon any one vendor for product purchases and the loss of any single vendor
would not have a long-term material adverse effect on the Company's operating
results or financial position.
The Company offers a full range of floorcovering products from leading
manufacturers, including Shaw, Mohawk Industries, Inc., Beaulieu of America,
Inc., Queen Carpet and World Carpet, together with its proprietary Image
products, for broadloom carpet, Monsanto, DuPont and AlliedSignal for carpet
fiber, Armstrong World Industries, Mannington and Congoleum for vinyl flooring,
Bruce Hardwood Floors (a division of Triangle Pacific Industries), and
Harris-Tarkett for hardwood flooring, American Marazzi, Dal-Tile and Florida
Tile (a division of PreMark International), for ceramic tile and Pergo and
Wilsonart (a division of PreMark International) for laminates. Each of these
suppliers is a leader in its respective floorcovering category. The Company's
suppliers also include niche carpet, vinyl, hardwood, laminates and ceramic tile
producers worldwide, as well as leading manufacturers and importers of area rugs
and other decorative floorcovering products.
Advertising and Promotion. The Company, through its in-house,
state-of-the-art production facilities, develops and offers to its CARPETMAX
retail distribution network high-quality, creative marketing and promotion
programs, including television, radio, print and direct mail campaigns, sales
literature and point-of-purchase programs. The Company maintains on-site
multi-track audio recording studios, a television production facility and
full-service media department, and has produced advertising campaigns
nationwide. The Company believes that it obtains economies of scale in
advertising production and media placement that are unavailable to smaller
retailers. Customized advertising packages are available to franchisees at lower
rates than those charged by most advertising or production companies.
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<PAGE> 29
To further expand and develop the national brand awareness of CARPETMAX
floorcovering products and services, the Company has developed a comprehensive
national and regional marketing strategy that emphasizes electronic and paper
media, including television and newspaper circulars. The Company has recently
placed a greater emphasis on national media campaigns, such as TV and magazines.
In conjunction with the Gallery Store roll-out, the Company launched nationwide
CARPETMAX advertisements in national magazines such as Architectural Digest,
Women's Day, Ladies Home Journal, Better Homes and Gardens, and House Beautiful
featuring CARPETMAX product selection, quality, pricing and satisfaction
guarantee as well as the Company's commitment to superior customer service.
Retail Management and Sales Training. The Company focuses on enhancing
retail productivity by applying proven techniques to train its store managers
and sales representatives. All Company-owned store management, sales and
operating personnel receive intensive training in a variety of areas ranging
from product knowledge to sales and service techniques at the Company's "Carpet
College." The Company offers a variety of training programs to its franchisees
on a fee basis. These programs range from daily classes to intensive three-week
programs. Also, all store personnel, whether at Company-owned stores or
franchise stores, receive a comprehensive training and orientation program which
emphasizes the Company's advertising and marketing support, use of consumer
credit, store operations, general business practices and inter-company
operations.
To further enhance its training capabilities, the Company utilizes a
state-of-the-art interactive satellite communications system consisting of
digital video, audio and data compilation and analysis with 170 down-links. The
training system utilizes interactive communication capabilities to broadcast
training and merchandising programs to Company-owned store locations and
participating CARPETMAX franchise dealers. Broadcasts include information on
sales training, new technology, new products, merchandising, available specials
and design trends.
Site Selection and Store Development and Design. The Company has an
in-house store development department with responsibility for site selection,
lease negotiation and build-out of Company-owned stores to accelerate store
openings and minimize opening costs. In locating sites for its Gallery Stores,
the store development department evaluates the economic conditions,
demographics, growth and customer base of potential markets as well as possible
competition. In addition to performing internal market analysis, the Company has
used a nationally recognized market research group to validate internal
forecasts and to conduct additional market studies based on specific criteria
established by the store development department. Using its construction and
development expertise, the store development department will also coordinate the
redesign of certain of the Company-owned CARPETMAX stores into, or to be
consistent with, the Gallery Store prototype. See "-- Retail
Operations -- CARPETMAX Flooring Idea Gallery Stores." The interior store design
includes pre-determined product mix merchandised principally through samples
rather than in stock inventory, fixtures and display systems, and point-of-sale
merchandising signage and promotional materials. Once a new store site is
identified, the Company will stage the products and merchandising systems for
the new store in its distribution center and headquarters. The Company intends
to own certain of its store sites.
Management Information Systems. Company-owned stores are currently
operating their businesses with the information systems which were in place at
the time of acquisition by the Company. However, the Company is currently
working with a nationally recognized information technology consulting firm to
develop a proprietary point-of-sale system for tracking consumer demographics
and purchasing patterns, and integrating store operations and financial data
into the Company's central information system. Management believes that there is
also an opportunity to link franchisees, Company-owned stores and vendors
through the integration of EDI capabilities with the Company's information
systems. Using its current information system, the Company obtains information
on a weekly basis detailing each of its Company-owned store's sales, expenses,
close ratios and various other data relating to store operations that the
Company requires for the efficient management of its retail stores.
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<PAGE> 30
CUSTOMER SERVICE
The Company seeks to differentiate itself from other independent and large
retailers through its service offerings. Accordingly, CARPETMAX stores offer
retail customers the following services:
Interior Design and Product Selection. CARPETMAX sales professionals
assist customers in all aspects of making a floorcovering selection, including
assessment of interior design preferences, coordination with other home
furnishings and decorating preferences, and product layout and measuring. To
confirm customer satisfaction with a selected floorcovering product, the Company
offers a full replacement guarantee for any reason, including if the customer
does not like their own choice of color or style once installed. CARPETMAX sales
professionals seek opportunities to visit a customer's home or commercial
location to verify proper installation and to identify additional purchase
opportunities.
Delivery and Installation. CARPETMAX stores rely on local contractors for
the installation of floorcovering products. Because installation is often the
Company's final contact with customers, the Company has recently developed the
"Ten Point Must System," a merit based training program for its installation
subcontractors, to guarantee consistent high-quality installation service.
Points are earned under the Ten Point Must System by satisfying various
requirements including (i) attending classes devoted to increasing the
subcontractors' knowledge of the Company's floorcovering products and services,
(ii) complying with a standardized dress code, and (iii) the absence of customer
complaints.
Consumer Credit Program. The Company, in affiliation with a national
provider of consumer financing, began offering consumer credit to its customers
in November 1996. The Company's consumer credit program is marketed as the
CARPETMAX "Wall-to-Wall" credit program and is exclusively for the use of the
Company's CARPETMAX stores and participating franchisees. The Company believes
these credit programs enhance closing ratios and lead to higher average ticket
purchases. The Company uses a pre-approved listing service which enables
CARPETMAX stores to solicit sales from 100% credit pre-approved potential
customers. With 60-day, 90-day, 6-month and 12-month interest-free programs,
plus open- and closed-end revolving credit packages, the Company offers a
variety of credit plans to its customers. The Company also offers longer term
(up to three years) consumer credit financing for its customers. The Company is
not contingently liable for the credit extended and receives a percentage of
interest attributable to accounts outstanding.
CARPET MANUFACTURING OPERATIONS
On August 30, 1996, the Company merged with Image, a leading manufacturer
of polyester carpet, to establish a proprietary source of private-label,
high-quality polyester carpet lines for the Company's multiple distribution
channels. The ability of the Company to manufacture high-quality polyester
carpet enables the Company and its franchisees to offer lower prices and obtain
higher margins than they might otherwise be able to obtain.
Carpet Manufacturing. Image's carpet manufacturing operations include yarn
spinning, tufting, dyeing and finishing operations. In fiscal 1996, the Company
converted 42.5 million pounds of fiber into carpet. Because the Company's
current fiber conversion capacity is approximately 70 million pounds, the
Company intends to expand its production of high-quality polyester carpet.
Image is vertically integrated from the manufacture of polyester fiber from
PET bottles and other post-consumer and post-industrial PET waste materials
through the manufacturing of carpet products. The principal raw materials used
in Image's carpet manufacturing operations are polyester fiber, synthetic
backing materials and various dyes and chemicals. Image manufactures its
polyester fiber from recycled PET obtained from post-consumer plastics such as
discarded soda bottles, and obtains other raw materials from several supply
sources.
Image purchases recycled PET from over 250 suppliers which it converts into
clean PET resin. Image extrudes clean PET resin into polyester fiber, which it
spins into carpet face yarn. The yarn is then tufted into undyed and unfinished
carpet and later dyed and finished into one of the Company's various carpet
styles. Image converts approximately 60% of its clean PET resin into its carpet
products. The balance is sold as PET
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<PAGE> 31
resin to producers of packaging and other materials or converted into polyester
fiber and sold to home furnishings producers. During the twelve months ended
June 29, 1996, a total of 28 companies purchased approximately 24.4 million
pounds of clean PET resin produced by Image.
Carpet Marketing and Sales. Image designs, manufactures and markets 58
carpet styles and maintains approximately 1,663 SKUs consisting of a range of
colors, densities and textures. Image has positioned its products in the medium
price range for carpets sold domestically and emphasizes quality, style and
service. Image has historically marketed its carpets domestically and
internationally through a direct sales force of 54 full-time sales
representatives and 15 independent sales agents. Image's carpets are sold
through over 6,000 independent retailers and distributors. Following its merger
with the Company in August 1996, the Company significantly expanded the
marketing of Image's carpets by offering and selling a greater amount of Image's
carpets through its CARPETMAX network and GCO stores. For the nine months ended
October 31, 1996, total sales of Image's carpets through the Company's
distribution networks amounted to approximately $7.0 million, or 7.1% of Image's
total carpet sales. In both the residential and commercial markets, price
competition and market coverage are particularly important because of the
relatively small differentiation perceived among most competing product lines.
Image's recent investment in polyester fiber extrusion equipment, its modern
carpet manufacturing equipment and its marketing strategy contribute to its
ability to compete on the basis of price, style, quality and service. For the
nine months ended October 31, 1996, revenues generated from the sale of Image's
carpets was $98.8 million, comprising 42.7% of the Company's total revenues.
COMPETITION
Competition in the retail floorcovering market is intense due to the
significant number of retailers in operation. In December 1995, Shaw, the
world's largest carpet manufacturer, announced its decision to move into the
retail floorcovering sector. Pursuant to this strategy, Shaw has acquired
Carpetland USA, Inc. and New York Carpet World, Inc. Although Shaw is in the
early stages of developing its retail operations, there can be no assurance that
it will not become a major competitor in the future. In addition, large
retailers also provide significant competition, including The Home Depot, Inc.
and Sears, Roebuck & Co. The principal methods of competition within the retail
floorcovering industry include store location, product selection and
merchandising, customer service and price. The Company also competes with
businesses that market to retail floorcovering franchisors. The Company believes
that there are two primary competitors in its franchise business: Carpet One and
Abbey Rug, two buying cooperative associations. The Company distinguishes itself
from its competition by directly offering a full range of services to its
members in addition to the traditional services of purchasing and merchandising.
Management believes that the Company's competitors subcontract most services
(except floorcovering purchasing) to outside vendors.
The Company's carpet manufacturing business competes with other carpet
manufacturers and manufacturers of alternative floorcoverings such as wood or
tile. Certain of the Company's competitors in the carpet manufacturing business
have greater financial and other resources than the Company. The carpet
manufacturing industry currently has one dominant participant, Shaw, whose 1995
sales were estimated to represent approximately 30% of the total industry sales.
In addition, carpet sales by Mohawk Industries, Inc. in 1995 were estimated to
represent 15% of the total industry sales. Carpet manufacturers also face
competition from the hard surface floorcovering industry. The principal methods
of competition within the carpet manufacturing industry are price, style,
quality and service.
TRADEMARKS, SERVICE MARKS, TRADE NAMES AND COMMERCIAL SYMBOLS
The Company has registered a number of marks with the U.S. Patent and
Trademark Office including CARPETMAX(R), Carpetmax -- THE NATIONAL CARPET
EXCHANGE(R) and MAKING A WORLD OF DIFFERENCE(R). The Company has also applied
for registration of the mark CARPETMAX Flooring Idea Gallery(TM). GCO has
registered a number of marks with the U.S. Patent and Trademark Office,
including GCO(R) and GCO CARPET OUTLETS(R). GCO also uses a number of service
marks in association with its standard GCO franchise including a word mark
consisting of the words "GCO Carpet Outlets(TM)" and design and word marks
consisting of "GCO Carpet Outlets(TM)" or "Georgia Carpet Outlets(TM)." Image
uses several
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trademarks in the marketing of its polyester fiber and carpet, including
Duratron(R), Duratron Gold(TM), Image Resist-Gard(R), Resistron(R), Ecolon(R),
Permalon(TM), Enviro-Tech(R), Image(TM) and Classique(R). Image's registered
trademarks are of perpetual duration, subject to periodic renewal and continued
use.
There are no infringing uses actually known to the Company which could
materially affect the Company's use of the service marks, logos or slogans in
any state in which the Company is, or is proposed to be, located. There are no
patents or copyrights relevant to the Company and the Company is not the owner
or licensee of any patent or copyrights relevant to the franchise.
EMPLOYEES
As of January 1, 1997, the Company employed approximately 2,300 persons on
a full-time basis, including approximately 800 persons at its retail operations
and approximately 1,500 persons at its manufacturing operations. No employee is
a party to any collective bargaining agreement and the Company believes its
relationship with its employees is good.
GOVERNMENTAL REGULATION
The Company is subject to Federal Trade Commission ("FTC") regulations
governing the offer and sale of franchises. The FTC's Trade Regulation Rule on
Franchising (the "FTC Rule") requires the Company to furnish to prospective
franchisees a franchise offering circular containing certain information
prescribed by the FTC Rule.
State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship currently exist in a substantial number of
states. Such laws generally require registration of the franchise offering
circular with state authorities prior to the offer or sale of franchises and
regulate the franchise relationship by, for example, requiring the franchisor to
deal with its franchisees in good faith, prohibiting misrepresentations and
interference with the right of free association among franchisees, limiting the
imposition of standards of performance on a franchisee and regulating
discrimination against franchisees in charges, royalties or fees. Although such
laws may restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination, an opportunity to cure a
default and a requirement to repurchase inventory or other compensation, these
provisions have not had a significant effect on the Company's franchise
operations.
The Company is not aware of any pending franchise legislation which in its
view is likely to have a material adverse effect on the operations of the
Company. The Company is aware, however, that various legislative proposals have
been or are being debated at both the state and federal levels which could
result in new laws regulating the offer and sale of franchises and other aspects
of the franchisor-franchisee relationship. It is possible that such legislation,
if enacted, could adversely affect the Company's franchise operations. The
Company believes, however, that its operations comply in all material respects
with current federal and state franchise regulations.
The Company is also subject to numerous existing and proposed state and
federal laws and regulations designed to protect the environment from wastes and
emissions of hazardous substances. Management believes it is either in material
compliance with all currently applicable laws and regulations or is acting in
accordance with the appropriate variances or similar arrangements. The Company
believes that compliance with current laws and regulations will not require
significant capital expenditures or have a material adverse effect on its
operations. However, the enactment of new or expanded environmental regulations
could adversely affect the Company's operations.
Each Company-owned store and franchise location is subject to licensing and
regulation by a number of governmental authorities, which may include health,
sanitation, safety, fire, building and other agencies in the state or
municipality in which the business is located. Difficulties in obtaining or
failure to obtain the required licenses or approvals could delay or prevent the
procurement of new Company store sites or franchises in a particular area.
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PROPERTIES
In June 1995, to accommodate a growing distribution and retail business,
the Company relocated its entire corporate staff and distribution center to a
150,000 square foot facility on a 13 acre site in Kennesaw, Georgia. The Company
stores inventory and distributes products to its retail floorcovering network
from this facility. The Company previously occupied a 62,000 square foot
building in nearby Marietta, Georgia. The Marietta facility is currently being
leased to an unrelated third party.
The Company also leases 57 facilities, through which it conducts its retail
operations.
The executive offices of the Company's manufacturing subsidiary, Image, are
located in Armuchee, Georgia. In addition, plants are located in Georgia,
Alabama and South Carolina. The following is a summary of the plants and other
properties owned or leased by Image:
<TABLE>
<CAPTION>
APPROXIMATE
ENCLOSED
IMAGE LOCATIONS PRIMARY USE AREA (SQUARE FEET)
- ------------------------- ---------------------------------------- ------------------
<S> <C> <C>
Armuchee, Georgia(1)..... Executive Office, Carpet Tufting and
Finishing, Storage and Shipping 232,000
Calhoun, Georgia(2)...... PET Storage 53,000
PET Storage 116,000
PET Storage 50,000
Kensington, Georgia(2)... PET Storage 136,000
Lylerly, Georgia(2)...... PET Storage 54,000
Rome, Georgia(1)......... Carpet Dyeing, Finished Carpet Storage 216,000
Rome, Georgia(2)......... Finished Carpet and Fiber Storage 140,000
Finished Carpet and Yarn Storage 41,000
Rome, Georgia(1)......... Yarn Spinning 211,000
Shannon, Georgia(1)(3)... Finished Carpet Storage 308,000
Summerville,
Georgia(1)............. PET Sortation, Granulation, Washing,
Fiber Extrusion and PET Pellet
Extrusion,
Storage and Shipping 366,000
Talladega, Alabama(1).... Yarn Spinning 82,000
Melville, New York(2).... PET Purchasing Office 425
Dillon, South
Carolina(1)............ Yarn Spinning 102,000
</TABLE>
- ---------------
(1) These plants are owned, with the exception that the plant in Summerville,
Georgia is leased pursuant to a capital lease from the Development
Authority of the City of Summerville. Image has the option to purchase the
Summerville plant, which includes 14 acres, for $100 upon expiration of the
lease in 2003. These plants include owned approximate acreages as follows:
168 acres at Armuchee, Georgia; 20 acres at Rome, Georgia (carpet dyeing);
48 acres at Rome (yarn spinning); 10 acres at Talladega, Alabama; 12 acres
at Dillon, South Carolina; 8 acres at Summerville, Georgia; and 35 acres at
Shannon, Georgia.
(2) These facilities are leased under leases which expire within the next three
years. Management believes that these leases can be renewed on
substantially the same terms and conditions as the existing leases.
(3) On May 29, 1996, Image purchased approximately 35 acres of land and has
begun construction of its new distribution center which is expected to be
completed in the first quarter of fiscal 1998.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company, or any associate of any of the foregoing is a
party or has an interest adverse to the Company.
32
<PAGE> 34
MANAGEMENT
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------- --- ---------------------------------------------------------
<S> <C> <C>
M.B. Seretean............ 72 Chairman of the Board
A.J. Nassar.............. 40 President, Chief Executive Officer and Director
James W. Inglis.......... 52 Chief Operating Officer, Senior Executive Vice President
and Director
Larry M. Miller.......... 55 Senior Executive Vice President and Director
H. Stanley Padgett....... 49 Senior Executive Vice President and Director; President
of Image
Thomas P. Leahey......... 35 Executive Vice President, Finance and Treasurer
Sandra Fowler............ 34 Executive Vice President, Administration
H. Gene Harper........... 35 Chief Financial Officer and Secretary
Richard A. Kaplan........ 51 Chairman Emeritus and Director
Dicky W. McAdams......... 61 Director
Ronald H. McSwain........ 54 Director
J. Michael Nixon......... 51 Director
Herb Wolk................ 64 Director
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
The following persons serve as the directors and executive officers of the
Company:
M.B. Seretean has served as a Director of the Company since September 1993
and as its Chairman of the Board since February 1995. Mr. Seretean was a founder
of Coronet Industries, Inc., a carpet manufacturer, in 1956 and served as its
President and Chairman of the Board until his retirement in 1987. Mr. Seretean
serves as a director of Trend Laboratories, Inc., a cosmetics company. He is a
former director of RCA Corporation, Turner Broadcasting Corporation, the Atlanta
Hawks and the Atlanta Braves.
A.J. Nassar has served as President, Chief Executive Officer and a Director
of the Company since December 1990. From 1986 to 1990, Mr. Nassar served as Vice
President and Chief Operating Officer of Kenny Carpet and Linoleum, Inc., a
multistore retail carpet chain in western New York. He was previously employed
in the carpet manufacturing industry by Trend Carpet Mills and Queen Carpet
Mills, where he was responsible for sales of floorcovering products to
floorcovering retailers.
James W. Inglis has served as Chief Operating Officer, Senior Executive
Vice President and as a Director of the Company since May 1996. From 1983 to
1996, Mr. Inglis served in various capacities with The Home Depot, Inc., a home
improvement retailer, including most recently as its Executive Vice President of
Strategic Development and as a member of its board of directors.
Larry M. Miller has served as a Senior Executive Vice President and
Director of the Company since August 30, 1996. Mr. Miller was the co-founder of
Image, has served as a Director of Image since its inception in 1976 and
currently serves as Chairman of the Board, Secretary and President, Image
Carpets division. Mr. Miller was the initial President of Image and has served
as an executive officer every year thereafter.
H. Stanley Padgett has served as a Senior Executive Vice President and
Director of the Company since August 30, 1996. Since joining Image in 1976, Mr.
Padgett has served as Vice President of Manufacturing and Vice President of
Operations of Image prior to becoming its President and Chief Executive Officer
in July 1990. Mr. Padgett has been a member of the Board of Directors of Image
since September 1990.
Thomas P. Leahey has served as Executive Vice President, Finance of the
Company since August 1993 and as Treasurer since July 1994. Mr. Leahey was
employed by the Wachovia Bank of Georgia, N.A. from September 1991 to August
1993 as a Vice President in the Corporate Banking Division. Mr. Leahey's banking
33
<PAGE> 35
career began in January 1984 and included service with Barnett Bank of Central
Florida, N.A. and, from March 1987 to July 1991, with Fleet/Norstar Financial
Group.
Sandra Fowler has served as Executive Vice President, Administration of the
Company since September 1993. From 1982 to September 1993, Ms. Fowler served in
various capacities with Shaw, the nation's largest carpet manufacturer,
including Manager of Corporate Accounts, where she acted as the liaison between
that company and its corporate customers in all areas, ranging from sales to
administration.
H. Gene Harper has served as Chief Financial Officer and Secretary of the
Company since September 1994. Mr. Harper was employed by KPMG Peat Marwick LLP
from 1983 to September 1994 as a senior manager in the audit department.
Richard A. Kaplan has served as Chairman Emeritus of the Company since
February 1995 and served as Chairman of the Board of the Company from 1989 to
February 1994. Mr. Kaplan founded the Company in 1989. Mr. Kaplan has also
served as Chairman of the Board of Richland Industries Corp., a retail
floorcovering chain based in Rochester, New York, since 1972.
Dicky W. McAdams has served as a Director of the Company since October
1994. Mr. McAdams has been Chairman of the Board of Directors of GCO since it
was incorporated in April 1988 and served as its President from April 1988 to
October 1995. He has also been Chairman of the Board and CEO of McAdams
Commercial Flooring and Furnishings, Inc., a full service residential and
commercial floorcovering business, and its predecessor McAdams Carpets, Inc.,
since 1958. Mr. McAdams served as Chairman of the Retail Floorcovering Institute
(now the American Floorcovering Association) from 1987 to 1988 and as its
President from 1986 to 1987. From 1990 to 1991 he was Chairman of the Board of
Directors of the Floorcovering Consumer Credit Association.
Ronald H. McSwain has served as a Director of the Company since 1991. Since
1968, Mr. McSwain has served as the President and owner of McSwain's Carpets, a
retail floorcovering business with 15 stores in the Cincinnati, Dayton, Columbus
and Toledo, Ohio areas. Mr. McSwain serves as a director of Johnson Investment
Mutual Fund Trust, an investment company.
J. Michael Nixon has served as a Director of the Company since February
1996. Mr. Nixon has served as the President and co-owner of Q.I. Corporation, a
building materials contractor, since 1967.
Herb Wolk has served as a Director of the Company since 1991. Mr. Wolk is
the owner and President of Cadillac Carpet Distributors and has served in
various capacities with that Company since 1976. Mr. Wolk is the Chairman-elect
of the American Floorcovering Association.
KEY EMPLOYEES
Each of the following persons is a key employee, but not an executive
officer of the Company.
Herb Biggers, age 47, has served as Senior Vice President of Retail
Operations since July 1996. Mr. Biggers was a General Manager in the Expo
division of The Home Depot, Inc. from January 1994 to October 1995, and the
President and Chief Executive Officer of Hancock Park Associates from 1988 to
1994. Mr. Biggers' retail experience includes positions of Chief Operating
Officer of Seattle Lighting Corporation, the President and Chief Executive
Officer of Forecast Lighting, Inc., and President and Chief Executive Officer of
Homestead Fan Company.
Ben S. Wu, age 45, has served as Senior Vice President of Real Estate
Operations since July 1996. Prior to joining the Company, Mr. Wu served the
McDonald's Corporation from 1990 to 1996, most recently as Senior Real Estate
Manager responsible for the Southern California market. Mr. Wu also served as
the Director of Real Estate and Licensing for McDonald's China Development
Company in Hong Kong.
Cristina L. Smith, age 32, has served as Vice President of Marketing since
November 1996. Prior to joining the Company, Ms. Smith was a Marketing and
Advertising Manager for the Expo division of The Home Depot, Inc. from March
1995 to November 1996. She began her retail marketing career with Mercantile
Corporation in 1987 as a Computer Graphic Designer and left as Director of
Newspaper Advertising and Catalogs to join Pet Stuff in 1993, where she served
as the Creative Director until March 1995.
34
<PAGE> 36
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 16, 1997, and as adjusted to reflect
the completion of the Offering, by (i) each of the Company's directors and
executive officers; (ii) all directors and executive officers of the Company as
a group; (iii) each person known by the Company to own beneficially 5.0% or more
of the outstanding Common Stock; and (iv) the Selling Stockholders. Except as
otherwise noted below, each of the holders listed below has sole voting power
and investment power with respect to the shares shown as beneficially owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE AFTER THE
OFFERING(1) SHARES OFFERING(1)
------------------ BEING --------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- -------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS:
Richard A. Kaplan............................ 915,000 7.1% 0 915,000 5.7%
7 Far View Hill
Rochester, New York 14620
A.J. Nassar(2)............................... 826,440 6.3 0 826,440 5.1
210 TownPark Drive
Kennesaw, Georgia 30144
M.B. Seretean(3)............................. 502,000 3.8 0 502,000 3.1
H. Stanley Padgett(4)........................ 454,497 3.4 0 454,497 2.8
Larry M. Miller(5)........................... 445,178 3.4 0 445,178 2.8
Ronald McSwain(6)............................ 406,500 3.2 60,000 346,500 2.2
Herb Wolk.................................... 320,000 2.5 120,000 200,000 1.3
Dicky W. McAdams(7).......................... 214,728 1.7 184,225 30,503 *
James W. Inglis(8)........................... 150,000 1.2 0 150,000 *
J. Michael Nixon(9).......................... 85,000 * 0 85,000 *
Thomas P. Leahey(10)......................... 55,000 * 0 55,000 *
Sandra Fowler(11)............................ 33,000 * 0 33,000 *
H. Gene Harper(10)........................... 16,464 * 0 16,464 *
The Kaufmann Fund, Inc.(12).................. 750,000 5.9 0 750,000 4.7
140 E. 45th Street, 43rd Floor
New York, New York 10017
All directors and executive officers as a
group (13 persons)......................... 4,423,807 31.1 4,059,582 23.3
OTHER SELLING STOCKHOLDERS:
Hugh D. Bennett(10).......................... 60,002 * 60,002 0 0
</TABLE>
- ---------------
* Less than one percent
(1) "Beneficial Ownership" includes shares for which an individual, directly or
indirectly, has or shares voting or investment power or both and also
includes options which are exercisable within sixty days of the date
hereof. Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 of the Securities Exchange Act of
1934. The percentages are based upon 12,799,077 shares outstanding as of
January 16, 1997, except for certain parties who hold presently exercisable
options to purchase shares. The percentages for those parties who hold
presently exercisable options are based upon the sum of 12,799,077 shares
plus the number of shares subject to presently exercisable options held by
them, as indicated in the following notes.
(2) Includes 321,440 shares of Common Stock subject to presently exercisable
stock options.
(3) Includes 250,000 shares of Common Stock subject to presently exercisable
stock options.
(4) Includes 441,320 shares of Common Stock subject to presently exercisable
stock options.
(5) Includes 155,020 shares of Common Stock subject to presently exercisable
stock options.
35
<PAGE> 37
(6) Includes 30,500 shares owned by a foundation and a trust with respect to
which Mr. McSwain serves as trustee.
(7) Includes 10,000 shares of Common Stock subject to presently exercisable
stock options.
(8) Includes 100,000 shares of Common Stock subject to presently exercisable
stock options.
(9) Includes 40,000 shares of Common Stock subject to presently exercisable
stock options.
(10) Represents shares of Common Stock subject to presently exercisable stock
options.
(11) Includes 30,000 shares of Common Stock subject to presently exercisable
stock options.
(12) Based on a Schedule 13G dated April 30, 1996 filed by The Kaufmann Fund.
The Company makes no representation as to the accuracy or completeness of
the information reported.
36
<PAGE> 38
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 16,034,852 shares
of Common Stock outstanding (16,574,852 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, a total of
12,281,498 shares, including all of the 3,600,000 shares of Common Stock sold in
this Offering, will be freely tradable without restriction or limitation under
the Securities Act. The remaining 3,753,354 shares are "Restricted Securities"
shares within the meaning of Rule 144 adopted under the Securities Act (the
"Restricted Securities"). The Restricted Securities were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act and may not be sold except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption from
registration, such as the exemption provided by Rule 144 under the Securities
Act.
Approximately 3,378,236 Restricted Securities are currently eligible for
sale in the public market pursuant to Rule 144. In general, under Rule 144 as
currently in effect, any affiliate of the Company or any person (or persons
whose shares are aggregated in accordance with Rule 144) who has beneficially
owned Restricted Securities for at least two years would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1.0% of the outstanding shares of Common Stock (approximately 160,349
shares based upon the number of shares outstanding after the Offering) or the
reported average weekly trading volume in the over-the-counter market for the
four weeks preceding the sale. Sales under Rule 144 are also subject to certain
manner of sale restrictions and notice requirements and to the availability of
current public information concerning the Company. Persons who have not been
affiliates of the Company and who have held their shares for more than three
years are entitled to sell Restricted Securities without regard to the volume,
manner of sale, notice and public information requirements of Rule 144.
As of January 16, 1997, outstanding options to purchase 2,663,355 shares of
Common Stock were held by certain officers, directors and employees of the
Company pursuant to the Company's 1993 Stock Option Plan and RSO Plan and an
aggregate of 269,260 shares were available for the grant of future options
thereunder. The Company has filed a registration statement to register shares of
Common Stock issuable upon the exercise of stock options under the 1993 Stock
Option Plan and the RSO Plan. As of January 16, 1997, an aggregate of 2,003,753
shares were subject to presently exercisable stock options. Shares issued upon
the exercise of stock options are available for sale in the open market.
The Company, its executive officers and directors and each of the Selling
Stockholders (who, upon completion of the Offering, will own in the aggregate
4,059,582 shares of Common Stock) have each agreed that they will not, directly
or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell, or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or other capital stock
of the Company or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company, or any right to purchase or acquire Common Stock or other capital stock
of the Company, for a period of 180 days after the date of this Prospectus,
without the prior consent of Prudential Securities Incorporated, on behalf of
the Underwriters, except for bona fide gifts or transfers effected by such
stockholders other than on any securities exchange or in the over-the-counter
market to donees or transferees that agree to be bound by similar agreements and
except for issuances by the Company pursuant to the exercise of certain stock
options outstanding upon completion of this Offering.
The Company is unable to predict the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price for the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect the market price for the Common Stock and could impair the
Company's future ability to obtain capital through offerings of equity
securities.
Following the Offering, the Company may issue its Common Stock from time to
time in connection with the acquisition of stock or assets of other companies.
Such securities may be issued in transactions exempt from registration under the
Securities Act.
37
<PAGE> 39
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, The Robinson-Humphrey Company, Inc. and Wheat, First
Securities, Inc. are acting as representatives of the Underwriters (the
"Representatives"), severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth below
opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Prudential Securities Incorporated........................................
The Robinson-Humphrey Company, Inc........................................
Wheat, First Securities, Inc..............................................
------
Total......................................................... 3,600,000
======
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters, through their representatives, have advised the Company
and the Selling Stockholders that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of
$ per share to certain other dealers. After the public offering, the
offering price and the concession may be changed by the Representatives.
The Company has granted the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
540,000 additional shares of Common Stock at the public offering price, less
underwriting discounts, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option to purchase is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to 3,600,000.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
The Company, its directors and executive officers and each of the Selling
Stockholders who, upon completion of this Offering, will own in the aggregate
4,059,582 shares and the Company have agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock or any
securities convertible into, or exercisable or exchangeable for, any shares of
Common Stock or other capital stock of the Company, or any right to purchase or
acquire Common Stock or other capital stock of the Company for a period of 180
days after the date of this Prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, except for
bona fide gifts or transfers effected by such stockholders other than on any
securities exchange or in the over-the-counter market to donees or transferees
that agree to be bound by similar agreements and except for issuances by the
Company pursuant to the exercise of certain stock options outstanding upon
completion of this Offering.
38
<PAGE> 40
In connection with this Offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 10b-6A under the Exchange Act
during the two business day period before the commencement of offers of sales of
the Common Stock. Passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid for such security; if all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Smith, Gambrell & Russell,
LLP, Atlanta, Georgia. Certain legal matters related to the Offering will be
passed upon for the Underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of the Company as of and for the
ten-months ended January 31, 1996, included herein and incorporated by reference
in the Company's Transition Report (Form 10-K), have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their reports
thereon included and incorporated herein by reference in reliance upon such
reports given upon the authority of said firm as experts in giving said reports.
The consolidated financial statements of the Company as of March 31, 1995
and for each of the years in the two-year period ended March 31, 1995, have been
included and incorporated by reference herein in reliance upon the report of
KPMG Peat Marwick LLP, independent auditors, included and incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Image as of June 29, 1996 and July 1, 1995 and
for each of the years in the three year period ended June 29, 1996, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent auditors, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to certain informational requirements of the 1934
Act and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a World Wide Web site, containing such
reports, proxy and information statements and other information regarding the
Company, at http://www.sec.gov. In addition, such reports, proxy statements and
other information concerning the Company may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006-1506.
The Company has filed a Registration Statement on Form S-3 (together with
all amendments and exhibits filed or to be filed in connection therewith, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
Company
39
<PAGE> 41
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission (File No.
0-22232) pursuant to the 1934 Act are hereby incorporated in this Prospectus by
reference:
1. The Company's Transition Report on Form 10-K for the ten months ended
January 31, 1996;
2. The Company's Amendment No. 1 on Form 10-K/A dated October 15, 1996 to
its Transition Report on Form 10-K for the ten months ended January 31,
1996;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1996;
4. The Company's Quarterly Report on Form 10-Q for the quarter ended July
31, 1996;
5. The Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1996;
6. The Company's Current Report on Form 8-K dated May 31, 1996;
7. The Company's Current Report on Form 8-K dated August 30, 1996;
8. The Company's Amendment No. 1 on Form 8-K/A dated November 15, 1996 to
its Current Report on Form 8-K dated August 30, 1996.
9. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A as filed with the
Commission on August 12, 1993 and as amended by Amendment No. 1 on Form
8-A/A as filed with the Commission on August 26, 1993.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified and superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon written or oral request of such person, a copy of any and all
of the information that has been incorporated by reference in this Prospectus
(excluding exhibits unless such exhibits are specifically incorporated by
reference into such documents). Please direct such requests to the Secretary,
The Maxim Group, Inc., 210 TownPark Drive, Kennesaw, Georgia 30144, telephone
number (770) 590-9369.
40
<PAGE> 42
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Public Accountants............................................... F-2
Independent Auditors' Report........................................................... F-3
Consolidated Balance Sheets at March 31, 1995, January 31, 1996 and October 31, 1996
(unaudited).......................................................................... F-4
Consolidated Statements of Operations for the years ended March 31, 1994 and 1995, the
ten months ended January 31, 1996, and the nine months ended September 30, 1995 and
October 31, 1996 (unaudited)......................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1994 and
1995, the ten months ended January 31, 1996, and October 31, 1996 (unaudited)........ F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1994 and 1995, the
ten-months ended January 31, 1996, and the nine months ended September 30, 1995 and
October 31, 1996 (unaudited)......................................................... F-7
Notes to Consolidated Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The Maxim Group, Inc.:
We have audited the accompanying consolidated balance sheet of THE MAXIM
GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of January 31, 1996 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the ten months ended January 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Maxim Group, Inc. and
subsidiaries as of January 31, 1996 and the results of their operations and
their cash flows for the ten months ended January 31, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
December 16, 1996
F-2
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
The Maxim Group, Inc.:
We have audited the accompanying consolidated balance sheet of The Maxim
Group, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1995 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the two-year period ended March 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Maxim
Group, Inc. and subsidiaries as of March 31, 1995, and the results of their
operations and their cash flows for each of the years in the two-year period
ended March 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
December 23, 1996
F-3
<PAGE> 45
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995, JANUARY 31, 1996, AND OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31, JANUARY 31, OCTOBER 31,
1995 1996 1996
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $195, $1,028, and $181
at March 31, 1995, January 31, 1996, and October 31, 1996, respectively....... $ 2,365 $ 4,207 $ 5,145
Current portion of franchise license fees receivable, net of allowance for
doubtful accounts of $103, $175, and $338 at March 31, 1995, January 31, 1996,
and October 31, 1996, respectively............................................ 1,787 1,894 1,985
Trade accounts receivable, net of allowance for doubtful accounts of $734,
$1,605, and $1,273 at March 31, 1995, January 31, 1996, and October 31, 1996,
respectively.................................................................. 29,883 33,037 43,551
Accounts receivable from officers and employees (Note 6)........................ 411 615 817
Current portion of notes receivable from franchisees and related parties, net of
allowance for doubtful accounts of $0, $383, and $0 at March 31, 1995, January
31, 1996, and October 31, 1996, respectively (Note 7)......................... 557 1,008 1,314
Inventories (Note 5)............................................................ 38,137 49,170 38,955
Refundable income taxes (Note 11)............................................... 1,059 2,176 1,754
Deferred income taxes (Note 11)................................................. 760 2,080 1,294
Prepaid expenses................................................................ 1,446 2,091 2,472
-------- -------- --------
Total current assets.................................................... 76,405 96,278 97,287
PROPERTY, PLANT, AND EQUIPMENT, net (Notes 4 and 10)............................ 68,832 93,879 98,200
FRANCHISE LICENSE FEES RECEIVABLE, less current portion, net of allowance for
doubtful accounts of $210 at March 31, 1995, January 31, 1996, and October 31,
1996.......................................................................... 2,107 2,091 1,864
NOTES RECEIVABLE FROM FRANCHISEES, less current portion......................... 450 0 661
DEFERRED LICENSE FEE, net of accumulated amortization (Note 8).................. 880 341 0
INTANGIBLE ASSETS, net of accumulated amortization of $443, $704, and $1,026 at
March 31, 1995, January 31, 1996, and October 31, 1996, respectively (Notes 2
and 3)........................................................................ 13,478 8,960 9,753
OTHER ASSETS.................................................................... 321 536 2,379
-------- -------- --------
$162,473 $ 202,085 $ 210,144
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 9).................................... $ 912 $ 919 $ 534
Current portion of capital lease obligations (Note 10)........................ 512 556 529
Rebates payable to franchisees................................................ 1,752 3,673 2,986
Accounts payable.............................................................. 19,495 17,167 20,370
Accrued expenses.............................................................. 6,250 9,147 14,281
Deferred revenue.............................................................. 441 1,284 1,189
Deposits...................................................................... 2,199 2,076 2,847
-------- -------- --------
Total current liabilities............................................... 31,561 34,822 42,736
LONG-TERM DEBT, less current portion (Note 9)................................... 53,194 90,147 90,447
CAPITAL LEASE OBLIGATIONS, less current portion (Note 10)....................... 2,841 2,563 2,211
DEFERRED INCOME TAXES (Note 11)................................................. 3,453 2,403 1,813
-------- -------- --------
Total liabilities....................................................... 91,049 129,935 137,207
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 10, 14 and 16)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 1,000 shares authorized, no shares issued or
outstanding................................................................. 0 0 0
Common stock, $.001 par value; 25,000 shares authorized, 11,927, 12,397, and
12,489 shares issued and outstanding at March 31, 1995, January 31, 1996,
and October 31, 1996, respectively.......................................... 12 12 12
Additional paid-in capital.................................................... 55,421 60,392 61,131
Retained earnings............................................................. 15,991 11,746 11,794
-------- -------- --------
Total stockholders' equity.............................................. 71,424 72,150 72,937
-------- -------- --------
$162,473 $ 202,085 $ 210,144
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 46
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1994 AND 1995, THE TEN MONTHS ENDED JANUARY 31,
1996,
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
TEN
YEARS ENDED MARCH MONTHS NINE MONTHS ENDED
31, ENDED ---------------------------
------------------- JANUARY 31, SEPTEMBER 30, OCTOBER 31,
1994 1995 1996 1995 1996
-------- -------- ----------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales of floorcovering products (Note
12)................................. $106,237 $174,935 $ 186,568 $ 161,733 $ 185,735
Fees from franchise services (Note
12)................................. 9,688 13,876 13,432 12,146 19,684
Fiber and PET sales.................... 5,297 12,886 24,072 15,928 23,458
Other (Note 12)........................ 1,369 1,644 3,479 2,208 2,585
-------- -------- -------- -------- --------
Total revenues................. 122,591 203,341 227,551 192,015 231,462
Cost of sales............................ 85,847 139,521 161,723 132,351 166,934
-------- -------- -------- -------- --------
Gross profit........................ 36,744 63,820 65,828 59,664 64,528
Selling, general, and administrative
expenses............................... 23,669 46,870 59,197 47,053 54,104
Special charge-replacement stock
options................................ 10,388 0 0 0 0
Goodwill impairment charge (Note 2)...... 0 0 6,569 0 0
Merger-related costs (Note 3)............ -- 500 0 0 4,700
Other (income) expense:
Interest income........................ (307) (397) (415) (274) (452)
Interest expense....................... 909 1,839 4,695 3,300 5,040
Interest expense-related parties....... 977 0 0 0 0
Other.................................. 263 (421) (78) (417) (426)
-------- -------- -------- -------- --------
Earnings (loss) before income
taxes............................. 845 15,429 (4,140) 10,002 1,562
Income tax expense (Note 11)............. 376 5,787 105 3,656 1,514
-------- -------- -------- -------- --------
Net earnings (loss) before extraordinary
item................................... 469 9,642 (4,245) 6,346 48
Extraordinary income (Note 18)........... 190 0 0 0 0
-------- -------- -------- -------- --------
Net earnings (loss)...................... $ 659 $ 9,642 $ (4,245) $ 6,346 $ 48
======== ======== ======== ======== ========
Earnings (loss) per common and common
equivalent share....................... $ 0.06 $ 0.72 $ (0.32) $ 0.47 $ 0.00
======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding... 11,161 13,301 13,301 13,546 13,791
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 47
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1994 AND 1995,
THE TEN MONTHS ENDED JANUARY 31, 1996
AND THE NINE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1993........................ 8,836,206 $ 9 $ 25,261 $ 5,690 $30,960
Redemption and cancellation of 178,218 shares
of common stock (Note 13)................. (178,218) 0 (107) 0 (107)
Sale of common stock, less underwriting and
issuance costs of $1,603 (Note 13)........ 1,822,600 2 7,963 0 7,965
Exercise of redeemable common stock purchase
warrants (Note 13)........................ 26,898 0 188 0 188
Issuance of replacement stock options (Note
13)....................................... 0 0 10,388 0 10,388
Net earnings for the year.................... 0 0 0 659 659
---------- --- ------- ------ -------
Balance, March 31, 1994........................ 10,507,486 11 43,693 6,349 50,053
Exercise of redeemable common stock purchase
warrants, net of $46 in redemption costs
(Note 13)................................. 880,517 1 6,124 0 6,125
Issuance of stock............................ 520,654 0 7,010 0 7,010
Stock options exercised...................... 18,500 0 97 0 97
Cancellation of underwriter's warrants (Note
13)....................................... 0 0 (1,503) 0 (1,503)
Net earnings for the year.................... 0 0 0 9,642 9,642
---------- --- ------- ------ -------
Balance, March 31, 1995........................ 11,927,157 12 55,421 15,991 71,424
Issuance of stock............................ 442,857 0 4,825 0 4,825
Stock options exercised...................... 27,266 0 146 0 146
Net loss for the ten months ended January 31,
1996...................................... 0 0 0 (4,245) (4,245)
---------- --- ------- ------ -------
Balance, January 31, 1996...................... 12,397,280 12 60,392 11,746 72,150
Retirement of treasury shares................ (28,000) 0 (336) 0 (336)
Issuance of stock............................ 50,000 0 606 0 606
Stock options exercised...................... 69,900 0 469 0 469
Net earnings for the nine months ended
October 31, 1996.......................... 0 0 0 48 48
---------- --- ------- ------ -------
Balance, October 31, 1996 (unaudited).......... 12,489,180 $ 12 $ 61,131 $ 11,794 $72,937
========== === ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 48
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994 AND 1995, THE TEN MONTHS ENDED JANUARY 31,
1996,
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
TEN MONTHS
YEARS ENDED ENDED NINE MONTHS ENDED
MARCH 31, JANUARY ---------------------------
------------------- 31, SEPTEMBER 30, OCTOBER 31,
1994 1995 1996 1995 1996
-------- -------- ---------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................... $ 659 $ 9,642 $ (4,245) $ 6,346 $ 48
-------- -------- -------- -------- --------
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Impairment write-down of goodwill.................... 0 0 6,569 0 0
Depreciation and amortization........................ 3,832 5,225 8,008 4,904 7,974
Bad debt provision................................... 108 515 1,349 250 375
Deferred income taxes................................ (2,117) 2,329 (2,370) 1,291 196
(Gain) loss on sale of assets........................ 142 (7) 124 0 0
Special charge -- replacement stock options.......... 10,388 0 0 0 0
Extraordinary item................................... (190) 0 0 0 0
Changes in assets and liabilities:
Increase in receivables.............................. (5,675) (10,477) (4,001) (10,779) (11,058)
(Increase) decrease in inventories................... (2,866) (10,801) (10,098) (18,682) 10,737
(Increase) decrease in refundable income taxes....... 0 (1,059) (1,118) (178) 422
(Increase) decrease in prepaid expenses and other
assets............................................. (49) 24 (365) 524 (2,223)
Increase in accounts payable, rebates payable,
accrued expenses, and deposits and deferred
revenue............................................ 1,972 6,708 955 3,160 6,601
-------- -------- -------- -------- --------
Total adjustments................................ 5,545 (7,543) (947) (19,510) 13,024
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities..................................... 6,204 2,099 (5,192) (13,164) 13,072
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures................................... (12,734) (25,941) (15,580) (28,334) (11,461)
Proceeds from sale of assets........................... 79 127 34 0 0
Acquisitions, net of cash acquired..................... 0 (12,635) (13,875) (4,354) (946)
Deferred license fee payments.......................... (1,035) 0 0 0 0
-------- -------- -------- -------- --------
Net cash used in investing activities............ (13,690) (38,449) (29,421) (32,688) (12,407)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............ 23,665 2 0 0 606
Proceeds from exercise of warrants and options, net.... 188 6,222 146 182 469
Purchase of underwriter's warrants..................... 0 (1,503) 0 (1,503) 0
Purchase of treasury stock............................. (107) 0 0 0 (336)
Net proceeds from issuance (repayments of) of debt..... (11,587) 33,278 37,718 44,563 (86)
Principal payments on long-term debt................... (1,324) (3,051) (954) 0 0
Payments for loan costs................................ 0 0 (225) 0 0
Principal payments on capital lease obligations........ (8) (348) (230) (272) (380)
-------- -------- -------- -------- --------
Net cash provided by financing activities........ 10,827 34,600 36,455 42,970 273
-------- -------- -------- -------- --------
Net increase (decrease) in cash.......................... 3,341 (1,750) 1,842 (2,882) 938
Cash, beginning of period................................ 774 4,115 2,365 3,002 4,207
-------- -------- -------- -------- --------
Cash, end of period...................................... $ 4,115 $ 2,365 $ 4,207 $ 120 $ 5,145
======== ======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................. $ 720 $ 2,386 $ 4,073 $ 3,278 $ 5,094
======== ======== ======== ======== ========
Income taxes......................................... $ 2,935 $ 5,130 $ 3,189 $ 2,335 $ 219
======== ======== ======== ======== ========
Supplemental disclosures of noncash investing and
financing activities:
Common stock issued in connection with acquisitions.... $ 0 $ 7,010 $ 4,825 $ 5,520 $ 0
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 49
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 AND 1995 AND JANUARY 31, 1996 AND OCTOBER 31, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Maxim Group, Inc. and subsidiaries (the "Company" or "Maxim") is
engaged in retail and commercial sales of floorcovering products. The Company is
also engaged in the sale of franchise licensing agreements for the retail
floorcovering industry and other related products and services to its
franchisees. At January 31, 1996, the Company had 377 franchisees under
contract. Image Industries, Inc. ("Image"), a wholly owned subsidiary of Maxim,
is engaged in the manufacturing of residential carpet and plastics recycling.
The carpet is made from polyester fiber which Image produces internally. The
plastics recycling products, primarily PET (polyethylene terephthalate) flake,
PET pellet, and polyester fiber are sold domestically. These plastics recycling
products are the result of converting PET post-consumer plastics into flake,
pellet, or polyester fiber. The plastics recycling products are either used
internally in the manufacturing of carpet or sold externally to various
customers. Management does not believe that the Company is dependent upon any
one vendor for product purchases and that the loss of any single vendor would
not have a significant adverse effect.
Basis of Presentation
The consolidated financial statements include the accounts of The Maxim
Group, Inc. and all wholly owned subsidiaries. Upon consolidation, all
intercompany accounts, transactions, and profits are eliminated. The financial
statements give retroactive effect to the mergers of the Company and GCO, Inc.
("GCO") on September 28, 1994 and the Company and Image on August 30, 1996, both
of which were accounted for as poolings of interests, as described in Note 3 to
the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates depending
upon certain risks and uncertainties. Potential risks and uncertainties include
such factors as the financial strength of the retail industry, the level of
consumer spending for floorcovering products, the amount of sales of the
Company's floorcovering products, the competitive pricing environment, and the
success of planned advertising, marketing, and promotional campaigns.
Fiscal Year
The Company changed its year-end from March 31 to January 31. As a result,
the fiscal year ended January 31, 1996 contains ten months. The fiscal years
ended March 31, 1994 and 1995 each contain 12 months.
F-8
<PAGE> 50
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The condensed consolidated Statement of Operations (unaudited) for the ten
months ended January 31, 1995 is as follows:
<TABLE>
<S> <C>
Revenues.................................................................. $164,929
Cost of sales............................................................. 113,398
--------
Gross profit.............................................................. 51,531
Selling, general and administrative expenses.............................. 37,147
--------
Operating income.......................................................... 14,384
Other expense............................................................. 1,138
Income taxes.............................................................. 5,300
--------
Net earnings.............................................................. $ 7,946
========
Earnings per common and common equivalent share........................... $ .62
========
</TABLE>
Cash and Cash Equivalents
Cash balances include short-term interest-bearing deposits.
Accounts Receivable and Revenue Recognition
The Company recognizes the entire franchise license fee as income on the
date the franchise agreement is signed, at which time the Company has performed
substantially all of its obligations under the franchise agreement. Some
franchise agreements contain provisions which, under defined circumstances,
would require the Company to refund a portion or all of the franchise license
fee. Franchise revenues associated with these contracts, which are not material
at March 31, 1995 or January 31, 1996, have been deferred until these
obligations are fulfilled.
The Company finances a portion of the sale of franchises over a term of
four years, generally at 10% interest. An allowance for doubtful accounts is
provided based on the Company's collection experience and periodic reviews of
the accounts.
Revenue from retail and commercial sales is recognized upon completion of
the installation of floor coverings or at the time of delivery for
floorcoverings not installed by the Company or its authorized installers. Sales
from the manufacturing operations are recognized at the time related goods are
shipped.
Fees From Brokering Floor Covering Products and Advertising Fees
The Company negotiates volume rebates with various floorcovering
manufacturers on behalf of its franchisees. In exchange for this service, the
Company earns a portion of the rebates as the shipments are made to its
franchisees. The rebates are paid directly to the Company by the manufacturers
throughout the year. The franchisees typically receive their portions of the
rebates semiannually in February and July. Accordingly, the Company has recorded
revenue, restricted cash owed to franchisees, receivables from manufacturers,
and rebates payable to franchisees related to these rebates.
Advertising production fees, excluding direct mail, are considered earned
once the ad is produced, and the related media commission fees, if applicable,
are considered earned once the commercial is aired. Direct mail commissions are
earned on the date of the franchisee's promotion or sale.
F-9
<PAGE> 51
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories, consisting of goods held for resale, are recorded at the lower
of cost or market. Cost is determined on a specific identification basis for
retail sales, and Image applies the standard cost method, both of which
approximate the first-in, first-out method.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost, which includes
interest on funds borrowed to finance construction. When retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
respective accounts and the net difference, less any amount realized, is
reflected in the statements of operations.
Depreciation is calculated using the straight-line method over the
estimated remaining useful lives of the respective assets.
Deferred License Fee
A deferred license fee is being amortized over the three-year contract
period using the straight-line method.
Intangible Assets
Intangible assets consist primarily of goodwill. Goodwill arises in
connection with business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over 15 to 20 years. Amortization of
approximately $327 and $668 was charged to earnings in 1995 and 1996,
respectively. The Company periodically evaluates the carrying value of goodwill
in relation to the operating performance and future undiscounted cash flows of
the underlying businesses. The Company adjusts the carrying amount of the
goodwill if the unamortized balance exceeds the estimate of future cash flows
(Note 2).
Organizational costs have been deferred and are being amortized over 60
months using the straight-line method.
Deferred Loan Costs
Deferred loan costs, which are included in other assets, represent fees and
expenses incurred to obtain long-term debt. The costs are amortized to expense
over the life of the related financing agreement.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Earnings Per Share
All share and per share data have been adjusted to give retroactive effect
to the merger of the Company with GCO and Image. Earnings per common share are
computed on the basis of the weighted average shares of common stock outstanding
plus common stock equivalents, if dilutive, arising from the effect of common
shares contingently issuable, primarily from stock options and warrants.
Weighted average common and common equivalent shares include the dilutive effect
of the 1,133,856 Replacement Stock Options for all years presented (Note 13).
F-10
<PAGE> 52
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, and long-term debt. The carrying amounts of cash,
accounts receivable, and accounts payable approximate their fair values because
of the short-term maturity of such instruments. The carrying amount of long-term
debt approximates its fair value, because interest rates on debt are
periodically adjusted and approximate current market rates.
Reclassifications
Certain prior year financial statement balances have been reclassified to
conform with the current period presentation.
Interim Unaudited Data for the Nine Months Ended September 30, 1995 and
October 31, 1996
In the opinion of management, the unaudited financial statements contain
all the normal and recurring adjustments necessary to present fairly the
financial position of the Company as of October 31, 1996 and the results of the
Company's operations and its cash flows for the nine months ended September 30,
1995 and October 31, 1996 in conformity with generally accepted accounting
principles. The results of operations for the nine months ended October 31, 1996
are not necessarily indicative of the results to be expected for the year.
2. GOODWILL IMPAIRMENT
Certain of the Company's acquisitions have not performed as anticipated at
the time of purchase. Several acquired stores have closed, management has been
replaced, and there has been a loss of revenues from building contractors in
certain locations. The continuing poor financial results of these stores through
the end of fiscal 1996 led management to a reevaluation of operations that
indicated significant strategic and operational changes would be necessary at
some stores, including changes in the customer mix, location, and store design
and merchandising. These factors also caused management to assess the
realizability of the goodwill recorded for these units.
The determination of impairment was made by comparing the unamortized
goodwill balance for each acquisition to the estimate of the related entity's
undiscounted future cash flows. There were no significant long-lived assets
acquired with these companies. The assumptions used reflected the earnings,
market and industry conditions, as well as current operating plans. The
assessment indicated a permanent impairment of goodwill related to certain of
the Company's acquisitions and resulted in a write-off totaling $6,569.
The Company will adopt Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", in the first quarter of fiscal 1997. The adoption will not
materially affect the Company's statement of financial position or operating
results.
3. ACQUISITIONS
On May 2, 1994, the Company acquired Kinnaird & Francke Interiors, Inc.
("KFI"), a ten-store retail carpet chain based in Louisville, Kentucky. The
acquisition has been reflected on the purchase basis of accounting at a price of
$5,673, consisting of a cash payment of $1,750, the issuance of 270,000 shares
of the Company's common stock, valued at $3,611, and an additional $312 in
acquisition costs. The purchase price has been allocated to the assets acquired
and liabilities assumed based on estimates of the fair values at the date of
acquisition, resulting in goodwill of $2,777, which is being amortized over a
20-year period.
On September 7, 1994, the Company acquired Steve Peterson Interiors &
Associates, Inc. and National Carpet Brokers, Inc., which are engaged in the
retail sale and installation of floor coverings and related items
F-11
<PAGE> 53
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from a total of three stores located around Salt Lake City, Utah. The
acquisition has been reflected on the purchase basis of accounting at a purchase
price of $2,624, consisting of a cash payment of $440, the issuance of 155,254
shares of the Company's common stock, valued at $2,057, and an additional $127
in acquisition costs. The purchase price has been allocated to the assets
acquired and liabilities assumed based on estimates of fair values at the date
of acquisition, resulting in goodwill of $1,806, which is being amortized over a
20-year period.
On September 14, 1994, the Company acquired RNA Enterprises, Inc. ("RNA"),
Bay Area Carpets, Inc. ("BAC"), and Carpet World, Inc. ("CW"), which are engaged
in the retail sale and installation of floor coverings and related items from a
total of six stores based in Tampa, Florida. The acquisition has been reflected
on the purchase basis of accounting at a price of $613, consisting of a cash
payment of $200, the issuance of 16,760 shares of the Company's common stock,
valued for the purpose of the acquisition at $235, and an additional $178 in
acquisition costs. In addition to the consideration received at closing, the
stockholders of RNA, BAC, and CW may receive additional shares of common stock
of the Company and cash based on the profitability of the acquired companies
during the two years following the closing date of the acquisitions. The
purchase price has been allocated to the assets acquired and liabilities assumed
based on estimates of fair values at the date of acquisition, resulting in
goodwill of $1,513, which is being amortized over a 20-year period.
On September 28, 1994, the Company acquired all of the common stock of GCO
in exchange for 790,603 shares of the Company's common stock. GCO is engaged in
the business of operating and franchising others to operate discount floor
covering establishments. The acquisition of GCO has been accounted for under the
pooling-of-interests method of accounting, and accordingly, the Company's
historical financial statements have been restated to include the accounts and
results of operations of GCO. The Company incurred $500 in merger-related costs.
The results of operations previously reported by the separate companies
above and the combined amounts for the year ended March 31, 1994 are presented
below:
<TABLE>
<S> <C>
Net revenues:
The Maxim Group, Inc..................................................... $10,051
GCO...................................................................... 9,283
-------
Total............................................................ $19,334
=======
Net earnings:
The Maxim Group, Inc..................................................... $ 1,823
GCO...................................................................... 642
-------
Total............................................................ $ 2,465
=======
</TABLE>
On November 4, 1994, the Company acquired substantially all of the assets
of CarpeTime Floor Covering, Inc., which is engaged in the retail sale and
installation of floor coverings and related items from five stores based in
Phoenix, Arizona. The acquisition has been reflected on a purchase basis of
accounting at a price of $3,064, consisting of a cash payment of $2,986 and an
additional $78 in acquisition costs. The purchase price has been allocated to
the assets acquired based on estimates of the fair values at the date of
acquisition, resulting in goodwill of $2,939, which is being amortized over a
20-year period.
On November 15, 1994, the Company acquired DuBose Carpet & Floors, Inc.
("DuBose") and Carpet Wholesalers, Inc. ("CWI"), which are engaged in the retail
sale and installation of floor coverings and related items from a total of five
stores based in San Antonio, Texas. The acquisition has been reflected on a
purchase basis of accounting at a purchase price of $1,144, consisting of a cash
payment of $600, the issuance of 32,000 shares of the Company's common stock,
valued for the purpose of the acquisition at $472, and an additional $72 in
acquisition costs. The purchase price has been allocated to the assets acquired
and liabilities assumed
F-12
<PAGE> 54
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on estimates of fair values at the date of acquisition, resulting in
goodwill of $1,304 which is being amortized over a 20-year period.
On December 1, 1994, the Company acquired Rugs-N-Remnants, Inc., which is
engaged in the retail sale and installation of floor coverings and related items
from a total of three stores based in San Antonio, Texas. The acquisition has
been reflected on a purchase basis of accounting at a purchase price of $2,913
consisting of a cash payment of $2,850 and an additional $63 in acquisition
costs. The purchase price has been allocated to the assets acquired and
liabilities assumed based on estimates of the fair values at the date of
acquisition, resulting in goodwill of $2,177, which is being amortized over a
20-year period.
On January 18, 1995, the Company acquired Losantville Carpet Outlet, Inc.
("LCO"), which is engaged in the retail sale and installation of floor coverings
and related items from two stores in Indiana. The acquisition has been reflected
on the purchase basis of accounting at a price of $948, consisting of a cash
payment of $890 and an additional $58 in acquisition costs. The purchase price
has been allocated to the assets acquired and liabilities assumed based on
estimates of fair values at the date of acquisition, resulting in goodwill of
$427, which is being amortized over a 20-year period. In connection with the
purchase, the Company entered into a 20-year lease agreement with respect to
certain real property owned by the seller of LCO ("Stockholder") and the Company
paid to the Stockholder prepaid rent for the 20-year term in the amount of $200
in cash. LCO will operate as a wholly owned subsidiary of KFI.
On February 9, 1995, the Company purchased certain assets of Carpet
Gallery, Inc. in Birmingham, Alabama. The acquisition has been reflected on the
purchase basis of accounting at a price of $389, consisting of a cash payment of
$270 and an additional $119 in acquisition costs. The purchase price has been
allocated to the assets acquired based on estimates of the fair values at the
date of acquisition, resulting in goodwill of $562, which is being amortized
over a 20-year period.
On February 17, 1995, the Company acquired American Carpet and Interiors,
Inc. and Todd and Harold, Inc., which are engaged in the retail sale and
installation of floor coverings and related items from three stores based in
North Carolina. The acquisition has been reflected on the purchase basis of
accounting at a price of $1,270, consisting of a cash payment of $567, the
issuance of 46,640 shares of the Company's common stock, valued for the purpose
of the acquisition at $635, and an additional $68 in acquisition costs. The
purchase price has been allocated to the assets acquired and liabilities assumed
based on estimates of fair values at the date of acquisition resulting in
goodwill of $1,300, which is being amortized over 20 years.
Effective April 5, 1995, Image entered into an asset purchase agreement
with Pharr Yarns of Georgia, Inc. and Stowe-Pharr Mills, Inc. to purchase
substantially all of the operating assets of Pharr Yarns of Georgia, Inc.
including the property, plant, and equipment as well as certain inventory items
and supplies. The transaction was consummated on June 30, 1995. The purchase
price payable by the Company at the transaction's closing was 400,000 shares of
stock, valued at $4,400, and cash of approximately $11,298. The acquisition was
accounted for as a purchase, and accordingly, the purchase price has been
allocated to the assets acquired based on the estimated fair values as of the
acquisition date. The net excess of the cost over the estimated fair value of
the acquired assets as a result of this acquisition has been allocated to
goodwill in the approximate amount of $96 and will be amortized over 15 years.
On August 17, 1995, the Company acquired certain assets of Carpet Country,
Inc. ("CCI"), which is engaged in the retail sale and installation of floor
coverings and related items from five stores in Iowa. The acquisition has been
reflected on the purchase basis of accounting at a price of $1,861, consisting
of a cash payment of $1,272, the issuance of 42,857 shares of the Company's
common stock valued at $500 and an additional $138 in acquisition costs. In
addition to the consideration received at closing, the stockholders of CCI may
receive cash or additional shares of common stock of the Company based on the
profitability of the acquired company during the twelve month period ending July
31, 1996. The purchase price has been allocated to the assets acquired and
liabilities assumed based on estimates of fair values at the date of
F-13
<PAGE> 55
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition resulting in goodwill of $1,535 which is being amortized over a
20-year period. The allocation has been based on preliminary estimates which may
be revised at a later date. The operating results for CCI are included in the
Company's consolidated statements of operations from August 1, 1995.
On August 30, 1996, the Company acquired all of the common stock of Image
in exchange for 5,266,285 shares of the Company's common stock. The acquisition
of Image has been accounted for under the pooling-of-interests method of
accounting, and accordingly, the Company's historical financial statements have
been restated to include the accounts and results of operations of Image. The
Company incurred approximately $4,700 in one-time costs related to the merger
(primarily legal, accounting, investment advisory fees, and merger-related
restructuring charges). This amount has been presented separately in the
accompanying statements of operations as Merger-related costs.
The results of operations previously reported by the separate companies
above and the combined amounts for the years ended March 31, 1994 and 1995 and
the ten months ended January 31, 1996 are presented below:
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED
MARCH 31, 1994 YEAR ENDED JANUARY 31, 1996
------------------ MARCH 31, 1995 ------------------
INCOME ----------------- INCOME
REVENUES (LOSS) REVENUES INCOME REVENUES (LOSS)
-------- ------- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
The Maxim Group, Inc........... $ 19,334 $ 2,465 $ 76,091 $2,385 $ 99,290 $(7,274)
Image Industries, Inc.......... 103,257 (1,996) 127,250 7,257 128,261 3,028
Extraordinary income........... 0 190 0 0 0 0
-------- ------- -------- ------ -------- -------
Total................ $122,591 $ 659 $203,341 $9,642 $227,551 $(4,246)
======== ======= ======== ====== ======== =======
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at March 31, 1995 and January 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land and improvements.............................................. $ 2,795 $ 3,596
Buildings and leasehold improvements............................... 22,798 34,503
Machinery and equipment............................................ 52,015 77,691
Furniture and fixtures............................................. 2,190 2,024
Transportation equipment........................................... 1,340 2,323
Construction in progress........................................... 9,375 1,930
------- -------
90,513 122,067
Less accumulated depreciation and amortization..................... 21,681 28,188
------- -------
$68,832 $93,879
======= =======
</TABLE>
5. INVENTORIES
Inventories at March 31, 1995 and January 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Raw materials...................................................... $ 7,809 $16,381
Work in process.................................................... 1,956 2,665
Finished goods..................................................... 28,372 30,124
------- -------
Total.................................................... $38,137 $49,170
======= =======
</TABLE>
F-14
<PAGE> 56
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNTS RECEIVABLE FROM OFFICERS AND EMPLOYEES
The Company has made loans to certain officers and employees with terms of
one to two years and with interest rates tied to the prime rate.
7. NOTES RECEIVABLE FROM FRANCHISEES AND RELATED PARTIES
The Company has made loans to certain franchisees totaling $950 and $502 at
March 31, 1995 and January 31, 1996, respectively, with principal payments due
in monthly installments beginning October 1, 1995 through October 1, 2000 and
interest payable monthly at the prime rate on the outstanding balance, secured
by the franchisees' accounts receivable and/or inventory and equipment and
personal guarantees.
In addition, the Company has made unsecured loans to franchisees and
outside directors at interest rates ranging from 0% to 7% and totaling $57 and
$82 at March 31, 1995 and January 31, 1996, respectively (Note 12).
8. DEFERRED LICENSE FEE
In March 1994, the Company entered into an agreement with a manufacturer
which provides the Company's franchisees with the opportunity to become licensed
dealers of certain brand-name products. The agreement is effective for a
three-year period beginning April 1, 1994. The Company paid an initial fee of
$1,035, which is being amortized over the life of the agreement. Accumulated
amortization totaled $155 and $694 as of March 31, 1995 and January 31, 1996,
respectively.
9. LONG-TERM DEBT
Long-term debt at March 31, 1995 and January 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Revolving line of credit, due March 1998........................... $15,225 $22,185
Note payable to bank under revolving credit agreement, due June
2001............................................................. 35,005 61,980
Note payable to bank, secured by land and building, interest
payable in monthly installments of $22, including interest at
8.34% with final payment due October 9, 2005..................... 1,107 3,952
Note payable to bank, secured by land and building, payable in
monthly installments of $12, including interest at 7.125%, with
final payment due February 1, 2004............................... 919 857
Note payable to bank, secured by satellite equipment, in monthly
installments of $17, including interest at 9.46%, with final
payment due March 1, 2000........................................ 900 791
Note payable to bank, secured by transportation equipment, in
monthly installments of $9, including interest at 8% with final
payment due November 1, 2000..................................... 0 589
Other debt with interest ranging from approximately 6% to 13%; a
portion secured by vehicles and other property and maturing at
various dates through 2000....................................... 950 712
------- -------
54,106 91,066
Less current portion............................................... 912 919
------- -------
Long-term debt, less current portion............................... $53,194 $90,147
======= =======
</TABLE>
F-15
<PAGE> 57
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate annual maturities of long-term debt subsequent to January 31,
1996 are as follows:
<TABLE>
<S> <C>
Year ending January 31:
1997..................................................................... $ 919
1998..................................................................... 827
1999..................................................................... 22,825
2000..................................................................... 674
2001..................................................................... 722
2002 and thereafter...................................................... 65,099
-------
$91,066
=======
</TABLE>
The revolving line of credit agreement (the "Agreement") was amended during
fiscal 1996 to provide borrowings of up to $23 million. The interest rate
charged will vary from LIBOR plus 1.125% to LIBOR plus 2.125% based on the
financial leverage of the Company as measured by the ratio of adjusted funded
debt to total capitalization, as defined by the Agreement. Interest-only
payments are due monthly for the first three years. The weighted average
interest rate for the ten months ended January 31, 1996 was 7.72%.
The Agreement contains financial and other covenants, including
requirements for minimum tangible net worth, debt coverage and leverage ratios,
each as defined. The Company was not in compliance with its financial covenants
under the Agreement as of January 31, 1996. However, the bank granted a waiver
of such noncompliance and amended the covenant requirements. The Company must
pay an annual facility fee ranging from .00125% to .0035% of the total credit
commitment, depending upon the Company's performance measured against specific
coverage ratios, as defined by the Agreement.
The note payable to bank was under a revolving line of credit agreement
(the "Facility"), expiring June 30, 2001, bearing interest payable quarterly at
the prime interest rate or Eurodollar rate plus 1.00%. Effective November 6,
1995, the Company renegotiated its Facility with the lender and two other
financial institutions. The restated Facility allows the Company to borrow up to
$70 million with interest payable quarterly at the prime rate (8.5% on January
31, 1996) or Eurodollar rate (approximately 5.26% at January 31, 1996) plus
1.00%. The borrowings under the agreement are secured by a first priority lien
on all assets.
The Facility contains numerous covenants including, but not limited to,
restrictions on the assumptions of certain types of indebtedness, minimum
earnings levels, interest coverage, and tangible net worth. On January 31, 1996,
the Company was in compliance with all such covenants.
On August 30, 1996, the Company closed on a commitment from a bank for new
credit facilities (the "New Facility") totaling $125 million. The New Facility
was executed in conjunction with the merger of the Company and Image. Borrowings
under the New Facility were used to refinance the existing debt, including
borrowings under the Agreement and Facility, of the Company and Image and will
provide the Company with working capital.
10. LEASES
The Company is a party to noncancelable lease agreements involving property
and equipment, which extend for varying periods up to 20 years. Certain of these
leases have options to renew at varying terms.
Rental expense for operating leases amounted to $1,373, $2,970, and $4,026
for the years ended March 31, 1994 and 1995 and the ten months ended January 31,
1996, respectively, including $110 in 1994, $462 in 1995, and $334 in 1996 paid
to related parties.
F-16
<PAGE> 58
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in property and equipment are the following assets held under
capital leases:
<TABLE>
<CAPTION>
RELATED-
PARTY OTHER TOTAL
-------- ------ ------
<S> <C> <C> <C>
March 31, 1995:
Buildings and improvements................................. $2,760 $1,080 $3,840
Machinery and equipment.................................... 8 357 365
------ ------ ------
Assets under capital leases................................ 2,768 1,437 4,205
Less accumulated amortization.............................. 332 348 680
------ ------ ------
Assets under capital leases, net........................... $2,436 $1,089 $3,525
====== ====== ======
January 31, 1996:
Buildings and improvements................................. $2,760 $1,080 $3,840
Machinery and equipment.................................... 0 571 571
------ ------ ------
Assets under capital leases................................ 2,760 1,651 4,411
Less accumulated amortization.............................. 629 417 1,046
------ ------ ------
Assets under capital leases, net........................... $2,131 $1,234 $3,365
====== ====== ======
</TABLE>
Minimum future lease obligations on long-term noncancelable leases in
effect at January 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES
--------------------------
RELATED- OPERATING
PARTY OTHER TOTAL LEASES
-------- ------ ------ ---------
<S> <C> <C> <C> <C>
Year ending January 31:
1997...................................................... $ 465 $ 294 $ 759 $ 5,446
1998...................................................... 465 211 676 3,408
1999...................................................... 465 191 656 2,629
2000...................................................... 465 175 640 2,175
2001...................................................... 465 126 591 1,394
2002 and thereafter....................................... 600 102 702 3,512
------ ------ ------ -------
Total minimum lease payments...................... 2,925 1,099 4,024 $18,564
=======
Less amounts representing interest.......................... 755 150 905
Less current portion........................................ 320 236 556
------ ------ ------
$1,850 $ 713 $2,563
====== ====== ======
</TABLE>
F-17
<PAGE> 59
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended March 31, 1994:
U.S. federal.............................................. $ 2,258 $ (1,952) $ 306
State and local........................................... 235 (165) 70
------ ------- ------
$2,493.. $ (2,117) $ 376
====== ======= ======
Year ended March 31, 1995:
U.S. federal.............................................. $ 3,001 $ 2,208 $5,209
State and local........................................... 298 280 578
------ ------- ------
$ 3,299 $ 2,488 $5,787
====== ======= ======
Ten months ended January 31, 1996:
U.S. federal.............................................. $ 1,051 $ (858) $ 193
State and local........................................... 119 (207) (88)
------ ------- ------
$1,170.. $ (1,065) $ 105
====== ======= ======
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax (loss) earnings as a result of
the following:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
MARCH 31, ENDED
------------- JANUARY 31,
1994 1995 1996
---- ------ -----------
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense................... $287 $5,246 $(1,408)
Increase in income taxes resulting from:
Goodwill impairment charge................................ 0 0 1,110
Nondeductible expenses.................................... 22 178 199
State and local income taxes, net of federal income tax
benefit................................................ 46 378 (60)
Other, net................................................ 21 (15) 264
---- ------ ------
$376 $5,787 $ 105
==== ====== ======
</TABLE>
F-18
<PAGE> 60
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets (liabilities) at March 31, 1995 and January
31, 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Deferred tax assets:
Goodwill impairment........................................... $ 0 $ 1,244
Accounts receivable, principally due to allowance for doubtful
accounts................................................... 807 976
Inventories, principally due to additional costs inventoried
for tax purposes........................................... 935 1,353
Accrued expenses.............................................. 541 874
Special charge -- replacement stock options................... 3,513 3,249
Net operating loss carryforwards.............................. 1,526 1,315
Other, net.................................................... 17 23
-------- -------
Total gross deferred tax assets....................... 7,339 9,034
Less valuation allowance........................................ 0 0
-------- -------
Net deferred tax assets......................................... 7,339 9,034
-------- -------
Deferred tax liabilities:
Plant and equipment, principally due to difference in
depreciation............................................... (7,375) (7,870)
Deferred franchise and other revenue.......................... (2,146) (1,111)
Amortization of intangible assets............................. (76) (108)
Other, net.................................................... (435) (268)
-------- -------
Total gross deferred tax liabilities.................. (10,032) (9,357)
-------- -------
Net deferred tax liabilities.......................... $ (2,693) $ (323)
======== =======
</TABLE>
No valuation allowance was recorded against deferred tax assets at March
31, 1995 or January 31, 1996. The Company's management believes the existing net
deductible temporary differences comprising total deferred tax assets will
reverse during periods in which the Company generates sufficient net taxable
income. Utilization of net operating loss carryforwards may be limited by the
alternative minimum tax provisions.
12. RELATED-PARTY TRANSACTIONS
Certain of the directors also own franchises which utilize the services of
the Company. Trade accounts receivable at March 31, 1995 and January 31, 1996
include amounts due from these affiliated companies of $126 and $85,
respectively. In addition, rebates payable to franchisees at March 31, 1995 and
January 31, 1996 include amounts due to stockholder-owned franchises of $72 and
$26, respectively.
Included in fees from brokering floor covering products for the years ended
March 31, 1994 and 1995 and the ten months ended January 31, 1996 are $110,
$105, and $76, respectively, earned from services provided to these franchises.
Included in advertising revenue for the years ended March 31, 1994 and 1995 and
the ten months ended January 31, 1996 and are $518, $318, and $106,
respectively, from services purchased by affiliated franchises.
Included in carpet sales for the years ended March 31, 1994 and 1995 and
the ten months ended January 31, 1996 are $55, $176, and $216, respectively, for
carpet purchased by affiliated franchises.
Included in other revenues for the years ended March 31, 1994 and 1995 and
the ten months ended January 31, 1996 are $52, $18, and $9, respectively, for
purchases by affiliated franchises.
Included in interest expense for the years ended March 31, 1994 and 1995
and the ten months ended January 31, 1996 are approximately $20, $0, and $0,
respectively, of interest on notes payable to stockholders.
In August 1995, the Company loaned $821 to Kevodrew Realty, Inc.
("Kevodrew"), a company controlled by A. J. Nassar, the President and Chief
Executive Officer of the Company, which loan bears interest at an annual rate of
prime. These funds were loaned to Kevodrew to provide interim financing for the
purchase by Kevodrew of a retail shopping center in Louisville, Kentucky. This
loan was repaid on May 22,
F-19
<PAGE> 61
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996. A primary tenant in the shopping center will be a Company-owned store,
which has entered into a five-year lease agreement with Kevodrew providing for
annual lease payments of $89.
As of October 31, 1996, Mr. Nassar had a demand note with the Company for
$732 accruing interest at the prime rate.
13. STOCKHOLDERS' EQUITY
On July 30, 1993, the Company's board of directors approved a
1-for-3.3666667 reverse stock split and reduced the number of authorized shares
to 15,000,000. All share data have been restated to give effect to this reverse
stock split.
The Company completed an initial public offering ("IPO") for 1,822,600
shares of common stock and 911,300 redeemable common stock purchase warrants
("warrants") under Regulation S-B of the Securities and Exchange Commission in
October 1993. The warrants were subject to redemption by the Company at $.05 per
warrant, on 30 days, prior written notice, with either (1) the prior written
consent of Thomas James Associates, Inc. ("Thomas James") (the IPO underwriter)
or (2) provided that the average of the closing bid price of the common stock
for a period of 20 consecutive trading days, ending within 15 days prior to the
notice of redemption, exceeds $13.125 per share. On July 27, 1994, the board of
directors of the Company called for the redemption of all the issued and
outstanding warrants. The warrants were exercisable at a price of $7 per share
until September 1, 1994. In total, warrants for 907,415 shares of stock were
exercised and the Company received $6,359.
Effective January 4, 1995, the Company reached an agreement with Thomas
James, the underwriter of the Company's initial public offering in 1993, to
cancel and surrender the remaining underwriter's warrants issued by the Company
to Thomas James in connection with the IPO. In consideration of the cancellation
and surrender of the underwriter's warrants, which entitled Thomas James to
purchase up to 240,000 shares of the Company's common stock, the Company paid
$1,503, consisting of $5 in legal costs and $1,498, or the equivalent of $14 per
common share, to Thomas James.
The Company adopted a stock option plan in fiscal 1994 which provides for
the granting of incentive and nonqualified stock options for up to 2,000,000
shares of common stock to key employees and directors at an exercise price of at
least 100% of fair market value at the date of grant. Information relating to
stock options is summarized as of March 31, 1995 and January 31, 1996 as
follows:
<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
Options outstanding at beginning of year................ 394,500 634,210
Options granted......................................... 321,410 395,400
Options canceled........................................ (63,200) (181,036)
Options exercised....................................... (18,500) (27,266)
------------- ------------
Options outstanding at end of year...................... 634,210 821,308
============= ============
Option prices per share (excluding replacement stock
options):
Options granted during the year....................... $10.50-$15.50 $9.00-$11.75
Options canceled...................................... 5.25-14.50 5.26-15.50
Options exercised..................................... 5.25-6.50 5.25-10.50
Options outstanding at end of year.................... 5.25-15.50 5.25-14.50
</TABLE>
The employee options become exercisable in increments ranging from 20% to
33 1/3% per year beginning on September 30, 1994 and ending on January 10, 2000.
In addition, the Company has granted options to purchase 250,000 shares of
common stock to one of its outside directors at an exercise price of $5.25 to
$10.25 per share, of which 166,666 are currently exercisable and 33,334 of which
will become exercisable at September 30, 1996.
F-20
<PAGE> 62
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective August 10, 1993, Image adopted a Plan and Agreement of Conversion
(the "Conversion") in which all previously outstanding vested and unvested stock
options and unvested stock appreciation units were canceled and a like number of
fully vested replacement stock options were issued. These options have an
exercise price of $.01 per share and expire March 30, 2006. In connection with
the grant of the replacement stock options, Image recognized a noncash,
nonrecurring charge of approximately $10,388 (pre-tax) in the fiscal year ending
March 31, 1994. In connection with the Conversion, Image has granted the option
holders certain protections against possible tax consequences associated with
the grant of the options. At January 31, 1996, 955,774 replacement stock options
were outstanding.
Image also adopted a stock option plan (the "Stock Option Plan") which
provides for the grant of stock options to selected participants, including
officers and key employees of Image. On August 10, 1993, Image granted 41,318
fully vested incentive options to Image's chief executive officer at $10.00 per
share, exercisable over a three-year period. On May 9, 1995, the Company granted
an additional 3,294 fully vested incentive options to other Image employees at
$12.38 per share.
In connection with the merger between the Company and Image, all
outstanding options under the Image Plan and Agreement of Conversion and the
Stock Option Plan were converted into like options to purchase shares in the
combined entity.
14. EMPLOYMENT AGREEMENTS
The Company has entered into separate three-year employment agreements with
its president and certain key officers. These contracts provide for aggregate
base salaries of approximately $1,616, certain severance provisions, and
additional bonuses at the discretion of the board of directors.
Effective August 10, 1993, Image entered into three-year employment
agreements with two of its executive officers. The contracts obligate the
Company for compensation, severance, bonus, and other employment related
matters. These agreements provide for aggregate base compensation levels
totaling $535 per year. In connection with the merger, these two agreements were
extended to August 1998.
15. EMPLOYEE BENEFIT PLAN
Effective April 1, 1994, the Company instituted a 401(k) retirement savings
plan (the "Plan"), which is open to all Maxim employees who have completed one
year of service. The Company's matching contribution is 25% of the first 6% of
contributions made by the employees. The Company's matching contribution vests
to the employees over six years. Employee and employer contributions to the Plan
were $125 and $21, respectively, for the year ended March 31, 1995 and $211 and
$24 for the ten months ended January 31, 1996, respectively.
Effective October 1, 1994, a defined contribution plan (the "Image Plan")
covering all employees of Image was created. The Image Plan is open to all
employees who are 21 or older and who have completed six months of service.
Participants may defer a portion of their pretax earnings, up to the annual
limit per the Internal Revenue Service. Image has not made any contributions for
the fiscal year ended March 31, 1995 and the ten month period ended January 31,
1996.
16. CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
F-21
<PAGE> 63
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BUSINESS AND CREDIT CONCENTRATION
In fiscal years 1994, 1995, and 1996, export sales accounted for
approximately 21%, 11%, and 8%, respectively, of the Company's net sales. Export
sales are principally to customers in the Middle East, Europe, and Canada. Sales
to Middle Eastern customers totaled 18%, 8%, and 5% of net sales in fiscal years
1994, 1995, and 1996, respectively.
In 1994, 1995, and 1996, one customer accounted for approximately 18%, 8%,
and 4%, respectively, of the Company's net sales.
18. GAIN ON EXTINGUISHMENT OF DEBT
During the fiscal year ended March 31, 1994, the Company recognized an
extraordinary gain of approximately $764 on the extinguishment of long-term debt
owed to two stockholders, which was partially offset by the write-off of
approximately $457 of deferred loan costs on debt prepaid with the proceeds of
the Initial Public Offering.
F-22
<PAGE> 64
[Example of advertisement used by the Company]
CARPETMAX's(R) retail network is supported by a national advertising campaign
in leading home magazines.
<PAGE> 65
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary.......................... 3
Risk Factors................................ 7
Use of Proceeds............................. 11
Price Range of Common Stock................. 11
Dividend Policy............................. 12
Capitalization.............................. 12
Selected Consolidated Financial and
Operating Data............................ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 15
Business.................................... 21
Management.................................. 33
Principal and Selling Stockholders.......... 35
Shares Eligible for Future Sale............. 37
Underwriting................................ 38
Legal Matters............................... 39
Experts..................................... 39
Available Information....................... 39
Incorporation of Certain Documents
by Reference.............................. 40
Index to Consolidated Financial
Statements................................ F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
3,600,000 Shares
THE MAXIM GROUP, INC.
[LOGO]
Common Stock
------------------------
PROSPECTUS
------------------------
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY
COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
, 1997
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are estimates of the fees and expenses payable by the
Company in connection with the offer and sale of the Common Stock:
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 21,014
NASD Filing Fee........................................................... 7,435
Nasdaq National Market Listing Fee........................................ 17,500
Blue Sky Qualification Fees and Expenses.................................. 1,000
Legal Fees and Expenses................................................... 110,000
Accounting Fees and Expenses.............................................. 50,000
Transfer Agent Fees....................................................... 5,000
Printing, Materials, and Postage.......................................... 65,000
Miscellaneous Expenses.................................................... 5,000
--------
Total........................................................... $281,949
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws effectively provide that the Registrant shall, to
the full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 145"), indemnify all
persons whom it may indemnify pursuant thereto. In addition, the Registrant's
Certificate of Incorporation eliminates personal liability of its directors to
the full extent permitted by Section 102(b)(7) of the General Corporation Law of
the State of Delaware, as amended from time to time ("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit, or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a matter
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation, except
that no indemnification shall be made if such person shall have been adjudged
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that the
defendant officers or directors are reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
benefit. No such provision shall eliminate or limit the liability of a director
for any act or omission occurring prior to the date when such provision becomes
effective.
Section 8 of the Underwriting Agreement (filed as Exhibit 1.1 to this
Registration Statement) provides that the Underwriters severally and not jointly
will indemnify and hold harmless the Registrant, the Selling Stockholders and
each director, officer and controlling person of the Registrant from and against
any liability caused by any statement or omission in the Registration Statement,
in the Prospectus, in any Preliminary
II-1
<PAGE> 67
Prospectus or in any amendment or supplement thereto, in each case to the extent
that the statement or omission was made in reliance upon and in conformity with
written information furnished to the Registrant by the Underwriters expressly
for use therein.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Smith, Gambrell & Russell, LLP
10.1 Employment Agreement dated July 30, 1993 by and between Image Industries,
Inc. and Larry M. Miller
10.2 Extension of Employment Agreement dated July 30, 1996 by and between Image
Industries, Inc. and Larry M. Miller
10.3 Amended Employment Agreement dated August 30, 1996 by and between the
Registrant, Image Industries, Inc. and Larry M. Miller
10.4 Employment Agreement dated July 30, 1993 by and between Image Industries,
Inc. and H. Stanley Padgett
10.5 Extension of Employment Agreement dated July 30, 1996 by and between Image
Industries, Inc.and H. Stanley Padgett
10.6 Amended Employment Agreement dated August 30, 1996 by and between the
Registrant, Image Industries, Inc. and H. Stanley Padgett
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG Peat Marwick LLP
23.4 Consent of Smith, Gambrell & Russell, LLP (contained in their opinion filed
as Exhibit - 5.1 hereto)
24.1 Powers of Attorney
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
<PAGE> 68
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each posteffective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Kennesaw, State of Georgia, on this 21st day of
January, 1997.
THE MAXIM GROUP, INC.
By: /s/ A.J. NASSAR
-----------------------------
A.J. Nassar
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -----------------
<C> <S> <C>
* Chairman of the Board January 21, 1997
- ------------------------------------------
M.B. Seretean
/s/ A.J. NASSAR President, Chief Executive January 21, 1997
- ------------------------------------------ Officer and Director
A.J. Nassar (principal executive officer)
/s/ THOMAS P. LEAHEY Executive Vice President, January 21, 1997
- ------------------------------------------ Finance and Treasurer
Thomas P. Leahey (principal financial officer)
/s/ H. GENE HARPER Chief Financial Officer and January 21, 1997
- ------------------------------------------ Secretary (principal
H. Gene Harper accounting officer)
* Chief Operating Officer, January 21, 1997
- ------------------------------------------ Senior Executive Vice
James W. Inglis President and Director
* Senior Executive Vice January 21, 1997
- ------------------------------------------ President and Director
Larry M. Miller
* Senior Executive Vice January 21, 1997
- ------------------------------------------ President and Director
H. Stanley Padgett
* Director January 21, 1997
- ------------------------------------------
Richard A. Kaplan
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -----------------
<C> <S> <C>
* Director January 21, 1997
- ------------------------------------------
Dicky W. McAdams
* Director January 21, 1997
- ------------------------------------------
Ronald McSwain
* Director January 21, 1997
- ------------------------------------------
J. Michael Nixon
* Director January 21, 1997
- ------------------------------------------
Herb Wolk
*By: /s/ A.J. NASSAR
- ------------------------------------------
A.J. Nassar, as Attorney-in-Fact
</TABLE>
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- -------
<S> <C> <C>
1.1 Form of Underwriting Agreement
5.1 Opinion of Smith, Gambrell & Russell, LLP
10.1 Employment Agreement dated July 30, 1993
by and between Image Industries, Inc. and
Larry M. Miller
10.2 Extension of Employment Agreement dated
July 30, 1996 by and between Image Industries,
Inc. and Larry M. Miller.
10.3 Amended Employment Agreement dated
August 30, 1996 by and between the Registrant,
Image Industries, Inc. and Larry M. Miller
10.4 Employment Agreement dated July 30, 1993
by and between Image Industries, Inc. and
H. Stanley Padgett.
10.5 Extension of Employment Agreement dated
July 30, 1996 by and between Image Industries, Inc.
and H. Stanley Padgett.
10.6 Amended Employment Agreement dated
August 30, 1996 by and between the Registrant,
Image Industries, Inc. and H. Stanley Padgett
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG Peat Marwick LLP
24.1 Powers of Attorney
</TABLE>
<PAGE> 1
EXHIBIT 1.1
<PAGE> 2
THE MAXIM GROUP, INC.
3,600,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
______ __, 1997
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
The Maxim Group, Inc., a Delaware corporation (the "Company"), and the
selling stockholders named in Schedule 2 hereto (each a "Selling Stockholder"
and together the "Selling Stockholders"), hereby confirm their agreement with
the several underwriters named in Schedule 1 hereto (the "Underwriters"), for
whom you have been duly authorized to act as representatives (in such
capacities, the "Representatives"), as set forth below. If you are the only
Underwriters, all references herein to the Representatives shall be deemed to be
to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained,
the Company and the Selling Stockholders propose to sell to the several
Underwriters an aggregate of 3,600,000 shares (the "Firm Securities") of the
Company's Common Stock, par value $0.001 per share ("Common Stock") of which
3,175,773 shares will be issued and sold by the Company (the "Company's Firm
Securities") and 424,227 shares will be sold by the Selling Stockholders (the
- ----------------
(1) Plus an option to purchase from The Maxim Group, Inc. up to 540,000
additional shares to cover over-allotments.
<PAGE> 3
"Selling Stockholders' Firm Securities"). Of the Selling Stockholders' Firm
Securities, each Selling Stockholder will sell the number of shares listed
opposite its name on Schedule 2 hereto. The Company also proposes to issue and
sell to the several Underwriters not more than 540,000 additional shares of
Common Stock if requested by the Underwriters as provided in Section 3 of this
Agreement. Any and all shares of Common Stock to be purchased by the
Underwriters pursuant to such option are referred to herein as the "Option
Securities," and the Firm Securities and any Option Securities are collectively
referred to herein as the "Securities."
2. Representations and Warranties of the Company and the Selling
Stockholders
(a) The Company represents and warrants to, and agrees with, each of
the several Underwriters that:
(i) The Company meets the requirements for use of Form S-3
under the Securities Act of 1933, as amended (the "Act"). A
registration statement on such Form (File No. 333-_____) with respect
to the Securities, including a prospectus subject to completion, has
been filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Act, and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (A) if
such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (I) if
the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Securities, that shall identify
the Preliminary Prospectus (as hereinafter defined) that it supplements
and, if required to be filed pursuant to Rules 434(c)(2) and 424(b), an
Integrated Prospectus (as hereinafter defined), in either case,
containing such information as is required or permitted by Rule 434,
430A and 424(b) under the Act or (II) if the Company does not rely on
Rule 434 under the Act, a prospectus in the form most recently included
in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act
or permitted by Rule 424(b) under the Act, and in the case of clause
(A)(I) or (A)(II) of this sentence as have been provided to and
approved by the Representatives prior to the execution of this
Agreement, or (B) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under
the Act, an amendment to such registration statement, including a form
of prospectus, a copy of which amendment has been furnished to and
approved by the Representatives prior to the execution of this
Agreement. The Company may also file a related registration statement
with the Commission pursuant to Rule 462(b) under the Act for the
purpose of registering certain additional Securities, which
registration shall be effective upon filing with the Commission. As
used in this Agreement, the term "Original Registration Statement"
means the registration statement initially filed relating to the
Securities, as amended at the time when it was or is declared
effective, including (A) all financial schedules and exhibits thereto,
(B) all documents incorporated by reference therein filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
(C) any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined) or, if
required to be filed
2
<PAGE> 4
pursuant to Rule 434(c)(2) and 424(b), in the Integrated Prospectus;
the term "Rule 462(b) Registration Statement" means any registration
statement filed with the Commission pursuant to Rule 462(b) under the
Act (including the Registration Statement and any Preliminary
Prospectus or Prospectus incorporated therein at the time such
Registration Statement becomes effective); the term "Registration
Statement" includes both the Original Registration Statement and any
Rule 462(b) Registration Statement; the term "Preliminary Prospectus"
means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared
effective), including all documents; the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the Act,
the Term Sheet relating to the Securities that is first filed
pursuant to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet
supplements:
(B) if the Company does not rely on Rule 434 under
the Act, the Prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act; or
(C) if the Company does not rely on Rule 434 under
the Act and if no prospectus is required to be filed pursuant
to Rule 424(b) under the Act, the prospectus included in the
Registration Statement, including, in the case of clauses (A),
(B) or (C) of this sentence, all documents incorporated by
reference therein filed under the Exchange Act; the term
"Integrated Prospectus" means a prospectus first filed with
the Commission pursuant to Rules 434(c)(2) and 424(b) under
the Act; and the term "Term Sheet" means any abbreviated term
sheet that satisfies the requirements of Rule 434 under the
Act. Any reference in this Agreement to an "amendment or
supplement" to any Preliminary Prospectus, the Prospectus or
any Integrated Prospectus or an "amendment" to any
registration statement (including the Registration Statement)
shall be deemed to include any document incorporated by
reference therein that is filed with the Commission under the
Exchange Act after the date of such Preliminary Prospectus,
Prospectus, Integrated Prospectus or registration statement,
as the case may be; any reference herein to the "date" of a
Prospectus that includes a Term Sheet shall mean the date of
such Term Sheet. For purposes of the preceding sentence, any
reference to the "effective date" of an amendment to a
registration statement shall, if such amendment is effected by
means of the filing with the Commission under the Exchange Act
of a document incorporated by reference in such registration
statement, be deemed to refer to the date on which such
document was so filed with the Commission. Any reference in
this Agreement to an "amendment or supplement" to any
Preliminary Prospectus, Prospectus or any Integrated
Prospectus or an "amendment or supplement" to any registration
statement (including the Registration Statement) shall be
deemed to include any amendment or supplement to a report to
security holders or Form 10-Q. For purposes of the preceding
sentence, any reference to the "effective date" of an
amendment to a registration statement shall be deemed to
3
<PAGE> 5
refer to the date of any such amendment or supplement to a
report to security holders or Form 1O-Q.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any Preliminary
Prospectus and any amendment or supplement thereto was filed with the
Commission, it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act, the Exchange Act and the respective rules
and regulations of the Commission thereunder, and (B) did not include
any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective, it (A) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in
all material respects with the requirements of, the Act, the Exchange
Act and the respective rules and regulations of the Commission
thereunder and (B) did not or will not include any untrue statement of
a material fact or omit to state any material fact necessary to make
the statements therein not misleading. When the Prospectus or any Term
Sheet that is a part thereof or any Integrated Prospectus or any
amendment or supplement to the Prospectus is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or part thereof or such
amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such
amendment or supplement to the Prospectus was or is declared
effective), on the date when the Prospectus is otherwise amended or
supplemented and on the Firm Closing Date and any Option Closing Date
(both as hereinafter defined), each of the Prospectus, and, if required
to be filed pursuant to Rules 434(c)(2) and 424(b) under the Act, the
Integrated Prospectus as amended or supplemented at any such time, (A)
contained or will contain all statements required to be stated therein
in accordance with, and complied or will comply in all material
respects with the requirements of, the Act, the Exchange Act and the
respective rules and regulations of the Commission thereunder and (B)
did not or will not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph
(ii) do not apply to statements or omissions made in any Preliminary
Prospectus or any amendment or supplement thereto, the Registration
Statement or any amendment thereto, the Prospectus or, if required to
be filed pursuant to Rules 434(c)(2) and 424(b) and the Act, the
Integrated Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to
the Company by any Underwriter through the Representatives specifically
for use therein.
(iii) If the Company has elected to rely on Rule 462(b) and
the Rule 462(b) Registration Statement has not been declared effective
(A) the Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective upon filing pursuant to Rule
462(b) and has received confirmation of its receipt and (B) the Company
has given irrevocable instructions for transmission of the applicable
filing fee in connection with the
4
<PAGE> 6
filing of the Rule 462(b) Registration Statement, in compliance with
Rule 111 promulgated under the Act or the Commission has received
payment of such filing fee.
(iv) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation and
are duly qualified to transact business as foreign corporations and are
in good standing under the laws of all other jurisdictions where the
ownership or leasing of their respective properties or the conduct of
their respective businesses requires such qualification, except where
the failure to be so qualified does not amount to a material liability
or disability to the Company and its subsidiaries, taken as a whole.
(v) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and
conduct their respective businesses as described in the Registration
Statement each of the Prospectus and any Integrated Prospectus or, if
the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus; and the Company has
full power (corporate and other) to enter into this Agreement and to
carry out all the terms and provisions hereof to be carried out by it.
(vi) The issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and, except for directors' qualifying
shares and as otherwise set forth in each of the Prospectus and any
Integrated Prospectus or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus, are owned beneficially by the Company free and clear of any
security interests, liens, encumbrances, equities or claims.
(vii) The Company has an authorized, issued and outstanding
capitalization as set forth in the each of the Prospectus and any
Integrated Prospectus or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus. All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. The Firm Securities and the Option Securities have been
duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. No
holders of outstanding shares of capital stock of the Company are
entitled as such to any preemptive or other rights to subscribe for any
of the securities, and no holder of securities of the Company has any
right which has not been fully exercised or waived to require the
Company to register the offer or sale of any securities owned by such
holder under the Act in the public offering contemplated by this
agreement.
(viii) The capital stock of the Company conforms to the
description thereof contained in each of the Prospectus and any
Integrated Prospectus or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus.
5
<PAGE> 7
(ix) Except as disclosed in each of the Prospectus and any
Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus), there are not outstanding (A) securities or obligations of
the Company or any of its subsidiaries convertible into or exchangeable
for any capital stock of the Company or any such subsidiary, (B)
warrants, rights or options to subscribe for or purchase from the
Company or any such subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (C)
obligations of the Company or any such subsidiary to issue any shares
of capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(x) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration
Statement and each of the Prospectus and any Integrated Prospectus (or,
if the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus) fairly present the
financial position of the Company and its consolidated subsidiaries and
the results of operations and changes in financial condition as of the
dates and periods therein specified. Such financial statements and
schedules have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Consolidated Financial and
Operating Data" in each of the Prospectus and any Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus are not
in existence, the most recent Preliminary Prospectus) and in the
Company's Annual Report on Form 10-K for the fiscal year ended January
31, 1996, fairly present, on the basis stated in each of Prospectus and
any Integrated Prospectus (or such Preliminary Prospectus and such
Annual Report), the information included therein.
(xi) Arthur Andersen LLP and KPMG Peat Marwick LLP, who have
certified certain financial statements of the Company and its
consolidated subsidiaries and delivered their report with respect to
the audited consolidated financial statements and the notes and
schedules thereto included in the Registration Statement, the
Prospectus and Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus), are independent public accountants as required
by the Act, the Exchange Act and the related published rules and
regulations thereunder.
(xii) The execution and delivery of this Agreement have been
duly authorized by the Company and this Agreement has been duly
executed and delivered by the Company, and is the valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms.
(xiii) No legal or governmental proceedings are pending to
which the Company or any of its subsidiaries is a party or to which the
property of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement, the Prospectus
and any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus), and no such
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<PAGE> 8
proceedings have been threatened against the Company or any of its
subsidiaries or with respect to any of their respective properties; and
no contract, other document is required to be described in the
Registration Statement or the Prospectus or any Integrated Prospectus
or to be filed as an exhibit to the Registration Statement that is not
described therein (or, if the Prospectus is and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus) or filed as required.
(xiv) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained, such as may be required under state securities or
blue sky laws and, if the registration statement filed with respect to
the Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be
obtained as provided in this Agreement) under the Act, or (B) conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of their respective properties are
bound, or the charter documents or by-laws of the Company or any of its
subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to the Company or any of its subsidiaries.
(xv) Subsequent to the respective dates as of which
information is given in the Registration Statement, the Prospectus or
any Integrated Prospectus or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus, neither the Company nor any of its subsidiaries has
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding and there has not been
any material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or otherwise),
management, business prospects, net worth, or results of operations of
the Company or any of its subsidiaries, except in each case as
described in or contemplated by the Prospectus or any Integrated
Prospectus or, if the Prospectus and any required Integrated Prospectus
are not in existence, the most recent Preliminary Prospectus.
(xvi) The Company has not, directly or indirectly, (A) taken
any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or (B) since the filing
of the Registration Statement (I) sold, bid for, purchased, or paid
anyone any compensation for soliciting purchases of, the Securities or
(II) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company
(except for the sale of Securities by the Selling Stockholders under
this Agreement).
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<PAGE> 9
(xvii) The Company has not distributed and, prior to the later
of (A) the Closing Date and (B) the completion of the distribution of
the Securities, will not distribute any offering material in connection
with the offering and sale of the Securities other than the
Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus and and required Integrated Prospectus or
any amendment or supplement thereto, or other materials, if any
permitted by the Act.
(xviii) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to (A) the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants or to the storage, handling or transportation of hazardous
or toxic material ("Environmental Laws") or (B) occupational safety and
health and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal
and state occupational safety and health and Environmental Laws and
regulations to conduct their respective businesses, and the Company and
each such subsidiary is in compliance with all terms and conditions of
any such permit, license or approval, except any such violation of law
or regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not, singly or in the
aggregate, result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as described in
or contemplated by the Prospectus and any Integrated Prospectus (or, if
the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus). Neither the Company
nor any of its subsidiaries have any pending or threatened
Environmental Law or occupational safety and health claims against it
nor are there circumstances with respect to any property or operations
of the Company or its subsidiaries that could reasonably be anticipated
to form the basis of an Environmental Law or occupational safety and
health claim against the company or any of its subsidiaries which,
singly or in the aggregate, result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except as
described in or contemplated by the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus).
(xix) In the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the
business, operations and properties of the Company and its
subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license
or approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review,
the Company has reasonably concluded that such associated costs and
liabilities would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
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<PAGE> 10
(xx) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters
pursuant to this Agreement shall be deemed to be a representation and
warranty by the Company to each Underwriter as to the matters covered
thereby.
(xxi) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the
Company nor any such subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity, except as described in
or contemplated by the Prospectus or any required Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus are not
in existence, the most recent Preliminary Prospectus).
(xxii) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (C) access to assets is permitted only
in accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxiii) No default exists, and no event has occurred which,
with notice or lapse of time or both, would constitute a default in the
due performance and observance of any term, covenant or condition of
any indenture, mortgage, deed of trust, lease or other material
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or any of
their respective properties is bound or may be affected in any material
adverse respect with regard to property, business or operations of the
Company and its subsidiaries taken as a whole.
(xxiv) Other than the __________ shares of Common Stock sold
in the initial public offering on ________ __, 19__ (the "IPO") and the
880,000 shares sold by certain stockholders in the public offering on
November 21, 1995 (the "Secondary Offering"), all offers and sales of
the Company's capital stock prior to the date hereof, including the
offer and sale of 5,266,285 shares of Common Stock in connection with
the acquisition of Image Industries, Inc., were at all relevant times
exempt from the registration requirements of the Act, and were the
subject of an available exemption from the registration requirements of
all applicable state securities or blue sky laws.
(xxv) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items or real property and
marketable title to all personal property owned by each of them, in
each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
interfere with the use made or proposed to be made of
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<PAGE> 11
such property by the Company or such subsidiary, and any real property
and buildings held under lease by the Company or any such subsidiary
are held under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made
or proposed to be made of such property and buildings by the Company or
such subsidiary, in each case except as described in or contemplated by
the Prospectus or any Integrated Prospectus (or, if the Prospectus and
required Integrated Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xxvi) No labor dispute with the employees of the Company or
any of its subsidiaries exists or is threatened or imminent that could
result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of
the Company and its subsidiaries taken as a whole, except as described
in or contemplated by the Prospectus or any Integrated Prospectus (or,
if the Prospectus and any required Integrated Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxvii) The Company and its subsidiaries own or possess, or
can acquire on reasonable terms, all material patents, patent
applications, trademarks, service marks, trade names, licenses,
copyrights and proprietary or other confidential information currently
employed by them in connection with their respective businesses, and
neither the Company nor any such subsidiary has received any notice of,
or has any reasonable belief that its use constitutes, a material
infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of
the Company and its subsidiaries, except as described in or
contemplated by the Prospectus or any Integrated Prospectus (or, if the
Prospectus and any required Integrated Prospectus is not in existence,
the most recent Preliminary Prospectus).
(xxiii) The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business prospects, net worth, or
results of operations of the Company and its subsidiaries taken as a
whole, except as described in or contemplated by the Prospectus or any
Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus is not in existence, the most recent Preliminary
Prospectus).
(xxix) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such
10
<PAGE> 12
subsidiary from the Company or from transferring any of such
subsidiary's property or assets to the Company or any other subsidiary
of the Company, except as described in or contemplated by the
Prospectus or any Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xxx) The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material
adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus
or any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus is not in existence, the most recent Preliminary
Prospectus).
(xxxi) The Company will conduct its operations in a manner
that will not subject it to registration as an investment company under
the Investment Company Act of 1940, as amended, and this transaction
will not cause the Company to become an investment company subject to
registration under such Act.
(xxxii) The Company and its subsidiaries have filed all
foreign, federal, state and local tax returns that are required to be
filed or have requested extensions thereof (except in any case in which
the failure so to file would not have a material adverse effect on the
Company and its subsidiaries taken as a whole) and have paid all taxes
required to be paid by them and any other assessment, fine or penalty
levied against them, to the extent that any of the foregoing is due and
payable, except for any such assessment, fine or penalty that is
currently being contested in good faith or as described in or
contemplated by the Prospectus or any Integrated Prospectus (or, if the
Prospectus and any required Integrated Prospectus is not in existence,
the most recent Preliminary Prospectus).
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, each of the several Underwriters that:
(i) Such Selling Stockholder has full power (partnership,
trust and other) to enter into this Agreement and to sell, assign,
transfer and deliver to the Underwriters the Securities to be sold by
such Selling Stockholder hereunder in accordance with the terms of this
Agreement; the execution and delivery of this Agreement have been duly
authorized by all necessary actions of such Selling Stockholder
(partnership, trust or other, as applicable); and this Agreement has
been duly executed and delivered by such Selling Stockholder.
(ii) Such Selling Stockholder has duly executed and delivered
a power of attorney and custody agreement (with respect to such Selling
Stockholder, the "Power of Attorney" and the "Custody Agreement,"
respectively), each in the form heretofore
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<PAGE> 13
delivered to the Representatives, appointing A.J. Nassar as such
Selling Stockholder's attorney-in-fact (the "Attorney-in-Fact") with
authority to execute, deliver and perform this Agreement on behalf of
such Selling Stockholder and appointing Wachovia Bank of North
Carolina, N.A., as custodian thereunder (the "Custodian"). Certificates
in negotiable form, endorsed in blank or accompanied by blank stock
powers duly executed, with signatures appropriately guaranteed,
representing the Securities to be sold by such Selling Stockholder
hereunder have been deposited with the Custodian pursuant to the
Custody Agreement for the purpose of delivery pursuant to this
Agreement. Such Selling Stockholder has full power (partnership, trust
or other, as applicable) to enter into the Custody Agreement and the
Power of Attorney and to perform his obligations under the Custody
Agreement. The Custody Agreement and the Power of Attorney have been
duly executed and delivered by such Selling Stockholder and, assuming
due authorization, execution and delivery by the Custodian, are the
legal, valid, binding and enforceable instruments of such Selling
Stockholder. Such Selling Stockholder agrees that each of the
Securities represented by the certificates on deposit with the
Custodian is subject to the interests of the Underwriters hereunder,
that the arrangements made for such custody, the appointment of the
Attorney- in-Fact and the right, power and authority of the
Attorney-in-Fact to execute and deliver this Agreement, to agree on the
price at which the Securities (including such Selling Stockholder's
Securities) are to be sold to the Underwriters, and to carry out the
terms of this Agreement, are to that extent irrevocable and that the
obligations of such Selling Stockholder hereunder shall not be
terminated, except as provided in this Agreement or the Custody
Agreement, by any act of such Selling Stockholder, by operation of law
or otherwise, whether in the case of any individual Selling Stockholder
by the death or incapacity of such Selling Stockholder, in the case of
a trust or estate by the death of the trustee or trustees or the
executor or executors or the termination of such trust or estate, or in
the case of a partnership Selling Stockholder by its liquidation or
dissolution or by the occurrence of any other event. If any individual
Selling Stockholder, trustee or executor should die or become
incapacitated or any such trust should be terminated, or if any
corporate or partnership Selling Stockholder shall liquidate or
dissolve, or if any other event should occur, before the delivery of
such Securities hereunder, the certificates for such Securities
deposited with the Custodian shall be delivered by the Custodian in
accordance with the respective terms and conditions of this Agreement
as if such death, incapacity, termination, liquidation or dissolution
or other event had not occurred, regardless of whether or not the
Custodian or the Attorney-in-Fact shall have received notice thereof.
(iii) Such Selling Stockholder is the lawful owner of the
Securities to be sold by such Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such Securities, as provided
herein, such Selling Stockholder will convey good and valid title to
such Securities, free and clear of any security interests, liens,
encumbrances, equities, claims or other defects.
(iv) Such Selling Stockholder has not, directly or indirectly,
(A) taken any action designed to cause or result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company
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<PAGE> 14
to facilitate the sale or resale of the Securities or (B) since the
filing of the Registration Statement (I) sold, bid for, purchased, or
paid anyone any compensation for soliciting purchases of, the
Securities or (II) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company
(except for the sale of Securities by the Selling Stockholders under
this Agreement).
(v) In the case of the Selling Stockholders identified in
Schedule 1 hereto as Group 1 Selling Stockholders (collectively, the
"Group 1 Selling Stockholders"), such Selling Stockholder has reviewed
the Prospectus and any Integrated Prospectus (or, if the Prospectus and
any required Integrated Prospectus are not in existence, the most
recent Preliminary Prospectus) and the Registration Statement, and the
information included therein did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. In the case of the Selling
Stockholders identified in Schedule 1 hereto as Group 2 Selling
Stockholders (the "Group 2 Selling Stockholders"), such Selling
Stockholder has reviewed the Prospectus and any Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus are not
in existence, the most recent Preliminary Prospectus) and the
Registration Statement, and the information regarding such Selling
Stockholder set forth under the caption "Principal and Selling
Stockholders" is complete and accurate.
(vi) The Selling Stockholders have not distributed and, prior
to the later of (A) the Firm Closing Date and (B) the completion of the
distribution of the Securities, will not distribute any offering
material in connection with the offering and sale of the Securities
other than the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any Integrated Prospectus or
any supplement or amendment thereto, or any materials, if any permitted
by the Act.
(vii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Internal Revenue Code
of 1986, as amended, with respect to the transactions herein
contemplated, such Selling Stockholder agrees to deliver to the
Representatives prior to or on the Firm Closing Date a properly
completed and executed United States Treasury Department Form W-8 or
W-9 (or other applicable form or statement specified by the Treasury
Department regulations in lieu thereof).
(viii) The sale by such Selling Stockholder of Securities
pursuant hereto is not prompted by any adverse information concerning
the Company that is not set forth in the Registration Statement, the
Prospectus or any Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus).
(ix) The sale of the Securities to the Underwriters by such
Selling Stockholder pursuant to this Agreement, the compliance by such
Selling Stockholder with the other provisions of this Agreement and the
Custody Agreement and the consummation of the
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<PAGE> 15
other transactions herein contemplated do not (A) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as has been obtained, such as the
registration under state securities or blue sky laws and, if the
registration statement filed with respect to the Securities (as
amended) is not effective under the Act as of the time of execution
hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act and the Exchange Act, or (B) conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under any indenture, mortgage,
deed of trust, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or
any of such Selling Stockholder's properties are bound, or any statute
or any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to such
Selling Stockholder.
3. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to, and each of the Selling
Stockholders agrees to sell to, each of the Underwriters, and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company and
the Selling Stockholders, at a purchase price of $_______ per share, the number
of Firm Securities set forth opposite the name of such Underwriter in Schedule 1
hereto. One or more certificates in definitive form for the Firm Securities that
the several Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Representatives request upon notice to the Company and the Selling Stockholders
at least 48 hours prior to the Firm Closing Date, shall be delivered by or on
behalf of the Company and the Selling Stockholders to the Representatives for
the respective accounts of the Underwriters, against payment by or on behalf of
the Underwriters of the purchase price therefor by wire transfer in same- day
funds (the "Wired Funds") to the account of the Company and the Selling
Stockholders, as their interests appear. Such delivery of and payment for the
Firm Securities shall be made at the offices of ________________________________
at 9:30 A.M., New York time, on ________, 1997, or at such other place, time or
date as the Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 9 hereof, such time and date
of delivery against payment being herein referred to as the "Firm Closing Date".
The Company and the Selling Stockholders will make such certificate or
certificates for the Firm Securities available for checking and packaging by
the Representatives at the offices in New York, New York of the Company's
transfer agent or registrar or of Prudential Securities Incorporated at least
24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3, plus if the purchase and sale of any Option Securities takes place
after the Firm Closing Date and after the Firm
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<PAGE> 16
Securities are trading "ex-dividend", an amount equal to the dividend payable on
such Option Securities. The option granted hereby may be exercised as to all or
any part of the Option Securities from time to time within thirty days after the
date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading). The Underwriters shall not be under any obligation to
purchase any of the Option Securities prior to the exercise of such option. The
Representatives may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate principal amount of Option Securities as to which
the several Underwriters are then exercising the option and the date and time
for delivery of and payment for such Option Securities. Any such date of
delivery shall be determined by the Representatives but shall not be earlier
than two business days or later than five business days after such exercise of
the option and, in any event, shall not be earlier than the Firm Closing Date.
The time and date set forth in such notice, or such other time on such other
date as the Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 9 hereof, is herein called the
"Option Closing Date" with respect to such Option Securities. Upon exercise of
the option as provided herein, the Company shall become obligated to sell to
each of the several Underwriters, and, subject to the terms and conditions
herein set forth, each of the Underwriters (severally and not jointly) shall
become obligated to purchase from the Company, the same percentage of the total
number of the Option Securities as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Securities, as adjusted by the Representatives in such
manner as they deem advisable to avoid fractional Shares. If the option is
exercised as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (a) of this Section 3,
except that reference therein to the Firm Securities and the Firm Closing Date
shall be deemed, for purposes of this paragraph (b), to refer to such Option
Securities and Option Closing Date, respectively.
(c) The Company and the Selling Stockholders hereby acknowledge that
the wire transfer by or on behalf of the Underwriters of the purchase price for
any Shares does not constitute closing of a purchase and sale of the Shares.
Only execution and delivery of a receipt for Shares by the Underwriters
indicates completion of the closing of a purchase of the Shares from the Company
and the Selling Stockholders. Furthermore, in the event that the Underwriters
wire funds to the Company and the Selling Stockholders prior to the completion
of the closing of a purchase of Shares, the Company and the Selling Stockholders
hereby acknowledge that until the Underwriters execute and deliver a receipt for
the Shares, by facsimile or otherwise, the Company and the Selling Stockholders
will not be entitled to the wired funds and shall return the wired funds to the
Underwriters as soon as practicable (by wire transfer of same-day funds) upon
demand. In the event that the closing of a purchase of Shares is not completed
and the wire funds are not returned by the Company and the Selling Stockholders
to the Underwriters on the same day the wired funds were received by the Company
and the Selling Stockholders, the Company and the Selling Stockholders, as the
case may be, agree to pay to the Underwriters in respect of each day the wire
funds are not returned by it, in same-day funds, interest on the amount of such
wire funds in an
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<PAGE> 17
amount representing the Underwriters' cost of financing as reasonably determined
by Prudential Securities Incorporated.
(d) It is understood that any of you, individually and not as one of
the Representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such Underwriter
or Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. Covenants of the Company and the Selling Stockholders.
(a) The Company covenants and agrees with each of the Underwriters
that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of
this Agreement, and any amendments thereto to become effective as
promptly as possible. If required, the Company will file the
Prospectus, any Integrated Prospectus or any Term Sheet that
constitutes a part thereof and any amendment or supplement thereto with
the Commission in the manner and within the time period required by
Rule 434 and 424(b) under the Act. During any time when a prospectus
relating to the Securities is required to be delivered under the Act,
the Company (A) will comply with all requirements imposed upon it by
the Act, the Exchange Act and the Trust Indenture Act and the
respective rules and regulations of the Commission thereunder to the
extent necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and of each of
the Prospectus and any Integrated Prospectus, as then amended or
supplemented, and (B) will not file with the Commission the prospectus
or the amendment referred to in the third sentence of Section 2(a)(i)
hereof, any amendment or supplement to such prospectus or any amendment
to the Registration Statement or any Rule 462(b) Registration Statement
of which the Representatives shall not previously have been advised and
furnished with a copy for a reasonable period of time prior to the
proposed filing and as to which filing the Representatives shall not
have given their consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the
Commission, promptly upon request by the Representatives or counsel for
the Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus and any Integrated
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the several Underwriters, and will
use its best efforts to cause any such amendment to the Registration
Statement to be declared effective by the Commission as promptly as
possible. The Company will advise the Representatives, promptly after
receiving notice thereof, of the time when the Registration Statement
or any amendment thereto has been filed or declared effective or the
Prospectus and any Integrated Prospectus or any amendment or supplement
thereto has been filed and will provide evidence satisfactory to the
Representatives of each such filing or effectiveness.
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<PAGE> 18
(ii) The Company will advise the Representatives, promptly
after receiving notice or obtaining knowledge thereof, of (A) the
issuance by the Commission of any stop order suspending the
effectiveness of the Original Registration Statement or any Rule 462(b)
Registration Statement or any post-effective amendment thereto or any
order directed at any document incorporated by reference in the
Registration Statement or if the Prospectus and any required Integrated
Prospectus are or any amendment or supplement thereto or any order
preventing or suspending the use of any Preliminary Prospectus, the
Prospectus and any Integrated Prospectus or any amendment or supplement
thereto, (B) the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, (C) the institution, threatening
or contemplation of any proceeding for any such purpose or (D) any
request made by the Commission for amending the Original Registration
Statement or any Rule 462(b) Registration Statement, for amending or
supplementing any Preliminary Prospectus, the Prospectus and any
Integrated Prospectus or for additional information. The Company will
use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued, to obtain the withdrawal thereof
as promptly as possible.
(iii) The Company will arrange for the qualification of the
Securities for offering and sale under the securities or blue sky laws
of such jurisdictions as the Representatives may designate and will
continue such qualifications in effect for as long as may be necessary
to complete the distribution of the Securities, provided, however, that
in connection therewith the Company shall not be required to qualify as
a foreign corporation or to execute a general consent to service of
process in any jurisdiction.
(iv) If, at any time prior to the later of (A) the final date
when a prospectus relating to the Securities is required to be
delivered under the Act or (B) the Option Closing Date, any event
occurs as a result of which either the Prospectus or any Integrated
Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
other reason it is necessary at any time to amend or supplement the
Prospectus or any Integrated Prospectus to comply with the Act, the
Exchange Act or the respective rules or regulations of the Commission
thereunder, the Company will promptly notify the Representatives
thereof and, subject to Section 5(a) hereof, will prepare and file with
the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus
or any Integrated Prospectus that corrects such statement or omission
or effects such compliance.
(v) The Company will, without charge, provide (A) to the
Representatives and to counsel for the Underwriters a signed copy of
the registration statement originally filed with respect to the
Securities and each amendment thereto (in each case including exhibits
thereto) or any Rule 462(b) Registration Statement, certified by the
Secretary or an Assistant Secretary of the Company to be true and
complete copies thereof as filed with the Commission by electronic
transmission, (B) to each other Underwriter, a conformed copy of such
registration statement or any Rule 462(b) Registration Statement and
each amendment thereto (in each
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<PAGE> 19
case without exhibits thereto) and (C) so long as a prospectus relating
to the Securities is required to be delivered under the Act, as many
copies of each Preliminary Prospectus, the Prospectus or any Integrated
Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request; without limiting the
application of clause (C) of this sentence, the Company, not later than
(I) 6:00 PM, New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to
10:00 AM, New York City time on such date or (II) 2:00 PM, New York
City time, on the business day following the date of determination of
the public offering price, if such determination occurred after 10:00
AM, New York City time, on such date, will deliver to the Underwriters,
without charge, as many copies of the Prospectus and any amendment or
supplement thereto as the Representatives may reasonably request for
purposes of confirming orders that are expected to settle on the Firm
Closing Date.
(vi) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representatives a
consolidated earnings statement of the Company and its subsidiaries
that satisfies the provisions of Section 11(a) of the Act and Rule 158
thereunder.
(vii) The Company will apply the net proceeds from the sale of
the Securities as set forth under "Use of Proceeds" in the Preliminary
Prospectus, the Prospectus or any Integrated Prospectus.
(viii) The Company will not, directly or indirectly, without
the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose
(or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of
180 days after the date hereof, except pursuant to this Agreement and
except for issuances pursuant to the exercise of employee stock options
outstanding on the date hereof, pursuant to the Company's dividend
reinvestment plan or pursuant to the terms of convertible securities of
the Company outstanding on the date hereof.
(ix) The Company will not, directly or indirectly, (A) take
any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or (B) (I) sell, bid
for, purchase, or pay anyone any compensation for soliciting purchases
of, the Securities or (II) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company (except for the sale of Securities by the Selling
Stockholders under this Agreement).
(x) The Company will obtain the agreements described in
Section 7(f) hereof prior to the Firm Closing Date.
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<PAGE> 20
(xi) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the
Option Closing Date, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion
the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus and
any Integrated Prospectus), the Company will, after notice from you
advising the Company to the effect set forth above, forthwith prepare,
consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you,
responding to or commenting on such rumor, publication or event.
(xii) If the Company elects to rely on Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees
in accordance with Rule 111 promulgated under the Act by the earlier of
(i) 10:00 P.M. Eastern time on the date of this Agreement and (ii) the
time confirmations are sent or given, as specified by Rule 462(b)(2).
(xiii) The Company will cause the Securities to be duly
included for quotation on the Nasdaq Stock Market's National Market
(the "Nasdaq National Market") prior to the Firm Closing Date. The
Company will ensure that the Securities remain included for quotation
on the Nasdaq National Market following the Firm Closing Date.
(b) Each Selling Stockholder covenants and agrees with each of the
Underwriters that:
(i) Such Selling Stockholder will not, directly or indirectly,
(A) take any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or (B) (I)
sell, bid for, purchase, or pay anyone any compensation for soliciting
purchases of, the Securities or (II) pay or agree to pay to any person
any compensation for soliciting another to purchase any other
securities of the Company (except for the sale of Securities by the
Selling Stockholder under this Agreement).
(ii) Such Group 1 Selling Stockholders will not, directly or
indirectly, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale
or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, Common Stock or
other stock of the Company, or any right to purchase or acquire Common
Stock or other capital stock of the Company for a period of 180 days
after the date hereof, except pursuant to this Agreement.
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<PAGE> 21
6. Expenses. The Company will pay all costs and expenses incident to
the performance of the obligations of the Company and the Selling Stockholders
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 12 hereof,
including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs of
printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus, the Prospectus and any Integrated Prospectus and any
amendment or supplement thereto, this Agreement and any blue sky memoranda, (ii)
all arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (iii) the fees and disbursements of the counsel,
accountants and any other experts or advisors retained by the Company, (iv)
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission (and the National
Association of Securities Dealers, Inc.) relating to the Securities, (vii) the
quotation of the Securities on the Nasdaq National Market and, (viii) meetings
with prospective investors in the Securities (other than shall have been
specifically approved by the Representatives to be paid for by the Underwriters)
and (ix) advertising relating to the offering of the Securities (other than
shall have been specifically approved by the Representatives to be paid for by
the Underwriters). If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 7 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 12 hereof or because of any failure, refusal or inability on
the part of the Company to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities. The Company shall not in
any event be liable to any of the Underwriters for the loss of anticipated
profits from the transactions covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
contained herein as of the date hereof and as of the Firm Closing Date, as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their covenants and
agreements hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, Original Registration Statement or such amendment and,
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have been declared effective not later than the
earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to
the registration statement originally filed with respect to the Securities or to
the Registration Statement, as the case
20
<PAGE> 22
may be, containing information regarding the initial public offering price of
the Securities has been filed with the Commission and (ii) the time
confirmations are sent or given as specified by Rule 462(b)(2), or with respect
to the Original Registration Statement, or such later time and date as shall
have been consented to by the Representatives; if required, the Prospectus or
any Term Sheet that constitutes a part thereof and any Integrated Prospectus and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rule 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto and no order directed at any document
incorporated by reference in the Registration Statement, the Prospectus or any
Integrated Prospectus or any amendment or supplement thereto shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement, the Prospectus or any Integrated Prospectus or
otherwise).
(b) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Smith, Gambrell & Russell LLP, counsel for the Company, to the
effect that:
(i) the Company and each of its subsidiaries (the
"Subsidiaries") have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation and are duly qualified to transact
business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses
requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the
Company and the Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have corporate
power to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and
the Prospectus or any Integrated Prospectus, and the Company has
corporate power to enter into this Agreement and to carry out all the
terms and provisions hereof and thereof to be carried out by it;
(iii) the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and, except for directors' qualifying shares and
as otherwise set forth in each of the Prospectus and any Integrated
Prospectus, are owned beneficially by the Company free and clear of any
perfected security interests or, to the best knowledge of such counsel,
any other security interests, liens, encumbrances, equities or claims;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in each of the Prospectus or any Integrated
Prospectus; all of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable
federal and state
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<PAGE> 23
securities laws and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase
securities; the Firm Securities have been duly authorized by all
necessary corporate action of the Company and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and nonassessable; the
Securities have been duly included for trading on the Nasdaq National
Market; no holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to
subscribe for any of the Securities; and no holders of securities of
the Company are entitled to have such securities registered under the
Registration Statement;
(v) the statements set forth under the heading "Description of
Capital Stock" in each of the Prospectus and any Integrated Prospectus,
insofar as such statements purport to summarize certain provisions of
the capital stock of the Company, provide a fair summary of such
provisions and the statements set forth under the heading "Business -
Government Regulation" in each of the Prospectus and any Integrated
Prospectus, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, provide a
fair summary of such legal matters, documents and proceedings;
(vi) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the Company;
(vii) no legal or governmental proceedings are pending to
which the Company or any of the Subsidiaries is a party or to which the
property of the Company or any of the Subsidiaries is subject that are
required to be described in the Registration Statement, the Prospectus
and any Integrated Prospectus and are not described therein, and, to
the best knowledge of such counsel, no such proceedings have been
threatened against the Company or any of the Subsidiaries or with
respect to any of their respective properties; and no contract or other
document is required to be described in the Registration Statement, the
Prospectus and any Integrated Prospectus or to be filed as an exhibit
to the Registration Statement that is not described therein or filed as
required;
(viii) the issuance, offering and sale of the Securities to
the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement
and the consummation of the other transactions herein contemplated do
not (A) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained and such as may be required under state securities
or blue sky laws, or (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument, known to such counsel, to which the Company or
any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries or any of their respective properties are bound, or
the charter documents or by-laws of the Company or any of the
Subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority
22
<PAGE> 24
or any arbitrator known to such counsel and applicable to the Company
or any of the Subsidiaries;
(ix) the Registration Statement is effective under the Act;
any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, and any Integrated Prospectus pursuant to
Rules 434 and 424(b) has been made in the manner and within the time
period required by Rules 434 and 424(b); and no stop order suspending
the effectiveness of the Registration Statement or any post-effective
amendment thereto and no order directed at any document incorporated by
reference in the Registration Statement, the Prospectus and any
Integrated Prospectus or any amendment or supplement thereto has been
issued, and no proceedings for that purpose have been instituted or
threatened or, to the best knowledge of such counsel, are contemplated
by the Commission;
(x) the Registration Statement originally filed with respect
to the Securities and each amendment thereto and any Rule 462(b)
Registration Statement, the Prospectus and any Integrated Prospectus
(in each case, including the documents incorporated by reference
therein but not including the financial statements and other financial
information contained therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder;
(xi) If the Company elects to rely on Rule 434, the Prospectus
is not "materially different", as such term is used in Rule 434, from
the prospectus included in the Registration Statement at the time of
its effectiveness or any effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to
Rule 430A);
(xii) to the best knowledge of such counsel, the Company and
the Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of
the Company and the Subsidiaries, except as described in or
contemplated by the Prospectus and any Integrated Prospectus (or, if
the Prospectus and any required Integrated Prospectus is not in
existence, the most recent Preliminary Prospectus);
(xiii) the Company is not an "investment company" under the
Investment Company Act of 1940, as amended, and consummation of the
transactions herein contemplated will not cause the Company to become
an investment company subject to registration under such Act;
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<PAGE> 25
(xiv) except for the shares of capital stock of each of the
Subsidiaries owned by the Company and such Subsidiaries, neither the
Company nor any such Subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity, except as described in
or contemplated by the Prospectus and any Integrated Prospectus (or, if
the Prospectus and any required Integrated Prospectus is not in
existence, the most recent Preliminary Prospectus); and
(xv) except as disclosed in the and any Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no
outstanding (A) securities or obligations of the Company or any of its
Subsidiaries convertible into or exchangeable for any capital stock of
the Company or any such Subsidiary, (B) warrants, rights or options to
subscribe for or purchase from the Company or any such subsidiary any
such capital stock or any such convertible or exchangeable securities
or obligations, or (C) obligations of the Company or any such
Subsidiary to issue any shares of capital stock, any such convertible
or exchangeable securities or obligations, or any such warrants, rights
or options.
Such counsel shall also state that they have no reason to believe that
the Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus and any Integrated Prospectus, as of its date or the date of
such opinion, included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials. The foregoing opinion shall also
state that the Underwriters are justified in relying upon such opinion of Smith,
Gambrell & Russell LLP, and copies of such opinion shall be delivered to the
Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus and any
Integrated Prospectus in this paragraph (b) shall include any amendment or
supplement thereto at the date of such opinion.
(c) The Representatives shall have received an opinion, dated the Firm
Closing Date of Smith, Gambrell & Russell, LLP for the Group 1 Selling
Stockholders and of Womble Carlyle Sandridge & Rice LLP, for the Group 2 Selling
Stockholders, as appropriate, to the effect that:
(i) each Selling Stockholder has full power (partnership,
trust or other) to enter into this Agreement, the Custody Agreement and
the Power of Attorney and to sell, assign, transfer and deliver to the
Underwriters the Securities to be sold by such Selling Stockholder
hereunder in accordance with the terms of this Agreement, and to
perform his
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<PAGE> 26
or its obligations under the Custody Agreement; the execution and
delivery of this Agreement, the Custody Agreement and the Power of
Attorney have been duly authorized by all necessary action
(partnership, trust or other) of each Selling Stockholder; this
Agreement, the Custody Agreement and the Power of Attorney have been
executed and delivered by such Selling Stockholder; this Agreement and,
assuming due authorization, execution and delivery by the Custodian,
the Custody Agreement and the Power of Attorney, are the legal, valid,
binding and enforceable instruments of such Selling Stockholder,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law);
(ii) the delivery by such Selling Stockholder to the
Underwriters of certificates for the Securities being sold hereunder by
such Selling Stockholder against payment therefor as provided herein,
will convey good and marketable title to such Securities to the several
Underwriters, free and clear of any security interests, liens,
encumbrances, equities, claims or other defects; and
(iii) the sale of the Securities to the Underwriters by such
Selling Stockholder pursuant to this Agreement, the compliance by such
Selling Stockholder with the other provisions of this Agreement and the
Custody Agreement and the consummation of the other transactions herein
contemplated do not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as has been obtained, and except such as may be required
for registration under state securities or blue sky laws and, if the
registration statement filed with respect to the Securities (as
amended) is not effective under the Act as of the time of execution
hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act and the Exchange Act, or (B) conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under any indenture, mortgage,
deed of trust, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or
any of such Selling Stockholder's properties are bound, or any statute
or any judgment, decree, order, rule or regulation known to such
counsel of any court or other governmental authority or any arbitrator
applicable to such Selling Stockholder.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials. The foregoing opinions shall also
state that the Underwriters are justified in relying upon such opinions of
Smith, Gambrell & Russell LLP and Womble Carlyle Sandridge & Rice LLP, and
copies of such opinion shall be delivered to the Representatives and counsel for
the Underwriters.
References to the Registration Statement and the Prospectus and any
Integrated Prospectus in this paragraph (c) shall include any amendment or
supplement thereto at the date of such opinion.
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<PAGE> 27
(d) The Representatives shall have received an opinion, dated the Firm
Closing Date, of King & Spalding, counsel for the Underwriters, with respect to
the issuance and sale of the Firm Securities, the Registration Statement, the
Prospectus and any Integrated Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(e) The Representatives shall have received from Arthur Andersen LLP
and KPMG Peat Marwick LLP, as appropriate, letters dated, respectively, the date
hereof and the Firm Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) they are independent accountants with respect to the
Company and its consolidated subsidiaries within the meaning of the
Act, the Exchange Act and the applicable rules and regulations
thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules examined by them and included in the
Registration Statement, the Prospectus and any Integrated Prospectus
comply in form in all material respects with the applicable accounting
requirements of the Act, the Exchange Act and the related published
rules and regulations thereunder;
(iii) on the basis of their limited review in accordance with
standards established by the American Institute of Certified Public
Accountants of any interim unaudited consolidated condensed financial
statements of the Company and its consolidated subsidiaries as
indicated in their reports incorporated in the Registration Statement,
the Prospectus and any Integrated Prospectus, carrying out certain
specified procedures (which do not constitute an examination made in
accordance with generally accepted auditing standards) that would not
necessarily reveal matters of significance with respect to the comments
set forth in this paragraph (iii), a reading of the minute books of the
shareholders, the board of directors and any committees thereof of the
Company and each of its consolidated subsidiaries, and inquiries of
certain officials of the Company and its consolidated subsidiaries who
have responsibility for financial and accounting matters, nothing came
to their attention that caused them to believe that:
(A) the unaudited consolidated condensed financial
statements of the Company and its consolidated subsidiaries
included in the Registration Statement, the Prospectus and any
Integrated Prospectus do not comply in form in all material
respects with the applicable accounting requirements of the
Act, the Exchange Act and the related published rules and
regulations thereunder, or are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited consolidated
financial statements included in the Registration Statement
and the Prospectus and any Integrated Prospectus; and
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<PAGE> 28
(B) at a specific date not more than five business
days prior to the date of such letter, there were any changes
in the capital stock or long-term debt of the Company and its
consolidated subsidiaries or any decreases in net current
assets or stockholders' equity of the Company and its
consolidated subsidiaries, in each case compared with amounts
shown on the unaudited consolidated balance sheet included in
the Registration Statement, the Prospectus and any Integrated
Prospectus, or for the period from ______________ to such
specified date there were any decreases, as compared with
____________, in sales, net revenues, net income before
income taxes or total or per share amounts of net income of
the Company and its consolidated subsidiaries, except in all
instances for changes, decreases or increases set forth in
such letter.
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting
records of the Company and its consolidated subsidiaries and are
included in the Registration Statement, the Prospectus and any
Integrated Prospectus, and have compared such amounts, percentages and
financial information with such records of the Company and its
consolidated subsidiaries and with information derived from such
records and have found them to be in agreement, excluding any questions
of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement, the Prospectus and any
Integrated Prospectus in this paragraph (e) with respect to either letter
referred to above shall include any amendment or supplement thereto at the date
of such letter.
(f) The Representatives shall have received a certificate, dated the
Firm Closing Date, of the principal executive officer and the principal
financial or accounting officer of the Company to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing
Date, does not include any untrue statement of a material fact or omit
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<PAGE> 29
to state any material fact necessary to make the statements therein not
misleading, and the Prospectus and any Integrated Prospectus, as
amended or supplemented as of the Firm Closing Date, does not include
any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the
Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the
Registration Statement or the Prospectus or any amendment or supplement
thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best of the Company's knowledge,
are contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement, the Prospectus [and
any Integrated Prospectus , neither the Company nor any of its
Subsidiaries has sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, and
there has not been any material adverse change, or any development
involving a prospective material adverse change, in the condition
(financial or otherwise), management, business prospects, net worth or
results of operations of the Company or any of its subsidiaries, except
in each case as described in or contemplated by the Prospectus and any
Integrated Prospectus.
(g) The Representatives shall have received a certificate from each
Selling Stockholder, signed by such Selling Stockholder, dated the Firm Closing
Date, to the effect that:
(i) the representations and warranties of such Selling
Stockholder in this Agreement are true and correct as if made on and as
of the Firm Closing Date;
(ii) in the case of the Group 1 Selling Stockholders, the
Registration Statement, as amended as of the Firm Closing Date, does
not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not
misleading and the Prospectus, as amended or supplemented as of the
Firm Closing Date, does not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and in the case of the Group 2 Selling
Stockholders, to the extent that any statements or omissions are made
in the Registration Statement and the Prospectus in reliance upon and
in conformity with written information furnished to the Company by the
Selling Stockholder specifically for use therein, the Registration
Statement, as amended as of the Firm Closing Date, does not include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading and the
Prospectus, as amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to
state
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<PAGE> 30
any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; and
(iii) such Selling Stockholder has performed all covenants and
agreements on its part to be performed or satisfied at or prior to the
Firm Closing Date;
(h) The Representatives shall have received from each person who is a
director or officer of the Company, a Group 1 Selling Stockholder or who owns
over 5% of the shares of Common Stock an agreement to the effect that such
person will not, directly or indirectly, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of an option to purchase or other sale or disposition) of
any shares of Common Stock or any securities convertible into, or exchangeable
or exercisable for, shares of Common Stock for a period of 180 days after the
date of this Agreement;
(i) On or before the Firm Closing Date, the Representatives and counsel
for the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company; and
(j) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
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<PAGE> 31
(i) any untrue statement or alleged untrue statement made by
the Company in Section 2 of this Agreement;
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus and any
Integrated Prospectus or any amendment or supplement thereto or (B) any
application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities
exchange (each an "Application");
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus and any Integrated Prospectus or any
amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements
therein not misleading; or
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including without
limitation, slides, videos, films, tape recordings
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus and any
Integrated Prospectus or any amendment or supplement thereto, or any Application
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein. This indemnity agreement will be in addition to any liability which the
Company may otherwise have. The Company will not, without the prior written
consent of the Underwriter or Underwriters purchasing, in the aggregate, more
than fifty percent (50%) of the Securities, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(b) Each Selling Stockholder agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement, each Underwriter
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<PAGE> 32
and each person who controls the Company or any Underwriter within the meaning
of Section 15 of the Act against any such losses, claims, damages or liabilities
to which the Company, any such director, officer, such Underwriter or any such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by
the such Selling Stockholder in Section 2 of this Agreement;
(ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto; or
(iii) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or any Application or necessary to
make the statements therein not misleading;
provided, however, that the Selling Stockholders will not be liable to
any Underwriter or any person controlling such Underwriter with respect
to any such untrue statement or omission made in any Preliminary
Prospectus that is corrected in the Prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim,
damage or liability purchased Securities from such Underwriter but was
not sent or given a copy of the Prospectus (as amended or supplemented)
at or prior to the written confirmation of the sale of such Securities
to such person in any case where such delivery of the Prospectus (as
amended or supplemented) is required by the Act, unless such failure to
deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5(a)(iv) or 5 (a)(v) of this
Agreement; and subject to the limitation set forth immediately
preceding this clause, will reimburse, as incurred, any legal or other
expenses reasonably incurred by the Company, any such director,
officer, such Underwriter or any such controlling person in connection
with investigating or defending any such loss, claim, damage, liability
or any action in respect thereof; provided, further, however, that in
the case of (i), (ii) and (iii) above for the Group 2 Selling
Stockholders, to the extent and only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information
furnished to the Company by such Group 2 Selling Stockholder. This
indemnity agreement will be in addition to any liability which the
Selling Stockholders may otherwise have. The Selling Stockholders will
not, without the prior written consent of the Underwriters purchasing
greater than fifty percent of the Securities, settle or compromise or
consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not such Underwriter or any person
who controls such Underwriter within the meaning of Section 15 of the
Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of
the Underwriters
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<PAGE> 33
and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(c) Each Underwriter, severally and not jointly, will
indemnity and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement, each Selling
Stockholder and each person, it any, who controls the Company and each
Selling Stockholder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which the Company, any such director, officer or
controlling person or any such Selling Stockholder may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or any amendment thereto, any Preliminary Prospectus, the Prospectus or
any Integrated Prospectus or any amendment or supplement thereto, or
any Application or (ii) the omission or the alleged omission to state
therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any Integrated Prospectus or any amendment or supplement
thereto, or any Application or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein; and, subject
to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred
by the Company or any such director, officer or controlling person or
such Selling Stockholder in connection with investigating or defending
any such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability
which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this Section 8. In
case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to it
and/or other indemnified parties which are different from or additional
to those available to the indemnifying party, the indemnifying party
shall not have the right to direct the defense of such action on behalf
of
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<PAGE> 34
such indemnified party or parties and such indemnified party or parties
shall have the right to select separate counsel to defend such action
on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of
counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the
defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that in connection with such
action the indemnifying party shall not be liable for the expenses of
more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or
circumstances, designated by the Representatives in the case of
paragraph (a) of this Section 8, representing the indemnified parties
under such paragraph (a) who are parties to such action or actions) or
(ii) the indemnifying party does not promptly retain counsel
satisfactory to the indemnified party or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party
will not be liable for the costs and expenses of any settlement of such
action effected by such indemnified party without the consent of the
indemnifying party.
(e) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 8 is unavailable or
insufficient, for any reason, to hold harmless an indemnified party in
respect of any losses, claims, damages or liabilities (or actions in
respect thereof), each indemnifying party, in order to provide for just
and equitable contribution, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits
received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or
(ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also
the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total proceeds from
the offering (before deducting expenses) received by the Company and
the Selling Stockholders bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault of the
parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters, the parties' relative intents, knowledge, access to
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<PAGE> 35
information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company, the Selling Stockholders and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rate or per capita allocation (even
if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation that does not take into account the
equitable considerations referred to above in this paragraph (e).
Notwithstanding any other provision of this paragraph (e), no
Underwriter shall be obligated to make contributions hereunder that in
the aggregate exceed the total public offering price of the Securities
purchased by such Underwriter under this Agreement, less the aggregate
amount of any damages that such Underwriter has otherwise been required
to pay in respect of the same or any substantially similar claim, and
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute hereunder are several in
proportion to their respective underwriting obligations and not joint,
and contributions among Underwriters shall be governed by the
provisions of the Prudential Securities Incorporated Master Agreement
Among Underwriters. For purposes of this paragraph (e), each person, if
any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company or any Selling
Stockholder within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, shall have the same rights to contribution as the
Company.
(f) The liability of each Selling Stockholder under the
representations and warranties contained in Sections 2 and 3 hereof and
under the indemnity and contribution agreements contained in the
provisions of this Section 8 shall be limited to an amount equal to the
public offering price of the Securities to be sold by such Selling
Stockholder to the Underwriters minus the amount of the underwriting
discount paid thereon to the Underwriters by such Selling Stockholder.
The Company and such Selling Stockholder may agree, as among themselves
and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which
they each shall be responsible.
9. Default of Underwriters. If one or more Underwriters
default in their obligations to purchase Firm Securities or Option
Securities hereunder and the aggregate number of such Securities that
such defaulting Underwriter or Underwriters agreed but failed to
purchase is ten percent or less of the aggregate number of Firm
Securities or Option Securities to be purchased by all of the
Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of
such Securities by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representatives), but if no
such arrangements are made by the Firm Closing Date or the related
Option Closing Date, as the case may be, the other
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<PAGE> 36
Underwriters shall be obligated severally in proportion to their
respective commitments hereunder to purchase the Firm Securities or
Option Securities that such defaulting Underwriter or Underwriters
agreed but failed to purchase. If one or more Underwriters so default
with respect to an aggregate number of Securities that is more than ten
percent of the aggregate number of Firm Securities or Option
Securities, as the case may be, to be purchased by all of the
Underwriters at such time hereunder, and if arrangements satisfactory
to the Representatives are not made within 36 hours after such default
for the purchase by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representatives) of the
Securities with respect to which such default occurs, this Agreement
will terminate without liability on the part of any non-defaulting
Underwriter, Selling Stockholder or the Company other than as provided
in Section 11 hereof. In the event of any default by one or more
Underwriters as described in this Section 9, the Representatives shall
have the right to postpone the Firm Closing Date or the Option Closing
Date, as the case may be, established as provided in Section 3 hereof
for not more than seven business days in order that any necessary
changes may be made in the arrangements or documents for the purchase
and delivery of the Firm Securities or Option Securities, as the case
may be. As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 9. Nothing
herein shall relieve any defaulting Underwriter from liability for its
default.
10. Default by Selling Stockholders. If on the Firm Closing
Date or Option Closing Date any Selling Stockholder fails to sell the
Selling Stockholders' Firm Securities, which such Selling Stockholder
has agreed to sell on such date as set forth herein, the Company agrees
that it will sell that number of shares of Common Stock to the
Underwriters which represents the Selling Stockholders' Firm Securities
which such Selling Stockholder has failed to so sell, or such lesser
number as may be requested by you.
11. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company
and its officers, the Selling Stockholders and the several Underwriters
set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the
Company, any of its officers or directors, any Underwriter or any
controlling person referred to in Section 8 hereof and (ii) delivery of
and payment for the Securities. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
12. Termination. (a) This Agreement may be terminated with
respect to the Firm Securities or any Option Securities in the sole
discretion of the Representatives by notice to the Company and the
Selling Stockholders given prior to the Firm Closing Date or the
related Option Closing Date, respectively, in the event that the
Company or the Selling Stockholders shall have failed, refused or been
unable to perform all obligations
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<PAGE> 37
and satisfy all conditions on its part to be performed or satisfied
hereunder at or prior thereto or, if at or prior to the Firm Closing
Date or such Option Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have, in the
sole judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company),
in the condition (financial or otherwise), business prospects, net
worth or results of operations of the Company and its subsidiaries,
except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or trading in securities
generally on the Nasdaq National Market shall have been suspended or
minimum or maximum prices shall have been established on such market
system;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U. S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement, as amended as
of the date hereof.
(b) Termination of this Agreement pursuant to this Section 12 shall be
without liability of any party to any other party except as provided in Section
11 hereof.
13. Information Supplied by Underwriters. The statements set forth in
the last paragraph on the front cover page and under the heading "Underwriting"
in any Preliminary Prospectus, the Prospectus or any Integrated Prospectus (to
the extent such statements relate to the Underwriters) constitute the only
information furnished by any Underwriter through the Representatives to the
Company for the purposes of Sections 2(b) and 8 hereof. The Underwriters confirm
that such statements (to such extent) are correct.
14. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in
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<PAGE> 38
writing to Prudential Securities Incorporated, One New York Plaza, New York, New
York 10292, Attention: Equity Transactions Group; if sent to the Company, shall
be delivered or sent by mail, telex or facsimile transmission and confirmed in
writing to the Company at 210 Town Park Drive, Kennesaw, Georgia 30144,
Attention: A.J. Nassar; and if sent to the Selling Stockholders shall be
delivered or sent by mail, telex or facsimile transmission and confirmed in
writing to A.J. Nassar, as Attorney-in-Fact, at 210 Town Park Drive, Kennesaw,
Georgia 30144 .
15. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company, the Selling Stockholders
and their respective successors and legal representatives, and nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
other person any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of such persons and for the benefit of no other person except
that (i) the indemnities of the Company and the Selling Stockholders contained
in Section 8 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act and (ii) the indemnities of the Underwriters
contained in Section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company or the
Selling Stockholders within the meaning of Section 15 of the Act or Section 20
of the Exchange Act. No purchaser of Securities from any Underwriter shall be
deemed a successor because of such purchase.
16. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
17. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, each Selling Stockholder accepts
for itself and in connection with its properties, generally and unconditionally,
the nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Each Selling Stockholder designates
and appoints A.J. Nassar, as Attorney-in-Fact, and such other persons as may
hereafter be selected by each Selling Stockholder irrevocable agreeing in
writing to so serve, as its agent to receive on its behalf service of all
process in any such proceedings in any such court, such service being hereby
acknowledged by each Selling Stockholder to be effective and binding service in
every respect. A copy of any such process so served shall be mailed by
registered mail to each Selling Stockholder at its address provided in Section
14 hereof; provided, however, that, unless otherwise provided by applicable law,
any failure to mail such copy shall not affect the validity of service of such
process. If any agent appointed by any Selling Stockholder refuses to accept
service, such Selling Stockholders hereby agrees that service of process
sufficient for personal jurisdiction in any action against such Selling
Stockholder in the State of New York may be made by registered or certified
mail, return receipt requested, to such Selling Stockholder at its
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address provided in Section 14 hereof, and such Selling Stockholder hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Selling Stockholders in the courts of any other
jurisdiction.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 40
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and each
of the several Underwriters.
Very truly yours,
THE MAXIM GROUP, INC.
By
-------------------------
Name:
--------------------
Title:
-------------------
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
By PRUDENTIAL SECURITIES INCORPORATED
By
--------------------------------------
Jean-Claude Canfin
Director
For itself and on behalf of the Representatives.
<PAGE> 41
SCHEDULE 1
UNDERWRITERS
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
Prudential Securities Incorporated
The Robinson-Humphrey Company, Inc.
Wheat, First Securities, Inc.
Total
------------
<PAGE> 42
SCHEDULE 2
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
Number of Firm
Securities to
Selling Stockholders be Purchased
- -------------------- ------------
<S> <C> <C>
Group 1 Selling Stockholders
Dicky W. McAdams............................ 60,000
Ronald McSwain ............................. 184,225
Herb Wolk .................................. 120,000
Group 2 Selling Stockholders
Hugh D. Bennett ............................ 60,002
-------
Total ...................................... 424,227
=======
</TABLE>
<PAGE> 1
EXHIBIT 5.1
<PAGE> 2
EXHIBIT 5.1
[Smith, Gambrell & Russell, LLP Letterhead]
HELEN T. FERRARO
(404) 264-2631
E-MAIL: [email protected]
January 21, 1997
Board of Directors
The Maxim Group, Inc.
210 TownPark Drive
Kennesaw, Georgia 30144
Re: The Maxim Group, Inc.
Registration Statement on Form S-3
3,600,000 Shares of Common Stock
Gentlemen:
We have acted as counsel for The Maxim Group, Inc. (the "Company") in
connection with the proposed public offering of the shares of its Common Stock
covered by the above-described Registration Statement.
In connection therewith, we have examined the following:
(1) The Certificate of Incorporation of the Company, certified by
the Secretary of State of the State of Delaware;
(2) The Bylaws of the Company, certified as complete and correct
by the Secretary of the Company;
(3) The minute book of the Company, certified as correct and
complete by the Secretary of the Company; and
(4) Certificate of Good Standing with respect to the Company,
issued by the Delaware Secretary of State.
(5) The Registration Statement on Form S-3 to be filed with the
Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Registration Statement").
<PAGE> 3
Board of Directors
The Maxim Group, Inc.
January 21, 1997
Page 2
Based upon such examination and upon examination of such other
instruments and records as we have deemed necessary, we are of the opinion that:
(A) The Company has been duly incorporated under the laws of the
State of Delaware and is validly existing and in good standing
under the laws of that state.
(B) The 3,175,773 shares of Common Stock covered by the
Registration Statement to be sold by the Company have been
legally authorized and when issued in accordance with the
terms described in said Registration Statement, will be
validly issued, fully paid and nonassessable.
(C) The 424,227 shares of Common Stock covered by the Registration
Statement to be sold by the selling shareholders referenced
therein have been legally authorized by the Company and when
sold in accordance with the terms described in said
Registration Statement, will be validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, or the rules and regulations of
the Securities and Exchange Commission thereunder.
Sincerely,
SMITH, GAMBRELL & RUSSELL, LLP
/s/ Helen T. Ferraro
Helen T. Ferraro
HTF:dlt
<PAGE> 1
EXHIBIT 10.1
<PAGE> 2
IMAGE INDUSTRIES, INC.
EMPLOYMENT CONTRACT
AGREEMENT dated as of the 30th day of July, 1993, by and between IMAGE
INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"), and
LARRY M. MILLER (hereinafter called the "Employee").
R E C I T A L S:
WHEREAS, the Company and the Employee are parties to that certain
Amended and Restated Employment Contract dated as of March 30, 1991 (the
"Existing Employment Agreement") whereby the Employee is employed as the
Chairman of the Board and Sales Manager of the Company; and
WHEREAS, the Company desires to retain the services of Employee in his
current capacity and as President of the Company's Image Carpets division
pursuant to the terms hereof in connection with the proposed public offering of
the Company's common stock.
NOW, THEREFORE, for and in consideration of the employment of Employee
by the Company, the above premises and the mutual covenants hereinafter set
forth, and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT. The Company hereby employs the Employee as its Chairman
of the Board and as President of the Company's Image Carpets division, and the
Employee hereby accepts such
-1-
<PAGE> 3
employment under and subject to the terms and conditions hereinafter set forth.
2. DUTIES. During the Term hereof (as defined below), the Employee
shall faithfully perform such duties as may be assigned to him from time to time
by the Board of Directors of the Company (the "Board") which are attendant to
the position of Chairman of the Board, and President of the Company's Image
Carpets division, and shall report to the President. The Employee shall devote
his full time and best efforts to the performance of his duties hereunder, to
the exclusion of all other business activities; provided that the Employee may
manage his own passive investments so long as such management does not interfere
materially with the performance of his services hereunder. The Employee shall,
upon request of the Company, serve on the Board for no additional consideration.
3. COMPENSATION. In consideration of the services rendered by the
Employee under this Agreement, the Company shall pay the Employee compensation
as follows:
(a) Base Salary. A base salary of not less than Two
Hundred Thousand Dollars ($200,000.00) per Year (the "Base
Salary"). For purposes hereof, a "Year" shall mean the
Company's fiscal year, which is the fifty-two (52) week period
beginning approximately July 1 and ending approximately June
30. The Employee's Base Salary shall be paid on a bi-weekly
basis, in arrears, and shall be reviewed by the Compensation
Committee of the Board
-2-
<PAGE> 4
annually at the end of each Year, but no such annual review
shall cause the Base Salary to be reduced to less than
$200,000 per Year; and
(b) Incentive Compensation. In addition to the Base
Salary, the Company may pay the Employee an annual bonus, as
determined by the Compensation Committee
of the Board from time to time.
4. SEVERANCE BENEFITS. The Employee shall be entitled to severance
benefits, as follows:
4.1 Termination of Employment.
(a) Termination Without Cause. If at any time during
the Term hereof, the employment of the Employee is terminated
by the Company without Cause as defined under and pursuant to
Section 7.4 hereof, and provided that Employee is not
thereafter rehired by the Company for a period of at least
three (3) years, then, within thirty (30) days after the date
of termination, the Company shall pay, subject to all
applicable deductions and withholdings, to the Employee the
sum of (i) all accrued but unpaid Base Salary through the date
of termination; (ii) the Base Salary which would be payable
through the remainder of the Term, but in no event less than
one Year's Base Salary as then in effect; (iii) a bonus in an
amount equal to the average of the amount of the bonus paid to
Employee for the two (2) immediately preceding Years; and (iv)
the value of all accrued and unused
-3-
<PAGE> 5
vacation time based on the per diem amount of the Base Salary
(the "Severance Payment"). In addition, in such event (A) the
Company shall continue the Employee's group health insurance,
if available, and all other fringe benefits listed on Schedule
1 at the Company's expense for a period of six (6) months from
the date of termination of employment, and will make available
to Employee COBRA coverage after such six (6) month period as
provided by law; and (B) all stock options granted by the
Company to Employee which are not vested on the date of
termination but which would vest if Employee remained in the
employ of the Company through the Year of termi nation shall
automatically become fully vested (the "Severance Benefits").
If Employee is rehired by the Company within three (3) years
of termination without Cause, then he shall repay to the
Company the Severance Payment.
(b) Voluntary Termination. In the event that the
Employee voluntarily terminates his employment pursuant to
Section 7.4 hereof at any time, or the Company termi nates his
employment for Cause pursuant to Section 7.3 hereof at any
time, during the Term, then the Company shall have no
obligation to pay the Severance Payment or provide the
Severance Benefits to the Employee except as provided in
Section 4.2 hereof.
-4-
<PAGE> 6
(c) Termination Payment. Notwithstanding anything to
the contrary contained herein, in the event the Employee
voluntarily terminates his employment or his employment is
terminated by the Company for any reason, with or without
Cause, at any time after March 31, 1994, or in the event of
his death, disability or termination of employment by the
Company, without Cause, at any time during the Term, the
Company shall pay the Employee or his personal representative
or estate, as applicable, and in addition to the Severance
Payment and Severance Benefit, if applicable, the sum of One
Hundred Seventy-Five Thousand Dollars ($175,000), payable in
twelve (12) consecutive monthly payments, the first eleven
(11) of which shall be in the amount of $14,583.33, and the
last of which shall be in the amount of $14,583.37, payable in
arrears on the last day of the month, commencing on the last
day of the month in which the Employee's employment
terminates.
(d) Termination Upon Death or Disability. If during
the Term hereof the employment of Employee is terminated upon
the death of Employee pursuant to Section 7.1 or upon the
permanent disability of the Employee pursuant to Section 7.2,
then, within thirty (30) days of the date of termination, the
Company shall pay, subject to all applicable deductions and
withholdings, to Employee the sum of (i) all accrued but
unpaid Base
-5-
<PAGE> 7
Salary through the date of termination; (ii) the then current
Base Salary for an additional six (6) month period; (iii) a
bonus in an amount equal to the average of the amount of the
bonus paid to Employee for the two (2) immediately preceding
Years; and (iv) the value of all accrued and unused vacation
time based on the per diem amount of the Base Salary. In
addition, in such event (except in the case of death of
Employee), (A) the Company shall continue the Employee's group
health insurance, if available, and all other benefits listed
on Schedule 1 at the Company's expense for a period of six (6)
months from the date of termination of employment, and will
make available to Employee COBRA coverage after such six (6)
months period as provided by law; and (B) all stock options
granted by the Company to Employee which are not vested on the
date of termination but which would vest if Employee remained
in the employ of the Company through the Year of termination
shall auto matically become fully vested.
4.2 Change in Control. In the event of a Change in Control
(as defined below) during the Term, and termination of the employment of the
Employee occurs within twelve (12) months after such Change in Control for any
reason other than for Cause, including voluntary termination by the Employee,
and provided that the Employee is not thereafter rehired by the Company for a
period of at least three (3) years, the Company shall pay to Employee
-6-
<PAGE> 8
within thirty (30) days of the date of termination the amount of the annual Base
Salary as then in effect, less deductions and withholdings, irrespective of
whether Employee's employment was terminated by Employee or the Company or by
death or disability, and shall provide all Severance Benefits as described in
Section 4.1(a) above. If the Employee is rehired by the Company within said
three (3) year period, then the Employee shall repay to the Company the amount
of the annual Base Salary paid to Employee under this Section 4.2.
For purposes hereof, a "Change in Control" shall mean any
transaction or series of related transactions pursuant to which either:
(a) all or substantially all of the assets of the
Company shall have been sold or transferred to an unaffiliated
third party; or
(b) the acquisition, directly or indirectly, by any
"person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) within any
twelve (12) month period of securities of the Company
representing an aggregate of fifty percent (50%) or more of
the combined voting power of the Company's then outstanding
securities; or
(c) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board, cease for any reason to constitute at least a majority
thereof, unless each new director was
-7-
<PAGE> 9
nominated by the directors then still in office who were
directors at the beginning of the period; or
(d) consummation of (i) a merger, consolidation or
other business combination of the Company with any other
"person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) or affiliate
thereof, other than a merger, consolidation or business
combination which would result in the out standing common
stock of the Company immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into common stock of the surviving entity or a
parent or affiliate thereof) at least fifty percent (50%) of
the outstanding common stock of the Company or such surviving
entity or parent or affiliate thereof outstanding immediately
after such merger, consolidation or business combination, or
(ii) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets;
provided that an offering and sale to the public by the Company of any equity
securities pursuant to an effective registration state ment under the Securities
Act of 1933, as amended (other than in connection with a merger), shall not be
deemed to be a "Change in Control."
5. OTHER BENEFITS. During the Term, Employee shall be entitled to the
current fringe benefits set forth in Schedule 1
-8-
<PAGE> 10
hereto and such other fringe benefits as are made available generally to other
senior executive employees of the Company as may be approved by the Board from
time to time, including the following:
5.1 Paid Vacation. The Employee shall be entitled to paid
vacations in accordance with the Company's practices with respect to vacations
for senior executive employees as from time to time established by the Board,
but no less than three (3) weeks per Year.
5.2 Insurance Benefits. During the Term of this Agree ment the
Employee shall be provided accident and health, dis ability, and life insurance
as the Company may from time to time make available to its senior executive
employees, and shall pay all premiums for the same (including dependent health
insurance) for the benefit of Employee, such benefits to be substantially
similar to those provided to Employee as of the date hereof. The Company may, at
its option and for its benefit, also purchase so-called key man insurance upon
the life of the Employee in such amounts as it deems necessary or appropriate,
and the Employee agrees to submit to such physical examinations for the same as
may be required.
5.3 Expenses. The Company shall reimburse the Employee for all
reasonable expenses of types authorized by the Board and incurred in connection
with the Company's business affairs. The Employee shall comply with such
limitations and reporting require ments with respect to expenses as the Board
may establish from time to time.
-9-
<PAGE> 11
6. TERM. The term of employment under this Agreement (the "Term") shall
begin on the date of execution by the Company of an Underwriting Agreement in
connection with its initial public offering which occurs within ninety (90) days
of the date hereof, and shall continue for a period of three (3) years
thereafter, unless sooner terminated as provided in Section 7. In the event that
such public offering is not closed within ninety (90) days of the date hereof,
this Agreement shall be of no force and effect, but the Existing Employment
Agreement shall continue in full force and effect. Expiration of the Term and
failure to execute a new Employment Agreement by the Company or Employee shall
not be deemed termination without Cause, and in such event Employee shall not be
subject to the restrictions contained in Section 9 hereof.
7. TERMINATION.
7.1 Death. In the event of the death of the Employee during
the Term, his employment by the Company shall be deemed to terminate at the end
of the calendar month in which his death occurs and, except as set forth in
Sections 4.1(c) and (d), all payments and benefits under this Agreement shall
then cease.
7.2 Permanent Disability. In the event of the dis ability of
the employee for a period in excess of 180 consecutive days as determined by a
qualified physician chosen by the Company, such that the Employee is unable to
perform his services hereunder substantially as performed previously, his
employment by the Company shall be deemed to terminate at the end of the
calendar month which includes the last day of such 180-day period, and
-10-
<PAGE> 12
except as set forth in Sections 4.1 (c) and (d), all payments and benefits shall
then cease.
7.3 For Cause. The employment of the Employee by the
Company may be terminated by the Company (by a decision of a
majority of the Board of Directors) for "Cause" if:
(a) the Employee has engaged in willful and
intentional misconduct with respect to the Company, or grossly
neglected his duties to the Company, and in either case, after
written notice of the same, specifying in reasonable detail
the alleged misconduct or neglect, if the Employee fails to
correct or desist from the alleged misconduct or neglect
within thirty (30) days after such notice; or
(b) the Employee has engaged in a willful act
which constitutes a fraud or a felony and which results in a
direct injury to the Company; or
(c) the Employee shall have been convicted of or
pleaded guilty to a felony or crime involving moral
turpitude;
then the Company may terminate Employee's employment immediately by written
notice. In the event of termination under this Section 7.3, except as set forth
in Section 4.1(c) hereof, all payments and benefits under this Agreement shall
cease effective with termina tion of employment. Termination of employment for
any reason, other than termination without Cause within twelve (12) months of
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<PAGE> 13
a Change in Control, shall constitute cause for removal of Employee from the
Company's Board of Directors.
7.4 Termination Without Cause. This Agreement may be
terminated by either party without Cause on not less than ninety
(90) days' prior written notice to the other party.
8. PROPRIETARY INFORMATION; INVENTIONS IN THE FIELD.
8.1 Proprietary Information. In the course of his service to
the Company, the Employee may have access to confiden tial specifications,
know-how, strategic or technical data, processes, business documents or
information, marketing data, marketing research data, product research and
development data and manufacturing techniques, confidential customer lists and
sources of supply and trade secrets, all of which are confidential and may be
proprietary, owned or used by the Company. Such information shall hereinafter be
called "Proprietary Information" and shall include any and all items enumerated
in the preceding sentence and coming within the scope of the Company's business
as to which the Employee may have access, whether conceived or developed by
others or by the Employee alone or with others during the period of his service
to the Company, whether or not conceived or developed during regular working
hours. Proprietary Information shall not include any records, data, or
information which are in the public domain during the period of service by the
Employee provided the same are not in the public domain as a consequence of
disclosure directly or indirectly by the Employee in violation of this Agree
ment.
-12-
<PAGE> 14
8.2 Fiduciary Obligations. Proprietary Information is of
critical importance to the Company and a violation of this Agreement would
seriously and irreparably impair and damage the Company's business and the
Employee shall keep all Proprietary Information in a fiduciary capacity for the
sole benefit of the Company.
8.3 Non-Disclosure. The Employee shall not during the Term of
this Agreement or for a period of five (5) years thereafter use for his own
benefit, or disclose, directly or indirectly, any Proprietary Information to any
person other than the Company or authorized employees thereof at the time of
such disclosure, or such other persons to whom the Employee has been
specifically instructed to make disclosure by an officer of the Company, and in
all such cases only to the extent required in the course of the Employee's
service to the Company. At the termination of his employment, the Employee shall
deliver to the Company all notes, letters, documents and records which may
contain Proprietary Information which are then in his possession or control and
shall not retain or use any copies or summaries thereof.
8.4 Patent Assignment. The Employee agrees to assign and
transfer to the Company or its designee, without any separate remuneration or
compensation, his entire right, title and interest in and to all Inventions in
the Field (as hereinafter defined), together with all United States and foreign
rights with respect thereto, and at the Company's expense to execute and deliver
all appropriate patent applications for securing United States and
-13-
<PAGE> 15
foreign patents and Inventions in the Field and to perform all lawful acts,
including giving testimony, and to execute and deliver all such instruments that
may be necessary or proper to vest all such Inventions in the Field and patents
with respect thereto in the Company, and to assist the Company in the
prosecution or defense of any interference which may be declared involving any
of said patent applications or patents. For the purposes of this Agreement, the
words "Inventions in the Field" shall include any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or not and whether reduced to practice or not, conceived or made by
the Employee, individually or jointly with others (whether on or off the
Company's premises or during or after normal working hours) while in the employ
of the Company or within one year after termination of the Employee's employment
by the Company, and which was or is directly or indirectly related to the
business of the Company, or which resulted or results from or was suggested by
any work performed by any employee or agent thereof during the Term.
9. PROTECTIVE COVENANTS. Employee acknowledges that he is a key
executive whose specialized skills, abilities and contacts are important to the
success of the Company, and agrees that he shall faithfully and strictly adhere
to the following covenants:
9.1 In the event Employee voluntarily terminates his
employment during the Term or his employment is terminated by the Company for
"Cause," the Employee covenants and agrees that he shall not, within one year
after the date of such termination of
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<PAGE> 16
employment, within the State of Georgia, directly or indirectly own, operate or
serve as an employee or consultant in a capacity similar to that in which
Employee served the Company, for any business, person or entity whatsoever which
is engaged in the manufacture or sale of carpet or the recycling of
post-consumer polyethylene terephthalate materials that are competitive with
those sold or manufactured by the Company.
9.2 In the event Employee voluntarily terminates his
employment during the Term or his employment is terminated by the Company for
"Cause," the Employee covenants and agrees that he shall not, within one year
after the date of such termination of employment, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate, directly or by
assisting others, any business from any of the Company's customers, including
actively-sought prospective customers, with whom Employee had material contact
during the last eighteen (18) months of his employment, for purposes of
providing products or services that are competitive with those provided by the
Company.
9.3 In the event Employee voluntarily terminates his
employment during the Term or his employment is terminated by the Company for
"Cause," the Employee covenants and agrees that he shall not, within one year
after the date of such termination of employment, divert, solicit, recruit or
hire, or attempt to divert, solicit, recruit or hire, directly or by assisting
others, any other employee of the Company or any person who within the preceding
twelve (12) months has been an employee of the Company,
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<PAGE> 17
whether or not such employee is a full-time employee or a temporary employee of
the Company and regardless of whether such employment is pursuant to written
agreement, for a determined period, or at will.
10. REMEDIES. It is specifically understood and agreed that any breach
of the provisions of Sections 8 and 9 of this Agreement is likely to result in
irreparable injury to the Company and that the remedy at law alone will be an
inadequate remedy for such breach, and that in addition to any other remedy it
may have, the Company shall be entitled to enforce the specific performance of
this Agreement by the Employee and to seek both temporary and permanent
injunctive relief (to the extent permitted by law) without the necessity of
proving actual damages.
11. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and, if mailed by prepaid
first class mail or certified mail, return receipt requested, at any time other
than during a general discontinuance of postal service due to strike, lockout or
other wise, shall be deemed to have been received on the earlier of the date
shown on the receipt or three (3) business days after the postmarked date
thereof and, if telexed or telecopied, shall be followed forthwith by letter and
shall be deemed to have been received on the next business day following
dispatch and acknowledgement of receipt by the recipient's telex or telecopy
machine. In addition, notices hereunder may be delivered by hand, in which event
the notice shall be deemed effective when delivered,
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<PAGE> 18
or by overnight courier, in which event the notice shall be deemed to have been
received on the next business day following delivery to such courier. All
notices and other communications under this Agreement shall be given to the
parties hereto at the following addresses:
(i) If to the Company:
Image Carpets, Inc.
Highway 140
Armuchee, Georgia 30105
Copy to:
G. Donald Johnson, Esquire
Parker, Johnson, Cook & Dunlevie
Suite 700
1275 Peachtree Street, N.E.
Atlanta, Georgia 30309
(ii) If to the Employee:
Larry M. Miller
3204 Old Mill Trace
Marietta, Georgia 30067
unless and until notice of another or different address shall be given as
provided herein. All notices shall be effective upon delivery or, if mailed, on
the third business day after being mailed.
12. MISCELLANEOUS.
12.1 Modification. This Agreement constitutes the entire
agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral,
including without limitation the Prior Employment Agreement. This Agreement may
not be amended or revised except by a writing signed by the parties.
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<PAGE> 19
12.2 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of both parties and their respective successors
and assigns, including any corporation with which or into which the Company or
its successor may be merged or which may succeed to its assets or business,
although the obliga tions of the Employee are personal and may be performed only
by him.
12.3 Captions. Captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope of
substance of any provision of this Agreement.
12.4 Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, and this Agreement shall
be construed as if such invalid, illegal or unenforceable provision were limited
or modified, consistent with its general intent, to the extent necessary so that
it shall be valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision, this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein, and all other provisions hereof shall be and remain
unimpaired and in full force and effect.
12.5 Governing Law. This Agreement shall be construed
under and governed by the laws of the State of Georgia.
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<PAGE> 20
12.6 Arbitration. Either party hereto may demand arbitration
of a claim or dispute arising hereunder by delivery of a written demand to the
other party within sixty (60) days after the claim arises, which demand shall
include the name of an arbitrator appointed by such party, together with a
statement of the matter in controversy. Within twenty (20) days after the
receipt of such demand, the other party shall appoint its arbitrator, and the
two arbitrators so chosen shall, within ten (10) days thereafter, select a third
arbitrator, or in the absence of agreement, the third arbitrator shall be
appointed by the Arbitration Committee of the American Arbitration Association.
A decision rendered by a majority of the arbitrators shall be final and binding
on the parties, and judgment on such award may be entered in accordance with the
applicable law in any court having jurisdiction thereof. All arbitration costs
and expenses shall be borne by the losing party. Any such arbitration shall be
held in Floyd County, Georgia, unless otherwise agreed by the parties.
Within ninety (90) days of the selection of the third
arbitrator (or such later date as the arbitrators determine as necessary to make
such determination), the arbitrators shall determine whether the Base Salary and
benefits provided hereunder should be continued to be paid to Employee during
the pendency of the arbitration based upon the merit of and the reasonableness
of the position of the Employee; provided that said Base Salary and benefits
shall be continued until the date of such determination and thereafter if so
determined by the arbitrators. In the event
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<PAGE> 21
the arbitrator determines that such salary and benefits should not have been
paid to Employee, Employee shall pay the full amount of such salary and the cost
of such benefits to the Company within thirty (30) days of such decision.
12.7 Restrictive Covenant. It is the intention of the parties
that if any restrictive covenant in this Agreement is determined by a court of
competent jurisdiction to be overly broad, then the court should enforce such
covenant to the maximum extent permitted by law as to scope, geographic area and
duration.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
THE COMPANY:
IMAGE INDUSTRIES, INC.
BY:/s/ H. Stan Padgett
---------------------------------
H. STAN PADGETT, President
EMPLOYEE:
/s/ Larry M. Miller
---------------------------------
LARRY M. MILLER
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<PAGE> 22
SCHEDULE 1
The Company will provide the following fringe benefits to the Employee:
1. A Company automobile comparable to the present
automobile, together with the costs of operating and
maintaining same.
2. Country club membership and dues at a country club of
Employee's choice within the general area of the
Company's principal facility.
3. Dependent medical insurance coverage at the Company's
expense.
4. Preparation of the Employee's federal and state tax
returns by the Company's independent auditors.
5. Personal life and disability insurance providing benefits
not less than that currently provided for Employee.
6. Annual physical at the expense of the Company.
7. Sick leave, including salary continuation, for a period
of time equal to the waiting period under the Company's
disability policy.
<PAGE> 1
EXHIBIT 10.2
<PAGE> 2
EXTENSION OF EMPLOYMENT AGREEMENT
THIS EXTENSION OF EMPLOYMENT AGREEMENT (hereinafter called "Extension")
effective July 30, 1996, by and between IMAGE INDUSTRIES, INC., a Delaware
corporation (hereinafter called the "Company") and LARRY M. MILLER, a resident
of Georgia (hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, Employee and Company entered into an Employment Agreement
dated July 30, 1993 (the "Employment Agreement"), which terminates on July 30,
1996 and the parties wish to hereby extend the Employment Agreement for an
additional thirty-one (31) days from July 30, 1996.
NOW THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein and other good and valuable considerations the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. The Employment Agreement is hereby extended by thirty-one (31) days
to August 30, 1996.
2. Except as hereby extended, the Employment Agreement shall be
unchanged and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereinafter set forth their
hands and seals effective as of the date first above written.
EMPLOYEE:
/s/ Larry M. Miller
--------------------------------------
LARRY M. MILLER
COMPANY:
IMAGE INDUSTRIES, INC.
By: /s/ H. Stanley Padgett
--------------------------------------
H. STANLEY PADGETT, President
<PAGE> 1
EXHIBIT 10.3
<PAGE> 2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (hereinafter called "Amendment")
made and entered into this 30th day of August, 1996, by and between IMAGE
INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"),
LARRY M. MILLER, a resident of Georgia (hereinafter called "Employee") and THE
MAXIM GROUP, INC., a Delaware corporation (hereinafter called "Maxim").
W I T N E S S E T H
WHEREAS, Employee and Company entered into an Employment Agreement
dated July 30, 1993 (the "Employment Agreement"), which the parties wish to
hereby amend, and
WHEREAS, the Company and Maxim have entered into an Agreement and Plan
of Reorganization (the "Merger Agreement") dated May 31, 1996 whereby the
Company would become a wholly owned subsidiary of Maxim and which contemplates
that Employee will continue to serve as President and Chief Executive Officer of
the Company and also serve in certain capacities with Maxim, all as set forth
herein.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein and other good and valuable considerations the
receipt and legal sufficiency of which are hereby acknowledged, the parties
hereto do hereby agree as follows:
1. BASE SALARY. Section 3(a) of the Agreement is hereby amended by (i)
deleting therefrom the term "Two Hundred Thousand Dollars ($200.000)" and
substituting therefor the term "Two Hundred Forty Thousand Dollars ($240,000)";
and (ii) amending the second sentence thereof to read, in its entirety: "For
purposes hereof, the term "year" shall mean the consolidated fiscal year of the
Company and its parent corporation, The Maxim Group, Inc."
2. CHANGE OF CONTROL. Section 4.2 of the Agreement shall be amended by
adding thereto the following sentence:
"For purposes of this Section 4.2: (i) the term "Company" shall mean
either of the Company or its parent corporation, The Maxim Group, Inc.,
for so long as not less than 50% of the outstanding voting securities
of the Company are owned by Maxim; and (ii) the transaction pursuant to
which Maxim has initially acquired ownership of all the outstanding
voting stock of the Company shall not constitute a "change of control"
for purposes of this Agreement."
3. TERM. Section 6 of the Agreement is hereby amended by deleting
therefrom the term "three (3) years" and substituting therefor the term "five
(5) years".
H-1
<PAGE> 3
4. PROPRIETARY INFORMATION; INVENTIONS IN THE FIELD. Section 8 of the
Agreement is hereby amended by adding thereto the following subsection 8.5:
"8.5 Definition. For purposes of this Section 8, the term
"Company" shall mean each of the Company and its parent corporation, The Maxim
Group, Inc."
5. PROTECTIVE COVENANTS. Section 9 of the Agreement is hereby amended
by adding thereto the following subsection 9.4:
"9.4 For purposes of this Section 9, the term "Company" shall mean both
the Company and its parent corporation, The Maxim Group, Inc."
6. REMEDIES. Section 10 of the Agreement is hereby amended by adding
thereto the following sentence:
"For purposes of this Section 10, the term "Company shall mean both the
Company and its parent corporation, The Maxim Group, Inc."
7. COVENANTS OF MAXIM. The Agreement is hereby further amended by
adding thereto the following Section 13:
"13. Covenants of Maxim.
13.1 Guaranty of Maxim. Maxim hereby guarantees the obligations
of the Company hereunder.
13.2 Election as Officer of Maxim. During the Term of this
agreement, Maxim shall cause the Employee to be elected as a Senior
Executive Vice President of Maxim.
13.3 Board Participation. Throughout the Term hereof, Maxim
shall use its best efforts to cause the employee to be nominated for
and to be elected as a member of the Board of Directors of Maxim.
Throughout the Term hereof, Maxim will vote its shares of the Company
in favor of election of a Board of Directors comprised of: (i) a
designee of the Chief Executive Officer of Maxim; (ii) the Employee;
(iii) H. Stanley Padgett, provided Mr. Padgett is then employed as an
executive officer of the Company or of Maxim; and (iv) two other
individuals designated: (a) for so long as Mr. Padgett is employed as
an executive officer of either the Company or of Maxim, by mutual
agreement of the Employee and Mr. Padgett; or (b) if the condition in
clause (a) does not apply, by the Employee."
H-2
<PAGE> 4
8. CONTINUED EFFECT. Except as hereby amended, the Employment Agreement
shall be unchanged and shall remain in full force and effect. This Amendment
shall be effective at the Effective Time, as defined in the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have hereinafter set forth their
hands and seals, effective as of the date first above written.
EMPLOYEE
/s/ Larry M. Miller
----------------------------------------
LARRY M. MILLER
COMPANY
IMAGE INDUSTRIES, INC.
By:/s/ H. Stan Padgett
----------------------------------------
Signature
President
----------------------------------------
Name and Title
MAXIM
THE MAXIM GROUP, INC.
By:/s/ A.J. Nassar
----------------------------------------
Signature
President
----------------------------------------
Name and Title
H-3
<PAGE> 1
EXHIBIT 10.4
<PAGE> 2
IMAGE INDUSTRIES, INC.
EMPLOYMENT CONTRACT
AGREEMENT dated as of the 30th day of July, 1993, by and between IMAGE
INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"), and
H. STAN PADGETT (hereinafter called the "Employee").
R E C I T A L S:
WHEREAS, the Company and the Employee are parties to that certain
Employment Contract dated as of March 30, 1991 (the "Existing Employment
Agreement") whereby the Employee is employed as the President of the Company;
and
WHEREAS, the Company desires to retain the services of Employee in his
current capacity as President and Chief Executive Officer of the Company
pursuant to the terms hereof in connection with the proposed public offering of
the Company's common stock.
NOW, THEREFORE, for and in consideration of the employment of Employee
by the Company, the above premises and the mutual covenants hereinafter set
forth, and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT. The Company hereby employs the Employee as its President
and Chief Executive Officer, and the Employee hereby accepts such employment
under and subject to the terms and conditions hereinafter set forth.
<PAGE> 3
2. DUTIES. During the Term hereof (as defined below), the Employee
shall faithfully perform such duties as may be assigned to him from time to time
by the Board of Directors of the Company (the "Board") which are attendant to
the position of President and Chief Executive Officer, and shall report to the
Board. The Employee shall devote his full time and best efforts to the
performance of his duties hereunder, to the exclusion of all other business
activities; provided that the Employee may manage his own passive investments so
long as such management does not interfere materially with the performance of
his services hereunder. The Employee shall, upon request of the Company, serve
on the Board for no additional consideration.
3. COMPENSATION. In consideration of the services rendered
by the Employee under this Agreement, the Company shall pay the
Employee compensation as follows:
(a) Base Salary. A base salary of not less than Two
Hundred Fifty Thousand Dollars ($250,000.00) per Year (the
"Base Salary"). For purposes hereof, a "Year" shall mean the
Company's fiscal year, which is the fifty-two (52) week period
beginning approximately July 1 and ending approximately June
30. The Employee's Base Salary shall be paid on a bi-weekly
basis, in arrears, and shall be reviewed by the Compensation
Committee of the Board annually at the end of each Year, but
no such annual review shall cause the Base Salary to be
reduced to less than $250,000 per Year; and
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<PAGE> 4
(b) Incentive Compensation. In addition to the Base
Salary (i) within thirty (30) days after the Commencement
Date, the Company shall pay to Employee a one-time bonus in
the amount of $150,000, and (ii) the Company may pay the
Employee an annual bonus, as determined by the Compensation
Committee of the Board from time to time.
4. SEVERANCE BENEFITS. The Employee shall be entitled to
severance benefits, as follows:
4.1 Termination of Employment.
(a) Termination Without Cause. If at any time during
the Term hereof, the employment of the Employee is terminated
by the Company without Cause as defined under and pursuant to
Section 7.4 hereof and provided that Employee is not
thereafter rehired by the Company for a period of at least
three (3) years, then, within thirty (30) days after the date
of termination, the Company shall pay, subject to all
applicable deductions and withholdings, to the Employee the
sum of (i) all accrued but unpaid Base Salary through the date
of termination; (ii) the Base Salary which would be payable
through the remainder of the Term, but in no event less than
one Year's Base Salary as then in effect; (iii) a bonus in an
amount equal to the average of the amount of the annual bonus
paid to Employee for the two (2) immediately preceding Years;
and (iv) the value of all accrued and
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<PAGE> 5
unused vacation time based on the per diem amount of the Base
Salary (the "Severance Payment"). In addition, in such event
(A) the Company shall continue the Employee's group health
insurance, if available, and all other fringe benefits listed
on Schedule 1 at the Company's expense for a period of six (6)
months from the date of termination of employment, and will
make available to Employee COBRA coverage after such six (6)
month period as provided by law; and (B) all stock options
granted by the Company to Employee which are not vested on the
date of termination but which would vest if Employee remained
in the employ of the Company through the Year of termi nation
shall automatically become fully vested (the "Severance
Benefits"). If Employee is rehired by the Company within three
(3) years of termination without Cause, he shall repay to the
Company the Severance Payment.
(b) Voluntary Termination. In the event that the
Employee voluntarily terminates his employment pursuant to
Section 7.4 hereof at any time, or the Company termi nates his
employment for Cause pursuant to Section 7.3 hereof at any
time, during the Term, then the Company shall have no
obligation to pay the Severance Payment or provide the
Severance Benefits to the Employee, except as provided in
Section 4.2 hereof.
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<PAGE> 6
(c) Termination Upon Death or Disability. If during
the Term hereof the employment of Employee is terminated upon
the death of Employee pursuant to Section 7.1 or upon the
permanent disability of the Employee pursuant to Section 7.2,
then, within thirty (30) days of the date of termination, the
Company shall pay, subject to all applicable deductions and
withholdings, to Employee the sum of (i) all accrued but
unpaid Base Salary through the date of termination; (ii) the
then current Base Salary for an additional six (6) month
period; (iii) a bonus in an amount equal to the average of the
amount of the annual bonus paid to Employee for the two (2)
immediately preceding Years; and (iv) the value of all accrued
and unused vacation time based on the per diem amount of the
Base Salary. In addition, in such event (except in the case of
death of Employee), (A) the Company shall continue the
Employee's group health insurance, if available, and all other
benefits listed on Schedule 1 at the Company's expense for a
period of six (6) months from the date of termination of
employment, and will make available to Employee COBRA
coverage after such six (6) months period as provided by law;
and (B) all stock options granted by the Company to Employee
which are not vested on the date of termination but which
would vest if Employee remained in the employ of the
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<PAGE> 7
Company through the Year of termination shall automatically
become fully vested.
4.2 Change in Control. In the event of a Change in
Control (as defined below) during the Term, and termination of the employment of
the Employee occurs within twelve (12) months after such Change in Control for
any reason other than for Cause, including voluntary termination by the
Employee, and provided that the Employee is not thereafter rehired by the
Company for a period of at least three (3) years, the Company shall pay to
Employee within thirty (30) days of the date of termination the amount of the
annual Base Salary as then in effect, less deductions and withholdings,
irrespective of whether Employee's employment was terminated by Employee or the
Company or by death or disability, and shall provide all Severance Benefits as
described in Section 4.1(a) above. If the Employee is rehired by the Company
within said three (3) year period, then the Employee shall repay to the Company
the annual Base Salary paid to Employee under this Section 4.2.
For purposes hereof, a "Change in Control" shall mean any
transaction or series of related transactions pursuant to which either:
(a) all or substantially all of the assets of the
Company shall have been sold or transferred to an unaffiliated
third party; or
(b) the acquisition, directly or indirectly, by any
"person" (as such term is used in Sections 13(d) and
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<PAGE> 8
14(d) of the Securities Exchange Act of 1934, as amended)
within any twelve (12) month period of securities of the
Company representing an aggregate of fifty percent (50%) or
more of the combined voting power of the Company's then
outstanding securities; or
(c) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board, cease for any reason to constitute at least a majority
thereof, unless each new director was nominated by the
directors then still in office who were directors at the
beginning of the period; or
(d) consummation of (i) a merger, consolidation or
other business combination of the Company with any other
"person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) or affiliate
thereof, other than a merger, consolidation or business
combination which would result in the out standing common
stock of the Company immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into common stock of the surviving entity or a
parent or affiliate thereof) at least fifty percent (50%) of
the outstanding common stock of the Company or such surviving
entity or parent or affiliate thereof outstanding immediately
after such merger, consolidation or business combination, or
(ii) a plan of complete liquidation of the Company or an
-7-
<PAGE> 9
agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets;
provided that an offering and sale to the public by the Company of any equity
securities pursuant to an effective registration state ment under the Securities
Act of 1933, as amended (other than in connection with a merger), shall not be
deemed to be a "Change in Control."
5. OTHER BENEFITS. During the Term, Employee shall be entitled to the
current fringe benefits set forth in Schedule 1 hereto and such other fringe
benefits as are made available generally to other senior executive employees of
the Company as may be approved by the Board from time to time, including the
following:
5.1 Paid Vacation. The Employee shall be entitled to paid
vacations in accordance with the Company's practices with respect to vacations
for senior executive employees as from time to time established by the Board,
but no less than three (3) weeks per Year.
5.2 Insurance Benefits. During the Term of this Agree ment the
Employee shall be provided accident and health, dis ability, and life insurance
as the Company may from time to time make available to its senior executive
employees, and shall pay all premiums for the same (including dependent health
insurance) for the benefit of Employee, such benefits to be substantially
similar to those provided to Employee as of the date hereof. The Company may, at
its option and for its benefit, also purchase so-called key
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<PAGE> 10
man insurance upon the life of the Employee in such amounts as it deems
necessary or appropriate, and the Employee agrees to submit to such physical
examinations for the same as may be required.
5.3 Expenses. The Company shall reimburse the Employee for all
reasonable expenses of types authorized by the Board and incurred in connection
with the Company's business affairs. The Employee shall comply with such
limitations and reporting require ments with respect to expenses as the Board
may establish from time to time.
6. TERM. The term of employment under this Agreement (the "Term") shall
begin on the date of execution by the Company of an Underwriting Agreement (the
"Commencement Date") in connection with its initial public offering which occurs
within ninety (90) days of the date hereof, and shall continue for a period of
three (3) years thereafter, unless sooner terminated as provided in Section 7.
In the event that such public offering is not closed within ninety (90) days of
the date hereof, this Agreement shall be of no force and effect, but the
Existing Employment Agreement shall continue in full force and effect.
Expiration of the Term and failure to execute a new Employment Agreement by the
Company or Employee shall not be deemed termination without Cause, and in such
event Employee shall not be subject to the restrictions contained in Section 9
hereof.
7. TERMINATION.
7.1 Death. In the event of the death of the Employee
during the Term, his employment by the Company shall be deemed to
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<PAGE> 11
terminate at the end of the calendar month in which his death occurs and, except
as set forth in Section 4.1(c), all payments and benefits under this Agreement
shall then cease.
7.2 Permanent Disability. In the event of the disability of
the employee for a period in excess of 180 consecutive days as determined by a
qualified physician chosen by the Company, such that the Employee is unable to
perform his services hereunder substantially as performed previously, his
employment by the Company shall be deemed to terminate at the end of the
calendar month which includes the last day of such 180-day period, and except as
set forth in Section 4.1 (c), all payments and benefits shall then cease.
7.3 For Cause. The employment of the Employee by the
Company may be terminated by the Company (by a decision of a
majority of the Board of Directors) for "Cause" if:
(a) the Employee has engaged in willful and
intentional misconduct with respect to the Company, or grossly
neglected his duties to the Company, and in either case, after
written notice of the same, specifying in reasonable detail
the alleged misconduct or neglect, if the Employee fails to
correct or desist from the alleged misconduct or neglect
within thirty (30) days after such notice; or
(b) the Employee has engaged in a willful act which
constitutes a fraud or a felony and which results in a direct
injury to the Company; or
-10-
<PAGE> 12
(c) the Employee shall have been convicted of or
pleaded guilty to a felony or crime involving moral turpitude;
then the Company may terminate Employee's employment immediately by written
notice. In the event of termination under this Section 7.3, all payments and
benefits under this Agreement shall cease effective with termination of
employment. Termination of employ ment for any reason, other than termination
without Cause within twelve (12) months of a Change in Control, shall constitute
cause for removal of Employee from the Company's Board of Directors.
7.4 Termination Without Cause. This Agreement may be
terminated by either party without Cause on not less than ninety
(90) days' prior written notice to the other party.
8. PROPRIETARY INFORMATION; INVENTIONS IN THE FIELD.
8.1 Proprietary Information. In the course of his service to
the Company, the Employee may have access to confiden tial specifications,
know-how, strategic or technical data, processes, business documents or
information, marketing data, marketing research data, product research and
development data and manufacturing techniques, confidential customer lists and
sources of supply and trade secrets, all of which are confidential and may be
proprietary, owned or used by the Company. Such information shall hereinafter be
called "Proprietary Information" and shall include any and all items enumerated
in the preceding sentence and coming within the scope of the Company's business
as to which the Employee may have access, whether conceived or developed by
others
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<PAGE> 13
or by the Employee alone or with others during the period of his service to the
Company, whether or not conceived or developed during regular working hours.
Proprietary Information shall not include any records, data, or information
which are in the public domain during the period of service by the Employee
provided the same are not in the public domain as a consequence of disclosure
directly or indirectly by the Employee in violation of this Agreement.
8.2 Fiduciary Obligations. Proprietary Information is of
critical importance to the Company and a violation of this Agreement would
seriously and irreparably impair and damage the Company's business and the
Employee shall keep all Proprietary Information in a fiduciary capacity for the
sole benefit of the Company.
8.3 Non-Disclosure. The Employee shall not during the Term of
this Agreement or for a period of five (5) years thereafter use for his own
benefit, or disclose, directly or indirectly, any Proprietary Information to any
person other than the Company or authorized employees thereof at the time of
such disclosure, or such other persons to whom the Employee has been
specifically instructed to make disclosure by an officer of the Company, and in
all such cases only to the extent required in the course of the Employee's
service to the Company. At the termination of his employment, the Employee shall
deliver to the Company all notes, letters, documents and records which may
contain Proprietary
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<PAGE> 14
Information which are then in his possession or control and shall not retain or
use any copies or summaries thereof.
8.4 Patent Assignment. The Employee agrees to assign and
transfer to the Company or its designee, without any separate remuneration or
compensation, his entire right, title and interest in and to all Inventions in
the Field (as hereinafter defined), together with all United States and foreign
rights with respect thereto, and at the Company's expense to execute and deliver
all appropriate patent applications for securing United States and foreign
patents and Inventions in the Field and to perform all lawful acts, including
giving testimony, and to execute and deliver all such instruments that may be
necessary or proper to vest all such Inventions in the Field and patents with
respect thereto in the Company, and to assist the Company in the prosecution or
defense of any interference which may be declared involving any of said patent
applications or patents. For the purposes of this Agreement, the words
"Inventions in the Field" shall include any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or not and whether reduced to practice or not, conceived or made by
the Employee, individually or jointly with others (whether on or off the
Company's premises or during or after normal working hours) while in the employ
of the Company or within one year after termination of the Employee's employment
by the Company, and which was or is directly or indirectly related to the
business of the Company, or
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<PAGE> 15
which resulted or results from or was suggested by any work performed by any
employee or agent thereof during the Term.
9. PROTECTIVE COVENANTS. Employee acknowledges that he is
a key executive whose specialized skills, abilities and contacts
are important to the success of the Company, and agrees that he
shall faithfully and strictly adhere to the following covenants:
9.1 In the event Employee voluntarily terminates his
employment during the Term or his employment is terminated by the Company for
"Cause," the Employee covenants and agrees that he shall not, within one year
after the date of such termination of employment within the States of Alabama,
Georgia, South Carolina and within a two hundred (200) mile radius of the
Company's principal office located at Highway 140, Armuchee, Georgia, directly
or indirectly own, operate or serve as an employee or consultant in a capacity
similar to that in which Employee served the Company, for any business, person
or entity whatsoever which is engaged in the manufacture or sale of carpet, the
extrusion of polyester fibers, the production of polyethylene terephthalate
("PET") flake or pellets, or the recycling of post-consumer PET materials that
are competitive with those sold or manufactured by the Company.
9.2 In the event Employee voluntarily terminates his
employment during the Term or his employment is terminated by the Company for
"Cause," the Employee covenants and agrees that he shall not, within one year
after the date of such termination of employment solicit, divert or appropriate,
or attempt to solicit,
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<PAGE> 16
divert or appropriate, directly or by assisting others, any business from any of
the Company's customers, including actively-sought prospective customers, with
whom Employee had material contact during the last eighteen (18) months of his
employment, for purposes of providing products or services that are competitive
with those provided by the Company.
9.3 In the event Employee voluntarily terminates his
employment during the Term or his employment is terminated by the Company for
"Cause," the Employee covenants and agrees that he shall not, within one year
after the date of such termination of employment divert, solicit, recruit or
hire, or attempt to divert, solicit, recruit or hire, directly or by assisting
others, any other employee of the Company or any person who within the preceding
twelve (12) months has been an employee of the Company, whether or not such
employee is a full-time employee or a temporary employee of the Company and
regardless of whether such employment is pursuant to written agreement, for a
determined period, or at will.
10. REMEDIES. It is specifically understood and agreed that any breach
of the provisions of Sections 8 and 9 of this Agreement is likely to result in
irreparable injury to the Company and that the remedy at law alone will be an
inadequate remedy for such breach, and that in addition to any other remedy it
may have, the Company shall be entitled to enforce the specific performance of
this Agreement by the Employee and to seek both temporary and
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<PAGE> 17
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages.
11. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and, if mailed by prepaid
first class mail or certified mail, return receipt requested, at any time other
than during a general discontinuance of postal service due to strike, lockout or
other wise, shall be deemed to have been received on the earlier of the date
shown on the receipt or three (3) business days after the postmarked date
thereof and, if telexed or telecopied, shall be followed forthwith by letter and
shall be deemed to have been received on the next business day following
dispatch and acknowledgement of receipt by the recipient's telex or telecopy
machine. In addition, notices hereunder may be delivered by hand, in which event
the notice shall be deemed effective when delivered, or by overnight courier, in
which event the notice shall be deemed to have been received on the next
business day following delivery to such courier. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Company:
Image Carpets, Inc.
Highway 140
Armuchee, Georgia 30105
Copy to:
G. Donald Johnson, Esquire
Parker, Johnson, Cook & Dunlevie
Suite 700
1275 Peachtree Street, N.E.
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<PAGE> 18
Atlanta, Georgia 30309
(ii) If to the Employee:
H. Stan Padgett
103 Carpenter Road
Calhoun, Georgia 30701
unless and until notice of another or different address shall be given as
provided herein. All notices shall be effective upon delivery or, if mailed, on
the third business day after being mailed.
12. MISCELLANEOUS.
12.1 Modification. This Agreement constitutes the entire
agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral,
including without limitation the Prior Employment Agreement. This Agreement may
not be amended or revised except by a writing signed by the parties.
12.2 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of both parties and their respective successors
and assigns, including any corporation with which or into which the Company or
its successor may be merged or which may succeed to its assets or business,
although the obliga tions of the Employee are personal and may be performed only
by him.
12.3 Captions. Captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope of
substance of any provision of this Agreement.
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<PAGE> 19
12.4 Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, and this Agreement shall
be construed as if such invalid, illegal or unenforceable provision were limited
or modified, consistent with its general intent, to the extent necessary so that
it shall be valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision, this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein, and all other provisions hereof shall be and remain
unimpaired and in full force and effect.
12.5 Governing Law. This Agreement shall be construed
under and governed by the laws of the State of Georgia.
12.6 Arbitration. Either party hereto may demand arbitration
of a claim or dispute arising hereunder by delivery of a written demand to the
other party within sixty (60) days after the claim arises, which demand shall
include the name of an arbitrator appointed by such party, together with a
statement of the matter in controversy. Within twenty (20) days after the
receipt of such demand, the other party shall appoint its arbitrator, and the
two arbitrators so chosen shall, within ten (10) days thereafter, select a third
arbitrator, or in the absence of agreement, the third arbitrator shall be
appointed by the Arbitration Committee of the American Arbitration Association.
A
-18-
<PAGE> 20
decision rendered by a majority of the arbitrators shall be final and binding on
the parties, and judgment on such award may be entered in accordance with the
applicable law in any court having jurisdiction thereof. All arbitration costs
and expenses shall be borne by the losing party. Any such arbitration shall be
held in Floyd County, Georgia, unless otherwise agreed by the parties.
Within ninety (90) days of the selection of the third
arbitrator (or such later date as the arbitrators determine as necessary to make
such determination), the arbitrators shall determine whether the Base Salary and
benefits provided hereunder should be continued to be paid to Employee during
the pendency of the arbitration based upon the merit of and the reasonableness
of the position of the Employee; provided that said Base Salary and benefits
shall be continued until the date of such determination and thereafter if so
determined by the arbitrators. In the event the arbitrator determines that such
salary and benefits should not have been paid to Employee, Employee shall pay
the full amount of such salary and the cost of such benefits to the Company
within thirty (30) days of such decision.
12.7 Restrictive Covenant. It is the intention of the parties
that if any restrictive covenant in this Agreement is determined by a court of
competent jurisdiction to be overly broad, then the court should enforce such
covenant to the maximum extent permitted by law as to scope, geographic area and
duration.
[EXECUTION SET FORTH ON FOLLOWING PAGE]
-19-
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
THE COMPANY:
IMAGE INDUSTRIES, INC.
BY:/s/ Larry M. Miller
-----------------------------
LARRY M. MILLER, Chairman
EMPLOYEE:
/s/ H. Stan Padgett
--------------------------------
H. STAN PADGETT
-20-
<PAGE> 22
SCHEDULE 1
The Company will provide the following fringe benefits to the Employee:
1. A Company automobile comparable to the present
automobile, together with the costs of operating and
maintaining same.
2. Country club membership and dues at a country club of
Employee's choice within the general area of the
Company's principal facility.
3. Dependent medical insurance coverage at the Company's
expense.
4. Preparation of the Employee's federal and state tax
returns by the Company's independent auditors.
5. Personal life and disability insurance providing benefits
not less than that currently provided for Employee.
6. Annual physical at the expense of the Company.
7. Sick leave, including salary continuation, for a period
of time equal to the waiting period under the Company's
disability policy.
<PAGE> 1
EXHIBIT 10.5
<PAGE> 2
EXTENSION OF EMPLOYMENT AGREEMENT
THIS EXTENSION OF EMPLOYMENT AGREEMENT (hereinafter called "Extension")
effective July 30, 1996, by and between IMAGE INDUSTRIES, INC., a Delaware
corporation (hereinafter called the "Company") and H. STANLEY PADGETT, a
resident of Georgia (hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, Employee and Company entered into an Employment Agreement
dated July 30, 1993 (the "Employment Agreement"), which terminates on July 30,
1996 and the parties wish to hereby extend the Employment Agreement for an
additional thirty-one (31) days from July 30, 1996.
NOW THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein and other good and valuable considerations the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. The Employment Agreement is hereby extended by thirty-one (31) days
to August 30, 1996.
2. Except as hereby extended, the Employment Agreement shall be
unchanged and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereinafter set forth their
hands and seals effective as of the date first above written.
EMPLOYEE:
/s/ H. Stanley Padgett
---------------------------------------
H. STANLEY PADGETT
COMPANY:
IMAGE INDUSTRIES, INC.
By: /s/ Larry M. Miller
---------------------------------
LARRY M. MILLER, Chairman
<PAGE> 1
EXHIBIT 10.6
<PAGE> 2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (hereinafter called "Amendment")
made and entered into this 30th day of August, 1996, by and between IMAGE
INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"), H.
STAN PADGETT, a resident of Georgia (hereinafter called "Employee") and THE
MAXIM GROUP, INC., a Delaware corporation (hereinafter called "Maxim").
W I T N E S S E T H
WHEREAS, Employee and Company entered into an Employment Agreement
dated July 30, 1993 (the "Employment Agreement"), which the parties wish to
hereby amend, and
WHEREAS, the Company and Maxim have entered into an Agreement and Plan
of Reorganization (the "Merger Agreement") dated May 31, 1996 whereby the
Company would become a wholly owned subsidiary of Maxim and which contemplates
that Employee will continue to serve as President and Chief Executive Officer of
the Company and also serve in certain capacities with Maxim, all as set forth
herein.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein and other good and valuable considerations the
receipt and legal sufficiency of which are hereby acknowledged, the parties
hereto do hereby agree as follows:
1. DUTIES. Section 2 of the Employment Agreement is hereby amended by
adding thereto the following:
"Without limitation of the foregoing, the Company hereby delegates to
the Employee (subject to the exercise by the Board of Directors of the
Company of its fiduciary duties in respect of such matters) the
following additional rights and responsibilities during the Term:
primary responsibility for directing all business activities of the
Company, including implementation of the Company's annual business plan
implementation of the Company's expenditures plan including the
Company's 1997 Capital Expenditure Plan, overseeing the hiring and
firing of all employees of the Company, directing the Company's carpet
manufacturing and PET recycling operations, and all other aspects of
the business of the Company not expressly reserved by contract or law
to the Board of Directors of the Company. Employee acknowledges the
Board of Directors reserves the right to, among other things, set all
bonuses for employees of the Company, if any, dictate capital
expenditures subsequent to the period noted above, set compensation for
Employee other than as required hereby, and offer employment agreements
to the Company's employees. The Company hereby represents and warrants
that the Company's 1997 Capital Expenditure Plan has been approved by
the Company's Board of Directors, and will not be amended without the
consent of the Employee.
2. BASE SALARY. Section 3(a) of the Agreement is hereby amended by (i)
deleting therefrom the term "Two Hundred Fifty Thousand Dollars ($250.000)" and
substituting therefor the term "Two Hundred Ninety Five Thousand Dollars
($295,000)"; and (ii) amending the second
I-1
<PAGE> 3
sentence thereof to read, in its entirety: "For purposes hereof, the term "year"
shall mean the consolidated fiscal year of the Company and its parent
corporation, The Maxim Group, Inc."
3. CHANGE OF CONTROL. Section 4.2 of the Agreement shall be amended by
adding thereto the following sentence:
"For purposes of this Section 4.2: (i) the term "Company" shall mean
either of the Company or its parent corporation, The Maxim Group, Inc.,
for so long as not less than 50% of the outstanding voting securities
of the Company are owned by Maxim; and (ii) the transaction pursuant to
which Maxim has initially acquired ownership of all the outstanding
voting stock of the Company shall not constitute a "change of control"
for purposes of this Agreement."
4. TERM. Section 6 of the Agreement is hereby amended by deleting
therefrom the term "three (3) years" and substituting therefor the term "five
(5) years".
5. PROPRIETARY INFORMATION; INVENTIONS IN THE FIELD. Section 8 of the
Agreement is hereby amended by adding thereto the following subsection 8.5:
"8.5 Definition. For purposes of this Section 8, the term
"Company" shall mean each of the Company and its parent corporation,
The Maxim Group, Inc."
6. PROTECTIVE COVENANTS. Section 9 of the Agreement is hereby amended
by adding thereto the following subsection 9.4:
"9.4 For purposes of this Section 9, the term "Company" shall
mean both the Company and its parent corporation, The Maxim Group,
Inc."
7. REMEDIES. Section 10 of the Agreement is hereby amended by adding
thereto the following sentence:
"For purposes of this Section 10, the term "Company shall mean both the
Company and its parent corporation, The Maxim Group, Inc."
8. COVENANTS OF MAXIM. The Agreement is hereby further amended by
adding thereto the following Section 13:
"13. Covenants of Maxim.
13.1 Guaranty of Maxim. Maxim hereby guarantees the
obligations of the Company hereunder.
13.2 Election as Officer of Maxim. During the Term of this
agreement, Maxim shall cause the Employee to be elected as a Senior
Executive Vice President of Maxim.
13.3 Board Participation. Throughout the Term hereof, Maxim
shall use its best efforts to cause the employee to be nominated for
and to be elected as a member of the
I-2
<PAGE> 4
Board of Directors of Maxim. Throughout the Term hereof, Maxim
will vote its shares of the Company in favor of election of a Board of
Directors comprised of: (i) a designee of the Chief Executive Officer
of Maxim; (ii) the Employee; (iii) Larry M. Miller, provided Mr.
Miller is then employed as an executive officer of the Company or of
Maxim; and (iv) two other individuals designated: (a) for so long as
Mr. Miller is employed as an executive officer of either the Company
or of Maxim, by mutual agreement of the Employee and Mr. Miller; or
(b) if the condition in clause (a) does not apply, by the Employee."
9. CONTINUED EFFECT. Except as hereby amended, the Employment Agreement
shall be unchanged and shall remain in full force and effect. This Amendment
shall be effective at the Effective Time, as defined in the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have hereinafter set forth their
hands and seals, effective as of the date first above written.
EMPLOYEE
/s/ H. Stan Padgett
-----------------------------------
H. STAN PADGETT
COMPANY
IMAGE INDUSTRIES, INC.
By:/s/ Larry M. Miller
-------------------------------
Signature
Chairman
----------------------------------
Name and Title
MAXIM
THE MAXIM GROUP, INC.
By:/s/ A.J. Nassar
-------------------------------
Signature
President
----------------------------------
Name and Title
I-3
<PAGE> 1
EXHIBIT 23.1
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included herein and to the incorporation by reference in this registration
statement of our reports dated April 19, 1996 included in The Maxim Group,
Inc.'s Transition Report on Form 10-K for the ten months ended January 31, 1996
and our report dated October 2, 1996 included in The Maxim Group, Inc.'s
Amendment No. 1 on Form 10-K/A dated October 15, 1996 to its Transition Report
on Form 10-K for the ten months ended January 31, 1996 and to all references to
our firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 13, 1997
<PAGE> 1
EXHIBIT 23.2
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Maxim Group, Inc.
We consent to the use of our reports included herein and incorporated
herein by reference and to the reference to our firm under the heading "Experts"
in the prospectus.
Atlanta, Georgia /S/ KPMG Peat Marwick LLP
January 20, 1997
<PAGE> 1
EXHIBIT 24.1
<PAGE> 2
STATE OF FLORIDA
COUNTY OF PALM BEACH
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, M.B. Seretean, a Director of
THE MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A. J.
Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with full
power of substitution, for me in any and all capacities, to sign, pursuant to
the requirements of the Securities Act of 1933, a Registration Statement on Form
S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 19th day
of December, 1996.
/s/ M.B. Seretean
------------------------------------
M.B. Seretean
ACKNOWLEDGEMENT
BEFORE me this 19th day of December, 1996, came M.B. Seretean,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Marshall Owens Lloyd
------------------------------------
NOTARY PUBLIC
State of Florida
---------------------------
My Commission Expires:
03/09/99
------------------------------------
<PAGE> 3
STATE OF GEORGIA
COUNTY OF COBB
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, James W. Inglis, a Director of
THE MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A. J.
Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with full
power of substitution, for me in any and all capacities, to sign, pursuant to
the requirements of the Securities Act of 1933, a Registration Statement on Form
S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day
of January, 1997.
/s/ James W. Inglis
---------------------------------
James W. Inglis
ACKNOWLEDGEMENT
BEFORE me this 3rd day of January, 1997, came James W. Inglis,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Zenith Carol DeVico
----------------------------------
NOTARY PUBLIC
State of Georgia
-------------------------
My Commission Expires:
June 28, 1997
----------------------------------
<PAGE> 4
STATE OF GEORGIA
COUNTY OF FLOYD
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Larry M. Miller, a Director of
THE MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A. J.
Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with full
power of substitution, for me in any and all capacities, to sign, pursuant to
the requirements of the Securities Act of 1933, a Registration Statement on Form
S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 23rd day
of December, 1996.
/s/ Larry M. Miller
------------------------------------------
Larry M. Miller
ACKNOWLEDGEMENT
BEFORE me this 23rd day of December, 1996, came Larry M. Miller,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Linda Roden
-----------------------------------------
NOTARY PUBLIC
State of Georgia
--------------------------------
My Commission Expires:
Jan. 26, 1999
-----------------------------------------
<PAGE> 5
STATE OF GEORGIA
COUNTY OF FLOYD
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, H. Stanley Padgett, a Director
of THE MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A.
J. Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Act of 1933, a Registration Statement on
Form S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 19th day
of December, 1996.
/s/ H. Stanley Padgett
-----------------------------------
H. Stanley Padgett
ACKNOWLEDGEMENT
BEFORE me this 19th day of December, 1996, came H. Stanley Padgett,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Linda Roden
----------------------------------------
NOTARY PUBLIC
State of Georgia
-------------------------------
My Commission Expires:
January 26, 1999
----------------------------------------
<PAGE> 6
STATE OF NEW YORK
COUNTY OF MONROW
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Richard A. Kaplan, a Director
of THE MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A.
J. Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Act of 1933, a Registration Statement on
Form S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 19th day
of December, 1996.
/s/ Richard A. Kaplan
------------------------------------
Richard A. Kaplan
ACKNOWLEDGEMENT
BEFORE me this 19th day of December, 1996, came Richard A. Kaplan,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Stefanie Devereaux
-----------------------------------
NOTARY PUBLIC
State of New York
--------------------------
My Commission Expires:
February 22, 1997
-----------------------------------
<PAGE> 7
STATE OF ALABAMA
COUNTY OF AUTAUGA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Dicky W. McAdams, a Director of
THE MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A. J.
Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with full
power of substitution, for me in any and all capacities, to sign, pursuant to
the requirements of the Securities Act of 1933, a Registration Statement on Form
S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 31st day
of December, 1996.
/s/ Dicky W. McAdams
----------------------------------------
Dicky W. McAdams
ACKNOWLEDGEMENT
BEFORE me this 31st day of December, 1996, came Dicky W. McAdams,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Diana B. Williams
---------------------------------------
NOTARY PUBLIC
State of Alabama
------------------------------
My Commission Expires:
02/18/2000
---------------------------------------
<PAGE> 8
STATE OF OHIO
COUNTY OF HAMILTON
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Ronald McSwain, a Director of
THE MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A. J.
Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with full
power of substitution, for me in any and all capacities, to sign, pursuant to
the requirements of the Securities Act of 1933, a Registration Statement on Form
S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 26th day
of December, 1996.
/s/ Ronald McSwain
---------------------------------------
Ronald McSwain
ACKNOWLEDGEMENT
BEFORE me this 26th day of December, 1996, came Ronald McSwain,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Betty Borsoli
------------------------------------------
NOTARY PUBLIC
State of Ohio
---------------------------------
My Commission Expires:
3-26-97
------------------------------------------
<PAGE> 9
STATE OF GEORGIA
COUNTY OF GWINNETT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, J. Michael Nixon, a Director of
THE MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A. J.
Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with full
power of substitution, for me in any and all capacities, to sign, pursuant to
the requirements of the Securities Act of 1933, a Registration Statement on Form
S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 31st day
of December, 1996.
/s/ J. Michael Nixon
--------------------------------
J. Michael Nixon
ACKNOWLEDGEMENT
BEFORE me this 31st day of December, 1996, came J. Michael Nixon,
personally known to me, who in my presence did sign and seal the above and
foregoing Power of Attorney and acknowledged the same as his true act and deed.
/s/ Janice M. Ashby
--------------------------------
NOTARY PUBLIC
State of Georgia
-----------------------
My Commission Expires:
2/25/99
--------------------------------
<PAGE> 10
STATE OF FLORIDA
COUNTY OF DADE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Herb Wolk, a Director of THE
MAXIM GROUP, INC., a Delaware corporation, do constitute and appoint A. J.
Nassar and Thomas P. Leahey my true and lawful attorneys-in-fact, each with full
power of substitution, for me in any and all capacities, to sign, pursuant to
the requirements of the Securities Act of 1933, a Registration Statement on Form
S-3 for THE MAXIM GROUP, INC., and to file the same with the Securities and
Exchange Commission, together with all exhibits thereto and other documents in
connection therewith, and to sign on my behalf and in my stead, in any and all
capacities, any amendments to said Registration Statement, incorporating such
changes as said attorneys-in-fact deem appropriate, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 19th day
of December, 1996.
/s/ Herb Wolk
--------------------------------
Herb Wolk
ACKNOWLEDGEMENT
BEFORE me this 19th day of December, 1996, came Herb Wolk, personally
known to me, who in my presence did sign and seal the above and foregoing Power
of Attorney and acknowledged the same as his true act and deed.
/s/ Odalys Sierra
--------------------------------
NOTARY PUBLIC
State of Florida
-----------------------
My Commission Expires:
November 13, 1997
--------------------------------
