Exhibit No. 4.5
Xxxxxx Designs, Inc.
Form 10-KSB/ 1997
File No. 33-49854-A
SUBSCRIPTION AGREEMENT
AND INVESTMENT LETTER
______________
Date
To the Board of Directors
lntile Designs, Inc.
0000 Xxx Xxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Re: Subscription to Purchase Units
of Xxxxxx Designs, Inc.
Gentlemen:
This will acknowledge that the undersigned hereby agrees to
irrevocably purchase from Xxxxxx Designs, Inc. (the "Company" or
"lntile"), a corporation formed in July 1991 and now organized
under the laws of the State of Delaware, ________________ unit(s)
(collectively the "Units") at a price of $50,000 per Unit. Each
Unit consists of 150,000 shares (collectively the "Shares") of
the Company's common stock, par value $0.0001 per share, (the
"Common Stock")
The Unit(s) to be purchased by the undersigned is (are) part of a
private placement of securities (the "Offering") by the Company
of up to 47 Units which is being made only to "accredited
investors" as defined herein on a five Unit minimum or none to 47
Unit maximum best efforts basis by the Company through February
28, 1997. Based thereon, if five Units are not sold and paid for
on or prior to February 28, 1997 (unless extended as provided
below), the Offering will not become effective and all funds
collected from subscribers will be promptly returned to them
without interest thereon or deduction therefrom. The Company
reserves the right to sell fractions of a Unit. All funds
collected from subscribers pending consummation or termination of
the Offering as set forth herein will be held in the escrow
account described below.
If all of the Units are sold, the Company will receive aggregate
gross proceeds of $2,350,000 less the expenses of this Offering
which management estimates will be approximately $335,000,
including the fee and expense allowance payable to Xxxxxxx and
Company Securities, Inc. ("Xxxxxxx") described below. Xxxxxxx, a
member of the New York Stock Exchange, is acting as the placement
agent for the Company in placing this Offering. The Offering
will terminate on the sooner to occur of the sale of all of the
Units or February 28, 1997, unless extended for an additional 30
days by the mutual consent of the Company and Xxxxxxx.
The undersigned understands that the information provided to him
with respect to the Company has not been independently verified
by Xxxxxxx. Accordingly, there is no representation by Xxxxxxx as
to the completeness or accuracy or such information.
Xxxxxxx will receive a fee equal to 10% and a non-accountable
expense allowance equal to 3% of the aggregate purchase price of
the Units sold. Xxxx X. Xxxxx, a former director of the Company,
is also a principal of Xxxxxxx. Neither the Company nor Xxxxxxx
has obtained any independent opinion relating to the fairness of
the terms of this Offering or the compensation to be paid to
Xxxxxxx for the services it will render in connection herewith.
Xx. Xxxxx owns warrants to purchase 20,000 shares of Common Stock
at $1.80.
Payment for the Units shall be made by check payable to
"Citibank, N.A.- Xxxxxx Designs, Inc. Escrow Account" and
delivered to Xxxxxxx, together with an executed copy of this
Subscription Agreement and Investment Letter and the Purchaser
Questionnaire appended hereto as EXHIBIT A. Payment may be made
by wire transfer pursuant to instructions available on request
from Xxxxxxx.
A forbearance agreement between the Company and its primary
lender, NationsBank of Texas (the "Bank"), expired on January 20,
1997. Accordingly, the balance of the debt owed by the Company to
the Bank in the amount of approximately $4.78 million is
currently due and payable in full. This debt is secured by all
of the Company's Inventory and accounts receivable. The Bank has
Informed the Company that It does not Intend to renew the
agreement and has sent a letter demanding payment of the
aforesaid balance. Xxxxxx is currently attempting to secure a
payment extension and/or an alternative credit facility. There
can be no assurance that such an extension or alternative credit
facility can be obtained on acceptable terms, if at all. If It
is unable to do so, the Company most likely will be required to
seek protection under applicable bankruptcy laws or cease
operations. In either event, the undersigned understands that he
will lose is entire investment.
Xxxxxx intends to seek stockholder approval for a one for three
reverse split (the "Reverse Split") of its Common Stock after
which, assuming all of the Units offered hereby are sold, there
will be approximately 5.85 shares of Common Stock outstanding on
a fully diluted basis, including approximately 2,566,000 shares
reserved for issuance pursuant to the conversion of the
subordinated notes issued in connection with a private financing
(the "Prior Private Financing") described below, and the exercise
of currently outstanding options and warrants, including warrants
issued in the Prior Private Financing.
In August 1996 Xxxxxx sold 16 units in the Prior Private
Financing pursuant to which it obtained gross proceeds of $1.6
million. Each unit consisted of (i) a subordinated note
(collectively the "Notes") in the principal amount of $100,000;
and (ii) 50,000 warrants (the "Warrants"), each to purchase one
share of Common Stock at a price of $0.25 per share for a period
of seven years. The Notes, which are currently convertible into
Common Stock at the rate of $1.50 per share, bear annual interest
at the rate of 12%. This rate will increase by 2% each six
months, up to a maximum of 18%, until the shares of Common Stock
underlying the Notes and the warrants are registered. A portion
of the proceeds to be obtained from this Offering ($48,000) will
be used to pay currently due interest on the Notes. Xxxxxxx
acted as the placement agent for the Prior Private Financing and,
in connection therewith, was granted 80,000 Warrants.
For a period of 20 calendar days after the Reverse Split is
effected, the Company intends to (i) reduce the conversion price
of the Notes to $1.00 per share so that the $1.6 million
principal amount of the Notes will be convertible into an
aggregate of 1.6 post split shares of Common Stock; and (ii)
reduce the Warrant exercise price to $0.25 per share so that the
Warrants will be exercisable for an aggregate of 800,000 million
post split shares of Common Stock. If the Notes are converted
the Company will be required to write off the placement costs of
the Prior Private Financing, which approximate $196,000, an
amount which it is currently amortizing through August 2005, the
Note maturity date.
The undersigned understands that the Company and Xxxxxxx have
entered into a letter of intent dated September 17, 1996, which
provides, in part, that Xxxxxxx may, but is not obligated to,
undertake to sell securities of the Company for its own account
("Firm Underwriting") in a public offering (the "Public
Offering") subsequent to the completion of this Offering. The
Company is obligated to include in any registration statement
("Registration Statement") to be filed with the Securities and
Exchange Commission (the "Commission") relating to the Public
Offering, all of the Shares offered hereby and the shares of
Common Stock underlying the Note and the Warrants (the
"Underlying Shares"). The undersigned acknowledges that no
assurance can be given that the Registration Statement, if filed,
will be declared effective by the Commission or, if it is, that
the Public Offering will ever be successfully completed.
Accordingly, he warrants and represents to the Company that he is
purchasing the Units without relying on the occurrence of the
Public Offering.
If the Registration Statement is not declared effective by June
30, 1997, the holders of a majority of the Shares offered hereby
shall have the right, on one occasion only through two years
after the date of the closing of this Offering, to demand that
the Company register the Shares with the Commission and use its
best efforts to have such registration statement declared
effective. The Company will also grant the Unit purchasers
unlimited "piggy back" registration rights with respect to the
Shares. The Note and Warrant holders also have certain demand
and "piggy back" registration rights with respect to the
Underlying Shares.
The undersigned acknowledges that the Units, and the underlying
Shares (the "Underlying Securities") he is purchasing, have not
been registered under the Securities Act of 1933 (the "Act") or
qualified under applicable state securities laws and that the
transferability thereof is restricted by the registration
provisions of the Act as well as such state laws. Based upon the
representations and agreements being made by him herein, the
Units and Underlying Securities are being sold to him pursuant to
an exemption from such registration provided by Section 4 (2) of
the Act and applicable state securities law qualification
exemptions. The undersigned further acknowledges that the basis
for these exemptions may not be available if, notwithstanding
such representations, he intends merely acquiring these
securities for a fixed or determinable period in the future, or
for a market rise, or for sale if the market does not rise. The
undersigned represents and warrants that he does not have any
such intention. The undersigned agrees that the documentation
representing the Underlying Securities will bear a legend
indicating that transfer of these securities is restricted by
reason of the fact that they have not been so registered or
qualified.
The undersigned represents that he is acquiring the Units and
Underlying Securities solely for his own account as principal and
not as a nominee or agent, for investment purposes only and not
with a view to resale or other distribution or fractionalization
thereof, nor with the intention of selling, transferring or
otherwise disposing of all or any part of such securities for any
particular event or circumstance, except selling, transferring or
disposing of them upon full compliance with all applicable
provisions of the Act, the Securities Exchange Act of 1934 (the
"Exchange Act"), the Rules and Regulations promulgated by the
Commission thereunder, and any applicable state securities laws.
The undersigned further understands and agrees that (i) the
securities may be sold only if they arc subsequently registered
under the Act and qualified under any applicable state securities
laws or, In the opinion of the Company's counsel, an exemption
from Such registration and qualification is available; (ii) any
routine sales of securities made in reliance upon Rule 144 can be
made only in the amounts set forth in and pursuant to the other
terms and conditions, including applicable holding periods, of
that Rule; and (iii) the Company is under no obligation to assist
him in complying with any exemption from registration under the
Act, or, except as otherwise set forth herein, to register the
Units or Underlying Securities on his behalf.
The undersigned represents and warrants that he has received (i)
a copy of the Company's Form 10-KSB for the fiscal year ended
March 31, 1996 appended hereto as EXHIBIT B; (ii) a copy of the
Company's Form 8-K dated March 12, 1996 appended hereto as
EXHIBIT C; (iii) a copy of the Company's Form 8-K dated March 29,
1996 appended hereto as EXHIBIT D; (iv) a copy of the Company's
Proxy Statement for the Company's Annual Meeting which was held
on July 26, 1996 appended hereto as EXHIBIT E; (v) ADD JUNE 30,
1996 Q a copy of the Company's Form 10-QSB for the quarterly
period ended September 30, 1996 appended hereto as EXHIBIT F; and
(iv) a copy of a "Management Discussion" relating to certain
events which have occurred subsequent the filing of EXHIBIT F
with the Commission and a "Use of Proceeds" appended hereto as
EXHIBIT G (collectively the "Information Documents") and that he
has read and understood all of these documents.
The undersigned also represents and warrants that he (i) has
reviewed such other documents and obtained such other information
from the Company as he deems necessary in order for him to make
an informed investment decision; and (ii) is fully aware of the
Company's current business prospects, financial condition and
operating history as set forth herein and in the Information
Documents. Except as may be provided in this Subscription
Agreement and Investment Letter and in the Information Documents,
he warrants that no representations, statements or inducements
were made to him to purchase the Units.
Based on the foregoing, the undersigned acknowledges that, among
other matters relating to the Company, he is aware of the
following:
lntile is an importer of foreign ceramic tile and marble and a
distributor of these products as well as domestic ceramic tile,
marble and other home design/building products. The Company's
products are distributed to a wide and varied retail and
wholesale customer base through nine showroom/warehouse
facilities and three showrooms in seven states.
Xxxxxx markets its products to at least five general types of
customers. These include pool contractors, residential and
commercial remodeling contractors, new home builders, architects
and designers, and "do-it-yourself" consumers. A substantial
portion of the marketing to the contractor trade is effected by
retail sales to the ultimate consumer through the retail
showrooms. Sales are conducted in the showroom facilities by
trained, experienced tile sales personnel.
Merchandise is distributed by various methods depending upon the
warehouse support structure for a particular sales location.
Where a warehouse is attached to a showroom, the customer may
obtain products immediately, but where the showroom is
independent of a warehouse facility, the customer may wait as
long as one week to receive the merchandise. In cases of special
orders, or when a warehouse is out of stock, the delivery time
may exceed two weeks. The vast majority of the Company's
products are picked up by the customers or their contractors at
the Company's warehouse facilities or showrooms. Only a small
portion of orders are delivered or shipped directly to customers.
A number of other companies market tile and related products to
wholesale and retail customers. Many of them possess great
financial and managerial resources as well as general market
acceptance. The Company's retail competitors include Color Tile,
Home Depot, Builders Square and other major retail warehouse
distributors. Major wholesale distributors include Florida Tile,
Dal Tile, American Olean, American Tile Supply, Arizona Tile,
Laufen and C.I.T. lntile competes on the basis of product
quality and selection, price and service. The Company's business
is seasonal, generally with more activity in the spring and
summer than in fall and winter.
The Company obtains its products from a diversified group of
domestic and international suppliers. In general, purchases can
be broken out as follows: 40% from Italy; 30% from the United
States; 15% from Japan; and 15% from a number of other countries.
The major domestic suppliers are Mutual Materials, Interstate
Brick, P&M Tile, and Laufen International. For the fiscal year
ended March 31, 1996, no single foreign or domestic source
provided the Company with more than 10% of its products and no
single customer accounted for 10% or more of the Company's
revenues.
The Company currently has 79 full time employees in addition to
its seven executive officers. Of these, 24 are in
administration, 23 in sales and 32 in operations.
lntile has operations in seven states with retail showroom
locations in Houston, Dallas, Austin, The Woodlands, Xxxxxxx and
Corpus Christi, Texas; Atlanta, Georgia; Orlando, Florida;
Phoenix, Arizona; Anaheim, California; and Denver, Colorado.
Xxxxxx maintains a 100,000 square foot warehouse facility in
Houston, Texas, where the major portion of its inventory is
located, and 20,000 square foot satellite warehouse and showroom
facilities in Anaheim, California, Atlanta, Georgia and Dallas,
Texas.
On January 24, 1997, the Company closed three of its four
California locations. These locations accounted for
approximately 9% of the Company's annual gross sales revenue and
approximately 15% of its annual operating expenses.
During the Company's fiscal year ended March 31, 1996 and since
then, the Company has been in violation of certain loan covenants
of its credit facility with the Bank. Consequently, as of March
31, 1996 the Bank had the right to demand repayment of the entire
outstanding balance of the note, which required the debt to be
recorded in full as a current liability. This debt is secured by
all of the Company's inventory and accounts receivable. This
issue caused the Company's independent accountants to insert a
"going concern" qualification in their report. See Report of
Independent Certified Public Accountants and Note 2 of Notes to
the Company's Consolidated Financial Statements, both contained
in the Company's Form 10-KSB for the year ended March 31, 1996
appended hereto as EXHIBIT B (the "March 31, 1996 Form 10-KSB").
As previously noted, the agreement between the Company and the
Bank on which the credit facility is based expired on January 20,
1997 and the Bank has demanded full payment of the currently
existing $4.78 million outstanding balance. One million dollars
from the proceeds of this Offering will be used to reduce this
balance.
In February 1995 the Company acquired 100% of the common stock of
TCM Holdings Corporation ("TCM") in exchange for 322,138 shares
of its Common Stock. One hundred and twenty thousand of these
shares are currently held in escrow pending the resolution of the
terms of an indemnity agreement. In August 1995, due to
recurring losses, TCM was required to cease its operations. In
November 1995 TCM was placed into a Chapter 7 filing under the
U.S. Bankruptcy Code by the U.S. Bankruptcy Court, District of
Massachusetts, Eastern Division (Case Number 94-10762-WCH). The
Company has suffered a significant loss ($4,351,837) during the
fiscal year ended March 31, 1996. primarily attributable to the
financial problems encountered by its TCM subsidiary.
Management believes that it has adequately accrued for all
remaining losses due to the closure of TCM. In addition, the
Company is seeking to refinance its existing credit facility and
secure additional financing such as that which it will receive if
this Offering is consummated. No assurance can be given,
however, that the Company will be successful in refinancing its
credit facility or obtaining additional financing sufficient to
support its continuing operations. In this connection, it should
be noted that management estimates the Company's business will
incur (i) an operating loss in the amount of approximately
$550,000 for the quarter ended December 31, 1996; (ii) an
operating loss of approximately $350,000 for the current fiscal
year ending March 31, 1997; (iii) a one time charge off of up to
$600,000 in the fourth quarter resulting from the termination of
the California operations; and (iv) total losses for the current
fiscal year approximating $1.2 million, including a $196,000
write off relating the conversion of the Notes referred to above.
No assurance can be given, however, that actual losses will not
exceed these estimates.
Reference is made to Item 6 (Management's Discussion and Analysis
of Financial Condition and results of operations) of the March
31, 1996 Form 10-KSB and Notes 2, 3 and 5 to Notes to the
Company's Consolidated Financial Statements included therein for
additional information relating to the transactions involving TCM
and their effect on the Company's financial condition.
The directors and executive officers of the Company are as
follows:
Name Age Position
C. Xxxxxxx Xxx 61 President, Chairman of the Board and
Chief Executive Officer
Xxxxxxx Xxxxx 59 Vice President-Retail Training and
Secretary
Xxxxxx X. Xxxxxxxxx 53 Vice President-Western Region
C. Xxxxx Xxxxx 49 Chief Financial Officer
Xxxxxx X. Xxxxxx, Xx. 45 Vice President-General Manager
Xxxxxx X. Xxxx, Xx. 58 Director
Xxxxxx X. Xxx 69 Director
Xxxxx Xxxxxxx 46 Vice President-Consumer
Except for Messrs Xxxxx and Xxx, reference is made to Items 9
(Directors, Executive Officers, Promoters and Control Persons),
10 (Executive Compensation) and 11 (Principal Stockholders) of
the March 31, 1996 Form 10-KSB for information relating to the
background of the Company's officers and directors, executive
compensation, and ownership of the Common Stock by the Company's
principal shareholders. Reference is also made to Item 12
(Certain Relationships with Related Transactions) of the March 3
1, 1996 Form 10-KSB for information relating to transactions with
parties affiliated with the Company, including a limited
guarantee by Xx. Xxx of the Company's credit facility, and
financial consulting agreements between the Company and
affiliates of Xx. Xxxxx, a former director of the Company.
Xx. Xxxxx joined the Company in October 1996. Prior thereto from
September 1995 through September 1996 he was employed as Chief
Financial Officer by Fradigial, Inc. a restaurant operator
located Kemah, Texas. From June 1993 through August 1995 Xx.
Xxxxx was a business consultant in Houston, Texas. For the 13
years prior thereto he was employed as controller and from 1989
through 1993 as Chief Financial Officer by Kettle Restaurants,
Inc. an operator of family restaurants in the southern United
States.
Xx. Xxx was the founder and for 24 years the president of Scan
Graphics, Inc., a silk screening company located in Houston,
Texas which he sold in 1989. He has been retired since 1991.
The Company is authorized to issue 10,000,000 shares of Common
Stock, $0.0001 par value per share, of which approximately 5.85
million shares will be issued and outstanding, assuming all of
the Units offered hereby are sold, including shares reserved for
conversion of the Notes and exercise of options and warrants,
after a one for three reverse split of the Common Stock which, as
noted above, is to be effected, subject to stockholder approval,
after the consummation of this Offering. The shares of Common
Stock as set forth in the March 31, 1996 Form 10-KSB and the
Financial Statements included therein do not reflect the effect
of this reverse split or the one for two reverse split effected
by the Company in August 1996.
Holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally
available therefor. They have no preemptive or other fights to
subscribe for additional shares and the Common Stock has no
redemption, sinking fund or conversion provisions. Each share of
Common Stock is entitled to one vote on any matter submitted to
the holders thereof and to equal rights in the assets of the
Company upon liquidation subject to the prior rights on
liquidation of creditors. The outstanding shares of Common Stock
are fully paid and non-assessable.
The shares of Common Stock have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of directors can elect all of the
directors of the Company. In such event, the holders of the
remaining shares will not be able to elect any of the directors.
The transfer agent for the Common Stock is Interwest Transfer Co.
If all of the Units are sold, the undersigned understands that
the Company will receive aggregate net proceeds in the amount of
$2,015,000 which will be used for the following purposes:
Payment of accrued interest
on the Notes $48,000
Repayment of Bank debt 1,000,000*
Purchase of inventory 750,000*
Working capital 217,000*
Total $ 2,015,000
_______________________
* This amount may be reduced to the extent that less than the
maximum number or Units offered hereby is sold.
The undersigned is also aware of the following considerations
relating to his investment in the Units:
the acceptance of tile as a building material in the United
States is increasing, there is no assurance that this trend, if
it still exists, will continue.
Risks of International Supply Factors. Approximately 70% of the
Company's products during the 1996 fiscal year were secured from
suppliers located outside of the United States. There arc
significant risks in obtaining products from suppliers located in
foreign countries. These include, among others, exposure to
currency fluctuations and devaluations or restrictions on money
supplies, foreign and domestic export laws and regulations,
taxation, tariffs, import quotas and restrictions, shipping
interruptions, and other economic and political events totally
beyond the Company's control.
Dependence Upon Building Industry. Xxxxxx'x business depends
primarily upon tile economic viability of the building industry
which, in turn, is affected by general economic factors beyond
the Company's control. These include, among others, the late of
inflation and the cost of labor, building supplies and financing.
Accordingly, a material increase in any of the foregoing or a
decrease in the rate of economic expansion which has a negative
effect on the building industry would adversely impact the
Company's business.
Competition. The business In which the Company competes is
subject to intense competition. A number of other companies
market tile and related products to wholesale and retail
customers, many of whom possess significantly greater financial,
marketing distribution, managerial and other resources as well as
general market acceptance than does the Company. No assurance
can be given that the Company can continue to compete at a
commercially acceptable level.
Dependence on and Intense Competition for Key Personnel. Primary
responsibility for the conduct of the Company's affairs rests
with C. Xxxxxxx Xxx, the Company's President and Chief Executive
Officer. There can be no assurance that if the Company should
lose his services, a qualified replacement could be obtained.
There is a $1.5 million policy on Xx. Xxx'x life with the Company
as the beneficiary. No assurance can be given, however, that in
the event of Xx. Xxx'x death the proceeds of this Policy would be
sufficient to retain personnel adequate to replace Xx. Xxx.
Xxxxxx'x future success also depends in large part on the
continued service or its key management, marketing and sales
personnel and on its ability to attract and retain qualified
employees. The competition for such personnel is intense and the
loss of key employees could have a material adverse impact on the
Company. The Company does not have employment agreements with
any of its officers or employees.
Volatility of Share Price; Limited Market. The Common Stock is
traded in the over-the-counter market on the NASDAQ Electronic
Bulletin Board. There is a limited market for the Shares. In
addition, the market price of these securities over the last two
years has been volatile. The most significant factor affecting
the price has been the substantial loss incurred by the Company
during its last fiscal year. As a result thereof the market
price for the pre split Common Stock has dropped from a high of
$6.50 per share during the summer of 1995 to a current low bid
price of approximately $0.62 per share. No assurance call be
given that the price of the Common Stock will increase or, if it
does, that it will not continue to be subject to severe
volatility.
Absence of Public Market and Limited Transferability. As
previously noted, the Shares have not been registered tinder the
Securities Act or qualified tinder any state securities laws.
Accordingly, they cannot be sold or otherwise transferred unless
they are subsequently registered under the Act and qualified
under any applicable state securities law.
Potential Significant Adverse Effect of Loan Repayment Demand on
Company's Financial Condition. Xxxxxx has received a notice of
demand from the Bank for repayment of its currently outstanding
$4.78 million loan balance which is secured by all of the
Company's inventory and accounts receivable. It is unlikely that
the Company can continue its business unless it can obtain an
extension from the Bank and/or alternate financing as to which
there can be no assurance.
Significant Operating Losses; Accumulated Deficit, Uncertainty of
Future Profitability. lntile's business generated net income of
approximately $35,000 for the fiscal year ended March 31, 1995
but incurred a net loss of approximately $4,250,000 for the
fiscal year ended March 31, 1996. Management estimates that
Xxxxxx will incur (i) an operating loss in the amount of
approximately $550,000 for the quarter ended December 31, 1996;
(ii) an operating loss of approximately $350,000 for the current
fiscal year ending March 31, 1997; (iii) a one time charge off of
up to $600,000 in the fourth quarter resulting from the
termination of the California operations; and (iv) total losses
for the current fiscal year approximating $1.2 million, including
a $196,000 write off relating the conversion of the Notes
referred to above. No assurance can be given, however, that
actual losses will not exceed these estimates. At December 31,
1996, the Company had an accumulated deficit of approximately
$3.5 million. lntile's financial performance could limit its
ability to attract additional financing and to compete
effectively. There can be no assurance that the Company will
achieve significantly increased revenues or will be profitable in
the future. Future operating results will depend on many
factors, including the Company's ability to control costs.
Independent Auditors' Report. Because, among other things,
Xxxxxx suffered a significant loss for the fiscal year ended
March 31, 1996, the opinion of its independent auditors with
respect to it financial statements includes an explanatory
paragraph as to the uncertainty of the Company's ability to
continue as a going concern without refinancing its credit
facility and obtaining additional financing. The ability of
lntile to continue as a going concern is dependent upon its
successful completion of this Offering and the satisfactory
replacement of its current loan facility, of which no assurance
can be given.
Additional Financing. Xxxxxx'x prospects are dependent, among
other things, upon its ability to obtain adequate financing, such
as that contemplated by this Offering, and to generate sufficient
cash flow from its operations to satisfy its obligations on a
consistent basis. Management believes that the proceeds from the
sale of the Units offered hereby together with cash flow to be
generated by the operation or the Company's business should be
adequate to finance Xxxxxx'x intended level of operations for at
least the 12 months after the closing of the Offering. This
belief is based, in part, on management's belief that the Company
can obtain alternate credit financing which will permit the
servicing of its current credit line in a manner which will not
adversely affect the Company's operations and financial
condition. No assurance can be given, however, that such
alternate financing can be obtained or, even if it is, that
additional financing will not be required during this period. No
representation can be made that such financing will be available
if required or, if available, that it can be obtained on terms
acceptable to the Company especially in view of the fact that all
of the Company's material assets are currently pledged.
Limited Market. The market for tile and related products in the
United States is limited in comparison with other parts of the
world. Development of this market depends, in part, on
acceptance of tile as a building material by consumers and
members of the construction industry. Although management
believes, based on information provided by a Distribution Profile
Survey conducted by the Ceramic Tile Dealers Association in
December 1994, that or an exemption from such registration and
qualification is available. Although the Unit holders have
certain rights to register their Shares, these rights are
dependent upon the ability of the Company to satisfy the
requirements of applicable federal and state securities laws.
Circumstances could arise where the Company is unable to meet
these requirements so that the Shares could not be registered.
Even if registered, there is no assurance that tile market in the
Common Stock will be sufficiently active to permit a Unit holder
to liquidate his Shares at acceptable prices if at all.
Lack of Dividends. Xxxxxx has not paid dividends on its Common
Stock since its inception and does not intend to pay any cash
dividends on its Common Stock in the foreseeable future. It
currently intends to retain all earnings, if any, in its
business. In addition, the Company's loan agreement with the
Bank prohibits the payment of cash dividends.
Anti Take Over Provisions of the Delaware Corporation Law. The
Delaware Corporation Law contains provisions which may enable
management to retain control and resist a takeover of the
Company. Accordingly, these provisions could discourage or make
more difficult a merger or other type of corporate reorganization
even if they could be favorable to the interests of the
stockholders.
Use of Proceeds to Repay Prior Debt. A significant portion of
the net proceeds to be obtained from this Offering (up to $1
million or 50% if all of the Units offered hereby are sold) will
be used to repay existing debt.
Broad Discretion in Use of Proceeds. A significant portion of
the net proceeds to be obtained from this Offering (up to
$250,000 or approximately 11% if all of the Units offered hereby
are sold) will be used for working capital which will permit
management broad discretion with respect to the use of these
funds.
No Firm Commitment to Purchase Units. No commitment has been
made by anyone to purchase all or any part of the Units being
offered hereby. The funds available to the Company from the
proceeds of this Offering will be reduced and the Company's
proposed operations will be limited to the extent that less than
the maximum number of Units is sold.
Retention of Subscribers' Funds. If the Offering is unsuccessful
because the minimum number of Units offered hereby is not sold,
subscribers' funds may be retained through March 28, 1997 and
then returned without interest.
The undersigned understands that, because of the significant risk
factors referred to herein and in the Information Documents, If
the Offering Is consummated, he could lose his entire Investment.
The undersigned also understands the following:
THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THESE LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY NOR
HAS THE COMMISSION OR ANY SUCH AUTHORITY PASSED UPON OR ENDORSED
THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS
SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER AND/OR THE
INFORMATION DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES
AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL, OFFENSE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
FLORIDA RESIDENTS ARE ADVISED THAT THESE SECURITIES HAVE NOT BEEN
REGISTERED WITH THE STATE OF FLORIDA. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
PURSUANT TO SECTION 517.061 (11) (A) OF THE FLORIDA SECURITIES
AND INVESTOR PROTECTION ACT, THE SALE OF SHARES TO A FLORIDA
RESIDENT SHALL BE VOIDABLE BY THE PURCHASER EITHER (i) WITHIN
THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY THE
PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW
AGENT, OR (ii) WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE HAS BEEN COMMUNICATED TO THE PURCHASER, WHICHEVER
OCCURS FIRST, PROVIDED, HOWEVER, THAT THERE ARE MORE THAN FIVE
FLORIDA PURCHASERS. TO ACCOMPLISH SUCH WITHDRAWAL, A FLORIDA
RESIDENT NEED ONLY SEND A LETTER OR A TELEGRAM TO THE COMPANY AT
0000 XXX XXXX XXXX, XXXXX 000, XXXXXXX, XXXXX 00000 INDICATING
HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM MUST
BE SENT AND POSTMARKED PRIOR TO THE END OF THE APPLICABLE PERIOD
NOTED ABOVE. IF A LETTER IS SENT, IT IS PRUDENT TO SEND IT BY
CERTIFIED MAIL,, RETURN RECEIPT REQUESTED, TO INSURE THAT IT IS
RECEIVED AND ALSO TO EVIDENCE THE TIME AND DATE OF MAILING. IF A
FLORIDA RESIDENT MAKES THIS REQUEST ORALLY, HE OR SHE SHOULD ASK
FOR WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED.
THIS SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER AND THE
INFORMATION DOCUMENTS HAVE NOT BEEN FILED WITH OR REVIEWED BY THE
NEW JERSEY BUREAU OF SECURITIES OR THE DEPARTMENT OF LAW AND
PUBLIC SAFETY OF THE STATE OF NEW JERSEY PRIOR TO ITS ISSUANCE
AND USE. NEITHER THE ATTORNEY GENERAL NOR THE BUREAU OF
SECURITIES OF THE STATE OF NEW JERSEY HAS PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
THIS SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER AND THE
INFORMATION DOCUMENTS HAVE NOT BEEN REVIEWED BY THE ATTORNEY
GENERAL OF THE STATE OF NEW YORK PRIOR TO THEIR ISSUANCE AND USE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
In connection with the subscription being made hereby the
undersigned also warrants and represents that:
(a) He has not received any general solicitation or
advertising regarding the Offering or been furnished with any
oral representation or oral information in connection with the
Offering which is not set forth herein or in the Information
Documents;
(b) He has sufficient knowledge and experience of financial
and business matters so that he is able to evaluate the merits
and risks of purchasing the Units and has determined that the
Units are a suitable investment for him;
(c) He has the means to provide for his personal needs,
possesses the ability to bear the economic risk hereunder
indefinitely, and can afford a complete loss of his investment;
(d) He has carefully read and reviewed this Subscription
Agreement and Investment Letter and the other Information
Documents, and has asked such questions of the Company's
management and received from them such information as he deems
necessary in order for him to make an informed decision with
respect to the purchase of the Units;
(e) He understands the meaning of the 13th and 14th
paragraphs of this Subscription Agreement and Investment Letter
and that the Company will prohibit the transfer of the
undersigned's Units and Underlying Securities absent full
compliance with the Act, the Exchange Act and all applicable
state securities laws;
(f) He has had substantial experience in previous private
and public purchases of speculative securities and is not relying
on the Company or its affiliates with respect to economic
considerations involved in this investment; and
(g) He has reviewed carefully the definition of "accredited
investor" as set forth below and is an "accredited investor"
within that definition. The particular subparagraph or
subparagraphs by which the undersigned qualifies as such is (are)
filled in by him below.
Definition of Accredited Investor
The term "accredited Investor-" is defined in Rule 501 (a) of
Regulation D promulgated under
the Act as follows:
(a) Certain banks, savings and loan institutions, broker-
dealers, investment companies and other entities
including an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security
Act of 1974 with total assets in excess of $5,000,000;
(b) Certain banks, savings and loan institutions, broker-
dealers, investment companies and other entities
including an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security
Act of 1974 with total assets in excess of $5,000,000;
(c) Any private business development company as defined in
Section 202 (a) (22) of the Investment Advisers Act of
1940;
(d) Any organization described in Section 501 (c) (3) of
the Internal Revenue Code, not formed for the specific
purpose of acquiring the Units, with total assets in
excess of $5,000,000;
(e) Any director, executive officer or general partner of
the issuer of the securities being offered or sold, or
any director, executive officer or general partner of a
general partner of that issuer;
(f) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his
purchase exceeds $1,000,000;
(g) Any natural person who had an individual income in
excess of $200,000 or, with that person's spouse a
joint income in excess of $300,000 in each of the two
most recent years and who reasonably expects an income
in excess of $200,000, or $300,000 with that person's
spouse, in the current year;
(h) Any trust with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Section 230.506
(b) (2) (ii) of Regulation D; or
(i) Any entity in which all of the equity owners are
accredited investors under any of the paragraphs above.
THE UNDERSIGNED SUBSCRIBER IS AN ACCREDITED INVESTOR BY REASON OF
SUBPARAGRAPH(S) ___________________ SET FORTH IN THE DEFINITION
ABOVE.
In connection with the foregoing representations the undersigned
has appended hereto as EXHIBIT A, a Purchaser Questionnaire which
he has completed and executed. He represents and warrants that
the information set forth therein as well as all other
information which he is furnishing to the Company with respect to
his financial condition and business experience is accurate and
complete as of the date hereof and he covenants that, in the
event a material change should occur in such information, he will
immediately provide the Company with such revised or corrected
information.
All notices, requests, demands and other communications under
this Subscription Agreement shall be in writing and shall be
deemed to have been given only when delivered in person or, if
mailed, when mailed by certified or registered mail prepaid, to
the parties at their respective addresses set forth herein, or at
such other address as my be given in writing in future by either
party to the other.
The undersigned acknowledges and agrees that:
(a) He has full power and authority to enter into this
Agreement which, upon his execution, will constitute a valid and
legally binding obligation by him;
(b) The Company may, in its sole discretion (i) reject this
Subscription Agreement in whole or in part; and (ii) accept
subscription agreements other than in the order received;
(c) If for any reason this Offering does not close or the
undersigned's subscription is not accepted by the Company, the
undersigned shall have no claims against the Company or Xxxxxxx,
or their respective officers, directors, employees or affiliates
and shall have no interest in the Units, Underlying Securities,
Underlying Shares or the Company;
(d) Neither he nor any affiliate of his is an officer,
director, employee or affiliate
of any member of the National Association of Securities Dealers,
Inc.;
(e) He shall indemnify and hold harmless the Company,
Xxxxxxx, and their respective officers, directors, employees and
affiliates against any loss, liability, claim, damage or expense,
(including, but not limited to, any and all expenses reasonably
incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim) arising out of
or based upon any false representation or warranty or breach or
failure by the undersigned to comply with any covenant or
agreement made by him herein or in any other document provided by
him to any of the foregoing in connection with this transaction;
(f) The representations, warranties and agreements made by
the undersigned set forth herein shall survive the closing of the
Offering;
(g) Neither this Subscription Agreement nor any provisions
hereof shall be modified, discharged or terminated except by an
instrument in writing signed by the party against whom any
waiver, change, discharge or termination is sought;
(h) The laws of the State or Texas shall govern the
interpretation and enforcement of this Subscription Agreement.
In the event of a dispute, the undersigned agrees that any law
suit brought to enforce or interpret the provisions hereof shall
be brought in state or federal courts, as appropriate, in Flares
County, Texas, and the undersigned agrees to submit to the
personal Jurisdiction of such court;
(I) This Subscription Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which shall constitute the same instrument; and
(j) This Subscription Agreement constitutes the entire
agreement of the parties hereto, and supersedes all prior
understandings with respect to the subject matter hereof.
The undersigned hereby agrees to purchase _______ Unit(s) as set
forth in the first paragraph of this Subscription Agreement and
Investment Letter, and is tendering herewith his check therefor
in the amount of $____________ , made payable to "Citibank, N.A.-
Xxxxxx Designs, Inc. Escrow Account."
THE UNDERSIGNED ACKNOWLEDGES THAT THIS SUBSCRIPTION AGREEMENT
CONSISTS OF 15 PAGES AND INCLUDES EXHIBITS A THROUGH G.
Very truly yours,
DATE: _______________________
______________________________
(Signature)
______________________________
(Please print name)
ADDRESS _________________________ TELEPHONE
NUMBER:___________________
_________________________ SOCIAL SECURITY OR
IRS IDENTIFICATION
_________________________ NUMBER:
_____________________________
DATE _________________________
ACCEPTED:
XXXXXX DESIGNS, INC.
[SEAL] By
_________________________________
C. Xxxxxxx Xxx,
President
ATTEST:_______________________
Xxxxxxx Xxxxx, Secretary
EXHIBIT A
TO
XXXXXX DESIGNS, INC.
SUBSCRIPTION AGREEMENT
AND
INVESTMENT LETTER
PURCHASER QUESTIONNAIRE
INSTRUCTIONS. Each prospective purchaser of Units (the "Units")
of Xxxxxx Designs, Inc. (the "Company") must complete and sign
this Purchaser Questionnaire.
If the prospective purchaser(s) will be joint owners, each person
involved (except a spouse with the same principal residence) must
complete Parts I, II and III of the Purchaser Questionnaire.
If the prospective purchaser is a corporation, partnership,
trust, or other entity, please complete Parts I, II and III with
reference to the individual who is authorized to sign on its
behalf, and complete Part IV of the Purchaser Questionnaire with
reference to the corporation, partnership, trust, or other
entity.
In order for a partnership or corporation to be treated as an
accredited investor, each of its equity owners must be an
accredited investor and complete Parts I, II and III of the
Purchaser Questionnaire.
All information will be treated confidentially; however, the
purpose of this Questionnaire is to assist the Company in
determining whether the prospective purchaser complies with the
requirements of Section 4 (2) under the Securities Act of 1933,
(the "1933 Act") and any applicable state securities laws.
Accordingly, the Company may present this Questionnaire to such
parties as it deems necessary in order to establish an exemption
from registration under the 1933 Act or any applicable state
securities laws.
Please complete all items, sign, date and return this
Questionnaire to Xxxxxx Designs, Inc., 0000 Xxx Xxxx Xxxx, Xxxxx
000, Xxxxxxx, Xxxxx 00000, together with any of the Verification
Documents that are called for on page 7.
Please print or type. If the answer to any question is "None" or
"Not Applicable," please so state.
I. GENERAL INFORMATION
Name of purchaser:
_____________________________________________________________
Social Security or Tax Identification Number:
________________________________________
Home address:
_________________________________________________________________
Home telephone number:
__(_____)________________________________________________
In which state do you maintain your legal residence and
domicile?____________ Age: _______
Occupation or profession:
________________________________________________________
Name of employer:
_____________________________________________________________
Nature of business:
_____________________________________________________________
Position and general duties:
_______________________________________________________
Please describe your principal business activities during the
last five years: _________________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
Education and professional background (List your highest level of
education and any licenses):
Degree
School or License Year
Major (if any)
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
II. FINANCIAL DATA
1. My individual net worth, combined with that of my spouse, if
any, as of this date, is:
(a) including all residences, furnishings and automobiles (check
one):
_______Less than $150,000 _______$150,000 to
$499,000
_______$500,000 to $999,000 _______$1, 000, 000 or
more
(b) excluding principal residence, furnishings and automobiles
(check one):
_______Less than $150,000 _______$150,000 to
$499,000
_______$500,000 to $999,000 _______$1,000,000 or more
2. I had income individually from all sources in excess of
$200,000 in the year 1994:
Yes_______ No_______
3. I had income individually from all sources in excess of
$200,000 in the year 1995:
Yes_______ No_______
4. I had income individually from all sources in excess of
$200,000 in the year 1996:
Yes_______ No_______
5. My estimated 1997 income individually from all sources will
be in excess of (check one):
_______$80,000 _______$100,000 _______$150,000
_______$200,000
_______$300,000 or more
6. My income combined with that of my spouse was at least
$300,000 in each of the years 1994, 1995 and 1996:
Yes_______ No_______
7. To the best of my knowledge, my income combined with that of
my spouse will be at least $300,000 in 1996:
Yes_______ No_______
8. I can afford the complete loss of my investment in the
Units, I have no need for liquidity of this investment, and this
investment will not affect my ability to provide for my current
needs and possible personal financial contingencies.
Yes_______ No_______
9. Stated below are my previous investments in other private,
high risk investments during the past five years.
Name of Type of Approx.
Issuer Business Amount
or Program Year or Program Invested
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
_________________________________________________________________
_____________
III. METHOD OF INVESTMENT EVALUATION
1. I have by myself sufficient knowledge and experience in
financial and business matters to be capable of evaluating the
merits and risks of an investment in the Program.
Yes_______ No_______
2. I will have an attorney, accountant, investment advisor or
other consultant review this investment.
Yes_______ No_______
If Yes:
Name:
_________________________________________________________________
_______
Firm:
_________________________________________________________________
________
Telephone number:
_____________________________________________________________
Address:
_________________________________________________________________
_____
IV. ADDITIONAL INFORMATION FOR CORPORATION, PARTNER-SHIP TRUST OR
OTHER ENTITY
Name of organization:
___________________________________________________________
Business address:
_______________________________________________________________
Telephone number:
_____________________________________________________________
Send communications to the attention of:
____________________________________________
Date of organization:
____________________________________________________________
State of organization:
____________________________________________________________
Tax Identification Number:
_______________________________________________________
Form of organization:
Corporation_______ Company _______ Trust_______
Other_______
If a corporation, the organization has ______has not
______elected to be taxed as a small business corporation for
Federal income tax purposes under the provisions of Subchapter S
of the Internal Revenue Code of 1986, as amended.
The organization is actively engaged in the conduct of a trade or
business:
Yes_______ No_______
Describe purpose of formation or principal trade or business
activity:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
____________________________________________________
Attach a complete list:
If a corporation, the names of all officers, directors, and
stockholders; or
If a partnership, the names of all partners indicating whether
each person is a general partner or limited partner.
V. PURCHASER'S REPRESENTATIONS AND ACKNOWLEDGMENTS
The foregoing statements are true and accurate to the best of my
information and belief, and I will promptly notify the Manager of
any changes therein.
I am duly authorized and empowered to legally represent and bind
the principal, person, trust, partnership, corporation or other
entity, if any, named herein as purchaser.
SIGNATURE
IN WITNESS WHEREOF, I have executed this Questionnaire this
______day of __________, 19_____.
____________________________________
SIGNATURE
____________________________________
Print Name
____________________________________
Title, if applicable
Place of Execution: __________________________
If other than individual, check one:
_______Community Property _____Custodian _______Company
_______Joint Tenants with _____Corporate _______Trust
Right of Survivorship
_______Tenants in Common
VERIFICATION DOCUMENTS
The signed Purchaser Questionnaire must be accompanied by:
CORPORATE SUBSCRIBER
A certified copy of a resolution of the corporation's board of
directors designating the officer(s) of the corporation
authorized to-sign on behalf of the corporation; and
A certified copy of a resolution of the corporation's board of
directors authorizing the contemplated investment
PARTNERSHIP SUBSCRIBER
A certified copy of the partnership agreement; and
A certificate signed by all the general partners, authorizing the
general partner who has signed the signature page on behalf of
the partnership to sign and to make the contemplated investment
on behalf of the partnership.
TRUST SUBSCRIBER
A certified copy of the Trust instrument; and
A certificate signed by all the trustees authorizing the trustee
who has signed the signature page on behalf of the Trust to sign
and to make the contemplated investment on behalf of the Trust.
CUSTODIAN SUBSCRIBER
A certified copy of the instrument pursuant to which the
custodian is acting.
