On what basis does Floors To Go approve or disapprove suppliers?

FTG approves or disapproves suppliers based upon the type of floor covering offered, the negotiated price available from each supplier, the delivery terms and conditions provided by each supplier, and the positive or negative feedback FTG receives from its members. As a FTG member, you will not be entitled to negotiate floor covering purchases for the FTG System nor will you be authorized to offer any floor covering products under the FTG trademarks, logos or service marks which are not set forth in the price list.

FTG will from time to time research the market for the purpose of evaluating the floor coverings offered and discounts available so that it may update its list of approved merchandise and approved vendors and manufacturers. FTG will be responsible for identifying, negotiating with, and approving all suppliers to the FTG System. However, a member can recommend other suppliers for FTG to consider (at no cost to the member or to the supplier being recommended). FTG formulates its approach for the FTG System by emphasizing value and variety. Although FTG does not maintain any specific product mix, it attempts to maintain a broad range of floor covering products in wide ranges of cost, quality and styles. FTG will negotiate the best vendor prices and discounts available for the FTG System available at the time.

In order to utilize the FTG System, you must purchase a certain amount of merchandise from the floor covering vendors or manufacturers with whom FTG has negotiated favorable group prices and terms. Section 7.1 of the Membership Agreement requires you to purchase, for each of your Showrooms, a minimum of $350,000 or 80% of your total floor covering and window treatment purchases, whichever is greater, through the FTG System during the calendar year following the opening of each such Showroom. Therefore, Multiple Showroom Members are required to satisfy minimum purchase requirements for each of their Showrooms. Only those floor covering and window treatment products that FTG designates as part of the FTG System qualify towards the minimum purchase requirements. Failure to meet the minimum purchase requirements for your Showrooms could result in the termination of your membership in the FTG System. Compliance with the minimum purchase requirements could also be one factor, among others, when determining whether to renew or grant additional showroom memberships.

Since the Floors To Go membership concept is intended for and directed toward the experienced owner/operator of existing floor covering stores, there are no purchases required to establish a FTG franchise. FTG estimates that required purchases are approximately thirty-seven percent (37%) of total purchases made in operating a FTG franchise.

You are prohibited from participating in any other marketing and merchandising system which offers products similar to those offered by FTG while a member of the FTG System (i.e., mill-sponsored programs or buying groups). However, you are permitted to purchase floor covering merchandise sold in your Showrooms from floor covering sources that are not affiliated with the FTG System, provided that you satisfy the minimum purchase requirements set forth in Section 7.1 of the Membership Agreement.

FTG will regularly update its price list to inform you as to the current approved vendors and manufacturers, carpet and floor covering selections and grades, vendor's prices as negotiated by FTG, the vendor's distribution arrangements, and other pertinent information.

Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 17–20)