UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended March 31, 2002
Commission File Number 001-15977
FLOOR DECOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-4051167
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
6001 Powerline Road, Ft. Lauderdale, FL 33309
(Address of principal executive offices) (Zip Code)
(954) 351-9833
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _x_ No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class May 14, 2001
--------------------------- -------------------
Common Stock, Par 68,505,923
Value $0.001 per share
1
CONTENTS
Page
----
Financial Statements
Condensed Consolidated Balance Sheets F-2
Condensed Consolidated Statements of Operations F-3
Condensed Consolidated Statement of Stockholders' Deficit F-4
Condensed Consolidated Statements of Cash Flow F-5 - F-6
Notes to Condensed Consolidated Financial Statements F-7 - F-11
2
FLOOR DECOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
(unaudited)
----------------------------------------------------
Assets
Current Assets
Cash $ - $ 20,331
Accounts receivable, less allowance for doubtful
Accounts, March 31, 2002 $4,000; December
31, 2001 $7,406 162,417 93,580
Advances to officers and employees 21,271 26,029
Inventories 885,377 708,293
Prepaid expenses 580,777 27,241
------------------- ---------------
Total current assets 1,649,842 875,474
Property and Equipment, net 205,797 161,028
Distribution Agreement, less accumulated amortization
of $28,940 434,110 -
Order Backlog 2,800,000 -
Deposits and Other Assets 167,272 262,272
------------------- ----------------
$ 5,257,021 $ 1,298,774
=================== ================
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 1,319,254 $ 764,455
Amounts due stockholders 1,340,064 1,541,053
Notes payable 61,065 130,119
Accrued expenses 267,096 147,451
Customer deposits 135,970 110,325
------------------- ---------------
Total current liabilities 3,123,449 2,693,403
------------------- ---------------
Commitments
Stockholders' Deficit
Common stock, at par value 68,006 55,887
Authorized 100,000,000 shares issued, March 31, 2002 68,005,923;
December 31, 2001 55,886,664 shares
Additional paid in capital 5,221,381 514,104
Subscription receivable (18,036) (36)
Accumulated deficit (3,137,779) (1,964,584)
------------------- ---------------
(2,133,572) (1,394,629)
------------------- ---------------
$ 5,257,021 $ 1,298,774
=================== ===============
See Notes to Consolidated Financial Statements.
F-2
FLOOR DECOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months ended March 31,
-------------------------------------------
2002 2001
-------------------------------------------
Net sales $ 934,599 $ 607,141
Cost of goods sold 473,755 319,952
--------------- -------------
Gross Profit 460,884 287,189
--------------- -------------
Operating expenses
Selling expense 421,245 172,822
General and administrative expense 1,184,474 381,003
---------------- -------------
Total Operating Expenses 1,605,719 553,825
---------------- -------------
Operating Loss (1,144,875) (266,636)
---------------- -------------
Other income (expense)
Currency Translation Adjustment (5,963) -
Interest expense (22,357) (28,144)
----------------- -------------
(28,320) (28,144)
----------------- -------------
Net loss $ (1,173,195) $ (294,780)
================= =============
Basic and diluted net loss per
common share $ (0.019) $ (0.005)
================== =============
Weighted average shares outstanding
(basic and diluted) 63,062,131 54,236,664
================== =============
See Notes to Consolidated Financial Statements.
F-3
FLOOR DECOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Three Months Ended March 31, 2002
(unaudited)
Additional
Common Paid in Subscriptions Accumulated Total
Stock Capital Receivable Deficit Deficit
Shares Amount
-------------------------------------------------------------------------------------------
Balance (deficit) at December 31, 2001 55,886,664 $55,887 $514,104 $(36) $(1,964,584) $(1,394,627)
Issuance of common stock and warrants 2,512,450 2,512 874,161 (18,000) - 858,673
Conversion of notes payable and amounts
Due stockholders into common stock
and warrants 2,306,809 2,307 920,416 - - 922,723
Common Stock issued in acquisition of
Tiger Telematics 7,000,000 7,000 2,793,000 - - 2,800,000
Common Stock issued in satisfaction of
obligations 300,000 300 119,700 - - 120,000
Net Loss - - (1,173,195) (1,173,195)
-------------------------------------------------------------------------------------------
Balance (deficit) at March 31, 2002 68,005,923 $ 68,006 $ 5,221,381 $ (18,036) $ (3,173,779) $ (2,133,572)
========== ======== =========== ========== ============= =============
See Notes to Consolidated Financial Statements.
F-4
FLOOR DECOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months ended March 31,
-----------------------------------------------
2002 2001
-----------------------------------------------
Cash Flows From Operating Activities
Net loss $ (1,173,195) $ (294,780)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and Amortization 39,701 11,343
Changes in assets and liabilities. (153,925) 126,023
Interest on notes payable and stockholder loans
capitalized to principal balances 12,977 -
Writedown of deposit 100,000 -
Obligations paid with common stock 120,000 -
-------------- -------------
Net cash used in operating activities (1,054,442) (157,414)
Cash Flows From Investing Activities
Cash received from acquisition of Tiger Telematics 787 -
Proceeds from sale of property and equipment - 8,155
Purchase of property and equipment (54,094) (6,502)
Collection of advances to officers and employees 4,758 -
(Increase) decrease in deposits and other assets (5000) 32,853
-------------- -------------
Net cash (used in) provided by investing activities (53,549) 34,506
-------------- -------------
Cash Flows From Financing Activities
Issuance of common stock and warrants 858,673 -
Loans and advances from stockholders 291,289 194,800
Increase in excess of outstanding checks and bank balances 199,474 51,539
Repayments to stockholders (261,776) (123,431)
-------------- -------------
Net cash provided by financing activities 1,087,660 122,908
-------------- -------------
Net change in cash (20,331) -
Cash:
Beginning 20,331 -
============== =============
Ending $ - -
============== =============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 9,380 $ 31,953
============== =============
Supplemental Disclosure of Non-cash Investing and Financing
Activities
Common Stock issued in payment of obligations $ 120,000 $ -
============== =============
Common Stock issued in exchange for subscriptions
receivable $ 18,000 $ 622
============== =============
Conversion of Notes Payable and Amounts Due Stockholders
into Common Stock $ 922,723 $ -
============== =============
F-5
FLOOR DECOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(unaudited)
Three months ended March 31,
2002 2001
Acquisition of Tiger Telematics:
Working capital acquired, net of cash $787 144,917 -
Distribution Agreement 2,800,000 -
Order Book 463,050 -
Property and Equipment 1,436 -
Amounts due to stockholders (610,190) -
Common Stock issued (2,800,000) -
---------------- -------------
Cash received $787 -
================ =============
See Notes to Consolidated Financial Statements.
F-6
FLOOR DECOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of March 31, 2002 and the
three months ended March 31, 2002 and 2001 included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for the periods
indicated have been included. For further information regarding the company's
accounting policies, refer to the consolidated financial statements and related
notes included in the company's Annual Report on form 10-K for the year ended
December 31, 2001.
NOTE B - REVERSE ACQUISITION AND EQUITY TRANSACTIONS
As of December 31, 2000 Floor Decor had 1,000 shares of common stock authorized
and 378 shares issued and outstanding. The Company issued an additional 622
shares of common stock on January 1, 2001 at a cost of $1 per share. As a result
of these additional shares being issued, the Company had 1,000 shares of common
stock authorized and 1,000 shares issued and outstanding as of March 31, 2001
prior to the reverse acquisition (as described below) on May 22, 2001.
On May 22, 2001, a purchasing group led by A.J. Nassar acquired 21,900,000
shares of the common stock of Media Communications Group, Inc. ("MCGI") in
exchange for all of the outstanding common shares of Floor Decor, Inc. to become
the owner of approximately 40% of the issued and outstanding common stock of
MCGI pursuant to an agreement including the merger of Floor Decor into a newly
formed wholly owned subsidiary of the Company. Prior to the acquisition of Floor
Decor, MCGI was a "public shell" company, with no significant operations or
assets. The acquisition of Floor Decor was accounted for as a reverse
acquisition. Under a reverse acquisition, Floor Decor is treated for accounting
purposes as having acquired MCGI and the historical financial statements of
Floor Decor become the historical financial statements of MCGI. In accounting
for the reverse acquisition, the equity of Floor Decor, as the surviving company
is recapitalized. Also, upon the closing of the reverse acquisition an
obligation to an original MCGI vendor for $4,931 was assumed.
To compute the loss per share for the 1st quarter of 2001, the 54,236,664 shares
outstanding at the date of the reverse acquisition was assumed to be outstanding
since July 3, 2000, the date of inception of the Company.
Since the Company had a loss for all periods presented, basic and diluted loss
per common share are equal. The Company has not included 6,469,259 potential
common shares relating to outstanding common warrants as of March 31, 2002 in
the calculation of the diluted earnings per share for the 1st quarter of 2002,
because their effect would be antidilutive.
During the 1st quarter of 2002 the Company sold 2,512,450 shares of its Common
Stock as part of the private placement transaction initiated in December 2001.
These shares were sold at $ 0.40 per share. For each share of Common Stock
purchased, the investor also received a warrant representing the right to
purchase one additional share of Common Stock at a price of $0.75 per share
exercisable through December 31, 2003. Proceeds from these sales, net of
advisory fees totaling $128,307, amounted to $876,673.
F-7
FLOOR DECOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the 1st quarter of 2002, certain stockholders and others converted
$922,723 of notes payable and amounts due to stockholders into 2,306,809 shares
of Common Stock. For each share of Common Stock purchased, they also received a
warrant representing the right to purchase one additional share of Common Stock
at a price of $0.75 per share, exercisable through December 31, 2003.
NOTE C - RELATED PARTY TRANSACTIONS
As of March 31, 2002, a 10% demand note payable to a 24.6% stockholder in the
amount of $61,509. The Company also owed a total of $80,382 to this stockholder
on a non-interest bearing note that is due on demand.
As of March 31, 2002, the Company had 15% demand notes totaling $12,761, 10%
demand notes totaling $279,630, and 6% demand notes totaling $4,304 payable to
stockholders (combined ownership less than 1%).
The Company also has non-interest bearing notes of $109,089 and non interest
bearing advances of $792,390 payable to the two former Tiger Telematics
stockholders (combined ownership 10% of the Company). As discussed in note F,
$610,190 of these advances are convertible into Common Stock and warrants.
Total interest expense on stockholder debt amounted to $19,998 for the 1st
quarter of 2002.
NOTE D - INCOME TAX MATTERS
The Company has net operating loss carryforwards as of March 31, 2002 for
federal income tax purposes of approximately $2,015,000 expiring in 2021. Any
future benefit to be realized from these net operating loss and contribution
carryforwards is dependent upon the Company earning sufficient future taxable
income during the periods that the carryforwards are available. Due to this
uncertainty, the Company has fully offset any deferred tax benefits otherwise
relating to the net operating loss carryforward with a valuation allowance in
the amount of $685,000.
NOTE E - NOTES PAYABLE
As of March 31, 2002, the Company had 15% demand notes payable totaling $61,065.
NOTE F - ACQUISITION OF TIGER TELEMATICS, LTD.
On February 4, 2002, pursuant to a Stock Purchase Agreement between the Company
and Eagle Eye Scandinavian Distribution Limited, an English private limited
company, which name the Company has changed to Tiger Telematics (UK) Ltd.
("Tiger Telematics"), the Company purchased all of the outstanding stock of
Tiger Telematics in exchange for 7,000,000 shares of Floor Decor, Inc. common
stock. Tiger Telematics is an early stage company engaged in the distribution of
telematics product.
The 7,000,000 shares of stock issued were valued at $0.40 per share. This price
is the same price as the private placement transactions with investors that were
entered into from December 2001 through March 2002. This valued the stock issued
at $2,800,000. The negative equity of Tiger
F-8
FLOOR DECOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Telematics of $463,050 as of the acquisition date resulted in an excess of
acquisition cost over tangible asset value of $3,263,050.
The excess of the acquisition price over the tangible asset valuation was
assigned to two intangible assets. $2,800,000 was ascribed to an order backlog
of open pending orders for products for future shipments over the next several
years. This amount will be amortized as the orders are shipped on a prorata
basis. The remaining amount of $463,050 was assigned to distribution rights
under a Distribution Agreement with Eagle Eye Telmatics, plc, which was executed
on October 19, 2001(see Form 10-K dated March 31, 2002, exhibit #21.1). This
amount will be amortized quarterly over the 32 month remaining life of the
distribution agreement.
In connection with this acquisition, the former Tiger Telematics shareholders
agreed to convert $610,190 of their shareholder debt into Common Stock and
warrants to purchase common stock at a price of $0.75 per share. The conversion
rate will be one share of common stock and one warrant for every $0.40 of debt.
This amount had not yet been converted. Although the conversion is still
anticipated, no assurance can be given as to the timing and ultimate completion
of the conversion.
The following proforma information reflects the net sales, net loss, and per
share amounts for the quarter ended March 31, 2002 as if the acquisition had
been completed on January 1, 2002:
Proforma net sales $ 934,599
============================
Proforma net loss $ (1,392,299)
============================
Proforma basic and diluted net loss
per common share $ (0.021)
============================
Weighted average shares outstanding
(basic and diluted) 65,706,575
============================
Proforma information for the quarter ended March 31, 2001 is not presented
because Tiger Telematics was not formed until October 9, 2001.
NOTE G - SUBSEQUENT EVENTS
On April 26, 2002 the company entered into a Lease Agreement with Christian and
Timbers UK Ltd. for office premises for its subsidiary Tiger Telematics Ltd. in
London, United Kingdom. -See attached exhibit - The lease has a term of five
years. The Company will satisfy its obligation to pay rent for the first year of
the term of the lease by issuing 500,000 shares of Floor Decor's Common Stock.
If the Landlord liquidates the Shares in the first year of the term of the Lease
and the aggregate net proceeds of sale arising from such sale or sales is less
than (pound)126,018.75 (or the US Dollar equivalent using the mid range exchange
rate prevailing on the date of actual receipt of the said proceeds of sale by
the Landlord) the Tenant shall forthwith pay to the Landlord the difference
between (pound)126,018.75 and the said proceeds in cash. The second and
subsequent years of the term of the lease shall be paid in cash.
F-9
FLOOR DECOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to March 31, 2002 the Company borrowed approximately $150,000 from
the 26.4% stockholder of record under a 10% demand note. In addition, the
Company also borrowed approximately $116,000 under a non interest-bearing demand
note payable to the two former Tiger Telematics stockholders (combined ownership
10% of the Company).
NOTE H - POTENTIAL ACQUISITION
In 2001, the Company entered into a letter of intent to purchase Hamway Flooring
Inc., a commercial flooring installer. As of March 31, 2002, the Company had
made a deposit of $200,000 in connection with this letter of intent, of which
$100,000 is non refundable. The letter of intent was extended to be valid
through April 15, 2002, at which time it expired. The Company is currently
negotiating the terms of an additional extension. As of March 31, 2002, the
Company expensed the $100,000 non-refundable portion of the deposit. The
refundable portion is included in deposits and other assets on the accompanying
balance sheet.
NOTE I - BUSINESS CONSIDERATIONS
For the year ended December 31, 2001, the Company incurred net losses of
approximately $1,299,000. For the 1st quarter of 2002, the losses approximated
$1,173,000. The Company had negative cash flows from operating activities of
approximately $713,000 for the year ended December 31, 2001 and negative cash
flows from operating activities of approximately $1,054,000 for the 1st quarter
of 2002.
The negative cash flows from operations, as well as the costs associated with
the Tiger Telematics acquisition, has strained the Company's cash flow. Since
the Company was not able to generate positive net cash flows from operations,
additional capital was needed. During the 1st quarter of 2002 the Company
entered into private placement transactions with individual investors. In these
private placement transactions, the Company sold shares of its common stock and
warrants to raise approximately $876,000 of equity, as disclosed in note B.
During the same period, stockholders converted approximately $923,000 of debt
into equity of the Company.
The Company continually monitors operating costs and will take steps to reduce
these costs to improve cash flow from operations if necessary. The Company is
continually seeking sources of new capital to aid the implementation of its
business plan. However, there can be no assurance that additional capital or
other form of financing will be available, or if available on terms reasonably
acceptable to the Company.
The Company's business strategy is to grow rapidly by acquiring existing dealers
that traditionally have only sold to the commercial homebuilder trade. The
acquired business will be consolidated into Floor Decor's superstore format that
also caters to the general public. The Company also plans to develop the Tiger
Telematics distribution business. The Company's ability to continue as a going
concern is dependent upon its ability to raise sufficient equity or debt capital
to accomplish these objectives and to offset any future operating losses that
may be incurred until positive cash flows can be generated from operations.
F-10
FLOOR DECOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management intends to raise up to $7.0 million in equity for working capital,
and to fund the cost of pursuing strategic growth opportunities. Management is
also pursuing $ 10 million in equity financing to fund the initial operations of
Tiger Telematics, Ltd.
NOTE J - SEGMENT INFORMATION
The Company operates in the flooring business in Florida, and in the telematics
distribution business in Europe. The Company reports its operating results in
two segments:
o Flooring Retail and Installation
o Telematics distribution
The accounting policies of the reportable segments are the same as those
referred to in Notes A. The Company evaluates the performance of its reportable
segments based on operating income (loss). There were no intersegment sales or
transfers.
Summarized financial information concerning the Company's reportable segments is
shown in the following table.
Net sales, operating loss, depreciation and amortization, and capital
expenditures for the Company's reportable segments for the three months ended
March 31, 2002 and 2001, and identifiable assets as of March 31, 2002 and 2001,
were as follows:
Three Months ended March 31,
----------------------------------------------------
2002 2001
------------------------ -----------------------
(In thousands)
Net Sales:
Flooring $906 $607
Telematics 29 -
------------------------ -----------------------
$935 $607
======================== =======================
Operating Loss:
Flooring $(704) (267)
Telematics (441) -
------------------------ -----------------------
$(1,145) (267)
======================== =======================
Depreciation and Amortization:
Flooring $8 $11
Telematics 31 -
------------------------ -----------------------
$39 $11
======================== =======================
Capital Expenditures:
Flooring $5 $6
Telematics 49 -
------------------------ -----------------------
$54 $6
======================== =======================
March 31
----------------------------------------------------
2002 2001
------------------------ -----------------------
(In thousands)
Identifiable Assets
Flooring $1,366 $768
Telematics 3,891 -
------------------------ -----------------------
------------------------ -----------------------
$5,257 $768
======================== =======================
F-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 23E of the Securities
Act of 1934, as amended. These statements relate to future events or future
financial performance. Any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements. In
some cases, forward-looking statements can be identified by terminology such as
"may," "will," "should," "expect," "plan," "anticipate," "intend", "believe,"
"estimate," "predict," "potential" or "continue," or the negative of such terms
or other comparable terminology. These statements are only predictions. Actual
events or results may differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company, nor any other person or entity, assumes responsibility for the accuracy
and completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of
this Form 10-Q to conform such statements to actual results or to changes in the
Company's expectations.
The following discussion should be read in conjunction with the Company's
financial statements, related notes and the other financial information
appearing elsewhere in this Form 10-Q. Readers are also urged to carefully
review and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business.
General
Overview
In May of 2001 the Company completed a reverse shell merger with Media
Communications Group, Inc. ("MCGI"). Prior to the acquisition of Floor Decor,
MCGI was a "public shell" company, with no significant operations or assets. The
acquisition of Floor Decor was accounted for as a reverse acquisition. Under a
reverse acquisition, Floor Decor is treated for accounting purposes as having
acquired MCGI and the historical financial statements of Floor Decor become the
historical financial statements of MCGI. Therefore, all references to the
historical activities of the Company refer to the historical activities of Floor
Decor.
The limited operating history of the Company makes its future results of
operations difficult to predict. In addition, the Company's operating results
may fluctuate significantly in the future as a result of a variety of factors
such as the opening of new "big box superstores" and the assimilation of the
strategically acquired existing dealers that traditionally have only sold to the
commercial homebuilder trade. These acquired businesses will have to be
consolidated into Floor Decor's superstore format that also caters to the
general public.
Floor Decor, Inc. ("Floor Decor" or "the Company") is the parent company of two
subsidiaries. The first subsidiary, Media Flooring, Inc., operating through its
subsidiary Floor Decor LLC, operates a flooring products sales and service
business, which represented all of the business operations of the Company during
2001. On February 4, 2002, the Company acquired its second subsidiary, Tiger
Telematics LTD, a UK company, which provides telematics products and services.
11
Flooring
Floor Decor, Inc. currently operates a "big box superstore" in Fort Lauderdale,
Florida and the Company intends to develop a chain of "big box superstores" that
offer a wide selection of floor coverings including carpet, area rugs, wood, and
laminates at discount prices to both commercial accounts and retail customers.
The Company's initial store is over 40,000 sq. ft. and stocks an extensive
product line including over 5,000 area rugs and 1,000,000 sq. ft. of other floor
coverings.
The Company's business strategy is to grow rapidly by acquiring existing dealers
that traditionally have only sold to the commercial homebuilder trade. These
acquired businesses will be consolidated into Floor Decor's superstore format
that also caters to the general public. The Company generates revenues from the
sales of floor coverings and the installation of these products. Revenues from
the installation of flooring products are recognized when the installation
process is complete. The Company has only a limited operating history upon which
an evaluation of the Company, its results of operations, and its prospects can
be based.
Telematics
On February 4, 2002, the Company acquired Eagle Eye Scandinavia Distribution,
LTD, and changed its name to Tiger Telematics Ltd. ("Tiger Telematics"). The
consideration paid in this transaction consisted entirely of shares of the
Company Common Stock, as was reported in the Company's Current Report on Form
8-K dated February 19, 2002.
Tiger Telematics is an early stage company engaged in the distribution of
telematics products. Telematics products allow the wireless exchange or delivery
of communication, information, and other content between a vehicle and its
occupant, and external sources or recipients. The telematics industry aggregates
the functionality and content of various industries including consumer
electronics, cellular and security devices, among others, into a seamless
service offering.
Results of Operations
Three months-ended March 31, 2002 compared to the three months ended March 31,
2001
Flooring
For the Flooring business, as an aid to reviewing the Company's results of
operations for the three months ended March 31, 2002, and the three months ended
March 31, 2001 the following table sets forth the financial information as a
percentage of net sales and as a percent of change for the Floor Decor flooring
subsidiary only.
12
Three Months Three Months
Ended Ended
Mar. 31, 2002 Mar. 31, 2001
-------------------------- -----------------------
Net sales 100.00% 100.00%
Cost of goods sold 48.86 52.70
-------------------------- -----------------------
Gross profit 51.14 47.30
-------------------------- -----------------------
Operating expenses
Selling expense 32.76 28.46
General and administrative expense 96.08 62.76
-------------------------- -----------------------
Total operating expense 128.84 91.22
-------------------------- -----------------------
Operating loss (77.70) (43.92)
--------------------------- -----------------------
Interest expense (2.45) (4.63)
--------------------------- -----------------------
Net loss before income taxes (80.15) (48.55)
Income taxes 0.00 0.00
--------------------------- -----------------------
Net loss (80.15)% (48.55)%
=========================== =======================
Net Sales: The Company's net sales in Flooring increased by 49% to $906,079 in
the 1st quarter 2002 from $607,141 in the 1st quarter 2001. The Company believes
that this quarter over quarter increase in sales was the result of the
maturation of its superstore during the past year, despite overall negative
trends in retail sales. Due to a continuing decrease in customer deposits, the
Company anticipates revenue for the next several calendar quarters will remain
soft. The Company receives partial deposits on orders from its customers, but
does not recognize the revenue on any orders until the installation process is
complete.
Sales in the three month period ended March 31, 2002 and the three-month period
ended March 31, 2001 are shown by product category as follows:
Three Months Three Months
Ended Ended
Mar. 31, 2002 Mar. 30, 2001
----------------------- ------------------------
(in thousands)
Carpet $ 231.9 $ 174.3
Wood 65.0 31.4
Laminates 127.8 91.4
Tile 199.8 63.1
Area Rugs 82.1
97.3
Installation / Labor 127.1
174.1
Other
25.3 22.5
----------------------- ------------------------
Total Sales $ 906.0 $ 607.1
======================= ========================
13
Gross Profits: Gross profit in flooring increased to $463,340 for the 1st
quarter 2002 as compared to $287,189 for the first quarter 2001 due to the
increase in sales levels for the 1st quarter of 2002. Gross profit margins for
the 1st quarter 2002 were 51.14% as compared to 47.90% for the 1st quarter 2001.
The gross margin percentage has improved as the Company can buy product at
better prices as its volume increases.
The gross profit margins for the Company's products depend on a number of
factors, such as the degree of competition in the market for its products,
material costs, sales channel, and the costs to install its products. In
addition, gross profit margins differ by product category. Accordingly, the
Company's gross profit margin can vary from quarter to quarter even if total
sales remain unchanged.
Selling Expenses: Selling and marketing expenses for the 1st quarter 2002 were
$296,842 as compared to $172,822 for the 1st quarter 2001. The increase is
largely attributable to increases in its advertising expenditures.
General and Administrative Expenses: General and administrative expenses for the
1st quarter 2002 were $870,558 as compared to $381,003 for the 1st quarter 2001,
an increase of $489,555. General and administrative expenses, as a percentage of
sales, increased to 96.08% in the 1st quarter of 2002 from 62.76% in the 1st
quarter of 2001. A significant reason for the increase in general and
administrative expenses are the costs associated with being a public company,
primarily fees for accounting, legal, and professional services, which were
$181,000 in the 1st quarter of 2002. An additional $120,000 of expense was
incurred in the upfront costs of a financing effort with Jefferies & Co., Inc.
that has not been realized as of this date. $100,000 is related to the write
down of the non-refundable deposit portion on the expired Hamway letter of
intent - Refer to note H of the financial statements.
The Company also incurred costs during the 1st quarter of 2002 related to the
evaluation of several strategic opportunities. The Company anticipates an
increase in its general and administrative expenses in future periods in order
to continue to expand its infrastructure, assimilate its acquisitions, and open
new "big box superstores". However, the Company anticipates that its sales will
increase at a faster rate than its general and administrative expenses,
resulting in these expenses decreasing as a percentage of sales in future
periods.
Other Expenses: Other expenses for the 1st quarter of 2002 were $22,202 as
compared to $28,144 for the 1st quarter 2001. Other expenses consisted of
interest expense on loans.
Net Loss: The flooring division had a net loss of $726,262 in first quarter of
2002 compared to a loss of $294,780 in the first quarter of 2001. A substantial
portion of the increased loss consists of expenses incurred in preparation for
anticipated growth of the Company. These expenses relate to providing additional
advertising to set the stage for future store openings and, pursuing strategic
growth opportunities.
Telematics
Net Sales: The Company's net sales in the telematics division were $28,520 as
the company had its first shipment in March 2002 following the acquisition on
February 4, 2002. There are no comparisons for the prior year.
Gross Profits: Gross profits in this division were ($2,496) as the company
shipped the initial units at below cost to generate cash and an initial
acceptance of the product in the marketplace.
14
Selling Expenses: Selling and marketing expenses for the 1st quarter 2002 were
$124,403 or 436% of sales.
General and Administrative Expenses: General and administrative expenses for the
1st quarter 2002 were $313,916. This was incurred in the development of the
infrastructure for the telematics business including engineering, training of
installers, and other administrative efforts to facilitate anticipated sales.
However, the Company anticipates that its sales will increase at a faster rate
than its general and administrative expenses, resulting in these expenses
decreasing as a percentage of sales in future periods.
Net Loss: Although the Tiger segment reported an operating loss for 1st quarter
2002 of $440,814 a substantial portion of the loss consists of expenses incurred
in preparation for future shipments of product and the anticipated growth of the
telematics segment.
Below is a summary of the combined results of the two distinct segments of the
company.
Net Sales: The Company's net sales increased 54% to $934,599 in the 1st quarter
of 2002 from $607,141 in the 1st quarter of 2001. The Company believes that the
combination of the maturation of its superstore and the initial shipment of its
telematics division contributed to this increase.
Gross Profits: Gross profits in the flooring division increased to $463,339 for
the 1st quarter 2002 as compared to $287,189 for the first quarter 2001. This
increase is attributable to the better buying prices that the Company negotiated
with its vendors due to increase purchase volume. The telematics division,
reported $0 gross profits as part of the initial strategy used to introduce its
new product in the marketplace.
Selling Expenses: Selling and marketing expenses for the 1st quarter 2002 were
$421,245 as compared to $172,822 for the 1st quarter 2001. $289,772 of the
increase is related to the inclusion of Tiger Telematics. After adjusting for
Tiger, the increase in selling expenses was 58% from 1st quarter 2002 as
compared to 1st quarter 2001 it is consistent with the 49% increase in sales in
flooring. However, as the operations of the Company's stores mature, and the
telematic products are shipping, advertising expense and overall selling
expenses as a percentage of sales is anticipated to decrease.
General and Administrative Expenses: General and administrative expenses
for the 1st quarter of 2002 were $1,184,474 as compared to $381,003 for the 1st
quarter of 2001, an increase of $803,471. $314,000 is attributable to the
inclusion of Tiger Telematics. In analyzing the flooring division's general and
administrative expenses as a percentage of sales, they increased to 96.08% in
the 1st quarter of 2002 from 62.76% in the 1st quarter of 2001. A significant
reason for this increase are the costs associated with being a public company,
primarily fees for accounting, legal, and professional services. These fees were
approximately $180,000 in the first quarter of 2002. The Company also incurred
costs during the 1st quarter of 2002 related to the evaluation of several
strategic opportunities. The purchase of Tiger Telematics was a result of this
evaluation. In addition, the development of Tiger Telematics also contributed to
the increase in the general and administrative expenses of the Company. Floor
Decor, Inc. anticipates an increase in its general and administrative expenses
in future periods as part of its growth strategy. However, the Company
anticipates that its sales will increase at a faster rate than its general and
administrative expenses, resulting in these expenses decreasing as a percentage
of sales in future periods. An additional $120,000 of expense was incurred in
the upfront costs of a financing effort with Jefferies & Co., Inc. that has not
been realized as of this date. $100,000 is related to the write down of the
non-refundable deposit portion on the expired Hamway letter of intent - Refer to
note H of the financial statements.
15
Other Expenses: Other expenses for the 1st quarter 2002 were $28,320 as compared
to $28,144 for the 1st quarter 2001. Other expenses consisted of interest
expense on loans and currency translation adjustments.
Net Loss: The Company reported an operating loss of $1,173,195 for the 1st
quarter of 2002 compared to $294,780 for the 1st quarter of 2002. A substantial
portion of the loss in 2002 is related to expenses incurred in the preparation
for its anticipated growth. These expenses relate to establishing a public
company, providing additional advertising to set the stage for future store
openings and, pursuing strategic growth opportunities, such as the acquisition
of Tiger Telematics completed in February 2002. Similarly the Company's
management staff has been sized and has expertise and infrastructure to grow the
Company rapidly. Management considers these costs as an investment in setting
the Company in a position to grow rapidly and profitably in the near future.
Management believes the costs will be lower as a percentage of sales in 2002
since sales growth is expected to exceed increases in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
In 2001 the Company funded its operating losses and start-up costs principally
with loans from stockholders or other parties. Without such funding the company
would not have been able to sustain its operations.
In the three months ended March 31, 2002, the Company's working capital
improved by $344,000. This improvement was the result of increases in current
assets, consisting of increases in accounts receivable of $69,000, inventory of
$177,000, and prepaid expenses and other current assets of $554,000, offset by
increases in current liabilities, consisting of increases in accounts payable of
$561,000, accrued expenses and other current liabilities of $120,000, and
customer deposits of $25,000. Also, in the three months ended March 31, 2002 the
amounts due stockholders decreased by $201,000 as a result of the equity
conversion and the Company receipt of notes from other stockholders in the Tiger
Acquisition. The Company also raised $877,000 net of advisory fees, from the
final portion of a private placement of common stock and warrants.
Floor Decor carries a substantial amount of inventory, $885,377 as of March
31, 2002. $792,829 of this inventory is related to the flooring division.
Similar to the rest of the industry, Floor Decor obtains normal 30-day vendor
credit to assist in financing its working capital requirements. Many companies
in the industry utilize bank and finance company secured financing and factoring
arrangements to borrow against inventory as collateral. Floor Decor to date has
not financed its inventory in this fashion. Instead, the Company has obtained
loans from stockholders and raised additional financing through private
placements of shares of common stock. The Company may need to collateralize its
inventory in the future to finance its growth as required.
The Company incurred operating losses in 2001 and in the first three months of
2002 of $1,299,000 and 1,145,000 respectively. Since the Company was not able to
generate positive net cash flows from operations, additional capital was needed.
This capital has been provided by certain principal stockholders, who have
funded the Company through loans as needed, and from the sale of Common Stock
and warrants through private placement transactions.
In December 2001, the Company initiated a private placement of common stock and
warrants and raised $574,200 of equity. An additional $1.8 million of equity
(including the debt to equity conversions of $923,000 of certain stockholders)
was raised during January through March 2002. This $2.4 million equity funding
net of expenses was used to provide liquidity to Tiger Telematics and to fund
operating losses and negative cash flows including the expenses of operating a
public reporting company. In February and March 2002, the Company obtained
approximately $290,000 from stockholders of interest free advances and
promissory notes due upon demand to fund
16
operations of Tiger Telematics. The Company anticipates further cash assistance
in the form of loans from its stockholders to assist in liquidity while the
Company raises additional capital.
The Company will seek to raise equity financing of about $7.0 million for
working capital, and to fund the costs of pursuing strategic growth
opportunities. The Company is also pursuing $ 10 million in financing to fund
the initial operations of Tiger Telematics, Ltd. However, there can be no
assurance this additional capital or other form of financing will be available,
or if available on terms reasonably acceptable to the Company.
The Company anticipates that it will meet its liquidity of capital needs for the
next twelve months through equity financing. As the Company continues to
experience negative operating results in 2002, while at the same time pursuing
strategic opportunities, the Company's liquidity will remain strained.
The Company currently evaluates and will continue to evaluate strategic
acquisitions. If the Company pursues one or more acquisitions the Company will
likely require additional sources of liquidity such as debt or equity financing
for such acquisitions or to meet working capital needs. There can be no
assurance that additional capital beyond the amounts forecasted by the Company
will not be required or that any such required capital will be available on
terms acceptable to the Company, if at all, at such time or times as required by
the Company.
17
Part II.
FLOOR DECOR, INC.
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Items 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Form 8K-A dated April 19, 2002
Tiger Telematics - Lease Agreement
Jefferies & Co. Agreements dated January 1,2002 and April 29,
2002
Robert Francis Employment Agreement dated April 1, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLOOR DECOR, INC.
/S/ Chief Executive Officer and Director May 15, 2002
Alvin J. Nassar
/S/ Executive Vice President and Director May 15,2002
and Chief Financial Officer
Michael W. Carrender
18
This Agreement is made the 26 day of April 2002
BETWEEN:
1. CHRISTIAN AND TIMBERS UK LIMITED (COMPANY NO.04064122) whose
registered office is situate at Finsgate 5-7 Cranwood Street London
EC1V 9EE ("the Landlord") and;
2. TIGER TELEMATICS LIMITED (COMPANY NO.04301299) whose registered
office is situated at 72 New Bond Street Mayfair London Wi 5 1 RR
("the Tenant")
WHEREAS
A. By an Agreement of even date between the parties hereto the
Landlord has agreed to lease and the Tenant has agreed to accept a
Lease ("the Lease") of the Premises (as the same are more
particularly defined in the Agreement).
B. The parties have agreed to enter into a Deed contemporaneously
with the Lease.
The parties agree as follows:
1. AGREEMENT
In consideration of the Landlord entering into the Agreement the
Tenant agrees to execute and deliver to the Landlord's solicitors
the Deed in the form annexed hereto simultaneously with and upon
completion of the Lease.
2. CONFIDENTIALITY
Save as required by law or for the enforcement hereof neither party
shall disclose the fact or the terms ot this Agreement to any other
person (other than such a party's professional advisers advising as
to its terms) without the written consent of the other party.
Signed for on behalf of the Landlord
Signed for and on behalf of the Tenant
19
This Deed is made the day of 2002
BETWEEN:
1. CHRISTIAN AND TIMBERS UK LIMITED (COMPANY NO.04064122) whose
registered office is situate at Finsgate 5-7 Cranwood Street London
ECi V 9EE ('~he Landlord") and;
2. TIGER TELEMATICS LIMITED (COMPANY NO.04301299) whose registered
office is situated at 72 New Bond Street Mayfair London Wi 5 1 RR
("the Tenant")
WHEREAS
A.The premises briefly described in Part I of the Schedule hereto
("the Premises") were demised by the Lease ("the Lease") described
in Part II of the Schedule hereto to which this Deed is
supplemental
B.The reversion immediately expectant on the determination of the
term created by the Lease is vested in the Landlord
C. It was a condition precedent to the grant of the Lease that on
completion thereof the Tenant would enter into this Deed
NOW IT IS AGREED as follows:
1.INTERPRETATION
1.1 In this Deed the headings shall be ignored in its construction
and unless the context otherwise so requires:
(a) Reference to numbered Clauses are to the Clauses hereof so
numbered
(b) Words of one gender include the others
1.2 The expression "the Landlord" includes the person for the time
being entitled to the reversion immediately expectant on the
determination of the term created by the Lease
1.3 Whenever the Landlord or the Tenant is more than one person
their respective obligations are joint and several
1.4 The expression 'The Lease" includes any document entered into
pursuant thereto or which is expressed to be supplemental thereto
1.5 References to the term created by the Lease include any period
of holding-over extension continuance or renewal thereof whether by
statute or common law
1.6 Reference to Value Added Tax includes any similar tax levied
in addition to or in substitution for it
1.7 The following expressions have the meanings set against them:
"Rent" means the sum of(pound)107,250 plus
value added tax at the prevailing
rate
"the Tenant's Obligations" the obligations of the Tenant
in this Deed together with the
obligations of the lessee under the
Lease throughout the term thereby
created to pay the rents reserved by
and to comply with the other
lessee's obligations in the Lease
20
"issue price" means the average mid-price of
the Shares at the close of
trading taken over the week
following completion of the
refinancing proposed to be
carried out be Floor Decor Inc.
2. PAYMENT OF RENT
2.1 Subject to clause 2.2 the Tenant shall satisfy its obligation to pay Rent
for the first year of the term of the Lease by way of the issue of five
hundred thousand (500,000) shares in Floor Decor Inc. ("the Shares") each
in the name of the Landlord by no later than the completion date of the
Lease and the Tenant undertakes with the Landlord to procure the same in
accordance with this Deed.
2.2 Subject to clause 2.3 if the Landlord at its sole discretion
liquidates the Shares in the first year of the term of the Lease
either in a single tranche or by way of separate tranches and the
aggregate net proceeds of sale arising from such sale or sales is
less than (pound)126,018.75 (or the US Dollar equivalent using the
mid range exchange rate prevailing on the date of actual receipt of
the said proceeds of sale by the Landlord) the Tenant shall
forthwith pay to the Landlord the difference between
(pound)126,018.75 and the said proceeds in cash.
2.3 The Landlord shall during the first year of the term of the Lease (save as
permitted by clause 2.4) only be permitted to sell up to 25% of its Shares
in any three month period commencing on either:
(a) the date hereof; or
(b) if later, the date upon which the Shares can be sold on NASDAQ.
2.4 Notwithstanding clause 2.3 the Landlord may sell in the first year
of the term of the Lease the Shares either in a single tranche or
by way of separate tranches (as the Landlord at its sole discretion
sees fit) if the mid price of the Shares at any time falls to less
than 20% of the issue price of the Shares.
2.5 The Tenant shall satisfy its obligation to pay Rent for the second and
any remaining years of the term of the Lease in cash in accordance with
the terms of the Lease.
2.6 The Tenant warrants and represents to the Landlord that the Shares are:
(a) Unencumbered
(b) Free of any trading restriction whatsoever;
(c) Quoted on NASDAQ and within three months of the date hereof
will be freely tradable;
2.7 The parties agree that any breach by the Tenant of any of the warranties
referred to in clause 2.6 shall entitle the Landlord either to terminate
the Lease on 2 days written notice to the Tenant.
2.8 If the Landlord is unable to sell or trade any of the Shares during the
period of three months commencing on the date hereof the Tenant shall
forthwith perform its obligation to meet all payments due under the Lease
(including the Rent for the first year of the term) (and including for the
avoidance of doubt all utilities, rates, water charges, service charge,
interest, costs and other like outgoings) in cash in accordance with the
terms of the Lease.
2.9 The Tenant shall at all times satisfy its obligation to meet all
other payments due under the Lease (other than the Rent for the first
year of the terms) (including for the avoidance of doubt all
utilities, rates, water charges, service charge, interest, costs and
other like outgoings) in cash in accordance with the terms of the
Lease.
21
3 CONFIDENTIALITY
3.1 Save as required by law or for the enforcement hereof neither
party shall disclose the fact or the terms of this Deed to any
other person (other than such a party's professional advisers
advising as to its terms) without the written consent of the other
party.
4.VARIATION OF LEASE
4.1 The right of re-entry in the Lease shall be exercisable if
there is a breach by the Tenant of any of the terms of this Deed
4.2 All of the Tenant's obligations herein shall be deemed to be
lessee's covenants in the Lease
IN WITNESS whereof this Deed has been duly executed by the parties hereto and is
delivered as a Deed the day and year first above written
THE SCHEDULE
PART 1
(Description of the Premises)
All that land and building known as the seventh floor, 105 Piccadilly, London W1
as the same is more particularly described in the Lease
PART II
(Details of the Lease)
Date Description Parties Term
The date hereof Lease Christian and Timbers UK Limited Five years from the date
(1) and Tiger Advanced Security hereof
Systems (2)
THIS AGREEMENT dated April 26 2002 is made
BETWEEN:
(1) CHRISTIAN AND TIMBERS UK LIMITED (Company No.04064122) whose
registered office is at Finsgate 5-7 Cranwood Street London EC1V 9EE
("the Landlord") and
(2) TIGER TELEMATICS LIMITED (Company No.04301299) whose registered
office is at 72 New Bond Street Mayfair London W1S 1RR ("the Tenant")
WHEREBY IT IS AGREED as follows:
1 Definitions
22
Where in this Agreement the following words commence with capital letters they
have the following meanings unless the context otherwise requires:
"the Tenant's Solicitors" means RaddiffesLeBrasseur of 5 Great College
Street Westminster London SWiP 35J
"The Completion Date" means 5 working days following the later of:
(i) the grant of the Court Order; and
(ii) the Reversioners Consent
"The Court Order" An order of the Court made pursuant to
Section 38(4) of the Landlord and Tenant Act
1954 as amended authorising the agreement
between the Landlord and the Tenant in
relation to the tenancy to he created by the
Lease excluding the provisions of Sections
24-28 inclusive of the Act in relation
to that Tenancy
"Guarantor" Floor Decor Inc. of 6001 Powerline Road Fort
Lauderdale FL 33309 USA
"The Lease" means the Underlease of the Property to be
granted by the Landlord to the Tenant
subject to and in accordance with the terms
of this Agreement in the form of the draft
Underlease annexed hereto
"The Property" means the property described in the First
Schedule
"The Landlord's Solicitors" means Messrs Clegg Manual of 17-18 Great
Sutton Street Clerkenwell London
"The Reversioner" Means the landlord under the lease by virtue
of which the landlord holds the property
"The Reversioner' s Consent" means consent from the Reversioner and
(where required all superior landlord
(if any) to the grant of the lease by the
landlord to the tenant
"The Standard Conditions" means the Standard Conditions of Sale 3rd
Edition and "Standard Condition" is to be
construed accordingly
"Working Day" Means any day other than a Saturday or a
Sunday or a day which is a statutory holiday
in England
23
2 Interpretation
2.1 The clause Schedule and paragraph headings in this Agreement are
for ease of reference only and are not to be taken into account in the
construction or interpretation of the clause Schedule or paragraph to
which they refer
2.2 Words importing one gender include the other genders
2.3 Words denoting an obligation on a party to do any act matter or
thing include an obligation to procure that it be done and words
placing a party under a restriction include an obligation not to
permit or suffer infringement of the restriction
2.4 Obligations and liabilities of a party comprising more than one
person are obligations and liabilities of such persons jointly and
severally
3 Grant of Lease
3,1 The Landlord will grant and the Tenant will accept and execute a
counterpart of the Lease of the Property on the Completion Date and
in accordance (but subject to) the terms of this Agreement
3.2 The Tenant is deemed to take the Lease knowing the actual physical
state and condition of the Property and accepts the Property as it
now is
3.3 The risk of damage to or destruction of the Property now passes to
the Tenant
4 Possession
4~ 1 Vacant possession of the Property shall be given to the Tenant on the
date of this Agreement
4.2 The Tenant shall be perrnitted to occupy the Property from the date
of this Agreement but as licensee only but shall nevertheless comply
with all the obligations on its part contained in the Lease so far as
the same are applicable to a relationship of Licensor and Licensee
4.3 The Tenant shall from the date it takes occupation of the Property
pay and indernnify the Landlord against all those charges and
outgoings which the Tenant would be liable for if the Lease had been
completed
24
4.4 If it becomes clear at any time after the Tenant has taken up
occupation of the Property that either the Court Order or the
Reversioners Consent will not be granted then the Landlord may give
notice to the Tenant requiring the Tenant to vacate the Property
whereupon the Tenant shall vacate the Property within 48 hours of
service of such notice and deliver up the Property to the Landlord in
the same state and condition that the Property was in when the Tenant
took up occupation
5 Matters affecting the Property
5.1 The Lease of the Property is granted subject to
5.1.1 All Local Land Charges (whether registered or not before
the date of this Agreement) and all matters capable of
registration as Local Land Charges
5.1.2 All notices served and orders demands proposals or
requirements made by any statutory public local or other
competent authority or any authority responsible for the
provision or regulation of utilities (whether before or
after the date of this Agreement)
5.1.3 All rights of way drainage watercourses light or other
easements or quasi or reputed easements and rights of
adjoining owners affecting the Property and all liability
to repair or covenants to repair roads pavements paths
ways passages sewers drains gutters fences and other like
matters without obligation on the Landlord to provide
evidence of the creation of or to define or apportion any
such liability
6 Reversioner' S Consent
6.1 The Landlord shall forthwith apply for and use its reasonable
endeavours to obtain Reversioner' 5 Consent
6.2 For the purpose of obtaining Reversioner's Consent the. Tenant shall
enter into such direct covenants and provide such accounts
information references and guarantees as the Reversioner or any
superior landlord may reasonably require
6.3 The Landlord's solicitors shall deliver to the Tenant's solicitors a
copy of the Reversioner's Consent (and where more than one copies of
each) forthwith upon receipt by them of the original
25
7 Court Order
7.1 The Parties shall forthwith make a joint application for the Court
Order and use all reasonable endeavours to obtain the Court Order as
soon as reasonably possible
7.2 The Landlord shall procure that its Solicitors shall give written
notice to the Tenant's Solicitors immediately following the issue of
the Court Order
8 Termination
8.1 If the Court Order and/or the Reversioners Consent has not been
issued within Lone] month from the date hereof then on expiry of such
period this agreement shall cease and be of no further effect but
without affecting any liability for any breaches of the Tenant's
obligations which shall already have accrued at that date
9 Completion
9.1 The date fixed for completion of the grant and acceptance of the
Lease is the Completion Date and completion shall take place at the
office of the Landlord's Solicitors or at such other place as they
may reasonably direct
9.2 At least five Working Days before the Completion Date the Landlord's
Solicitors shall prepare engrossments of the Lease and counterpart
thereof and deliver the engrossed counterpart to the Tenant's
Solicitors and the Tenant shall duly execute and deliver the
counterpart and shall procure that the Guarantor shall duly execute
and deliver the counterpart to the Tenant's Solicitors within three
Working days following the date upon which the Landlord's Solicitors
delivered the same to the Tenant's Solicitors
9,3 If the Landlord shall agree to complete this Agreement by post then
such completion shall be at the Tenant's risk and cost in all
respects
10 Misrepresentation etc
10.1 The Tenant admits that no representation whether oral orwntten
express or implied has been made to the Tenant prior to the date of
this Agreement by the Landlord or anyone on behalf of the Landlord
concerning the Property which has influenced induced or persuaded the
Tenant to enter into this Agreement or which forms part of this
Agreement or any agreement collateral with it save replies in writing
by the Landlord's Solicitors to enquiries before contract raised by
the Tenant's Solicitors
11 Conditions of Sale
26
11.1 The Standard Conditions apply to this Agreement but the terms of this
Agreement are to prevail in case and to the extent of inconsistency
12 Non-Merger of Contract
The provisions of this Agreement shall not merge on the grant of the
Lease but shall thereafter or after rescission remain in full force
and effect with regard to anything remaining to be done performed or
observed under this Agreement
13 Restrictions on Assignment and Assurance
13.1 The Landlord shall not be obliged to grant the Lease to any person
other than the person named as Tenant
13.2 Pending the grant and acceptance of the Lease this Agreement shall
not operate or be deemed to operate as a demise of the
Property
14 Contracts (Rights of Third Parties) Act 1999
Except where the right to do so is expressly granted a person who is not a party
to this Lease may not entorce any term ot this Lease pursuant to the Contracts
(Rights of Third ParUe~) A~L 1999
AS WITNESS the hands of the parties hereto the day and year first before written
THE FIRST SCHEDULE
(The Property)
All those premises known as 7~' Floor 105 Piccadilly London Wi as the same are
more particularly described in the Lease.
This Lease is made the day of 2002
BETWEEN:
CHRISTIAN AND TIMBERS LIMITED (COMPANY NO.04064122) whose registered office is
situate at Finsgate 5~7 Cranwood Street London ECi V 9EE ("the Landlord");
TIGER TELEMATICS LIMITED (COMPANY NO.04301299) whose registered office is
situated at 72 New Bond Street Mayfair London Wi S 1 RR ("the Tenant"); and
FLOOR DECOR INC. of 6001 Powerline Road Fort Lauderdale FL 33309 USA
("the Guarantor")
WITNESSES as follows:
1. DEMISE
1.1 At the request of the Guarantor the Landlord demises to the Tenant
all those the premises comprised in and demised by a Lease dated
6th June 2001 and made between Haslemere Estates plc ('the Head
27
Landlord") (1) the Landlord (2) and Christian and Timbers Inc. (2)
("the Head Lease") as the same are shown edged red on the plan
annexed hereto but excluding the Server Room shown edged green
("the Server Room")
TOGETHER with the rights AND EXCEPT AND RESERVED as stated in the
Head Lease ("the Demised Premises")
TO HOLD the same unto the Tenant for a term of five (5) years from
the date hereof
PAYING during the said term yearly throughout the term and
proportionately the rent of ONE HUNDRED AND SEVEN THOUSAND TWO
HUNDRED AND FIFTY POUNDS ((pound)107,250) exclusive of Value Added
Tax thereon (if any) all such rent being paid quarterly in advance
on the usual quarter days without any deduction the first of such
payments to be made on the date hereof to the quarter day next
following
1.2 For the avoidance of doubt the Landlord shall retain full and
unimpeded access at all times to the Server Room for all purposes.
2. TERMS AND CONDITIONS
Except as to the term of years granted and the rent payable
hereunder and the clauses details of which are set out in the First
Schedule hereto this demise is made upon the same terms and subject
to the same reservations and to the same covenants on the part of
the Landlord and Tenant respectively and to the same stipulations
and conditions as were expressed in the Head Lease as if the same
were herein set out at length SAVE as to the clauses details of
which are set out in the First Schedule hereto and TOGETHER WITH
such modifications as are set out in the Second Schedule hereto as
if the Landlord were the landlord and the Tenant were the tenant
respectively named therein
3. TENANT'S COVENANTS
The Tenant hereby covenants with the Landlord to observe and
perform such of the covenants subject to which this demise is made
as aforesaid as are on its part to be observed and performed and as
set out in the Second Schedule hereto
4. LANDLORD'S COVENANTS
4.1 The Landlord hereby covenants with the Tenant to pay the rent
reserved by the Head Lease and to perform (so far as the Tenant is
not liable for such performance under the covenants on his part
contained in this Lease) the tenants' covenants and conditions
contained in the Head Lease and any superior lease and to indemnify
and keep indemnified the Tenant against all actions claims
proceedings costs expenses and demands in any way relating thereto
and to enforce the covenants on the part of the Head Landlord
therein.
4.2 The Landlord hereby covenants with the Tenant to use all
reasonable endeavours to procure that the Head landlord complies
with the covenants on its part contained in the Head Lease
4.3 The Landlord hereby covenants with the Tenant that the Tenant
paying the rents hereby reserved and performing and observing the
several covenants and conditions herein contained on the Tenant's
part to be perforrned and observed shall and may hold and enjoy the
Demised Premises during the term without interruption by the
Landlord or any person rightly claiming under or in trust for it or
by title paramount
5. NO COMPENSATION
Except where any statutory provision prohibits the Tenant's right
to compensation being reduced
28
or excluded by agreement the Tenant shall not be entitled to claim
from the Landlord on quitting the demised premises or any part
thereof any compensation under the Landlord and Tenant Act 1954 or
any statute modifying or re-enacting the same
6. HEADLANDLORD
Each and every right vested in the Head Landlord or any superior
lessor by virtue of the Head Lease (or any superior lease) (other
than the right to receive rent) shall be exercisable by the Head
Landlord or superior lessor so far as it affects the Demised
Premises notwithstanding that it may not be expressly provided for
in any other provision of these presents
7. OPTION TO DETERMINE
7.1 The Landlord may determine this Underlease at any time after the
expiry of the first anniversary of the term of this Underlease on
not less than six months written notice served on the Tenant.
7.2 It the Tenant shall have observed and performed its obligations
contained in this Underlease in all material respects the Tenant
may determine this Underlease at any time after the expiry of the
first anniversary of the term of this Underlease on not less Ihan
six months written notice served on the Landlord.
7.3 Upon determination of the Underlease pursuant to either clause 7.1
or 7.2 the Tenant shall yield up the Premises in such state and
condition as is provided for in this Underlease.
7.4 The determination of the Underlease pursuant to either clause 7.1
or 7.2 shall be without prejudice to the rights ot either party
against the other in respect of any antecedent breach of such other
party's covenants and obligations contained in this Underlease.
8. COURT ORDER
Having been authorised to do so by an Order of the Clerkenwell
County Court made on the day of 2002 under the
provisions of Section 38(4) of the Landlord & Tenant Act 1954 the
Parties hereto agree that theprovisions of Section 24 to 28 of the
Act shall be excluded in relation to the tenancy hereby created
9.GUARANTOR PROVISIONS
9.1
The Guarantor at the request of the Tenant and in consideration of the Lease and
demise hereinbefore contained hereby covenants and guarantees with and to the
Landlord that throughout the period until the Tenant (in this clause meaning
only "the Tenant" named in this Lease and not its successors) is released from
the "tenant covenants" pursuant to (and as defined in) the Landlord and Tenant
(Covenants) Act 1995:
(a) The Tenant shall at all times during the term hereby
granted duly pay the respective rents hereby reserved at
the times and in the manner at and in which the same are
hereinbefore reserved and made payable and duly observe and
perform all the covenants on the part of the Tenant and the
conditions herein contained
(b) The Guarantor will at all times hereafter pay and make good
to the Landlord all losses costs damages and expenses
occasioned to the Landlord by the non-payment of the said
rents or any of them or any part thereof or the breach
non-observance or non-performance of any of the said
covenants and conditions as aforesaid and further that any
neglect or forbearance
29
on the part of the Landlord in enforcing or giving time to
the Tenant for payment of the said rents or any of them or
any part thereof or the observance or performance of any of
the said covenants and conditions shall not in anywise
release the Guarantor in respect of its liability under the
covenant or guarantee on its part hereinbefore contained
(c) That if this Lease shall be forfeited or if any grounds
arise entitling the Landlord to forfeit this Lease or if
this Lease shall be disclaimed and if the Landlord
shall within six months after any such event by notice in
writing require the Guarantors to accept a lease of the
demised premises for a term commensurate with the
residue which if there had been no forfeiture or disclaimer
would have remained of the Term at the like rents
and containing the like covenants conditions and provisions
(other than the provisions relating to the Guarantors) in
all respects as are reserved by and contained in these
presents and/or any rights appertaining thereto (such new
lease and the rights and liabilities thereunder to take
effect from the date of such event as aforesaid) then and
in such case the Guarantors shall at its own expense take
up such a Lease and deliver a duly executed Counterpart
thereof to the Landlord
9.2 The covenants and guarantees contained in this Clause shall relate
to any sums greater than the rents hereby reserved which the Tenant
may become liable to pay in respect of any such period for use and
occupation of the demised premises
RENT REVIEW
The parties shall review the rent payable under this Lease in
accordance with the rent review provisions of the Head Lease
mutatis mutandis.
IN WITNESS whereof the parties have executed this document as a deed the day and
year first before written
THE FIRST SCHEDULE
Clauses in the Head Lease excluded from Provisions of the Underlease
Clause 9 (Surety)
THE SECOND SCHEDULE
The Tenant hereby covenants with the Landlord as follows:
1.HEADLEASE COVENANTS
1.1 Save as set out in the First Schedule hereto the Tenant shall
observe and perform the obligations imposed upon the tenant
contained in the Head Lease insofar as they relate to the Demised
Premises.
2.RENT AND SERVICE CHARGE
2.1 The Tenant shall pay the rent reserved hereby at the time and
in the manner aforesaid without deduction or set-off together with
any Value Added Tax which may from time to time be charged or
payable thereon.
2.2 The Tenant shall pay the rent by way of banker's standing order
if so requested by the Landlord.
2.3 The Tenant shall pay to the Landlord on demand all amounts
which the Landlord is required to pay by way of Service Rent and
Insurance Rent under the Head Lease.
30
3.YIELDING UP
3.1 The Tenant shall render up to the Landlord at the expiry of the
term (or any extension thereof) the Demised Premises in as good as
state of repair and condition as at the date hereof damage by any
insured risks excepted.
4.ALTERATIONS
4.1 The Tenant shall not make any structural alteration whatever to
the Demised Premises
4.2 The Tenant shall not make any non-structural alterations to the
Demised Premises without the Landlord's consent such consent not to
be unreasonably withheld.
5.ALIENATION
5.1 The Tenant shall not assign charge or underlet part only of the
Demised Premises.
5.2 If the Tenant proposes to assign or underlet the whole of the
Demised Premises the Tenant shall serve written notice of such
proposal ("the Tenant's Notice") on the Landlord and the Landlord may
within 10 working days of receipt of such notice ("the Notice
Period") require the Tenant to surrender this Underlease to the
Landlord at a nil premium whereupon:
(a) If the Landlord serves a counter-notice on the Tenant
within the Notice Period requiring the Tenant to surrender
this Underlease to the Landlord at a nil premium the Tenant
shall on the 1 0th working day after receipt by the Tenant
of the Landlord's counter-notice:
(i) execute a Deed of Surrender in a form approved by
the Landlord (acting reasonably);
(ii) yield up the Premises to the Landlord in the manner
and condition required by this Underlease
(b) If the Landlord does not serve a counter-notice on the
Tenant or serves a notice stating that the Landlord does
not require the Tenant to surrender the Underlease the
Tenant may within 3 months of the date of the Tenant's
Notice assign or underlet the whole of the Premises in
accordance with the provisions of the Headlease and clause
5.3 of this Underlease
5.3 Subject to clause 5.2 of this Schedule the Tenant shall not assign
or underlet the whole of the Demised Premises other than in
accordance with the provisions of the Head Lease and after
obtaining the Landlord's consent such consent not to be
unreasonably withheld or delayed having regard to the
provisions of the Head Lease.
Executed as a Deed
SIGNED as a DEED and
DELIVERED by the said
CHRISTIAN AND TIMBERS UK LIMITED
acting by one director and secretary:
SIGNED as a DEED and DELIVERED by the said TIGER
TELEMATICS LIMITED acting by
two directors:
31
SIGNED as a DEED and
DELIVERED by the said FLOOR
DECOR INC acting by two
Directors:
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of April, 2002, between Tiger Telematics
Ltd, a UK Company, and Floor Decor, Inc. a Delaware corporation (the "Company")
and Robert D. Francis (the "Executive").
WHEREAS, the Executive is desirous of committing himself to serve the Company on
the terms herein provided, and the Company desires to have the services of the
Executive on the terms herein provided,
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Employment. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein for the period commencing on the date hereof and expiring 1 year
after the commencement date (the "Term") This Agreement shall be automatically
extended for unlimited successive one year periods unless it is terminated
during the pendency of either the initial term or any successor term by a
termination event as set forth in Section 9 or at the end of any such term by
one party furnishing the other with written notice, at least 90 days prior to
the expiration of such term, of an intent to terminate this Agreement upon the
expiration of such term.
2. Position and Duties. Executive shall serve as the President, Chief Operating
Officer and a voting member of the Board of Directors of the Company, reporting
to the Chief Executive Officer, and shall have supervision and control over, and
responsibility for, the general management and operation of the Company, and
shall have such other powers and duties as may from time to time be prescribed
by the Board, provided that such duties are consistent with his present duties
and with the Executive's position as a senior executive officer in charge of the
general management of the Company. The Executive shall devote his full business
time and efforts as shall be necessary to the proper discharge of his duties and
responsibilities under this Agreement. Notwithstanding the foregoing, the
Executive may pursue such non-competitive activities such as teaching,
consulting or other remunerative or non-remunerative activities, including
charitable endeavors, as do not interfere, to any material degree, with the
complete performance of his obligations hereunder. The Executive shall perform
his duties hereunder with due care and with professionalism commensurate with
his duties in the manner he has heretofore performed such duties and will comply
with all policies which from time to time may be in effect or adopted by the
Company. In connection with his employment by the Company, the Executive shall
be based at the Company's principal executive offices. The Company shall not,
without the Executive's consent, remove the Executive's principal place of
residence from Pinellas County, Florida.
3. Compensation and Related Matters.
(a) Base Salary. The Executive shall receive a minimum base salary ("Base
Salary") at the annual rate of $180,000 during each year of the Term hereof
payable in no less than equal semimonthly installments. Any increase in Base
Salary or other compensation granted by the Compensation Committee of the Board
("the Compensation Committee") shall in no way limit or reduce any other
obligation of the Company hereunder and, once established at an increased
specified rate, the Executive's Base Salary hereunder shall not thereafter be
reduced.
(b) Bonus Payments. In addition to Base Salary, the Executive shall be entitled
to receive annual bonus payments up to 50% of Base Salary, based on criteria
established by the Compensation Committee for each year.
32
(c) Expenses. During the term of his employment hereunder, the Executive shall
be entitled to receive prompt reimbursement for all properly substantiated
reasonable expenses incurred by him in performing services hereunder in
accordance with the policies and procedures presently established by the
Company.
(d) Other Benefits. The Company shall not make any changes in any Executive
benefit plans or arrangements in effect on the date hereof in which the
Executive participates which would adversely affect the Executive's rights or
benefits hereunder, unless such change occurs pursuant to a program applicable
to all Executives of the Company and does not result in a proportionately
greater reduction in the rights of or benefits to the Executive as compared with
any other Executive of the Company. The Executive shall be entitled to
participate in or receive benefits under any Executive benefit plan or
arrangement made available by the Company in the future to its Executives and
key management Executives, subject to and on a basis consistent with the terms,
conditions and overall administration of such plan or arrangement. Nothing paid
to the Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the salary payable to
the Executive pursuant to paragraph (a) of this Section 3. Notwithstanding the
foregoing, the Company shall at a minimum provide the Executive with
reimbursement for medical, dental, disability and life insurance coverage in an
amount reasonably acceptable to the Executive and similar to coverage provided
to similarly situated executives in similar businesses.
(e) Vacations. The Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Company from time to time for its
senior Executive officers, but not less than four weeks in any calendar year.
The Executive shall also be entitled to all paid holidays given by the Company
to its senior Executive officers.
(f) Equity Interest. The Executive shall be granted an Option under the Company
Stock Option Plan to purchase one million (1,000,000) shares of stock in the
Company at $0.50 per share, vesting one third (1/3) upon execution of this
agreement, one third (1/3) on April 1, 2003, and one third (1/3) on April 1,
2004. As provided in the Stock Option Agreement, all remaining options would
vest immediately upon change of control of the corporation.
4. Indemnity. The Executive agrees to serve as part of the Board of Directors
and the management team of the Company, and the Company shall indemnify the
Executive to the fullest extent permitted by the Delaware Law. The Company
agrees to keep in place a Directors and Officers Liability Insurance Policy
providing not less than one million dollars ($1,000,000) in coverage for the
benefit and protection of all officers and directors of the Company.
5. Non-Competition.
(a) For the applicable period set forth below (the "Restricted Period"), the
Executive shall not, directly or indirectly, own an interest in, manage,
operate, join, control, consult, advise, or render other assistance to or
participate in or be connected with, as an officer, Executive, partner,
stockholder, consultant or otherwise, any individual, partnership, firm,
corporation or other business organization or entity ("Person") that, at such
time, is engaged in any business which may be deemed competitive with the
Company's business of selling and supplying vehicle telematics products and
services. (the "Restricted Business"). If the Executive is terminated by the
Company for cause pursuant to Section 9(c) or the Executive terminates his
employment other than pursuant to Section 9(d), the Restricted Period shall be
one (1) year from the termination date of the Executive's employment by the
Company. If the Executive's employment is terminated without Cause, if the
Executive terminates his employment for Good Reason or if the Company declines
to renew the Employment Agreement after the expiration of the initial or any
successor term of this Agreement, then the Restriction Period shall be six
months from the date of the termination of the Executive's employment by the
Company, while the Executive is paid
33
six months' salary as a severance payment pursuant to Section 10(d).
(b) During the Restricted Period, the Executive shall not directly or indirectly
(i) hire or employ on any basis, (ii) solicit or endeavor to entice away from
the Company or its and each of its subsidiaries, affiliates, licensors,
licensees, successors or assigns (collectively, the "Affiliates"), or (iii)
otherwise interfere with the relationship of the Company or its Affiliates with,
any person who is employed by the Company or any of its Affiliates or any person
who was employed by the Company or its Affiliates within the then most recent
six-month period. Further, the Executive shall not interfere in any manner with
any customer, consultant, supplier or client of the Company or its Affiliates,
or any Person who was a customer, consultant, supplier or client of the Company
or its Affiliates within the then most recent six-month period.
(c) Nothing in this Agreement shall prohibit the Executive from acquiring or
holding up to an aggregate of one per cent (1%) of any issue of stock or
securities of any company listed on a national securities exchange or quoted on
the automated quotation system of the National Association of Securities
Dealers, Inc., which company engages in Restricted Business; provided, however,
the Executive and the members of his immediate families shall not own any voting
securities or any other interest in, or lend or contribute monies, properties or
services to, any other company engaging in a Restricted Business.
(d) The Executive acknowledges that a material breach of any of the covenants
contained in this Section 4 would result in material irreparable injury to the
Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that the Company
shall be entitled to obtain a temporary restraining order and/or a preliminary
or permanent injunction restraining the Executive from engaging in activities
prohibited by this Section 4, and such other relief as may be required to
specifically enforce any of the covenants in this Section 4.
6. Confidential Information.
(a) During the period of his employment hereunder, and at any time for 2 years
after his termination of employment by the Company or the Executive, the
Executive shall not, without the written consent of the Company or a person
authorized thereby, disclose to any person, other than an Executive of the
Company or a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by the Executive of his duties as an Executive
of the Company, any material confidential information obtained by him while in
the employ of the Company; provided, however, that confidential information
shall not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by persons engaged in the same business or
a business similar to that conducted by the Company.
(b) Except for information or contacts provided by Executive, Executive agrees:
(i) not to use any such information for himself or others; and (ii) not to take
any such material or reproductions thereof from the Company's facilities at any
time or after during his employment by the Company, except as required in the
Executive's duties to the Company. The Executive agrees immediately to return
all such material and reproductions thereof in his possession to the Company
upon request and in any event upon termination of employment.
7. Ownership of Proprietary Information.
(a) Except for Proprietary Information or contacts provided by Executive,
Executive agrees that all information that has been created, discovered or
developed by the Company or its Affiliates (including, without limitation,
information relating to the development of the Company's business created,
discovered, developed or made known to the Company or the Affiliates by
Executive during the period of employment with the Company and information
relating to Company's customers, suppliers, consultants, and licensees) and/or
in which property rights have been assigned or otherwise conveyed to the Company
or the Affiliates, shall be the sole property of the Company or the Affiliates,
as applicable, and the Company or the
34
Affiliates, as the case may be, shall be the sole owner of all patents,
copyrights and other rights in connection therewith. All of the aforementioned
information is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, processes, discoveries, structures, inventions, designs, ideas, works
of authorship, copyrightable works, trademarks, copyrights, formulas, data,
know-how, show-how, improvements, inventions, product concepts, techniques,
information or statistics contained in, or relating to, marketing plans,
strategies, forecasts, blueprints, sketches, records, notes, devices, drawings,
customer lists, patent applications, continuation applications,
continuation-in-part applications, file wrapper continuation applications, and
divisional applications and information about the Company's or the Affiliates'
Executives and/or consultants (including, without limitation, the compensation,
job responsibility and job performance of such Executives and/or consultants).
(b) The Executive further agrees that at all times, both during the period of
employment with the Company and any time for two years after his termination of
this Agreement, he will keep in confidence and trust all Proprietary
Information, and he will not use or disclose any Proprietary Information or
anything directly relating to it without the written consent of the Company or
the Affiliates, as appropriate, except as may be necessary in the ordinary
course of performing his duties hereunder. The Executive acknowledges that the
Proprietary Information constitutes a unique and valuable asset of the Company
and each Affiliate acquired at great time and expense, which is secret and
confidential and which will be communicated to the Executive, if at all, in
confidence in the course of his performance of his duties hereunder, and that
any disclosure or other use of the Proprietary Information other than for the
sole benefit of the Company or the Affiliates would be wrongful and could cause
irreparable harm to the Company or its Affiliates, as the case may be.
Notwithstanding the foregoing, the parties agree that, at all such times,
the Executive is free to use (i) information in the public domain not as a
result of a breach of this Agreement, and (ii) information lawfully received
from a third party who had the right to disclose such information.
8. Disclosure and Ownership of Inventions.
(a) During the term of employment until the Termination Date, the Executive
agrees that he will promptly disclose to the Company, or any persons designated
by the Company, all intellectual property rights related to the Company's
business, including but not limited to, improvements, inventions, designs,
ideas, works of authorship, copyrightable works, discoveries, patents,
trademarks, copyrights, trade secrets, formulas, processes, structures, product
concepts, marketing plans, strategies, customer lists, information about the
Company's or the Affiliates' Executives and/or consultants (including, without
limitation, job performance of such Executives and/or consultants), techniques,
blueprints, sketches, records, notes, devices, drawings, know-how, data, whether
or not patentable, patent applications, continuation applications,
continuation-in-part applications, file wrapper continuation applications and
divisional applications (collectively hereinafter referred to as the
"Inventions"), made or conceived or reduced to practice or learned by him,
either alone or jointly with others, during the Term.
(b) The Executive agrees that all Inventions shall be the sole property of the
Company to the maximum extent permitted by applicable law and to the extent
permitted by law shall be "works made for hire" as that term is defined in the
United States Copyright Act (17 US CA, Section 101). The Company shall be the
sole owner of all intellectual property rights, including but not limited to,
patents, copyrights, trade secret rights, and other rights in connection
therewith. The Executive hereby assigns to the Company all right, title and
interest he may have or acquire in all Inventions. The Executive further agrees
to assist the Company in every proper way (but at the Company's expense) to
obtain and from time to time enforce patents, copyrights or other rights on said
Inventions in any and all countries.
9. Termination. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
35
(a) Death. The Executive's employment hereunder shall terminate upon his death.
(b)Disability. I{ as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been absent from his duties hereunder
on a full time basis for 90 consecutive calendar days, and within thirty (30)
days after written notice of termination is given (which may occur before or
after the end of such 90 day period) shall not have returned to the performance
of his duties hereunder on a full time basis, the Company may terminate the
Executive's employment hereunder.
(c) Cause. The Company may terminate the Executive's employment hereunder for
Cause. For purposes of this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon (A) the willful and
continued failure by the Executive to substantially perform his duties hereunder
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness) after demand for substantial performance is
delivered by the Company specifically identifying the manner in which the
Company believes the Executive has not substantially performed his duties, or
(B) the willful engaging by the Executive in misconduct which is materially
injurious to the business or financial condition of the Company, monetarily or
otherwise, or (C) the willful violation by the Executive of the provisions of
Sections 6, 7 and 8 hereof provided that such violation results in material
injury to the Company. For purposes of this paragraph, no act, or failure to
act, on the Executive's part shall be considered "willful" unless done, or
omitted to be done, by him not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company. Notwithstanding
the foregoing, the Executive shall not be deemed to have been terminated for
"Cause" unless and until there shall have been delivered to the Executive a copy
of a resolution, duly adopted by the affirmative vote of not less than a
majority of the Members of the Board, excluding the Executive, finding that in
the good faith opinion of the Board, the Executive was guilty of conduct set
forth above in clause (A), (B), or (C) of the preceding sentence, and specifying
the particulars thereof in detail.
(d) Termination by the Executive. The Executive may terminate his employment
hereunder for Good Reason. For purposes of this Agreement "Good Reason" shall
mean (A) a change in control of the Company (as defined below), or (B) a
reduction in the Executive's base salary as it may have been increased from time
to time, or any other failure by the Company to comply with Section 3 hereof, or
(C) failure of the Company to obtain the assumption of the agreement to perform
this Agreement by any successor as contemplated in Section 11 hereof, (D) a
defacto reduction in the Executives role or responsibilities as President and
COO, or (B) A breach by the Company of any of its obligations hereunder.
Termination by the Executive for any reason within this paragraph shall
immediately accelerate vesting of all options granted to Executive under this
Agreement
For purposes of this Agreement, a "change in control of the Company" shall
be deemed to have occurred if (Y) any "person' (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company or any "person" who on the date hereof
is a director or officer of the Company, is or becomes the "beneficial owner"
(as defined in Rule 1 3d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities, or (Z) during any period of two
consecutive years during the term of this Agreement, individuals who at the
beginning of such period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds of the directors then in office who
were directors at the beginning of the period.
36
(e) Notice of Termination. Any termination of the Executive's employment by the
Company or by the Executive (other than termination pursuant to subsection (a)
above) shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated pursuant to subsection (b) above, thirty
(30) days after Notice of Termination is given (provided that the Executive
shall not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period), (iii) if the Executive's employment is
terminated pursuant to subsection (c) above, the date specified in the Notice of
Termination, and (iv) if the Executive's employment is terminated for any other
reason, the date an which a Notice of Termination is given; provided that if
within thirty (30) days after any Notice of Termination is given the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment
order or decree of a court of competent jurisdiction (the time for appeal there
from having expired and no appeal having been perfected).
10. Compensation Upon Termination or Dunn~ Disability
(a) If the Executive's employment shall be terminated by reason of his death,
the Company shall pay to such Person as he shall designate in a notice filed
with the Company, or, if no such person shall be designated, to his estate as a
lump sum death benefit, his full Base Salary to the date of his death in
addition to any payments the Executive's spouse, beneficiaries or estate may be
entitled to receive pursuant to any pension or Executive benefit plan or life
insurance policy presently maintained by the Company, and such payments shall
fully discharge the Company's obligations hereunder.
(b) During any period that the Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness (provided that the
Executive shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that at the Company's
request and expense the Executive shall submit to an examination by a doctor
selected by the Company and such doctor shall have concurred in the conclusion
of the Executive's doctor), the Executive shall continue to receive his full
Base Salary and bonus payments until the Executive's employment is terminated
pursuant to Section 9(b) hereof, or until the Executive terminates his
employment pursuant to Section 9(d) hereof, whichever first occurs. After
termination, the Executive shall be paid 100% of his Base Salary at the rate in
effect at the time Notice of Termination is given for six (6) months and
thereafter an annual amount equal to 75% of such Base Salary for the remainder
of the Term hereunder less, in each case, any disability payments otherwise
payable by or pursuant to plans provided by the Company and actually paid to the
Executive in substantially equal monthly installments.
(c) If the Executive's employment shall be terminated for Cause, the Company
shall pay the Executive his full Base Salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given and the Company
shall have no further obligations to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Sections 9(b) or 9(c) hereof (it
being understood that a purported termination pursuant to Section 9(b) or 9(c)
hereof which is disputed and finally determined not to have been proper shall be
a termination by the Company in breach of this Agreement) or (B) the Executive
shall terminate his employment for Good Reason or (C) the Company fails to renew
the Agreement at the end of the initial or any successor term hereof, then
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(i) the Company shall pay the Executive his full Base Salary through the last
day of the Term at the rate in effect at the time Notice of Termination is given
and the amount, if any, with respect to any year then ended, such bonus which
would have accrued to the Executive on the basis of the Company's performance
but which has not yet been paid to him;
(ii) in addition to salary payments pursuant to Section 9(d)(i), the Company
shall pay as severance pay to the Executive on the fifth day following the Date
of Termination, a lump sum amount equal to the 50% of Executive's annual Base
Salary at the highest rate in effect during the twelve (12) months immediately
preceding the Date of Termination; and
(iii) the Company shall pay all other damages to which the Executive may be
entitled as a result of the Company's termination of his employment under this
Agreement, including damages for any and all loss of benefits to the Executive
under the Company's Executive benefit plans which he would have received if the
Company had not breached this Agreement and had his employment confirmed for the
full term provided in Section 1 hereof, and including all legal fees and
expenses incurred by him in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement.
(e) Unless the Executive is terminated for Cause, the Company shall maintain in
full force and effect, for the continued benefit of the Executive to the last
day of the Term all Executive benefit plans and programs in which the Executive
was entitled to participate immediately prior to the Date of Termination
provided that the Executive's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that the
Executive's participation in any such plan or program is barred, the Company
shall arrange to provide the Executive with benefits substantially similar to
those which the Executive would otherwise have been entitled to receive under
such plans and programs from which his continued participation 5 barred.
(f) The Executive shall not be required to mitigate the amount of any payment
provided for in this Section 9 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Section 9 be reduced by any
compensation earned by the Executive as the result of employment by another
Company after the Date of Termination, or otherwise.
(g) Upon termination of the Executive's employment, the Executive shall have a
put option to the Company for Executive's entire equity interest in the Company.
The purchase price shall be established by a mutually acceptable appraiser, or
absent such agreement on an appraiser, then by an appraiser chosen by the
Executive, one chosen by the Company, and one chosen by the two appraisers. This
process shall be conducted so that the valuation is completed and the Executive
can received full compensation for his entire equity interest within sixty (60)
days of his termination.
11. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as he
would be entitled to hereunder if he terminated his employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 11 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
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(b) This Agreement and all rights of the Executive hereunder shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devi see, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
12. Notice. For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Robert D. Francis
1607 Sand Key Estates Court
Clearwater, FL 33767
Fax: 727-593-2342
E-mail: rfrancis@verizon.net
If to the Company:
Floor Decor, Inc.
6001 Powerline Road
Fort Lauderdale, Florida 33309
Fax: 305-351-9947
Attention: Corporate Secretary
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Severability of Provisions. If any provision of this Agreement shall be
declared by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced in whole or in part, the remaining conditions and
provisions or portions thereof shall nevertheless remain in full force and
effect and enforceable to the extent they are valid, legal and enforceable, and
no provision shall be deemed dependent upon any other covenant or provision
unless so expressed herein.
14. Entire Agreement: Modification. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof, and the parties
hereto have made no agreements, representations or warranties relating to the
subject matter of this Agreement which are not set forth herein. No modification
of this Agreement shall be valid unless made in writing and signed by the
parties hereto.
15. Non-Waiver. The failure of any party to insist upon the strict performance
of any of the terms, conditions and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and said
terms, conditions and provisions shall remain in full force and effect. No
waiver of any term or condition of this Agreement on the part of either party
shall be effective for any purpose whatsoever unless such waiver is in writing
and signed by such party.
16. Remedies for Breach. The Executive understands and agrees that any breach of
Sections 4,6, 7 or 8 of this Agreement by the Executive would result in
irreparable damage to the Company and to the Affiliates, and that monetary
damages alone would not be adequate and, in the event of such breach, the
Company shall have, in addition to any and all remedies at law, the right to an
injunction, specific performance or other equitable relief necessary to prevent
or redress the violation of the Company's obligations under such Sections.
17. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Florida without regard
to such State's principles of conflict of laws. The parties irrevocably and
unconditionally agree that the exclusive place of jurisdiction for any action,
suit or proceeding ("Actions") relating to this Agreement shall be in the courts
of the United States of America sitting in the State of Florida or, if such
courts shall not have jurisdiction over the subject matter thereof, in the
courts of the State of Florida sitting therein, and each such party hereby
irrevocably and unconditionally agrees to submit to the jurisdiction of such
courts for purposes of any such Actions. Each party irrevocably and
unconditionally waives any objection it may have to the venue of any Action
brought in such courts or to the convenience of the forum. Final judgment in any
such Action shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment, a certified or true copy of which shall be conclusive
evidence of the fact and the amount of any indebtedness or liability of any
party therein described.
18. Headings: Construction. The headings of paragraphs are inserted for
convenience and shall not affect any interpretation of this Agreement. The
parties hereto agree that should an occasion arise in which interpretation of
this Agreement becomes necessary, such construction or interpretation shall not
presume that the terms hereof be more strictly construed against one party by
reason of any rule of construction or authorship.
19. Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
20. Relationship of the Parties. Except as otherwise provided herein, no party
shall have any right, power or authority to create any obligation, express or
implied, on behalf of any other party. Nothing in this Agreement is intended to
create or constitute a joint venture, partnership or revenue sharing arrangement
between the parties hereto or persons referred to herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Executive:
By Robert D Francis
Company: Floor Decor, Inc.
By:
Name: A. J. Nassar
Title: Chief Executive Officer
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