<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1996
REGISTRATION NO. 333-10483
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 2
to
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
------
ROOM PLUS, INC.
(Name of small business issuer in its charter)
New York 5700 11-2622051
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
91 Michigan Avenue
Paterson, New Jersey 07503
(201) 523-4600
(Address and telephone number of principal executive offices)
(Address of principal place of business or intended principal place of business)
Marc Zucker
Chairman and Chief Executive Officer
Room Plus, Inc.
91 Michigan Avenue
Paterson, New Jersey 07503
(201) 523-4600
(Name, address and telephone number of agent for service)
------
Copies of Communications to:
C. Kenneth Shank, Esq. Jay M. Kaplowitz, Esq.
Wilentz, Goldman & Spitzer, P.A. Gersten, Savage, Kaplowitz & Curtin, LLP
90 Woodbridge Center Drive 575 Lexington Avenue
Woodbridge, New Jersey 07095 New York, New York 10022
(908) 855-6145 (212) 752-9700
------
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [B] ------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [B] ------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [B]
------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
Proposed
Maximum Proposed
Maximum
Title of Each Class of Securities to be Amount to be Offering Price Aggregate Offering Amount of
Registered Registered per Unit(1) Price(1) Registration Fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.00133 par value)(2) ... 1,265,000 $5.00 $ 6,325,000 $2,181.03
- -------------------------------------------------------------------------------------------------------------
Redeemable Warrants(3) ................ 2,530,000 $0.10 $ 253,000 $ 87.24
- -------------------------------------------------------------------------------------------------------------
Common Stock ($.00133 par value)
issuable upon exercise of the
Redeemable Warrants(4) ............... 2,530,000 $5.50 $13,915,000 $4,798.28
- -------------------------------------------------------------------------------------------------------------
Common Stock ($.00133 par value)(5) ... 670,000 $5.00 $ 3,350,000 $1,155.17
- -------------------------------------------------------------------------------------------------------------
Representative's Warrants(6) .......... 110,000 $0.00009 $ 10 $ 0
- -------------------------------------------------------------------------------------------------------------
Common Stock ($.00133 par value)
issuable upon exercise of
Representative's Warrants(7) ......... 110,000 $5.50 $ 605,000 $ 208.62
- -------------------------------------------------------------------------------------------------------------
Redeemable Warrants included in the
Representative's Warrants(8) ......... 220,000 $0.11 $ 24,200 $ 8.34
- -------------------------------------------------------------------------------------------------------------
Common Stock ($.00133 par value)(9) ... 220,000 $5.50 $ 1,210,000 $ 417.24
- -------------------------------------------------------------------------------------------------------------
Total Registration Fee ................................................. $25,682,210 $8,855.92
=============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 165,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(3) Includes 330,000 Redeemable Warrants subject to the Underwriters'
over-allotment option.
(4) Issuable upon exercise of the Redeemable Warrants to be offered to the
public and includes 330,000 shares of Common Stock issuable upon exercise
of the Redeemable Warrants subject to the Underwriters' over-allotment
option. Assumes the Underwriter's over-allotment option is exercised in
full. Pursuant to Rule 416, this Registration Statement also covers any
additional shares of Common Stock which may become issuable by virtue of
the anti-dilution provisions of the Redeemable Warrants.
(5) Shares held by Selling Security Holders. Certain of such shares are
subject to contractual restrictions on resale. See "Shares Eligible for
Future Sale".
(6) Pursuant to Rule 457(g) no separate registration fee is required in
connection with the registration of the Representative's Warrants.
(7) Issuable upon exercise of the Representative's Warrants to purchase
110,000 shares of Common Stock identical to the Common Stock offered to
the public. Pursuant to Rule 416, this Registration Statement also covers
any additional Securities which may become issuable by virtue of the
anti-dilution provisions of the Representative's Warrants.
(8) Issuable upon exercise of the Representative's Warrants to purchase
220,000 Redeemable Warrants identical to the Redeemable Warrants offered
to the public. Pursuant to Rule 416, this Registration Statement also
covers any additional Securities which may become issuable by virtue of
the anti-dilution provisions of the Representative's Warrants.
(9) Issuable upon exercise of Redeemable Warrants included in the
Representative's Warrants. Pursuant to Rule 416, this Registration
Statement also covers any additional Securities which may become issuable
by virtue of the anti- dilution provisions of the Representative's
Warrants.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such jurisdiction.
SUBJECT TO COMPLETION, DATED OCTOBER 2, 1996
ROOM PLUS, INC.
LOGO
1,100,000 SHARES OF COMMON STOCK AND
2,200,000 REDEEMABLE WARRANTS
------
Room Plus, Inc., a New York corporation (the "Company") hereby offers
1,100,000 shares of the Company's common stock, $.00133 par value per share
(the "Common Stock"), and 2,200,000 redeemable common stock purchase warrants
of the Company (the "Redeemable Warrants"). The Common Stock and the
Redeemable Warrants offered hereby (sometimes hereinafter collectively
referred to as the "Securities") will be separately tradeable immediately
upon issuance and may be purchased separately. Investors will not be required
to purchase shares of Common Stock and Redeemable Warrants together or in any
particular ratio. The shares of Common Stock offered hereby include 100,000
shares held by the four directors of the Company (the "Directors Shares").
The Directors Shares are being underwritten in this Offering; however, the
Company will not receive any proceeds from the sale of the Directors Shares.
Each Redeemable Warrant entitles the holder to purchase one share of Common
Stock at a price of $5.50 per share [110% of the Initial Public Offering
Price ("IPO Price")], subject to adjustment as described herein, commencing
_______ __, 1997 [one year from date of Prospectus] until _______ __, 2001
[five years from the date of this Prospectus] and is redeemable by the
Company at a redemption price of five cents ($.05) commencing _______ __,
1997 [one year from the date of this Prospectus] on 30 days' prior written
notice, provided that the average closing bid price of the Common Stock
equals or exceeds $7.50 per share [150% of IPO Price], subject to adjustment
as described herein, for thirty (30) consecutive trading days ending on the
fifteenth trading day immediately prior to the notice of redemption. See
"Description of Securities."
Prior to this Offering, there has been no public market for the Common
Stock or the Redeemable Warrants and there can be no assurance that a market
will develop after completion of this Offering or if a market develops, it
will be sustained. The initial public offering price of the Common Stock will
be $5.00 per share and the initial public offering price of the Redeemable
Warrants will be $.10 per warrant. See "Risk Factors" and "Underwriting" for
a discussion of the factors considered in determining the initial public
offering prices of the Securities and the terms of the Redeemable Warrants.
The Company has applied to have the Common Stock and the Redeemable Warrants
approved for quotation on the National Association of Securities Dealers
Automated Quotation System SmallCap Market ("NASDAQ SmallCap") under the
symbols "[PLUS]" and "[PLUSW]," respectively, and approved for listing on the
Boston Stock Exchange ("BSE") under the symbols ["PLS"] and "[PLSW],"
respectively.
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" ON PAGE 7 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================
Proceeds to
Underwriting Holders of
Price to Discounts and Proceeds to Directors
Public Commissions(1) Company(2) Shares
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share .............. $ 5.00 $ 0.50 $ 4.50 $ 4.50
- ----------------------------------------------------------------------------------
Per Redeemable Warrant $ 0.10 $ 0.01 $ 0.09 $ 0
- ----------------------------------------------------------------------------------
Total(3) .............. $5,720,000 $572,000 $4,698,000 $450,000
==================================================================================
</TABLE>
<PAGE>
(1) Does not include additional compensation to the Representative consisting
of (i) a non-accountable expense allowance equal to 3% of the aggregate
purchase price of the Securities, or $171,600 ($197,340 if the
Representative's over-allotment option is exercised in full), of which
$25,000 has been paid to date; (ii) warrants to purchase 110,000 shares
of Common Stock at $5.50 per share and/or 220,000 Redeemable Warrants at
$.11 per Warrant; and (iii) a two-year consulting agreement providing for
fees totalling $114,400, which is payable to the Representative in full
on the closing of this Offering. For additional information concerning
further agreements between the Company and the Representative, including
an agreement to indemnify the Representative against certain civil
liabilities, including liabilities under the Securities Act of 1933, see
"Underwriting."
(2) Before deducting estimated expenses of $671,600 payable by the Company,
including the non-accountable expense allowance.
(3) The Company has granted to the Underwriters an option to purchase up to
165,000 additional shares of Common Stock and/or 330,000 additional
Redeemable Warrants, upon the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Holders of Directors
Shares will be $6,578,000, $657,800, $5,470,200, and $450,000,
respectively. See "Underwriting."
------
This Prospectus also relates to the registration by the Company, at its
expense, for the account of certain security holders (the "Selling Security
Holders") of an aggregate of 670,000 shares of Common Stock (which do not
include the 100,000 Directors Shares). None of the shares of Common Stock
held by the Selling Security Holders are being underwritten in this Offering,
and the Company will not receive any proceeds from their sale.
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to approval of certain legal matters by their counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering and to reject any order in whole or in part.
It is expected that delivery of the Securities offered hereby will be made
against payment at the offices of The Thornwater Company, L.P., New York, New
York on or about ______ __, 1996.
------
THE THORNWATER COMPANY, L.P.
______ __, 1996
<PAGE>
[PICTURES, IF ANY, TO BE INSERTED HERE]
The Company is not currently a reporting company for purposes of the
Securities Exchange Act of 1934. The Company intends to furnish its
stockholders with annual reports containing audited financial statements
certified by an independent public accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
statements.
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON STOCK EXCHANGE, THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share and per share data give effect to a 4 to 3
reverse split of the shares of Common Stock of the Company which occurred on
July 1, 1996. In addition, unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of (i) the Redeemable
Warrants offered hereby, (ii) the Underwriters' over-allotment option to
purchase additional shares of Common Stock and/or Redeemable Warrants, (iii)
the Representative's Warrants to purchase shares of Common Stock and/or
Redeemable Warrants, (iv) certain warrants issued by the Company to the three
principals of the Company (the "Principals Warrants"), (v) certain warrants
issued by the Company to Kirlin Securities, Inc. in connection with a private
placement by the Company consummated in September 1995 (the "Kirlin
Warrants"), (vi) certain warrants issued by the Company to Mark Rubin (the
"Rubin Warrants"), and (vii) certain options issued by the Company to
McCormick & Company (the "McCormick Options"). See "Description of
Securities" and "Underwriting." See "Risk Factors" for a discussion of
certain factors that should be considered in connection with an investment in
the Securities offered hereby.
THE COMPANY
Room Plus, Inc. (the "Company") is a fully-integrated manufacturer and
retailer of high-pressure, mica-laminated furniture for residential uses,
primarily bedroom furniture for children ages three to 16 years old. The
Company's products are of a modular design and are intended to be
multi-functional, interchangeable and space-saving.
The Company distributes its products through its own distribution network
of 12 retail showrooms located in the greater New York City metropolitan
area. The Company uses standard component pieces to manufacture furniture for
children's and adult's bedrooms and home offices. The approximately 300
standard components can be finished in various colors and textures and
combined in various configurations to produce a finished product which is
personalized to the customer's taste, space and budget. The use of standard
components also permits the Company's furniture to be reconfigured as the
customer's needs or tastes change. For example, a loft bed can be converted
into separate beds, a desk, a dresser and a bookcase, and a baby's changing
table can be converted into a child's play table and a dresser.
Unlike many of its direct competitors, the Company uses high quality raw
materials in the manufacture of its products, including high-pressure mica
laminate that is more resistent to impact and engineered wood that has been
laminated on both sides to provide greater stability and protection against
warping. The quality of materials and manufacturing processes used by the
Company enable it to offer a limited lifetime warranty against structural
defects.
Because the Company's finished products are manufactured from standard
components and personalized to the customer's needs, the Company does not
maintain a large inventory of finished products (other than showroom display
models). Finished products are manufactured to meet a specified delivery
date, which is generally fixed at the time of the order and is within two to
six weeks thereafter.
The Company's manufacturing operations are conducted in a 78,000 square
foot facility located in Paterson, New Jersey. In the past year, the Company
has implemented numerous changes to its manufacturing facility and processes
in order to significantly reduce the direct costs of manufacturing and to
produce more contemporary styles of high quality, mica-laminated furniture.
The Company's existing manufacturing facility currently operates on a
single shift and has sufficient capacity to more than double its
manufacturing volume without substantially increasing indirect costs of
manufacture. The Company plans to use a substantial portion of the proceeds
of this Offering to establish 12 to 14 additional retail showrooms, primarily
in the New York to Washington, D.C. corridor, to increase demand for its
products, and to continue to upgrade and automate its manufacturing process
and further reduce direct manufacturing costs.
3
<PAGE>
The Company is a New York corporation that was organized in 1982 under the
name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
mica-laminated furniture. From 1979 to 1982, the founders of the Company had
engaged in the same business under other corporate names. In March 1995, Bunk
Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the principal
manufacturer of the furniture sold by RPF Holding, was merged into RPF
Holding. The surviving entity in such merger, which was named TAM Industries,
Inc., changed its name to Room Plus, Inc. in June 1995. The Company's
principal offices are located at 91 Michigan Avenue, Paterson, New Jersey
07503, and its telephone number at that address is (201) 523-4600.
THE OFFERING
Securities Offered............. 1,100,000 shares of Common Stock and
2,200,000 Redeemable Warrants. The shares of
Common Stock being offered hereby include
100,000 Directors Shares. The Company will
not receive any proceeds from the sale of
the Directors Shares. See "Description of
Securities" and "Selling Security Holders".
Redeemable Warrants............ Each Redeemable Warrant entitles the holder
to purchase one share of Common Stock at a
price of $5.50 [110% of IPO Price], subject
to adjustment, commencing ______________,
1997 [one year from date of Prospectus],
until ______________, 2001 [five years from
the date of this Prospectus] and is
redeemable by the Company at a redemption
price of five cents ($.05) commencing
______________, 1997 [one year from the date
of this Prospectus] on 30 days' prior
written notice, provided that the average
closing bid price of the Common Stock equals
or exceeds $7.50 per share [150% of IPO
Price], subject to adjustment, for thirty
(30) consecutive trading days ending on the
fifteenth trading day immediately prior to
the notice of redemption. See "Description
of Securities -- Redeemable Warrants."
Securities Being Registered for
the Account of Selling
Security Holders............. 670,000 shares of Common Stock. None of the
shares of Common Stock held by the Selling
Security Holders (which do not include the
100,000 Directors Shares) are being
underwritten in this Offering and the
Company will not receive any proceeds from
their sale. See "Selling Security Holders."
Shares of Common Stock
Outstanding
Before Offering............. 3,220,000(1)
After Offering.............. 4,220,000(1)
- ------
(1) Includes 100,000 Directors Shares. Does not include (i) up to 2,200,000
shares of Common Stock issuable upon exercise of the Redeemable Warrants
offered hereby, (ii) up to 165,000 shares of Common Stock and/or 330,000
Redeemable Warrants issuable upon exercise of the Underwriters'
over-allotment option, (iii) up to 330,000 shares of Common Stock
issuable upon exercise of the Redeemable Warrants included in the
Underwriters' over-allotment option, (iv) up to 110,000 shares of Common
Stock and/or 220,000 Redeemable Warrants issuable upon exercise of the
Representative's Warrants, (v) up to 220,000 shares of Common Stock
issuable upon exercise of the Redeemable Warrants included in the
Representative's Warrants, (vi) up to 750,000 shares of Common Stock
issuable upon the exercise of the Principals Warrants at an exercise
price of $3.00 per share, (vii) up to 750,000 shares of Common Stock
issuable upon exercise of the Kirlin Warrants at an exercise price of
$1.20 per share, (viii) up to 56,250 shares of Common Stock issuable upon
exercise of the Rubin Warrants at an exercise price of $2.00 per share,
and (ix) up to 25,000 shares of Common Stock issuable upon exercise of
the McCormick Options at $3.00 per share.
4
<PAGE>
Use of Proceeds................ Costs of opening new retail showrooms,
renovation of existing retail showrooms,
repayment of bank borrowings, purchase
and/or lease of machinery and equipment,
marketing and advertising and general
corporate purposes and working capital. See
"Use of Proceeds".
Risk Factors................... Investment in the Securities offered hereby
involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
<TABLE>
<CAPTION>
Proposed
NASDAQ Proposed
SmallCap BSE
Symbol(1) Symbol(1)
------------ ------------
<S> <C> <C>
Common Stock .......... PLUS PLS
Redeemable Warrants ... PLUSW PLSW
</TABLE>
- ------
(1) There is currently no market for the Common Stock or the Redeemable
Warrants and there can be no assurance that a market for the Common Stock
or the Redeemable Warrants will develop after this Offering. The Company
anticipates that, upon completion of this Offering, the Common Stock and
the Redeemable Warrants will be listed on NASDAQ SmallCap and the BSE.
However, there can be no assurance that such listing will be maintained.
See "Risk Factors -- No Prior Public Market; Arbitrary Determination of
Offering Prices; Possible Volatility of Securities" and "Risk Factors --
Possible Delisting of Securities."
SUMMARY FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Year ended Year Ended -----------------------------
December 31, 1994 December 31, 1995 1995 1996
----------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues ......................... $13,215,387 $13,149,018 $6,325,885 $6,671,082
Cost of goods sold ............... 6,003,314 6,922,500 3,780,917 2,919,695
Operating expenses ............... 7,424,579 7,791,397 3,926,102 3,733,369
------------ ------------ -------------- ------------
Earnings (loss) from operations .. (212,506) (1,564,879) (1,381,134) 18,018
Interest expense ................. (16,576) (82,705) (40,260) (23,426)
Miscellaneous income ............. 16,661 23,033 734 6,783
------------ ------------ --------- ------------
Earnings (loss) before income tax
benefits ........................ (212,421) (1,624,551) (1,420,660) 1,375
Pro forma income tax (benefits)(1) (30,963) (386,488) (292,150) 300
------------ ------------ --------- ------------
Pro forma net earnings (loss) .... $(181,458) $(1,238,063) $(1,128,510) $1,075
============ ============ ========= ============
Pro forma net earnings (loss)
per equivalent common stock ..... $ (0.06) $ (0.37) $ (0.35) $ --
============ =========== =========== ============
Common stock and equivalent common
stock outstanding ............... 3,180,735 3,386,985 3,180,735 3,691,667
============ =========== =========== ============
</TABLE>
- ------
(1) From inception through September 27, 1995, the Company elected to be
taxed as an S Corporation under the applicable provisions of the Internal
Revenue Code of 1986, as amended. Effective September 27, 1995, the
Company's S Corporation election was voluntarily revoked, subjecting the
Company to corporate income taxes subsequent to that date. Pro forma
income tax (benefits), pro forma net income (loss) per equivalent common
stock and common stock and equivalent common stock outstanding represent
the Company's income tax position had the Company been a C Corporation
for all periods presented other than the six months ended June 30, 1996.
5
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
Pro Forma
As
December 31, 1995 Actual Pro Forma(1) Adjusted(1)(2)
----------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Working capital (deficit) ..... $(1,246,590) $(1,230,113) $ (897,613) $3,348,787
Total assets .................. 2,382,173 2,887,106 3,219,606 7,466,006
Total liabilities ............. 3,176,669 3,424,452 3,424,452 3,424,452
Stockholders' equity (deficit).. (794,496) (537,346) (204,846) 4,041,554
</TABLE>
- ------
(1) Reflects the issuance of an additional 500,000 shares of Common Stock
subsequent to June 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
(2) Reflects the receipt and initial application of the net proceeds from the
sale of the Common Stock (excluding the Directors Shares) and Redeemable
Warrants offered hereby. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
The Securities offered hereby involve a high degree of risk. Prospective
investors should consider carefully the following factors, in addition to
other information and financial data contained in this Prospectus, in
evaluating an investment in the Securities offered hereby.
HISTORY OF LOSSES; NO ASSURANCE OF PROFITABILITY; GOING CONCERN QUALIFICATION
IN CERTIFIED PUBLIC ACCOUNTANT'S REPORT
The Company incurred a net loss for the fiscal years ended December 31,
1994 and 1995 and realized only modest net earnings for the six months ended
June 30, 1996. There can be no assurance that the Company will be profitable
in the future. As of June 30, 1996, the Company had a working capital deficit
of ($1,230,113) and an accumulated deficit of ($1,907,442). In connection
with the audit of the Company's financial statements for the fiscal year
ended December 31, 1995, the Company has received a report from its
independent public accountants, Ehrenkrantz and Company, that includes an
explanatory paragraph describing the uncertainty as to the ability of the
Company to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements (and the related notes thereto) included elsewhere in
this Prospectus.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company expects that cash flow from operations, together with the net
proceeds of this Offering, will fund its cash requirements for at least the
24 months following the consummation of the Offering. However, additional
financing may be required in the event the Company incurs operating losses in
the future or new retail showrooms do not generate sufficient cash. In
addition, additional financing may be required in order to increase the
number of the Company's retail showrooms as planned by management. Because
there can be no assurance that adequate additional financing will be
available on acceptable terms if at all, the Company may be forced to limit
such planned expansion or reduce its operations. Any future financings that
involve the sale of the Company's equity securities may result in dilution to
then current stockholders. See "Use of Proceeds."
POSSIBLE ADVERSE EFFECT OF GEOGRAPHIC CONCENTRATION
All of the Company's currently operating retail showrooms are located in
the states of New York and New Jersey. The Company intends to open retail
showrooms in Pennsylvania, Maryland, Washington, DC and Virginia in the next
three to four years. Accordingly, the Company is susceptible to fluctuations
in its business caused by adverse economic conditions in those markets. See
"Business -- Expansion Strategy."
AVAILABILITY OF RETAIL SHOWROOM LOCATIONS
The Company intends to open retail showrooms in Pennsylvania, Maryland,
Washington, DC and Virginia in the next three to four years. There can be no
assurance that the Company will be able to locate suitable showroom sites,
arrange acceptable leases for new retail showrooms or open such showrooms in
a timely manner. The inability of the Company to locate suitable sites, enter
into acceptable leases or open new retail showrooms in a timely manner may
have a material adverse effect on the Company's financial condition.
UNCERTAINTY OF MARKET ACCEPTANCE IN NEW MARKETS
The Company intends to expand its retail showrooms, all of which are
presently located in the metropolitan New York area, into Pennsylvania,
Maryland, Washington, DC and Virginia, areas in which the Company has not
previously advertised. As a result, the Company will have to advertise
extensively and develop name recognition among consumers. Moreover, the
consumers in these expansion areas may have different preferences for
furniture or may otherwise not be as receptive to the Company's products as
consumers in the metropolitan New York area. For these reasons, as well as
factors normally associated with expansion, there can be no assurance that
retail showrooms to be opened in these new markets will generate sales
sufficient to compensate for the increase in overhead, or generate sales or
earnings consistent with those generated by retail showrooms in the Company's
existing markets.
7
<PAGE>
LACK OF EXPERIENCE OF REPRESENTATIVE
The Thornwater Company, L.P. (the "Representative") commenced operations
in 1995 and it does not have extensive experience as a managing underwriter
of public offerings of securities. The Representative is a relatively small
firm and no assurance can be given that it will be able to adequately support
trading of the Common Stock or the Redeemable Warrants in the aftermarket.
CYCLICAL NATURE OF RETAIL FURNITURE INDUSTRY
The retail furniture industry historically has been cyclical and directly
affected by, among other things, housing starts, existing home sales,
consumer confidence and general economic conditions. Furniture purchases are
generally discretionary and, in light of the fact that they represent a
significant expenditure to the average consumer, they are often deferred
during times of economic uncertainty. Accordingly, any period of economic
uncertainty may have a material adverse effect on the Company's financial
condition.
COMPETITION
The home furnishings industry is a highly competitive and fragmented
market with annual U.S. sales of over $45 billion in 1994 and estimated
annual U.S. sales of $48 billion in 1995.
The Company is the largest retailer of mica-laminated home furniture in
the New York metropolitan area. Several small retailers, such as Atlantic
Furniture and Kids' Room, and large retailers, such as IKEA, also sell mica-
laminated furniture similar to that sold by the Company in the same
geographic region. The Company also competes directly or indirectly with all
manufacturers and retailers of home furniture, including Huffman Koos,
Levitz, Thomasville and Drexel Heritage. In addition, there are no
significant barriers to prevent the entry of additional competitors in the
home furniture industry generally or in the mica-laminated furniture market
itself. Many of the Company's current and potential competitors have
substantially greater financial, manufacturing, marketing, distribution and
sales resources than the Company, and there can be no assurance that the
Company will be able to compete successfully in the future. See "Business --
Competition."
DEPENDENCE ON KEY PERSONNEL
The Company is largely dependent on the continued service of Marc Zucker,
its Chairman and Chief Executive Officer, Allan Socher, its President and
Director of Marketing, and Theodore Shapiro, its Executive Vice President and
Director of Manufacturing. The loss of the services of any of Messrs. Zucker,
Socher or Shapiro could have a material adverse effect on the Company's
operations and financial condition. The Company does not maintain key man
life insurance on the lives of Messrs. Zucker, Socher or Shapiro. The Company
has entered into employment agreements with each of Messrs. Zucker, Socher
and Shapiro, which agreements may be terminated by the Company by not less
than three years' notice or by the respective employee on not less than three
months' notice. See "Management -- Employment Agreements."
CONTROL BY CERTAIN SHAREHOLDERS
As of the date of this Prospectus, the three largest stockholders of the
Company, Messrs. Zucker, Socher and Shapiro, owned an aggregate of 45.0% of
the outstanding shares of Common Stock, excluding any outstanding warrants
owned by such individuals, or 55.4%, assuming exercise of such warrants. After
giving effect to this Offering, Messrs. Zucker, Socher and Shapiro will own
an aggregate of 32.1% of the outstanding shares of Common Stock, excluding
any outstanding warrants owned by such individuals, or 44.3%, assuming
exercise of such warrants. Accordingly, if Messrs. Zucker, Socher and Shapiro
were to vote in the same manner on the election of members of the Board of
Directors (the "Board") or on any other matter requiring approval of a
majority of the outstanding shares of Common Stock, such matter would likely
be approved or defeated, as the case may be, depending on the vote of such
stockholders. See "Principal Stockholders."
BROAD DISCRETION IN USE OF FUNDS BY MANAGEMENT
Approximately 23.0% of the net proceeds of this Offering will be applied
to working capital and other general corporate purposes. Accordingly,
management of the Company will have broad discretion as to the application of
such proceeds. See "Use of Proceeds."
8
<PAGE>
MANAGEMENT OF GROWTH
The Company's business plan contemplates a significant expansion of its
level of operations in all areas, including a substantial increase in the
number of the Company's retail showrooms. Such expansion may cause
significant strain on the Company's management, financial, marketing and
distribution resources. To manage its growth effectively, the Company must
continue to improve and expand its existing resources and attract, train and
motivate qualified employees. If the Company is unable to manage growth
effectively, its business, operating results and financial condition will be
materially adversely affected. See "Business" and "Management."
FAMILIAL RELATIONSHIPS; TRANSACTIONS BETWEEN BOARD MEMBERS AND COMPANY
The Company's Board currently consists of the three largest stockholders of
the Company (who are also the three highest paid officers and are related to
each other by marriage) and one individual who serves as a consultant to the
Company. See "Management." Accordingly, there are currently no independent
directors on the Board. In the past, the Company has entered into transactions
with certain of the directors and may do so in the future. See "Certain
Transactions." Although any such transaction between the Company and its
officers and directors will be approved by a majority of the directors
disinterested in such transaction, investors should bear in mind the foregoing
relationships among the directors and the absence of any fully independent
director on the Board.
POTENTIAL DILUTIVE EFFECT OF WARRANTS AND OPTIONS
For the life of the Representative's Warrants, the Redeemable Warrants,
the Rubin Warrants, the Kirlin Warrants, the Principals Warrants and the
McCormick Options, the holders thereof are given the opportunity to profit
from a rise in the market price of the Common Stock. Any rise in the market
price of the Common Stock may encourage the holders to exercise such warrants
or options, which may result in a dilution of the interests of other
stockholders. As a result, the Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the
Company while such warrants and options are outstanding. See "Description of
Securities."
IMMEDIATE SUBSTANTIAL DILUTION
The proposed initial public offering price of the Common Stock is
substantially higher than the book value per share of Common Stock. Investors
purchasing the Common Stock offered hereby will incur immediate substantial
dilution of $4.01 per share (80%) in net tangible book value. See "Dilution."
NO PRIOR PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICES; POSSIBLE
VOLATILITY OF SECURITIES
Prior to this Offering, there has been no public market for the Company's
Securities. Accordingly, there can be no assurance that an active trading
market will develop or, if developed, that it will be sustained upon the
completion of this Offering or that the market prices of the Securities will
not decline below the initial public offering prices. The initial public
offering prices of the Securities and the terms of the Redeemable Warrants
have been arbitrarily determined by negotiations between the Company and the
Representative and do not necessarily bear any relationship to the Company's
assets, book value, net earnings, net sales or other established criteria of
value, and should not be considered indicative of the actual value of the
Securities. See "Underwriting." The stock market has, from time to time,
experienced extreme price and volume fluctuations, which often have been
unrelated to the operating performance of particular companies. Regulatory
developments and economic and other external factors, as well as
period-to-period fluctuations in financial results of the Company, may have a
significant impact on the market prices of the Securities.
POSSIBLE DELISTING OF SECURITIES
Prior to this Offering, there has been no established trading market for
the Company's Securities and there is no assurance that a trading market for
such Securities will develop after the completion of this Offering. If a
trading market does in fact develop for the Securities offered hereby, there
can be no assurance that it will be sustained. The Company has applied to
have the Common Stock and the Redeemable Warrants listed for trading on
NASDAQ SmallCap and the BSE. If the listings are approved, the continued
trading of the Common Stock and the Redeemable Warrants on NASDAQ SmallCap
and the BSE is conditioned upon the Company meeting certain criteria. If the
Com-
9
<PAGE>
pany fails to meet any of these criteria, the Common Stock and/or the
Redeemable Warrants could be delisted from trading on NASDAQ SmallCap or the
BSE, which delisting could materially adversely affect the trading market for
the Common Stock and/or the Redeemable Warrants. There can be no assurance
that the Securities will not be delisted. See "Underwriting."
PENNY STOCK REGULATION
In the event the Common Stock is delisted from trading on NASDAQ SmallCap
and the trading price of the Common Stock is less than $5.00 per share,
trading in the Common Stock would also be subject to the requirements of Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchaser's written consent
prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990 also require additional disclosure in connection with any
trades involving a stock defined as a "penny stock" (generally, according to
recent regulations adopted by the Securities and Exchange Commission (the
"Commission"), any non-NASDAQ equity security that has a market price of less
than $5.00 per share, subject to certain exceptions), including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. Such requirements
could severely limit the market liquidity of the Common Stock and the ability
of purchasers in this Offering to sell their securities in the secondary
market. There can be no assurance that the Common Stock will not be treated
as a penny stock.
NO DIVIDENDS ANTICIPATED
The holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board, out of funds legally available therefor. The
Company does not anticipate paying any dividends on its Common Stock in the
foreseeable future. See "Dividend Policy" and "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE
Sale of a substantial number of shares of the Common Stock in the public
market contemporaneously with or following this Offering could materially
adversely affect the market price of the Common Stock. In addition to the
Common Stock offered hereby, (i) approximately 75,000 shares of Common Stock
being registered for the account of Selling Security Holders will be
available for sale on the date of this Prospectus, (ii) approximately 520,000
shares of Common Stock, which are being registered for the account of Selling
Security Holders, will be available for sale in the public market commencing
six months after the date of this Prospectus unless released earlier by the
Representative, (iii) approximately 825,000 shares of Common Stock, including
75,000 shares being registered for the account of Selling Security Holders,
will be available for sale in the public market commencing 12 months after
the date of this Prospectus unless released earlier by the Representative,
and (iv) approximately 1,700,000 additional shares of Common Stock will be
available for sale in the public market commencing 24 months after the date
of this Prospectus, unless released earlier by the Representative. See
"Shares Eligible For Future Sale." Sales of these shares are subject, in the
case of shares held by directors, officers and other affiliates of the
Company, to certain volume limitations and other requirements of Rule 144
under the Securities Act of 1933 (the "Securities Act").
Each of the Company's directors and officers (all such stockholders
holding an aggregate of 1,500,000 shares of Common Stock, including the
Directors Shares, and warrants and options to purchase an aggregate of
775,000 shares of Common Stock), have agreed not to publicly offer, sell or
otherwise dispose of any Common Stock (other than the 100,000 Directors
Shares and 3,334 shares of Common Stock being registered for the account of
Edmund J. McCormick, Jr. as a Selling Security Holder) for a period of 24
months after the date of this Prospectus without the prior written consent of
the Representative. See "Shares Eligible For Future Sale."
Concurrently with the Offering, the Company is registering an aggregate of
670,000 shares of Common Stock for the account of Selling Security Holders.
The Selling Security Holders have agreed to contractual restrictions on the
sale of such shares. See "Shares Eligible for Future Sale." No prediction can
be made as to the effect, if any, that sales of shares of Common Stock by the
Selling Security Holders, or the availability of such shares for sale will
have on
10
<PAGE>
the market prices of the Company's Securities prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise capital in
the future through the sale of equity securities.
POTENTIAL ANTI-TAKEOVER EFFECTS OF NEW YORK LAW
Certain provisions of New York law could delay and impede the removal of
incumbent directors and could make a merger, tender offer or proxy contest
involving the Company more difficult, even if such event could be beneficial,
in the short term, to the interests of the stockholders. Such provisions
could limit the price that certain investors might be willing to pay in the
future for the Company's Securities.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Redeemable Warrants are subject to redemption by the Company.
Redemption of the Redeemable Warrants could force the holders to exercise the
Redeemable Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Redeemable Warrants at
the current market price when they might otherwise wish to hold the
Redeemable Warrants, or to accept the redemption price, which may be
substantially less than the market value of the Redeemable Warrants at the
time of redemption. The holders of the Redeemable Warrants will automatically
forfeit their rights to purchase the shares of Common Stock issuable upon
exercise of such Redeemable Warrants unless the Redeemable Warrants are
exercised before they are redeemed. The holders of Redeemable Warrants will
not possess any rights as stockholders of the Company unless and until the
Redeemable Warrants are exercised. See "Description of Securities --
Redeemable Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION WITH
EXERCISE OF REDEEMABLE WARRANTS
The Company will be able to issue shares of its Common Stock upon exercise
of the Redeemable Warrants only if there is a then current prospectus
relating to the Common Stock issuable upon the exercise of the Redeemable
Warrants under an effective registration statement filed with the Commission
and only if such Common Stock is then qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of Redeemable Warrants reside. Although the Company
will use its best efforts to meet such requirements, there can be no
assurance that the Company will be able to do so. The failure of the Company
to meet such requirements may deprive the Redeemable Warrants of any value
and cause the resale or other disposition of Common Stock issued upon the
exercise of the Redeemable Warrants to become unlawful. See "Description of
Securities."
USE OF PROCEEDS
At assumed initial public offering prices of $5.00 per share of Common
Stock and $.10 per Redeemable Warrant, the net proceeds to be received by the
Company from the sale of the Securities offered hereby, after deducting
expenses payable by the Company in connection with this Offering, are
estimated to be $4,026,400 ($4,787,860 if the Underwriters' over-allotment
option is exercised in full).
The Company intends to use the net proceeds of this Offering substantially
as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of Net
Use of Proceeds Dollar Amount Proceeds
-------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Opening twelve to fourteen new retail showrooms .................... $2,100,000 52.2%
Improvements to existing retail showrooms(1) ....................... 400,000 9.9
Repayment of outstanding balance of bank borrowings(2) ............. 250,000 6.2
Lease and/or purchase machine tools and office and computer
equipment ......................................................... 200,000 5.0
Marketing and advertising .......................................... 150,000 3.7
General corporate purposes and working capital ..................... 926,400 23.0
--------------- -----------------
Total ............................................................ $4,026,400 100 %
=============== =================
</TABLE>
- ------
(1) Such improvements include, but are not limited to, painting, new signs
and new carpeting.
(2) Such bank borrowings bear interest at the prime rate plus two percentage
points (currently 10.25%) per annum.
11
<PAGE>
The amounts and timing of these expenditures may vary depending upon
numerous factors, including the ability of the Company to enter into
acceptable leases for the opening of new retail showrooms.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based on both the expected utilization of
funds necessary to finance the Company's existing activities and the
Company's current objectives, as well as current economic conditions. The
Company may reallocate funds from time to time among the uses discussed above
or to new uses if it believes such reallocation to be in its best interest.
Prior to the application of the net proceeds of this Offering to the
purposes discussed above, the Company intends to invest such net proceeds in
short-term, investment grade, interest-bearing obligations, certificates of
deposit, or direct obligations of, or obligations unconditionally guaranteed
by, the United States of America.
The Company expects that cash flow from operations, together with the net
proceeds of this Offering, will fund its cash requirements for at least the
24 months following the consummation of the Offering.
Any proceeds from the exercise of the Redeemable Warrants and/or the
Underwriters' over-allotment option will be included in the Company's working
capital.
DILUTION
As of June 30, 1996, the Company had a negative net tangible book value of
($383,146) or ($0.14) per share. Net tangible book value per share is
determined by dividing the number of shares of Common Stock outstanding as of
June 30, 1996 into the net tangible book value of the Company. Without taking
into account any changes in net tangible book value after June 30, 1996 other
than to give effect to the issuance of an additional 500,000 shares of Common
Stock and the estimated net proceeds from the sale and issuance of the
Securities being offered hereby (at assumed initial public offering prices of
$5.00 per share of Common Stock and $0.10 per Redeemable Warrant), and the
application of the net proceeds therefrom, the pro forma net tangible book
value of the Company as of June 30, 1996 would be $4,195,754 or $0.99 per
share, representing an immediate increase in net tangible book value of $1.13
per share to existing stockholders and an immediate dilution of $4.01 per
share to purchasers of the Common Stock in this Offering. The number of
shares of Common Stock outstanding used in the calculation of the pro forma
net tangible book value per share gives effect to this Offering.
The following table illustrates the per share dilution of a new investor's
equity in a share of Common Stock at June 30, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share ................................ $5.00
Negative net tangible book value per share at June 30, 1996 .................... (0.14)
Increase per share attributable to new investors ............................... $ 1.13
--------
Pro forma net tangible book value per share after giving effect to this Offering . 0.99
-------------
Dilution in net tangible book value per share to new investors ................. $4.01 (80%)
</TABLE>
<PAGE>
If the Underwriter's over-allotment option is exercised in full, the
increase per share attributable to new investors, the pro forma net tangible
book value per share and the dilution in net tangible book value per share to
new investors would be $1.29, $1.15 and $3.85 (77%), respectively.
The following table sets forth, as of the date of this Prospectus on a pro
forma basis, giving effect to this Offering (at an assumed initial public
offering price of $5.00 per share of Common Stock), the number of shares of
Common Stock purchased from the Company, the total cash consideration paid to
the Company and the average price per share paid by the existing stockholders
and the purchasers of the Common Stock in this Offering.
<TABLE>
<CAPTION>
Shares Cash
Purchased Consideration Average Price
------------------------ --------------------------
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,220,000 76.3% $1,460,175 22.6% $0.45
New investors ........ 1,000,000 23.7 5,000,000 77.4% $5.00
----------- --------- ------------- ---------
Total ................ 4,220,000 100.0% $6,460,175 100.0%
=========== ========= ============= =========
</TABLE>
The foregoing table assumes no exercise of the Underwriters'
over-allotment option or the Representative's Warrants. In addition, the
above calculations assume no exercise of any stock options or warrants
outstanding as of June 30, 1996 and assume no value attributable to the
Redeemable Warrants included in this Offering.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996, actual, pro forma and pro forma as adjusted. The information
presented in the table below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements (and the related notes thereto) included
elsewhere in the Prospectus. See also "Use of Proceeds" and "Selected
Financial Data."
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
Pro Forma
As
Actual Pro Forma(1) Adjusted(1)(2)
------------- ------------- ---------------
<S> <C> <C> <C>
Stockholders equity:
Common Stock; Par Value $.00133, 10,000,000 shares
authorized; 2,720,000 issued and outstanding
actual, 3,220,000 issued and outstanding pro
forma and 4,220,000 shares issued and
outstanding pro forma as adjusted(3) $ 3,618 $ 4,283 $ 5,613
Common stock warrants; 2,200,000 warrants issued
and outstanding pro forma as adjusted 0 0 220,000
Additional paid-in capital 1,366,478 1,698,313 5,723,338
Deficit (1,907,442) (1,907,442) (1,907,442)
------------- ------------- ---------------
Total stockholders' equity (deficit) $ (537,346) $ (204,846) $ 4,041,554
============= ============= ===============
</TABLE>
- ------
(1) Gives effect to issuance of an additional 500,000 shares of Common Stock
subsequent to June 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
(2) Reflects the receipt and initial application of the net proceeds of the
Common Stock and Redeemable Warrants offered hereby. See "Use of
Proceeds."
(3) Shares of Common Stock issued and outstanding actual, pro forma and pro
forma as adjusted do not include (i) up to 2,200,000 shares of Common
Stock issuable upon exercise of the Redeemable Warrants offered hereby,
(ii) up to 165,000 shares of Common Stock and/or 330,000 Redeemable
Warrants issuable upon exercise of the Underwriters' over-allotment
option, (iii) up to 330,000 shares of Common Stock issuable upon exercise
of the Redeemable Warrants included in the Underwriters' over-allotment
option, (iv) up to 110,000 shares of Common Stock and/or 220,000
Redeemable Warrants issuable upon exercise of the Representative's
Warrants, (v) up to 220,000 shares of Common Stock issuable upon exercise
of the Redeemable Warrants included in the Representative's Warrants,
(vi) up to 750,000 shares of Common Stock issuable upon the exercise of
the Principals Warrants at an exercise price of $3.00 per share, (vii) up
to 750,000 shares of Common Stock issuable upon exercise of the Kirlin
Warrants at an exercise price of $1.20 per share, (viii) up to 56,250
shares of Common Stock issuable upon exercise of the Rubin Warrants at an
exercise price of $2.00 per share, and (ix) up to 25,000 shares of Common
Stock issuable upon exercise of the McCormick Options at $3.00 per share.
See "Description of Securities" and "Underwriting."
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock
in the foreseeable future. The Board of the Company currently anticipates
retaining all available earnings for the growth and expansion of the
Company's business. The declaration and payment of future cash dividends, if
any, generally would depend upon the Company's earnings, financial condition,
results of operations, current and anticipated capital requirements, plans
for expansion, if any, future prospects, restrictions under then existing
credit and other debt instruments and arrangements and other factors deemed
relevant by the Board. See "Description of Securities -- Common Stock" and
"Risk Factors -- No Dividends Anticipated."
13
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the Company's statements
of operations for the years ended December 31, 1994 and 1995 and the balance
sheet data at December 31, 1995 are derived from the Company's financial
statements which have been audited by Ehrenkrantz and Company, independent
public accountants, and which appear elsewhere in this Prospectus. The
statement of operations data for the six months ended June 30, 1995 and 1996
and the balance sheet data at June 30, 1996 are derived from unaudited
financial statements which appear elsewhere in this Prospectus. Management
believes that all adjustments necessary for a fair presentation have been
made in such interim periods. However, the results of operations for the most
recent interim period are not necessarily indicative of the Company's
financial results for the entire current fiscal year.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months Ended
December 31, 1994 December 31, 1995 June 30,
----------------- ----------------- ------------------------------
1995 1996
-------------- ------------
<S> <C> <C> <C> <C>
Revenues ......................... $13,215,387 $13,149,018 $ 6,325,885 $6,671,082
Cost of goods sold ............... 6,003,314 6,922,500 3,780,917 2,919,695
Operating expenses ............... 7,424,579 7,791,397 3,926,102 3,733,369
----------------- ----------------- -------------- ------------
Earnings (loss) from operations .. (212,506) (1,564,879) (1,381,134) 18,018
Interest expense ................. (16,576) (82,705) (40,260) (23,426)
Miscellaneous income ............. 16,661 23,033 734 6,783
----------------- ----------------- -------------- ------------
Earnings (loss) before income tax
benefits ........................ (212,421) (1,624,551) (1,420,660) 1,375
Pro forma income tax (benefits)(1) (30,963) (386,488) (292,150) 300
----------------- ----------------- -------------- ------------
Pro forma net earnings (loss) .... $ (181,458) $(1,238,063) $(1,128,510) $ 1,075
================= ================= ============== ============
Pro forma net earnings (loss) per
equivalent common stock ......... $ (0.06) $ (0.37) $ (0.35) $ --
================= ================= ============== ============
Common stock and equivalent common
stock outstanding ............... 3,180,735 3,386,985 3,180,735 3,691,667
================= ================= ============== ============
</TABLE>
- ------
(1) From inception through September 27, 1995, the Company elected to be
taxed as an S Corporation under the applicable provisions of the
Internal Revenue Code of 1986, as amended. Effective September 27, 1995,
the Company's S Corporation election was voluntarily revoked, subjecting
the Company to corporate income taxes subsequent to that date. Pro forma
income tax (benefits), pro forma net income (loss) per equivalent common
stock and common stock and equivalent common stock outstanding represent
the Company's income tax position had the Company been a C Corporation
for all periods presented other than the six months ended June 30, 1996.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
December 31, Pro Forma As
1995 Actual Pro Forma(1) Adjusted(1)(2)
-------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Working capital (deficit) ..... $(1,246,590) $(1,230,113) $ (897,613) $3,348,787
Total assets .................. 2,382,173 2,887,106 3,219,606 7,466,006
Total liabilities ............. 3,176,669 3,424,452 3,424,452 3,424,452
Stockholders' equity (deficit) (794,496) (537,346) (204,846) 4,041,554
</TABLE>
- ------
(1) Reflects the issuance of an additional 500,000 shares of Common Stock
subsequent to June 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
(2) Reflects the receipt and initial application of the net proceeds from the
sale of the Common Stock (excluding the Directors Shares) and Redeemable
Warrants offered hereby. See "Use of Proceeds."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements (and the related notes thereto) included
elsewhere in this Prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
RESULTS OF OPERATIONS -- RATIOS
The following tables set forth, for the periods indicated, certain items
from the Company's Statements of Operations, presented as a percentage of
revenues. The operating results for any period are not necessarily indicative
of results that can be expected for any future period.
<TABLE>
<CAPTION>
Year ended Six Months
December 31 ended June 30
--------------------- ---------------------
1994 1995 1995 1996
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 45.4% 52.6% 59.8% 43.8%
Gross profit 54.6% 47.4% 40.2% 56.2%
Selling, general & administrative expenses 56.2% 59.3% 62.1% 56.0%
Earnings (loss) from operations (1.6)% (11.9)% (21.8)% .2%
Other income (deductions) -- (.5)% (.6)% (.2)%
Pro forma net earnings (loss) (1.4)% (9.4)% (17.8)% --
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues for the six months ended June 30, 1996 totaled $6,671,082 as
compared to $6,325,885 for the six months ended June 30, 1995, or an increase
of $345,197 or 5.5%. This increase is primarily the result of an increase in
the average price received by the Company for its products.
Cost of goods sold totaled $2,919,695 or 43.8% of revenues for the first
six months of 1996 as compared to $3,780,917 or 59.8% of revenues for the
first six months of 1995. This reduction of $861,222 or 22.8% was primarily
the result of reductions of labor costs and material costs and manufacturing
overhead. The overall decrease in direct manufacturing costs was the result
of changes made to the method of manufacturing recommended and implemented by
a newly hired plant operations manager and the Target Team, which consists of
senior management of the Company and management consultants. See "Business --
Manufacturing Process".
As a result of the foregoing, the Company realized an increase in gross
profit in 1996 as compared to 1995, with a gross profit of $3,751,387 or
56.2% of revenues in the first six months of 1996 as compared to $2,544,968
or 40.2% of revenues achieved during the same period in 1995.
Selling, general and administrative expenses totaled $3,733,369 for the
first six months of 1996, as compared to $3,926,102 for the first six months
of 1995. The decrease of $192,733 or 4.9% was primarily the result of
decreased administrative expenses after the merger of Bunk Trunk and RPF
Holding and reduced delivery expenses associated with a change in the
furniture delivery company used by the Company. The Company also achieved
other reductions in selling, general and administrative expenses through the
elimination of states sales tax late payment penalties.
Operating income for the period ended June 30, 1996 was $18,018 or .2% of
revenues as compared to an operating loss of $1,381,134 or 21.8% of revenues
during the period ended June 30, 1995.
Other income and expenses for the period ended June 30, 1996 was ($16,643)
as compared to ($39,526) for June 30, 1995. The decrease in other expenses of
$22,883 is primarily due to decreased interest expense attributable to the
New Jersey sales tax amnesty program that forgave all interest and penalties
on delinquent taxes.
Due to the combination of the preceding factors, the Company realized pro
forma net earnings of $1,075 during the six months ended June 30, 1996 as
compared to a pro forma net loss of $1,128,510 or 17.8% of revenues during
the six months ended June 30, 1995.
15
<PAGE>
TWELVE MONTHS ENDED DECEMBER 31, 1995 AND 1994
During the fiscal year ended December 31, 1995, the Company introduced
several new styles of mica-laminated furniture featuring a more rounded
modern look. The new line of rounded-edged furniture gained customer
acceptance and grew to represent more than 30% of the Company's furniture
sales in the first six months of 1996. However, this new line of
rounded-edged furniture proved to be more costly to produce than originally
anticipated. As a result of the high costs to manufacture these products, in
March 1995 the Company implemented many manufacturing processes and
management changes. These changes included the hiring of management
consultants, the replacement of the operations manager of the manufacturing
facility and the establishment of the Target Team.
Revenues remained relatively stable at $13,149,018 for the twelve months
ended December 31, 1995 as compared to $13,215,387 for the twelve months
ended December 31, 1994.
Cost of goods sold for the fiscal year ended December 31, 1995 were
$6,922,500 or 52.6% of revenues as compared to $6,003,314 or 45.4% of
revenues for the same period in 1994. This increase is primarily due to the
introduction of the new rounded-edged product line and the associated
increase in manufacturing costs. In October 1995, the Company began
implementing changes to the manufacturing processes recommended by the Target
Team, which changes have resulted in reductions in such costs.
As a result of the foregoing, the Company realized a decrease in gross
profit in 1995 as compared to 1994, with a gross profit of $6,226,518 or
47.4% of revenues in the twelve months ended December 31, 1995 as compared to
$7,212,073 or 54.6% of revenues achieved during the same period in 1994.
Selling, general and administrative expenses amounted to $7,791,397 or
59.3% of revenues in fiscal year 1995 as compared to $7,424,579 or 56.2% of
revenues in fiscal year 1994. Such increase is due primarily due to higher
compensation for sales personnel resulting from a new bonus commission
program and an $85,000 write-off relating to a dispute with a delivery
company previously used by the Company.
Operating loss for the fiscal year ended December 31, 1995 was $1,564,879
or 11.9% of revenues as compared to an operating loss of $212,506 or 1.6% of
revenues during the fiscal year ended December 31, 1994.
Other income and expenses for the fiscal year ended December 31, 1995 was
($59,672) as compared to $85 in fiscal year ended December 31, 1994. The
primary reason for the $59,757 net increase in other expenses was the payment
of interest and penalties relating to delinquent states sales taxes.
In September 1995, the Company's S corporation status was changed to a C
corporation under the applicable sections of the Internal Revenue Code of
1986, as amended, as a result of the private placement of 750,000 shares of
the Company's Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." This change caused a revised tax treatment so that federal income
taxes thereafter became the direct responsibility or benefit of the Company
and not of the stockholders. This change gave rise to pro forma tax benefits
of $386,488 and $30,963 in the fiscal years ended December 31, 1995 and 1994,
respectively, as a result of the operating loss incurred by the Company
during those periods.
The preceding factors combined to show an increase in pro forma net loss
totaling $1,056,605 in the fiscal year ended December 31, 1995 as compared to
the fiscal year ended December 31, 1994. There was a pro forma net loss of
$1,238,063 or 9.4% of revenues in 1995 as compared to a pro forma net loss of
$181,458 or 1.4% of revenues in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $1,230,113 at June 30, 1996
which represented a decrease in the deficit of $16,477 or 1.0% from the
working capital deficit of $1,246,590 at December 31, 1995. The decrease in
the deficit was mainly due to an increase in inventory levels at June 30,
1996 as compared to December 31, 1995. The Company's cash position increased
from ($61,436) on December 31, 1995 to $22,802 on June 30, 1996. This was
primarily related to borrowings from the Company's line of credit discussed
below.
From inception, the Company's operations have been funded by operating
revenues, capital contributions, loans from corporate officers and bank debt.
In addition, in September 1995 and July 1996, the Company consummated private
placements of 750,000 and 500,000 shares of its Common Stock, respectively.
The Company's operating activi-
16
<PAGE>
ties provided or (used) cash of ($1,185,961) and $491,424 for the fiscal
years ended December 31, 1995 and 1994, respectively, and ($200,350) for the
six months ended June 30, 1996. In fiscal year 1995, cash was used to
primarily finance an approximately 15% decrease in accounts payable relating
to obtaining more favorable terms with raw material suppliers and an increase
in cost of goods sold relating to the introduction of the new line of
rounded-edged furniture. In fiscal year 1994, cash was provided primarily by
an increase in accounts payable, accrued expenses and other liabilities due
to a deficiency in working capital. In addition, cash was provided by an
increase in payroll and sales tax payable due to an agreement to pay deferred
states sales tax. Such increases were offset by a decrease in prepaid
expenses and inventory due to the timing of payments for liability and
workman's compensation insurance and normal fluctuations in work in process
inventory levels. In the first six months of 1996, cash was used primarily to
finance payments of payroll taxes through an employee leasing arrangement on
a weekly basis rather than on a quarterly basis as in the past. In addition,
cash was used to finance the exchange of inventory for future advertising of
the Company's products.
The Company's investing activities provided (used) cash of $195,094,
($302,401) and ($194,496) for the fiscal years ended December 31, 1995 and
1994 and the six months ended June 30, 1996, respectively. The principal
source of the cash provided in 1995 was loans from officers in the amount of
$254,465, and the principal use of the cash in 1994 was loans to officers of
$158,488 and purchases of property and equipment of $135,791. The principal
use of cash for the period ended June 30,1996 was the purchase of leasehold
improvements and manufacturing machinery.
The Company's financing activities provided (used) cash of $916,916,
($122,255) and $479,084 for the fiscal years ended December 31, 1995 and 1994
and the six months ended June 30, 1996, respectively. The cash provided by
the Company's financing activities for the fiscal year 1995 primarily
resulted from the 1995 Private Placement (as defined below). The cash used by
the Company's financing activities in 1994 primarily consisted of the
deferral of rent on retail showrooms and payments made in connection with
closed showroom locations. The cash provided by financing activities for the
period ended June 30, 1996 was the result of bank borrowings more fully
discussed in the following paragraph.
In March 1996, the Company obtained a bank line of credit in the amount of
$350,000, which bears interest at the rate of prime rate plus 2% per annum
and must be repaid by April 1997. As of the date of this Prospectus, the
outstanding balance on this line of credit is $200,000. In June 1996, the
Company obtained a bank loan in the amount of $50,000, which bears interest
at prime rate plus 2% per annum and must be repaid by September 1996. As of
the date of this Prospectus, the outstanding balance on this bank loan is
$50,000. The Company intends to use a portion of the net proceeds from this
Offering to repay the outstanding balances on such bank borrowings. See "Use
of Proceeds."
In June 1995, the Company obtained a bridge loan in the amount of $300,000
from several investors. The loan was non-interest bearing and was fully
repaid in September 1995 with the proceeds of the 1995 Private Placement
discussed below. In connection with the bridge loan, the Company issued to
the investors warrants to purchase an aggregate of 75,000 shares of Common
Stock at a purchase price of $0.00133 per share. Such warrants were exercised
in June 1996.
In September 1995, the Company issued 750,000 shares of Common Stock in a
private placement at a price of $1.33 per share and received net proceeds of
approximately $831,000 (the "1995 Private Placement"). The proceeds from this
private placement were utilized for deposits on leased machinery for the
Company's manufacturing facility, the development of additional retail
showrooms and working capital.
In connection with the 1995 Private Placement, the Company granted to the
placement agent a warrant to purchase 75,000 shares of Common Stock at a
purchase price of $.00133, which warrant was exercised in September 1995, and
the Kirlin Warrants to purchase 750,000 shares of Common Stock at a purchase
price of $1.20 per share. See "Description of Securities -- The Kirlin
Warrants".
In June 1996, a bridge loan in the amount of $150,000 was obtained from
four investors. The loan bears interest at the rate of 13% per annum and is
due on June 18, 1997. In connection with this bridge loan, the Company issued
an aggregate of 20,000 shares of Common Stock to the investors.
In July 1996, a private placement of 500,000 shares of Common Stock at a
purchase price of $.80 per share was completed by the Company (the "1996
Private Placement"). The Company received net proceeds of $332,500 from the
1996 Private Placement and such proceeds were utilized for expenses relating
to this Offering, repayment of a portion of the Company's bank borrowings and
working capital.
17
<PAGE>
The Company's plan of operation for the next 12 months includes using a
portion of the net proceeds of this Offering to open additional retail
showrooms and further reducing manufacturing costs. Although the Company
believes that this plan will result in the recognition of net earnings by the
Company in 1996 and future years, there can be no assurance that the Company
will be profitable in the future.
The Company expects that cash flow from operations, together with the net
proceeds of this Offering, will fund its cash requirements for at least the
24 months following the consummation of the Offering. However, there can be
no assurance that a sufficient level of sales will be attained to fund such
operations, to provide for continuing working capital or to pay for any
unanticipated costs that may be incurred by the Company in pursuing its
objectives. In the event that the net proceeds of this Offering, together
with cash flow from operations will not be sufficient to fund the Company's
anticipated cash requirements, the Company may seek to raise funds through
bank borrowings and private placements of its securities. It is also the
Company's intention to apply for lines of credit that may be utilized to
cover any variations in cash availability that may occur on a day-to-day
basis. However, there can be no assurance that such borrowings or placements
can be completed on terms acceptable to the Company, if at all.
Historically, demand for the Company's products has been seasonal, with
demand increasing in the third and fourth quarters, corresponding to the
beginning of the school year and the holiday season. The Company generally
realizes 60% of its annual revenues during those quarters.
The Company's operations have not been materially affected by the impact
of inflation.
<PAGE>
BUSINESS
GENERAL
The Company is a fully-integrated manufacturer and retailer of
high-pressure, mica-laminated furniture for residential uses, primarily
bedroom furniture for children ages three to 16 years old. The Company's
products are of a modular design and are intended to be multi-functional,
interchangeable and space-saving.
The Company distributes its products through its own distribution network
of 12 retail showrooms located in the greater New York City metropolitan
area. Management believes that stores located in strip malls and densely
populated areas offer the highest visibility of the Company's products and
ease of access for the Company's targeted customers. The Company's retail
showrooms range from approximately 2,000 to 5,000 square feet and yield
average annual sales of $320 per square foot as compared to the median annual
sales of $220 per square foot reported for 52 other furniture stores by
Furniture/Today, an industry publication.
The Company uses standard component pieces to manufacture furniture for
children's and adult's bedrooms and home offices. The approximately 300
standard components can be finished in various colors and textures and
combined in various configurations to produce a finished product which is
personalized to the customer's taste, space and budget. The use of standard
components also permits the Company's furniture to be reconfigured as the
customer's needs or tastes change. For example, a loft bed can be converted
into separate beds, a desk, a dresser and a bookcase, and a baby's changing
table can be converted into a child's play table and a dresser.
Unlike many of its direct competitors, the Company uses high quality raw
materials in the manufacture of its products, including high-pressure mica
laminate that is more resistant to impact and engineered wood that has been
laminated on both sides to provide greater stability and protection against
warping. The quality of materials and manufacturing processes used by the
Company enable it to offer a limited lifetime warranty against structural
defects.
Because the Company's finished products are manufactured from standard
components and personalized to the customer's needs, the Company does not
maintain a large inventory of finished products (other than showroom display
models). Finished products are manufactured to meet a specified desired
delivery date, which is generally fixed at the time of the order and is
generally within two to six weeks thereafter.
The Company's manufacturing operations are conducted in a 78,000 square
foot facility located in Paterson, New Jersey. In the past year, the Company
has implemented numerous changes to its manufacturing facility and processes
in order to significantly reduce the direct costs of manufacturing and to
produce more contemporary styles of high quality, mica-laminated furniture.
The Company's existing manufacturing facility currently operates on a
single shift and has sufficient capacity to more than double its
manufacturing volume without substantially increasing indirect costs of
manufacture. The Company plans to use a substantial portion of the proceeds
of this Offering to establish 12 to 14 additional retail showrooms, primarily
in the New York to Washington, D.C. corridor, to increase demand for its
products, and to continue to upgrade and automate its manufacturing process
and to further reduce direct manufacturing costs.
18
<PAGE>
The residential furniture industry is cyclical, fluctuating with the
general economy. While the Company believes that furniture sales are
influenced by a number of macroeconomic factors including existing home
sales, housing starts, consumer confidence, interest rates and demographic
trends, the Company believes that it is less affected by industry economic
trends because of its focus on furniture for children. The Company believes
that regardless of economic trends, parents will place a high priority on
furnishing their children's rooms with affordable, high quality furniture.
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
The Company is a New York corporation that was organized in 1982 under the
name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
mica-laminated furniture. From 1979 to 1982, the founders of the Company had
engaged in the same business under other corporate names. In March 1995, Bunk
Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the principal
manufacturer of the furniture sold by RPF Holding, was merged into RPF
Holding. The surviving entity in such merger, which was named TAM Industries,
Inc., changed its name to Room Plus, Inc. in June 1995. The Company's
principal offices are located at 91 Michigan Avenue, Paterson, New Jersey
07503, and its telephone number at that address is (201) 523-4600.
MANUFACTURING PROCESS
The Company manufactures its products in a 78,000 square foot plant
located in Paterson, New Jersey. The plant currently operates on one shift
five days per week utilizing a "Just In Time" manufacturing process that
allows the Company to reduce expenses associated with the maintenance of
inventory. The plant has sufficient capacity to enable the Company to more
than double its manufacturing volume without substantially increasing
indirect manufacturing costs.
Many of the current production processes used by the Company in the
manufacture of its products are highly labor intensive as is traditional in
the furniture manufacturing industry. The Company intends to utilize a
portion of the net proceeds of this Offering to lease and/or purchase machine
tools to further automate the manufacture of the Company's products in order
to decrease the costs associated with such manufacturing. Management believes
that additional shifts of workers, together with the continued automation of
the manufacturing process, will permit the Company to meet its manufacturing
requirements over the foreseeable future without the necessity of expanding
its manufacturing facility beyond its current size. The Company is also
exploring the possibility of using any excess manufacturing capacity to
provide independent retailers with a private label of the Company's products.
In March 1995, the Company established the Target Team program as a method
of engaging the participation of all Company employees in Company-wide
improvements. The Target Team solicits individual employee and group ideas as
to how to reduce costs and make the Company more profitable. Groups are
created to establish and meet aggressive targets in all phases of the
manufacturing process, such as the time it takes to build a piece of
furniture and the amount of raw materials utilized. The Target Team consists
of senior management of the Company and management consultants who review
employee suggestions and provide recommendations that have resulted in the
significant reduction of manufacturing costs. For example, the Target Team
recommended the establishment of work cells into the production line under
which employees are assigned to the manufacture of certain products, thereby
increasing productivity and enhancing the skills of workers.
RAW MATERIALS AND SUPPLIERS
The raw materials used by the Company in manufacturing its products
include laminate, lumber, plywood, fiberboard, engineered wood, hardware,
adhesives, finishing materials and mirrored glass. Management believes that
such raw materials are readily available.
The Company has no long-term supply contracts for its raw materials and
generally purchases its raw materials from a small number of suppliers.
Although the Company has strategic reasons such as price, quality and
delivery for using a limited number of suppliers, the Company believes that
sufficient other sources of raw materials are available should its current
supply sources be disrupted. Raw materials prices fluctuate over time
depending on factors such as supply and demand and increases in prices may
have a short-term negative impact on the Company's financial condition.
PRODUCTS
The Company manufactures and sells multi-functional high quality
mica-laminated furniture designed both to make small spaces larger and to be
convertible into other uses. The furniture offered by the Company is
primarily
19
<PAGE>
made of engineered wood covered on the interior with low-pressure mica
laminate and on the exterior with high- pressure mica laminate. The Company
has recently test marketed a thinner, low-pressure laminated furniture line
that sells at lower prices, and management believes that there is sufficient
demand for this product line to warrant further test marketing. In addition,
the Company recently introduced a new contemporary modular furniture design
that has rounded (post-formed) edges on tops and drawers. The benefits of
rounded edges to the consumer include enhanced visual appeal and elimination
of hard edges, which is an important safety consideration, since the Company
principally targets the children's furniture market.
The Company manufactures approximately 300 standard components that can be
combined in various configurations to meet a customer's space limitations or
storage needs, and such components can be finished in hundreds of colors and
textures. In addition, the Company offers numerous options and features to
personalize its products for each customer. For example, telephone jacks can
be added to bedroom headboards, dividers can be included in drawers and night
tables can be manufactured with a tray that slides away when not in use. Such
features allow customers to have the look and utility of customized furniture
at a lower cost.
The Company maintains an open stock policy, which enables customers to add
additional matching pieces over time to previously purchased furniture
products and to change the look of their furniture by replacing door and
drawer fronts and other accent pieces. The Company believes that such
flexibility enhances the value of the furniture to the customer and
encourages repeat business.
A substantial majority of the Company's sales relate to bedroom furniture
for children and young adults. The Company offers a wide range of beds for
children with matching desks and dressers, including multi-functional bunk
and storage modules. One of the most popular models for children is the loft
bed that utilizes space more efficiently than conventional bedroom furniture.
It is able to sleep one or two people and has a built-in desk and storage
drawers. Since a child's room is often the smallest room in the house, the
Company's children's furniture line is designed to save space through modular
designs and filling space vertically, leading to the Company's motto "A LOT
OF LIVING in a Little Space". See "Business -- Advertising and Promotion."
In addition, a portion of the Company's sales relate to adult bedroom
furniture and home office furniture. The Company offers, among other items,
night tables, headboards, armoires, bookcases, computer stations and desks.
Approximately 5% of the Company's sales are comprised of accessory
furnishings such as lamps, bed coverings, bookends, picture frames and other
small items that give the Company the ability to complete the design of the
room in the showroom.
GALLERY/SPECIALTY FORMAT
Two formats widely used by retailers of furniture to market their products
are the gallery format and the specialty format. The gallery format displays
products in complete room settings, including furnishings, wall decor, window
treatments, accents and accessories and typically feature the products of one
manufacturer, such as Ethan Allen, La-Z- Boy, Thomasville and Drexel
Heritage. The specialty format specializes in a category of merchandise such
as bedding, sofas or lighting and is utilized by retailers such as Pier 1
Imports, Sleepy's and The Bombay Company.
The Company utilizes a combination gallery/specialty format as its
high-pressure mica-laminated furniture is displayed in settings designed to
allow the consumers to envision the look of a complete room in their homes.
Each retail showroom features approximately 10-12 room settings. This
presentation format encourages consumers to purchase an entire room of
furniture and accessories from the Company, instead of individual pieces from
different manufacturers and results in an average sale per customer of
approximately $2,000. The Company believes that distributing its products
through dedicated Company owned stores strengthens brand awareness, provides
well-informed and focused sales personnel and encourages the purchase of
multiple items per visit.
ADVERTISING AND PROMOTION
The Company's marketing effort is supported by extensive advertising and
promotion featuring the Company's slogan "Just Round the Corner" and "A LOT
OF LIVING in a Little Space" motto. Management believes that advertising on
broadcast and cable television has made the Company a household name in the
area of children's furniture in the New York metropolitan area.
20
<PAGE>
For fiscal year ended December 31, 1995, the Company's advertising budget
was approximately $1,000,000 or 7% of revenues. The Company achieves savings
in advertising costs through its use of an affiliated entity to purchase
advertising at discounts and its strategy of making long-term advance
purchases and purchasing in time blocks in bulk to achieve discounted rates.
The Company also advertises to a lesser extent in newspapers and has begun a
direct mail campaign to selected target markets.
The Company's primary target market is women in the 24 to 50 age bracket,
since the Company believes they most strongly influence the buying decision
for children's furniture. Much of the Company's advertising is also shown
during programming for children because children may influence their parents'
decision on what type of furniture to have in their rooms.
The three principals of the Company established Retail Media Plus, Inc.
("Retail Media Plus") in June 1995. Retail Media Plus places all of the
Company's advertising and bills the Company only for the actual cost of such
advertising, without any additional expenses or mark-ups. See "Certain
Transactions."
EXPANSION STRATEGY
The Company's expansion strategy is primarily focused on opening
additional retail showrooms in the existing markets of New York and New
Jersey and in new markets such as Pennsylvania, Maryland, Washington, DC and
Virginia. Management currently has identified three sites in the metropolitan
New York area which will be evaluated for possible expansion in the last six
months of 1996 and the first quarter of 1997. The Company intends to use
approximately 50% of the proceeds from this Offering to open twelve to
fourteen new retail showrooms in the next 24 months. See "Use of Proceeds."
CUSTOMER SATISFACTION
The Company is committed to providing high-quality customer service in all
phases of its business, including offering instant store credit, a decorating
service and professional delivery. The Company offers no interest, deferred
payment plans to qualified purchasers, which the Company believes gives
customers the flexibility to structure their purchases of the Company's
furniture according to their budget.
The Company is generally able to offer delivery and in-home set-up of its
products within two to six weeks from the date of the order. Delivery is
provided by an independent professional furniture delivery company whose
delivery personnel are trained by the Company in the set-up of its products.
The Company also offers free in-home decorating service with a minimum
purchase of $1,000. A trained salesperson will travel to a customer's home
with pictures of the Company's products, floor plans and charts of available
colors and finishes, assist the customer in the selection of products and
take measurements to ensure that the furniture selected will fit properly in
the intended location.
In addition to its sales personnel, skilled customer satisfaction
representatives are available to answer customer questions during business
hours. The Company believes that its commitment to customer service has
contributed to the number of repeat purchases by the Company's customers.
GOVERNMENT REGULATION
The Company's manufacturing operations are subject to a wide range of
federal, state and local laws and regulations relating to the protection of
the environment, worker health and safety and the emission, discharge,
storage, treatment and disposal of hazardous materials. These laws include
the Clean Air Act of 1970, as amended, the Resource Conservation and Recovery
Act, the Federal Water Pollution Control Act and the Comprehensive
Environmental, Response, Compensation and Liability Act. Certain of the
Company's operations use glues and coating materials that contain chemicals
that are considered hazardous under various environmental laws. Accordingly,
management closely monitors the Company's environmental performance at its
manufacturing facility. The Company is also a voluntary participant in the
Occupational Safety and Health Administration ("OSHA") Consultation Program
in which OSHA periodically inspects the Company's facilities and makes
recommendations on how to eliminate unsafe conditions in the manufacturing
process before a complaint is filed. The cost to the Company to comply with
government regulation of its manufacturing process and the effect of such
compliance on the Company's operations are not material.
The Company's retail operations are not subject to material federal, state
and local laws and regulations other than consumer protection laws.
Management believes that the Company is in substantial compliance with all
laws and regulations affecting its business.
21
<PAGE>
COMPETITION
The home furniture industry is a highly competitive and fragmented market
with annual U.S. sales of over $45 billion in 1994 and estimated annual U.S.
sales of $48 billion in 1995.
The Company is the largest retailer of mica-laminated home furniture in
the New York metropolitan area, where its eleven retail showrooms are
located. Several small retailers such as Atlantic Furniture and Kids' Room,
and large retailors, such as IKEA, also sell mica-laminated furniture similar
to that sold by the Company in the same geographic region, but generally
through only one or two retail outlets. The Company also competes with many
companies, including much larger and diverse furniture companies, such as
Huffman Koos, Levitz, Thomasville and Drexel Heritage, that sell primarily
wood furniture that is not mica-laminated. The Company believes that it will
face similar competitive conditions (a few small retailers specializing in
mica-laminated furniture and many retailers, both large and small, of home
furniture that is not mica-laminated) in the market areas in which it plans
to open additional retail showrooms.
Many of the Company's current and potential competitors have substantially
greater financial, manufacturing, marketing, distribution and other resources
than the Company, and there is no assurance that the Company will be able to
compete successfully in the future.
RETAIL SHOWROOMS
The Company distributes substantially all of its products through a
network of Company-owned retail showrooms dedicated solely to the display of
the Company's products. All of such showrooms are located in premises leased
by the Company. As of the date of this Prospectus, the Company operates 12
retail showrooms in New York and New Jersey, which showrooms are set forth
below:
<TABLE>
<CAPTION>
Month and Year Square Feet
Location Opened (Approximate)
------------------------------ -------------- -------------
<S> <C> <C>
Manhattan (3rd. Ave.), NY June 1981 3,500
Manhattan (Lexington Ave.), NY November 1995 2,700
Manhattan (Broadway between
18th & 19th Sts.), NY September 1996 5,000
Scarsdale, NY January 1982 3,500
Farmingdale, NY February 1995 3,700
Carle Place, NY August 1987 4,400
Forest Hills, NY October 1987 2,000
Paramus, NJ (Rt.4) March 1983 5,000
Paramus, NJ (Rt.17) February 1988 5,000
East Hanover, NJ August 1983 4,000
East Brunswick, NJ August 1985 3,350
Union, NJ October 1995 3,900
</TABLE>
The leases for the Company's retail showrooms have terms ranging from five
to 13 years, and some leases contain optional renewal provisions for
additional five year periods.
The Company's retail showrooms are open seven days a week, generally from
10 a.m. to 9 p.m. Monday through Saturday and 12 p.m. to 5 p.m. on Sundays.
The two retail showrooms located in Paramus, New Jersey are closed on
Sundays.
From June 1991 to September 1995, the Company closed seven retail showrooms
to reduce costs and consolidate selling efforts. The showrooms that were closed
were located in Manhasset and Cedarhurst, New York, Totowa, Eatontown, Toms
River and Manalapan, New Jersey and Westport, Connecticut.
In addition to its retail showrooms, the Company currently leases a 78,000
square foot plant in Paterson, New Jersey, which houses its administrative
offices, executive staff, sales and marketing staff and its manufacturing and
shipping facilities. The Company leases the facility at a monthly rent of
approximately $23,000, subject to annual adjustment as more fully set forth
in such leases. The leases expire on May 31, 1999, and the Company has the
option
22
<PAGE>
to renew the leases for an additional 15 year period on the same terms and
conditions as the original leases, including annual adjustments in rent. The
owner of the Paterson facility is M & S Realty Company, which is owned by
Theodore Shapiro, the Company's Executive Vice President and Director of
Manufacturing. See "Certain Transactions."
EMPLOYEES
In January 1996, all Company employees became employees of Corporate
Management Group Recruiting, Inc. ("CMGR") and their services were then
leased back to the Company pursuant to an employee leasing agreement (the
"Employee Leasing Agreement") between the Company and CMGR. All references to
employees in this Prospectus refer to employees whose services are leased by
the Company from CMGR pursuant to the Employee Leasing Agreement.
Pursuant to the Employee Leasing Agreement, CMGR is responsible for
payment of all federal, state and local employment taxes and providing
workers' compensation and disability coverage and other mandated employee
benefits for the employees. The Company retains the right to make all
decisions concerning the hiring and termination of employees. The Employee
Leasing Agreement provides that it shall continue in full force and effect
unless terminated by (i) either party for cause, as described in such
agreement, (ii) the Company on thirty (30) days prior notice, or (iii) CMGR
on ninety (90) days prior notice.
The Company provides intensive two-week, 100-hour training program to all
sales personnel. Topics include merchandising, room layout, product knowledge
and salesmanship and are taught by a full-time professional trainer. The
Company believes that a well-trained sales force helps increase sales,
encourages repeat customers and minimizes employee turnover. The Company
attempts to select its retail managers from the pool of sales personnel
employed by the Company. The average store manager has been with the Company
for approximately seven years, and the sales manager has been with the
Company for over 13 years.
As of June 30, 1996, the Company had approximately 141 employees, of whom
four were executive officers, 51 were engaged in sales, 66 were engaged in
manufacturing and 20 were administrative staff. Approximately 50 of the
Company's manufacturing employees are covered by a collective bargaining
agreement with a local division of the International Union of Electronic,
Electrical, Salaried, Machine and Furniture Workers, AFL-CIO (the "Union").
The Company entered into a three-year collective bargaining agreement with
the Union in September 1994. The Company has never experienced a material
work stoppage and believes that its relationship with its employees is
generally satisfactory.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, nor,
to the Company's knowledge, is any material legal proceeding threatened.
23
<PAGE>
MANAGEMENT
The directors, executive officers and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
------------------------ ----- ---------------------------------------------------
<S> <C> <C>
Marc Zucker 48 Chairman of the Board and Chief Executive Officer
Allan Socher 46 President, Director of Marketing and Director
Theodore Shapiro 62 Executive Vice President, Director of Manufacturing and
Director
Edmund J. McCormick, Jr. 54 Director
William Halpern 42 Chief Financial Officer
</TABLE>
Marc Zucker has been the Chairman of the Board and Chief Executive Officer
of the Company since March 1995. He was a co-founder of RPF Holding and was
its president from 1982 until its merger with Bunk Trunk in March 1995. In
addition, he was Vice President and General Manager of Bunk Trunk from its
inception in 1984 until the merger with RPF Holding. Prior to that, Mr.
Zucker worked in other areas of the retail furniture business for 10 years.
Allan Socher has been the President, Director of Marketing and a Director
of the Company since March 1995. Mr. Socher is also the Company's
spokesperson in its extensive television commercials. He was a
Vice-President, Secretary and a co-founder of RPF Holding from 1982 until its
merger with Bunk Trunk in March 1995 and was a Vice- President and Secretary
of Bunk Trunk from its inception in 1984 until the merger with RPF Holding.
Prior to that, Mr. Socher worked in other areas of the retail furniture
business for 10 years.
Theodore Shapiro has been the Executive Vice President, Director of
Manufacturing and a Director of the Company since March 1995. He was one of
the original founders of Bunk Trunk in 1982 and was its President from
inception until the merger with RPF Holding in March 1995. Mr. Shapiro had
worked in the retail furniture business for over 12 years before founding his
own retail furniture chain, Mr. Sandman Furniture, in 1960.
Edmund J. McCormick, Jr. has been a Director of the Company since March
1995. He has been the Chairman of McCormick & Company, an international
management consulting firm, since 1985.
William Halpern, CPA, has been the Chief Financial Officer of the Company
since March 1995. Prior to that, Mr. Halpern was Chief Financial Officer of
Bunk Trunk and RPF Holding from December 1989 until their merger in March
1995. Prior to that, he served for over 12 years in diversified financial
positions with several corporations, including Xerox Corporation, Colt
Industries and Household International. He holds a BA degree in accounting
from Brooklyn College.
Mr. Zucker and Mr. Socher are brothers-in-law and Mr. Shapiro is the uncle
of their spouses.
The Representative is entitled to designate one member of the Board for a
period of three years after the date of this Prospectus, subject to the
Company's good faith approval. In the event the Representative elects not to
exercise this right, it may designate one person to attend all meetings of
the Board for a period of three years.
Directors are elected to serve until the next meeting of stockholders and
until their successors are elected and qualified. Meetings of stockholders of
the Company will be held on an annual basis upon the completion of this
Offering. However, if at any time a meeting is not held for the election of
directors, the then current directors will continue to serve until their
successors are elected and qualified. Officers serve at the discretion of the
Board.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements effective June 30,
1995, as amended on August 1, 1996, with each of Marc Zucker, Allan Socher
and Theodore Shapiro (the "Principals"). Pursuant to each employment
agreement, Messrs. Zucker, Socher and Shapiro will act as Chairman and Chief
Executive Officer, President and Director of Marketing, and Executive Vice
President and Director of Manufacturing, respectively, and each will be
entitled to receive, among other things, (a) a salary of $125,000 per annum,
(b) such further sum by way of bonus or otherwise as determined by the
Compensation Committee of the Board, or if no such committee is established
by the Board, the entire Board, in each year of the employment agreement, and
(c) pension contributions as set forth in any future plan adopted by the
Company.
24
<PAGE>
In addition, pursuant to their employment agreements, Allan Socher is
entitled to a performance bonus of .75% of revenues and Marc Zucker and
Theodore Shapiro are each entitled to a performance bonus of 1.5% of gross
profit.
Each employment agreement shall continue unless terminated by the Company
for cause, as described in such employment agreement, or terminated by not
less than three (3) years written notice if given by the Company or not less
than three (3) months written notice if given by the respective Principal.
In the event any person shall become beneficially entitled to 50% plus one
share or more of the issued and outstanding Common Stock of the Company
pursuant to an offer, the terms of which are not recommended by the Board,
each of the Principals shall be permitted to terminate his employment
agreement within one week of the completion of the change in control or such
later date as may be agreed upon by such Principal and the Company. In the
event of such termination, the Principal shall be entitled to payment from
the Company of an amount calculated in accordance with the provisions of his
employment agreement.
For a period of one year following the termination of each employment
agreement, such Principal shall not solicit or endeavor to entice away any
employee, director or agent of the Company or any entity affiliated with the
Company. In addition, such Principal may not, at any time after the
termination of the employment agreement, use the names or slogans "Room
Plus", "Just 'Round the Corner" or "A LOT OF LIVING in a Little Space" or any
similar name for the purpose of a business competing with the Company or any
entity affiliated with the Company.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to, as well as any other compensation paid to or earned by, the Chairman and
Chief Executive Officer of the Company and those executive officers
compensated at or greater than $100,000 for services rendered to the Company
in all capacities during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------- ----------------------
Awards
----------------------
Securities
Underlying
Name of Individual Options/
and Principal Position Year Salary(1) Bonus SARS(#)
---------------------------- ------ ---------- --------- ----------------------
<S> <C> <C> <C> <C>
Marc Zucker
Chairman (Chief Executive
Officer) .................. 1995 $172,500 $51,184 250,000(2)
Allan Socher
President and Director of
Marketing ................. 1995 $172,500 $41,861 250,000(2)
Theodore Shapiro
Executive Vice President
and Director of
Manufacturing ............. 1995 $172,500 $46,559 250,000(2)
</TABLE>
- ------
(1) Prior to June 30, 1995, each of the named executive officers were paid a
base salary of $220,000 per annum. Subsequent to June 30, 1995, each of
such officers were paid a base salary of $125,000 per annum as set forth
in their respective employment agreements. See "Management--Employment
Agreements."
(2) Includes warrants to purchase 250,000 shares of Common Stock at a price
of $3.00 per share. Such warrants are exercisable at any time until
__________, 2001 [five years from the date of this Prospectus].
25
<PAGE>
The following table sets forth certain information with respect to options
granted to the named executive officers during the fiscal year ended December
31, 1995, and the aggregated number and value of options exercisable and
unexercisable by the named executive officers as of December 31, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Percent of
Total
Number of Options/
Securities SAR's Exercise
Underlying Granted To or Base
Options/SAR's Employees in Price
Name Granted (#) Fiscal Year ($/Share) Expiration Date
---------------------------- --------------- -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Marc Zucker
Chairman (Chief Executive
Officer) .................. 250,000 33.3% $3.00 ________, 2001(1)
Allan Socher
President and Director of
Marketing ................. 250,000 33.3 3.00 ________, 2001(1)
Theodore Shapiro
Executive Vice President
and Director of
Manufacturing ............. 250,000 33.3 3.00 ________, 2001(1)
</TABLE>
- ------
(1) Warrants are exercisable for a period of five years from the date of this
Prospectus.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Company provides that no director
of the Company shall be personally liable to the Company or its shareholders
for damages for any breach of duty in such capacity, except as otherwise
provided in the Business Corporation Law of the State of New York, as amended
from time to time.
Section 722 of the New York Business Corporation Law empowers a New York
corporation to indemnify any person, made, or threatened to be made, a party
to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type
or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of
the corporation served in any capacity at the request of the corporation, by
reason of the fact that he, his testator or intestate, was a director or
officer of the corporation, or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees actually and necessarily incurred as a
result of such action or proceeding, or any appeal therein, if such director
or officer acted, in good faith, for a purpose which he reasonably believed
to be in, or in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal
actions or proceedings, in addition, had no reasonable cause to believe that
his conduct was unlawful.
In addition, Section 722 of the New York Business Corporation Law states
that a New York corporation may indemnify any person made, or threatened to
be made, a party to an action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he, his testator
or intestate, is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of any
other corporation of any type or kind, domestic or foreign, of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in connection with
the defense or settlement of such action, or in connection with an appeal
therein if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan
or other enterprise, not opposed to, the best interests of the corporation,
except that no indemnification under this paragraph shall be made in
26
<PAGE>
respect of (1) a threatened action, or a pending action which is settled or
otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and
only to the extent that the court on which the action was brought, or, if no
action was brought, any court of competent jurisdiction, determines upon
application that, in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
COMPENSATION OF DIRECTORS
Outside Directors of the Company are currently entitled to receive $250
for attendance at each Board meeting.
27
<PAGE>
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
Percent Ownership of
Number of Shares of Common Stock Outstanding
Common Stock ----------------------------------
Beneficially Owned After
Name and Address of Beneficial Owner Before Offering Before Offering Offering(1)
------------------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
Marc Zucker 733,334 (2) 21.1% 15.7%
91 Michigan Avenue
Paterson, NJ 07503
Allan Socher 733,333 (3) 21.1% 15.7%
91 Michigan Avenue
Paterson, NJ 07503
Theodore Shapiro 733,333 (4) 21.1% 15.7%
91 Michigan Avenue
Paterson, NJ 07503
Edmund J. McCormick, Jr. 78,334 (5) 2.4% 1.6%
91 Michigan Avenue
Paterson, NJ 07503
Swan Alley (Nominees) Limited 775,000 (6) 20.8% 16.4%
40 Queen Street
London ECR IDD England
Frank Terzo 500,000 (7) 14.4% 11.2%
26 Tunnel Street
Floral Park, NY 11001
Kirlin Holding Corp. 224,687 (8) 7.0% 5.3%
6901 Jericho Turnpike
Syosset, NY 11791
Mark Rubin 192,396 (9) 5.9% 4.5%
17 Cardinal Drive
East Hills, NY 11576
All Directors and Officers as a Group
(4 Persons) 2,278,334(10) 57.0% 43.5%
</TABLE>
- ------
(1) Gives effect to the sale of shares of Common Stock in connection with an
offering by the holders of the Directors Shares and the Selling Security
Holders which is being made concurrently with this Offering.
(2) Includes warrants to purchase 250,000 shares of Common Stock which Marc
Zucker is eligible to exercise on the date of this Prospectus.
(3) Includes warrants to purchase 250,000 shares of Common Stock which Allan
Socher is eligible to exercise on the date of this Prospectus.
(4) Includes warrants to purchase 250,000 shares of Common Stock which
Theodore Shapiro is eligible to exercise on the date of this Prospectus.
(5) Includes currently exercisable options to purchase 25,000 shares of
Common Stock.
(6) Includes an option to purchase that portion of the Kirlin Warrants
entitling the holder thereof to purchase 500,000 shares of Common Stock.
(7) Includes an option of Small Cap. Consulting International, Inc. to
purchase that portion of the Kirlin Warrants entitling the holder thereof
to purchase 250,000 shares of Common Stock. Frank Terzo is the President,
sole director and sole stockholder of Small Cap. Consulting
International, Inc
(8) Includes (i) 219,375 shares of Common Stock owned by Kirlin Holding Corp.
and its wholly owned subsidiary, Kirlin Securities, Inc. (collectively,
"Kirlin") and (ii) 5,312 shares of Common Stock owned by David Lindner,
the Chief Executive Officer of Kirlin. Does not include the Kirlin
Warrants to purchase 750,000 shares of Common Stock as to which Kirlin
granted options to purchase to Small Cap. Consulting International, Inc.
and Swan Alley (Nominees) Limited.
28
<PAGE>
(9) Includes currently exercisable warrants to purchase 56,250 shares of
Common Stock.
(10) Includes an aggregate of 775,000 shares of Common Stock issuable upon
exercise of outstanding options and warrants.
SELLING SECURITY HOLDERS
The 100,000 Directors Shares and an aggregate of 670,000 shares of Common
Stock are being registered in this Offering at the expense of the Company for
the account of the holders of the Directors Shares and the Selling Security
Holders, respectively. An aggregate of 75,000 shares of Common Stock being
registered for the account of the Selling Security Holders are not subject to
any contractual restrictions on resale and can be offered for immediate sale
on the date of this Prospectus. Sales of the shares held by the Selling
Security Holders may depress the price of the Common Stock or the Redeemable
Warrants in any market that may develop for such securities.
The following tables set forth certain information with respect to the
holders of the Directors Shares and the Selling Security Holders. The 670,000
shares of Common Stock being registered for the account of the Selling
Security Holders are not being underwritten by the Underwriters in connection
with this Offering. However, the 100,000 Directors Shares are being
underwritten by the Underwriters in connection with this Offering. The
Company will not receive any proceeds from the sale of the Directors Shares
or the shares held by the Selling Security Holders. Except as indicated
below, none of the Selling Security Holders has had any position, office or
other material relationship with the Company within the past 3 years.
DIRECTORS SHARES BEING UNDERWRITTEN IN THIS OFFERING
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of
Shares of Common Stock Securities Shares of Common Stock
Name Prior to Sale to be Sold After Sale(1)
------------------------ ----------------------- ------------ -----------------------
<S> <C> <C> <C>
Edmund J. McCormick, Jr. 78,334 8,334(2) 70,000(2)
Theodore Shapiro 733,333 31,667 701,666(3)
Allan Socher 733,333 31,667 701,666(4)
Marc Zucker 733,334 31,666 701,668(5)
</TABLE>
- ------
(1) The percentage of the outstanding shares of Common Stock to be owned by
the holders of the Directors Shares upon the completion of the sale of
the Common Stock offered hereby is as follows: Edmund J. McCormick
(1.6%); Theodore Shapiro (15.7%); Allan Socher (15.7%); and Marc Zucker
(15.7%).
(2) Also reflects sale of 3,334 shares of Common Stock being registered for
the account of Edmund J. McCormick, Jr. as a Selling Security Holder,
which are not being underwritten in this Offering and are subject to a
six month contractual restriction on resale. See "Selling Security
Holders -- Shares Being Registered for the Account of Selling Security
Holders." The 70,000 shares of Common Stock owned by Mr. McCormick
includes currently exercisable options to purchase 25,000 shares of
Common Stock and such shares are subject to a 24 month contractual
restriction on resale. See "Shares Eligible for Future Sale." Mr.
McCormick is a director of the Company.
(3) Includes warrants to purchase 250,000 shares of Common Stock which
Theodore Shapiro is eligible to exercise on the date hereof. Such shares
are subject to a 24 month contractual restriction on resale. See "Shares
Eligible for Future Sale." Mr. Shapiro is the Executive Vice President,
Director of Manufacturing and a director of the Company.
(4) Includes warrants to purchase 250,000 shares of Common Stock which Allan
Socher is eligible to exercise on the date hereof. Such shares are
subject to a 24 month contractual restriction on resale. See "Shares
Eligible for Future Sale." Mr. Socher is the President, Director of
Marketing and a director of the Company.
(5) Includes warrants to purchase 250,000 shares of Common Stock which Marc
Zucker is eligible to exercise on the date hereof. Such shares are
subject to a 24 month contractual restriction on resale. See "Shares
Eligible for Future Sale." Mr. Zucker is the Chairman of the Board and
Chief Executive Officer of the Company.
29
<PAGE>
SHARES BEING REGISTERED FOR THE ACCOUNT OF SELLING SECURITY HOLDERS
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of
Shares of Common Stock Securities Shares of Common Stock
Name Prior to Sale to be Sold After Sale(1)
------------------------------------- ----------------------- ------------ -----------------------
<S> <C> <C> <C> <C>
Atlantis Capital Partners, Inc. 25,000 25,000 (2) 0
K. Barton 25,000 25,000 (2) 0
M. Behner 25,000 25,000 (2) 0
Ronald Bibbo 25,000 25,000 (2) 0
Monica Carreca 50,000 50,000 (2) 0
Allen Cohen 12,500 12,500 (2) 0
Jeffrey Godin 25,000 25,000 (2) 0
Greg Khononov 12,500 12,500 (2) 0
Kirlin Securities, Inc. 224,687 89,687 (3) 135,000
Edmund J. McCormick, Jr. 78,334 8,334 (4) 70,000(8)
Allan Lyons 3,333 3,333 (2) 0
A.C. Providenti 4,250 4,250 (2) 0
A. Rella 4,250 4,250 (2) 0
Marco Rossi 6,250 6,250 (2) 0
Mark Rubin 192,396 48,646 (5) 143,750(6)
D. Scaringella 4,000 4,000 (2) 0
The Clinton Company 10,000 10,000 (2) 0
Robert Starr 50,000 50,000 (2) 0
Swan Alley (Nominees) Limited 775,000 200,000 (2) 575,000(9)
Peter Lontai 6,250 6,250 (7) 0
Ronald Heineman 28,125 28,125(10) 0
Robert J. Lehrman and Laura L.
Lehrman
JTWROS 3,125 3,125 (7) 0
Susan Cohen, Claudene Bonanno and
Robyn Cohn JTWROS 3,125 3,125 (7) 0
Anthony Agnello and Annemarie Agnello
JTWROS 2,500 2,500 (7) 0 0
Michael Madden and Juliette Madden
JTWROS 3,125 3,125 (7) 0
</TABLE>
- ------
(1) The percentage of the outstanding shares of Common Stock to be owned by
each Selling Security Holder upon completion of the Offering is less than
1%, except in the cases of Kirlin Securities, Inc. (3.2%); Edmund J.
McCormick, Jr. (1.6%); Mark Rubin (3.3%); and Swan Alley (Nominees)
Limited (12.1%).
(2) Shares are subject to a six month contractual restriction on resale. See
"Shares Eligible for Future Sale."
(3) Includes (i) 88,125 shares of Common Stock owned by Kirlin and (ii) 1,562
shares of Common Stock owned by David Lindner, the Chief Executive
Officer of Kirlin. 44,843 shares of Common Stock are not subject to any
contractual restrictions on resale and can be offered for immediate sale
on the date of this Prospectus. 44,844 shares of Common Stock are subject
to a 12 month contractual restriction on resale. See "Shares Eligible for
Future Sale." Kirlin acted as placement agent for the Company's 1995
Private Placement.
(4) Also reflects the sale of 5,000 Directors Shares being underwritten in
this Offering. See "Selling Security Holders -- Directors Shares Being
Underwritten in this Offering."
30
<PAGE>
(5) 7,031 shares of Common Stock are not subject to any contractual
restrictions on resale and can be offered for immediate sale on the date
of this Prospectus. An additional 34,583 and 7,032 shares of Common Stock
are subject to a six and a 12 month contractual restriction on resale,
respectively. See "Shares Eligible for Future Sale." Mark Rubin is a
management consultant to the Company.
(6) Includes currently exercisable options to purchase 56,250 shares of
Common Stock.
(7) 50% of such shares of Common Stock are not subject to any contractual
restrictions on resale and can be offered for immediate sale on the date
of this Prospectus. 50% of such shares of Common Stock are subject to a
12 month contractual restriction on resale. See "Shares Eligible for
Future Sale."
(8) Includes currently exercisable options to purchase 25,000 shares of
Common Stock.
(9) Includes an option to purchase that portion of the Kirlin Warrants
entitling the holder thereof to purchase 500,000 shares of Common Stock.
(10) 1,562 shares of Common Stock are not subject to any contractual
restrictions on resale and can be offered for immediate sale on the date
of this Prospectus. An additional 25,000 and 1,563 shares of Common
Stock are subject to a six and a 12 month contractual restriction on
resale, respectively. See "Shares Eligible for Future Sale."
The sale of the shares of Common Stock held by the Selling Security
Holders may be effected from time to time in transactions (which may include
block transactions by or for the account of the Selling Security Holders) in
the over-the-counter market or in negotiated transactions, through a
combination of such methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale,
or at negotiated prices. If any shares held by the Selling Security Holders,
or options thereon, are sold pursuant to this Prospectus at a fixed price or
at a negotiated price which is in either case other than the prevailing
market price or in a block transaction to a purchaser who resells, or if any
Selling Security Holder pays compensation to a broker-dealer that is other
than the usual and customary discounts, concessions or commissions, or if
there are any arrangements either individually or in the aggregate that would
constitute a distribution of the shares held by the Selling Security Holders,
a post-effective amendment to the Registration Statement of which this
Prospectus is a part would need to be filed and declared effective by the
Commission before such Selling Security Holder could make such sale, pay such
compensation or make such distribution. The Company is under no obligation to
file a post-effective amendment to the Registration Statement of which this
Prospectus is a part under such circumstances.
The Selling Security Holders may effect transactions in their securities
by selling their securities directly to purchasers, through broker-dealers
acting as agents for the Selling Security Holders or to broker-dealers who
may purchase the Selling Security Holders' securities as principals and
thereafter sell such securities from time to time in the over-the-counter
market, in negotiated transactions, or otherwise. Such broker-dealers, if
any, may receive compensation in the form of discounts, concessions or
commissions from the Selling Security Holders and/or the purchasers for whom
such broker-dealers may act as agents or to whom they may sell as principals
or both.
The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
<PAGE>
CERTAIN TRANSACTIONS
The Company leases its manufacturing facility located in Paterson, New
Jersey from M&S Realty Company, which is owned by Theodore Shapiro, a
director and the Executive Vice President and Director of Manufacturing of
the Company. The leases for the facility expire May 31, 1999 (subject to
extension at the option of the Company) and provide for an annual rental of
approximately $277,000. See "Business -- Properties."
In fiscal year 1994, the Company advanced $158,488 on open account to the
three principals of the Company, Marc Zucker, Allan Socher and Theodore
Shapiro. Such advances were non-interest bearing and increased the total net
amount receivable to the Company from the three principals to $373,410. At
December 31, 1995, the three principals' aggregate indebtedness to the
Company had been reduced to $118,945 as a result of net payments to the
Company by the principals aggregating $254,465 during fiscal year 1995. Such
$118,945 balance bears interest at the rate
31
<PAGE>
of 8% per annum and matures in January 1997. During the six months ended June
30, 1996, the aggregate amount due to the Company from the three principals
increased by $45,649 to $164,594. Such increase consisted of additional
advances to the principals in the amount of $39,318 and accrued interest in
the amount of $6,331.
During 1995, the Company agreed to pay $150,000 to the owner of a
commercial property in which the Company had previously leased retail
showroom space in settlement of claims in respect of unpaid rent and related
items. In connection with such settlement, Messrs. Zucker and Socher, who had
been members of the partnership that owned such commercial property,
transferred their interests in such partnership to the remaining partner in
exchange for a release of certain claims against them.
Retail Media Plus was incorporated by the three principals of the Company
in June 1995. Retail Media Plus places all of the Company's advertising and
passes through any cost savings to the Company. For fiscal year 1995 and the
first six months of 1996, the Company reimbursed Retail Media Plus $65,695
and approximately $440,000, respectively, for advertising costs.
In 1995, as partial payment for consulting and advisory services to the
Company, the three principals of the Company contributed an aggregate of 50,000
shares of Common Stock to Edmund J. McCormick, a director of the Company, which
shares were valued at $1.00 per share for purposes of the Company's financial
statements. In addition, the Company paid Mr. McCormick $15,400 for such
services. In June 1995 the Company issued the McCormick Options to McCormick &
Company in connection with an agreement for payment of consultant and advisory
services. Edmund J. McCormick is the sole stockholder of McCormick & Company.
The McCormick Options consist of the right to purchase up to 25,000 shares of
Common Stock at any time at a purchase price of $3.00 per share. See
"Description of Securities -- The McCormick Options."
In June 1996, Edmund J. McCormick loaned the Company $25,000 in connection
with the Company's $150,000 bridge loan. Such loan bears interest at the rate
of 13% per annum and is due on June 18, 1997. Mr. McCormick also received
3,334 shares of Common Stock in connection with his participation in the
bridge financing. Mr. McCormick is also a party to a consulting agreement
with the Company pursuant to which he makes recommendations aimed at reducing
the Company's operating costs. Pursuant to such consulting agreement, Mr.
McCormick is entitled to receive 10% of any cost savings realized by the
Company in its manufacturing processes during the period of September 1, 1995
to November 1, 1996. The amount of such cost savings cannot be determined with
any certainty as of the date of this Prospectus. However, the Company believes
that Mr. McCormick will receive approximately $55,000 pursuant to this
agreement.
All future transactions and/or loans between the Company and officers and
directors will be on terms no less favorable than could be obtained from
independent, third parties and will be approved by a majority of the
directors of the Company disinterested in such transactions and/or loans.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for securities of
the Company, and no prediction can be made as to the effect, if any, that
public market sales of shares or the availability of such shares for sale
will have on the market price of the Common Stock. Nevertheless, sales of a
substantial number of shares of Common Stock in the public market may have a
material adverse impact on their market price.
Upon completion of this Offering, the Company will have 4,220,000 shares
of Common Stock outstanding. Of these shares, the 1,100,000 being
underwritten in this Offering and 75,000 shares being registered for the
account of certain Selling Security Holders will be freely transferable
without restriction under the Securities Act.
Of the remaining 3,045,000 shares held by the existing shareholders of the
Company, 1,700,000 shares will be "restricted" securities within the meaning
of Rule 144 under the Securities Act and will be available for sale in the
public market commencing 24 months after the date of this Prospectus unless
released earlier by the Representative.
The remaining 1,345,000 shares will be freely transferrable without
restriction under the Securities Act, however, they are subject to certain
contractual restrictions on resale. 520,000 and 825,000 of such shares will
be available for sale in the public market commencing six months and twelve
months, respectively, after the date of this Prospectus unless released
earlier by the Representative.
32
<PAGE>
Each of the Company's current officers and directors (all such
stockholders holding an aggregate of 1,500,000 shares of Common Stock,
including the Directors Shares, and warrants and options to purchase an
aggregate of 775,000 shares of Common Stock), have agreed not to publicly
offer, sell or otherwise dispose of any Common Stock (other than the
Directors Shares and 3,334 shares of Common Stock being registered for the
account of Edmund J. McCormick, Jr. as a Selling Security Holder) for a
period of 24 months after the date of this Prospectus without the prior
written consent of the Representative.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares of Common Stock for at least two years
(including the holding period of any prior owner other than an affiliate) is
entitled to sell in a broker's transaction or to a market maker, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
then outstanding shares of Common Stock (approximately 42,200 shares based on
the number of shares expected to be outstanding after this Offering), or (ii)
the average weekly trading volume in the public market during the four
calendar weeks preceding the filing of a Form 144. Sales under Rule 144 are
also subject to certain requirements as to the manner and notice of sale and
the availability of public information concerning the Company. A person who
is not an affiliate of the Company at the time of sale, and has not been an
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the restricted shares for at least three years, would be
entitled to sell shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice or public information
requirements described above.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 10,000,000 shares of Common Stock
having a par value of $.00133 per share. As of the date of this Prospectus,
3,220,000 shares of Common Stock were issued and outstanding and were held of
record by 117 stockholders. An additional 1,581,250 shares of Common Stock
are reserved for issuance upon the exercise of various options and warrants
as of the date of this Prospectus. The holders of Common Stock are entitled
to one vote for each share on all matters submitted to a vote of stockholders
and do not have any cumulative voting rights. Accordingly, the holders of the
majority of the Common Stock entitled to vote in any election of Directors
may elect all of the Directors standing for election. The holders of Common
Stock are entitled to receive such dividends, if any, as may be declared by
the Board from time to time out of legally available funds. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share in all assets of the Company that are legally available for
distribution, after payment of all debts and other liabilities of the
Company. The holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are,
and the shares to be issued in this Offering will be, when issued, legally
issued, fully paid and non-assessable.
REDEEMABLE WARRANTS
Each Redeemable Warrant entitles the registered holder thereof to purchase
one share of Common Stock at a price of $5.50 per share [110% of IPO Price],
subject to adjustment, commencing on ------, 1997 [one year from the date of
this Prospectus]. The Redeemable Warrants expire on ------ ------, 2001 [five
years from the date of this Prospectus]. The Redeemable Warrants will be
subject to redemption at a price of $.05 per Redeemable Warrant commencing
- ------ ------, 1997 [one year from the date of this Prospectus] on 30 days'
written notice provided the average closing bid price of the Common Stock as
reported by NASDAQ SmallCap (or the last sale price if listed on a national
securities exchange), equals or exceeds $7.50 per share [150% of IPO price],
subject to adjustment, for 30 consecutive trading days ending on the
fifteenth trading day prior to the date of the notice of redemption. The
holder of a Redeemable Warrant will lose his right to purchase Common Stock
if such right is not exercised prior to redemption by the Company on the date
for redemption specified in the Company's notice of redemption or any later
date specified in a subsequent notice. Notice of redemption by the Company
shall be given by first class mail to the holders of the Redeemable Warrants
at their addresses set forth in the Company's records.
The exercise price of the Redeemable Warrants and the number and kind of
shares of Common Stock or other securities and property to be obtained upon
exercise of the Redeemable Warrants are subject to adjustment in certain
circumstances including stock splits, stock dividends, subdivisions,
combinations, reclassifications, or issuances of
33
<PAGE>
stock at a price lower than the current market price. Additionally, an
adjustment would be made upon the sale of all or substantially all of the
assets of the Company so as to enable Redeemable Warrant holders to purchase
the kind and number of shares of stock or other securities or property
(including cash) receivable in such event by a holder of the number of shares
of Common Stock that might otherwise have been purchased upon exercise of
such Redeemable Warrant.
The Redeemable Warrants do not confer upon the holder any voting or any
other rights of a stockholder of the Company. Upon notice to the Redeemable
Warrant holders, the Company has the right to reduce the exercise price or
extend the expiration date of the Redeemable Warrants.
The Redeemable Warrants may be exercised upon surrender of the Redeemable
Warrant certificate on or prior to the respective expiration date (or earlier
redemption date) of such Redeemable Warrants at the offices of American Stock
Transfer & Trust Company (the "Warrant Agent"), with the form of "Election to
Purchase" on the reverse side of the Redeemable Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price
(by certified check payable to the order of the Warrant Agent) for the number
of Redeemable Warrants being exercised.
THE RUBIN WARRANTS
The Rubin Warrants are obligations of the Company to Mark Rubin in
connection with the provision of financial consulting services to the
Company. The Rubin Warrants consist of the right to purchase up to 56,250
shares of Common Stock at any time until August 15, 2000 at a purchase price
of $2.00 per share. The Rubin Warrants do not contain any anti-dilution
provisions and do not confer any voting or other rights as a stockholder of
the Company.
THE KIRLIN WARRANTS
The Kirlin Warrants were issued by the Company to Kirlin in connection
with serving as placement agent for the Company's 1995 Private Placement. The
Kirlin Warrants consist of the right to purchase up to 750,000 shares of
Common Stock at any time until ------, 2001 [5 years from the date of this
Prospectus] at a purchase price of $1.20 per share. The exercise price and
the number of shares of Common Stock purchasable upon exercise of the Kirlin
Warrants are subject to adjustment upon the occurrence of certain events,
including stock dividends, stock splits, reverse stock splits,
recapitalizations, reclassifications, merger or consolidation of the Company
with another corporation or a sale of all or substantially all of the
Company's assets, and the exercise price and the number of shares of Common
Stock purchasable pursuant to the Kirlin Warrants shall be proportionately
adjusted after such event. The Kirlin Warrants do not confer any voting or
other rights as a stockholder of the Company.
THE PRINCIPALS WARRANTS
The Principals Warrants were collectively issued by the Company to Marc
Zucker, Allan Socher and Theodore Shapiro as compensation for such
individuals serving as officers of the Company. See "Management -- Executive
Compensation". The Principals Warrants consist of the right to purchase up to
750,000 shares of Common Stock at any time until ------, 2001 [5 years from
the date of this Prospectus] at a purchase price of $3.00 per share. The
exercise price and the number of shares of Common Stock purchasable upon
exercise of the Principals Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
reverse stock splits, recapitalizations, reclassifications, merger or
consolidation of the Company with another corporation or a sale of all or
substantially all of the Company's assets, and the exercise price and the
number of shares of Common Stock purchasable pursuant to the Principals
Warrants shall be proportionately adjusted after such event. The Principals
Warrants do not confer any voting or other rights as a stockholder of the
Company.
THE MCCORMICK OPTIONS
The McCormick Options were issued by the Company to McCormick & Company in
connection with a June 1995 agreement for payment of consultant and advisory
services. The McCormick Options consist of the right to purchase up to 25,000
shares of Common Stock at any time at a purchase price of $3.00 per share.
The McCormick Options do not contain any anti-dilution provisions and do not
confer any voting or other rights as a stockholder of the Company.
34
<PAGE>
TRANSFER AND WARRANT AGENT
The Company has appointed American Stock Transfer & Trust Company as the
transfer agent and registrar for its Common Stock and warrant agent for the
Redeemable Warrants.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, each of the Underwriters named below, for whom The Thornwater
Company, L.P. is acting as Representative, has severally agreed to purchase
from the Company, and the Company has agreed to sell to the Underwriters, on
a firm commitment basis, the respective number of shares of Common Stock,
Directors Shares and/or Redeemable Warrants set forth below opposite each
such Underwriter's name:
<TABLE>
<CAPTION>
Number of Number of
Number of Directors Redeemable
Underwriter Shares Shares Warrants
--------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
The Thornwater Company,
L.P. .....................
H.J. Meyers & Co., Inc. ...
Total ..................... 1,000,000 100,000 2,200,000
=========== =========== ============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Securities are subject to
certain conditions precedent, and that the several Underwriters will purchase
all of the Securities shown above if any of such Securities are purchased.
The Representative has advised the Company that the Underwriters propose
initially to offer the Securities directly to the public at the initial
public offering prices set forth on the cover page of this Prospectus and to
certain dealers who are members in good standing with the National
Association of Securities Dealers, Inc. ("NASD") at such prices less a
concession not in excess of $------ per share of Common Stock and $------ per
Redeemable Warrant. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $------ per share of Common Stock and $------
per Redeemable Warrant to certain other dealers. After the initial public
offering, the public offering prices, concessions and re-allowances may be
changed.
The Company has granted to the Underwriters an option, exercisable during
the 45-day period after the date of this Prospectus, to purchase from the
Company at the initial public offering prices less underwriting discounts and
the non-accountable expense allowance, an aggregate of 165,000 additional
shares of Common Stock and/or an aggregate of 330,000 additional Redeemable
Warrants for the purpose of covering over-allotments, if any. To the extent
that such option is exercised in whole or in part, each Underwriter will have
a firm commitment, subject to certain conditions, to purchase the number of
additional Securities proportionate to such Underwriter's initial commitment.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds of this
Offering, $25,000 of which has already been paid to date.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Representative,
and to the extent not inconsistent with the guidelines of the NASD and the
Rules and Regulations of the Commission, the Company has agreed to pay the
Representative a commission which shall not exceed five percent of the
aggregate exercise price of such Redeemable Warrants in connection with bona
fide services provided by the Representative relating to any warrant
solicitation. In addition, the individual must designate the firm entitled to
payment of such warrant solicitation fee. However, no compensation will be
paid to the Representative in connection with the exercise of the Redeemable
Warrants if (a) the market price of the Common Stock is lower than the
exercise price, (b) the Redeemable Warrants were held in a discretionary
account, or (c) the Redeemable Warrants are exercised in an unsolicited
transaction. Unless granted an exemption by the Commission from Rule 10b-6
under the Exchange Act, the Representative will be prohibited from engaging
in any market-making activities with regard to the Company's securities for
the period from nine business days (or other such applicable periods as Rule
10b-6 may provide) prior to any solicitation of the exercise of the
Redeemable Warrants until the later of their termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Representative may have to receive a fee. As a result, the Representative may
be unable to continue to provide a market for
35
<PAGE>
the Company's Securities during certain periods while the Redeemable Warrants
are exercisable. If the Representative has engaged in any of the activities
prohibited by Rule 10b-6 during the periods described above, the
Representative undertakes to waive unconditionally its right to receive a
commission on the exercise of such Redeemable Warrants.
Pursuant to the Underwriting Agreement, the Company has agreed that, for
three years from the effective date of the Registration Statement of which
this Prospectus is a part, the Representative may designate one person to the
Board of the Company subject to the Company's good faith approval. In the
event the Representative elects not to exercise this right, it may designate
one person to attend all meetings of the Board for a period of three years.
The Underwriters have informed the Company that they do not expect any
sales of shares of Common Stock and Redeemable Warrants to be made to
discretionary accounts.
The Company has also agreed to retain the Representative as the Company's
financial consultant for a period of 24 months from the date hereof and to
pay the Representative the amount of $114,400 for such services, all payable
in advance on the closing date of this Offering as set forth in the
Underwriting Agreement.
The Company and the Underwriters have agreed to indemnify each other
against, or to contribute to losses arising out of, certain civil liabilities
in connection with this Offering, including liabilities under the Securities
Act.
Prior to this Offering there has been no public trading market for the
Company's Securities. The initial public offering prices of the Securities
and the terms of the Redeemable Warrants have been determined by negotiation
between the Company and the Representative. Factors considered in determining
the initial public offering prices of the Securities and the terms of the
Redeemable Warrants, in addition to prevailing market conditions, included
the history of and prospects for the industry in which the Company competes,
an assessment of the Company's management, the prospects of the Company, its
capital structure and such other factors that were deemed relevant.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the
Company 110,000 shares of Common Stock and/or 220,000 Redeemable Warrants
(the "Representative's Warrants"). The Representative's Warrants are
initially exercisable at a price of $5.50 [110% of IPO Price] per share of
Common Stock and $0.11 [110% of IPO Price] per Redeemable Warrant. The shares
of Common Stock and Redeemable Warrants issuable upon exercise of the
Representative's Warrants are identical to those offered to the public. The
Representative's Warrants contain anti-dilution provisions providing for
adjustment of the number of warrants and exercise price under certain
circumstances. The Representative's Warrants grant to the holders thereof
certain rights of registration of the securities issuable upon exercise of
the Representative's Warrants.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made
to the copy of the Underwriting Agreement that is on file as an exhibit to
the Registration Statement of which this Prospectus is a part. See
"Additional Information."
While certain of the officers of the Representative have significant
experience in corporate financing and the underwriting of securities, the
Representative has previously acted as an underwriter in only one "firm
commitment" underwriting and has not acted as the principal underwriter in
any such offerings. Accordingly, there can be no assurance that the
Representative's limited public offering experience will not adversely affect
the Company's offering of the Securities and subsequent development of a
trading market in the Securities, if any.
LEGAL MATTERS
Certain legal matters in connection with this Offering will be passed upon
for the Company by Wilentz, Goldman & Spitzer, P.A., 90 Woodbridge Center
Drive, Woodbridge, New Jersey. Certain legal matters will be passed upon for
the Underwriters by Gersten, Savage, Kaplowitz & Curtin, LLP, New York, New
York.
EXPERTS
The financial statements of the Company appearing in this Prospectus and
Registration Statement have been audited by Ehrenkrantz and Company,
independent public accountants, to the extent and for the periods indicated
in their report appearing elsewhere herein and in the Registration Statement.
Such financial statements have been included herein in reliance upon the
authority of such firm as experts in accounting and auditing.
36
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission in Washington, D.C. with respect to the
Securities offered hereby. This Prospectus, which is part of the Registration
Statement, omits certain information set forth in the Registration Statement,
and reference is made to the Registration Statement and the exhibits and
schedules thereto for further information with respect to the Company and the
Securities offered hereby. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete and in each instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement and such exhibits and schedules may be inspected
without charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its
public reference facilities in New York, New York and Chicago, Illinois, at
prescribed rates. In addition, this Registration Statement, amendments hereto
and electronically filed exhibits are also available to the public through an
Internet Web Site (http://www.sec.gov) maintained by the Commission.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................ F-2
BALANCE SHEETS AS OF DECEMBER 31, 1995 (Audited) AND JUNE 30, 1996
(Unaudited) ................................................................ F-3
STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1995 (Audited) AND THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(Unaudited) ................................................................ F-4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31,
1995 (Audited) AND THE SIX MONTHS ENDED JUNE 30, 1996 (Unaudited) .......... F-5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(Audited) AND THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (Unaudited) ...... F-6
NOTES TO FINANCIAL STATEMENTS ............................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of Room Plus, Inc.
Paterson, New Jersey
We have audited the accompanying balance sheet of Room Plus, Inc. as of
December 31, 1995, and the related statements of operations, statements of
stockholders' equity (deficit) and cash flows for each of the two years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Room Plus, Inc. as of
December 31, 1995, and the results of its operations and cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Certain conditions indicate that the Company may be unable to continue as a
going concern. As discussed in Note 3 to the financial statements, the
Company has suffered recurring losses from operations and has a net capital
deficiency. These conditions raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Management's plans with regard to this matter are described in Note 3.
/s/ EHRENKRANTZ AND COMPANY
-----------------------------------
EHRENKRANTZ AND COMPANY
Roseland, New Jersey
April 25, 1996
(Except for Notes 12, 13 and 14, as to which
the date is July 1, 1996)
F-2
<PAGE>
ROOM PLUS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash .................................................... $ 66,863 $ 22,802
Accounts receivable, less allowance for doubtful accounts
of $77,000 in 1995 .................................... 165,163 113,470
Inventories ............................................. 1,229,561 1,266,928
Notes receivable, officers .............................. -- 164,594
Prepaid expenses ........................................ 144,844 330,577
Deferred income taxes ................................... 102,000 102,000
-------------- -------------
TOTAL CURRENT ASSETS .................................... 1,708,431 2,000,371
-------------- -------------
PROPERTY AND EQUIPMENT, at cost .............................. 2,003,872 2,110,530
Less: Accumulated depreciation ............................. 1,617,197 1,669,734
-------------- -------------
386,675 440,796
-------------- -------------
OTHER ASSETS
Security deposits ....................................... 107,000 146,635
Deferred charges ........................................ -- 243,800
Deferred income taxes ................................... 52,500 52,200
Notes receivable, officers .............................. 118,945 --
Miscellaneous assets .................................... 3,304 3,304
Cash surrender value, officers' life insurance, net of
loans of $163,089 in 1995 ............................. 5,318 --
-------------- -------------
287,067 445,939
-------------- -------------
$ 2,382,173 $ 2,887,106
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Cash overdraft .......................................... $ 128,299 $ --
Current portion of long-term debt ....................... 163,440 125,129
Notes payable, bank ..................................... -- 395,000
Notes payable, other .................................... -- 150,000
Due to related companies ................................ 107,156 290,734
Accounts payable and accrued expenses ................... 1,783,145 1,491,461
Payroll and sales taxes payable ......................... 186,931 118,251
Customer deposits and other advances .................... 586,050 659,909
-------------- -------------
TOTAL CURRENT LIABILITIES ............................... 2,955,021 3,230,484
-------------- -------------
LONG-TERM DEBT, less current portion ......................... 221,648 193,968
-------------- -------------
COMMITMENTS AND CONTINGENCY .................................. -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock
Authorized, 10,000,000 shares at $.00133 par value,
issued and outstanding, 2,325,000 and 2,720,000
shares in 1995 and 1996 .......................... 3,092 3,618
Additional paid-in capital ................................. 1,110,929 1,366,478
Deficit .................................................... (1,908,517) (1,907,442)
-------------- -------------
(794,496) (537,346)
-------------- -------------
$ 2,382,173 $ 2,887,106
============== =============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31 Six Months Ended June 30
------------------------------- -------------------------------
1994 1995 1995 1996
------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
(Unaudited)
REVENUES ........................... $13,215,387 $13,149,018 $ 6,325,885 $6,671,082
COST OF GOODS SOLD ................. 6,003,314 6,922,500 3,780,917 2,919,695
------------- -------------- --------------- ------------
GROSS PROFIT ....................... 7,212,073 6,226,518 2,544,968 3,751,387
------------- -------------- --------------- ------------
EXPENSES
Selling .......................... 4,480,587 4,491,812 2,616,146 2,755,425
General and administrative ....... 2,943,992 3,299,585 1,309,956 977,944
------------- -------------- --------------- ------------
7,424,579 7,791,397 3,926,102 3,733,369
------------- -------------- --------------- ------------
EARNINGS (LOSS) FROM
OPERATIONS ....................... (212,506) (1,564,879) (1,381,134) 18,018
------------- -------------- --------------- ------------
OTHER INCOME (DEDUCTIONS)
Interest expense .................. (16,576) (82,705) (40,260) (23,426)
Miscellaneous income .............. 16,661 23,033 734 6,783
------------- -------------- --------------- ------------
85 (59,672) (39,526) (16,643)
------------- -------------- --------------- ------------
EARNINGS (LOSS) BEFORE INCOME TAXES
(BENEFITS) ....................... (212,421) (1,624,551) (1,420,660) 1,375
INCOME TAXES (BENEFITS) ............ (7,865) (118,103) (28,261) 300
------------- -------------- --------------- ------------
NET EARNINGS (LOSS) ................ $ (204,556) $(1,506,448) $(1,392,399) $ 1,075
============= ============== =============== ============
PRO FORMA NET LOSS DATA
(UNAUDITED):
Loss before provision for income
tax benefits .................. $ (212,421) $(1,624,551) $(1,420,660) $ --
Pro forma income tax benefits .... (30,963) (386,488) (292,150) --
------------- -------------- --------------- ------------
Pro forma net loss ............ $ (181,458) $(1,238,063) $(1,128,510) $ --
============= ============== =============== ============
PRO FORMA NET LOSS PER COMMON SHARES
OUTSTANDING ...................... $ (0.06) $ (0.37) $ (0.35) $ --
============= ============== =============== ============
PRO FORMA COMMON SHARES
OUTSTANDING ...................... 3,180,735 3,386,985 3,180,735 --
============= ============== =============== ============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1995
AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-in
Shares Amount Capital Deficit
----------- --------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 1,500,000 $1,992 $ 230,082 $ (402,069)
STOCK SPLIT ............... -- -- 58,000 --
ISSUANCE OF COMMON STOCK .. 825,000 1,100 822,847 --
NET LOSS .................. -- -- -- (1,506,448)
----------- --------- ------------- --------------
BALANCE, December 31, 1995 2,325,000 3,092 1,110,929 (1,908,517)
ISSUANCE OF COMMON STOCK .. 395,000 526 255,549 --
NET EARNINGS .............. -- -- -- 1,075
----------- --------- ------------- --------------
BALANCE, June 30, 1996
(Unaudited) ............ 2,720,000 $3,618 $1,366,478 $(1,907,442)
=========== ========= ============= ==============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31 Six Months Ended June 30
-------------------------------- ------------------------------
1994 1995 1995 1996
------------- --------------- --------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ............................. $(204,556) $ (1,506,448) $ (1,392,399) $ 1,075
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities
Depreciation ................................. 127,131 136,849 77,619 52,537
Loss on sale of equipment .................... -- 1,335 -- 2,554
Reserve for bad debts ........................ -- 77,412 -- --
Deferred income taxes ........................ (9,826) (121,300) (31,400) 300
(Increase) decrease in operating assets
Accounts receivable ........................ 20,282 (191,438) (21,928) 51,693
Inventories ................................ (20,941) 510,394 435,404 (37,367)
Prepaid expenses ........................... (59,980) (17,331) 674 (89,733)
Deferred charges ........................... -- -- -- (83,800)
Increase (decrease) in operating liabilities
Accounts payable, accrued expenses and other
liabilities ............................. 588,929 (153,984) 187,389 (34,247)
Payroll and sales taxes payable ............ 51,179 78,074 100,613 (68,680)
Cash surrender value, officers' life
insurance ............................... (794) 476 -- 5,318
------------- --------------- --------------- -----------
Net cash provided by (used in) operating
activities .............................. 491,424 (1,185,961) (644,028) (200,350)
------------- --------------- --------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ............. (135,791) (59,124) (21,373) (109,212)
Net loans (to) from officers .................... (158,488) 254,465 338,588 (45,649)
Increase in security deposits and other assets .. (8,122) (247) (3,154) (39,635)
------------- --------------- --------------- -----------
Net cash provided by (used in) investing
activities .............................. (302,401) 195,094 314,061 (194,496)
------------- --------------- --------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) short-term debt .... (34,133) -- 227,490 545,000
Net proceeds (repayment) of long-term debt ...... (88,122) 34,969 13,089 (65,991)
Proceeds from issuance of common stock .......... -- 881,947 -- 75
------------- --------------- --------------- -----------
Net cash provided by (used in) financing
activities .............................. (122,255) 916,916 240,579 479,084
------------- --------------- --------------- -----------
NET INCREASE (DECREASE) IN CASH ................... 66,768 (73,951) (89,388) 84,238
CASH (OVERDRAFT), beginning of period ............. (54,253) 12,515 12,515 (61,436)
------------- --------------- --------------- -----------
CASH (OVERDRAFT), end of period ................... $ 12,515 $ (61,436) $ (76,873) $ 22,802
============= =============== =============== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was established in 1982 under the name RPF Holding Corp. In
March 1995, Bunk Trunk Manufacturing Company, Inc. ("Bunk Trunk") was merged
into the Company. Three months later, the surviving entity, which was named
TAM Industries, Inc., changed its name to Room Plus, Inc.
The Company is located in Paterson, New Jersey, and manufactures high
quality mica furniture. Substantially all sales are made through its 11
retail showrooms located in New York and New Jersey, under the trade name of
Room Plus Furniture.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost determined by the first-in,
first-out method or market.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed on the straight-line and
various accelerated methods over the estimated useful lives of the related
assets as follows:
Automobiles ................................... 3-5 years
Showroom furniture, fixtures and equipment .... 5-7 years
Factory machinery and equipment ............... 5-10 years
Leasehold improvements ........................ 10-39 years
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's assets and liabilities which constitute
financial instruments as defined in Statement of Financial Accounting
Standards No. 107 approximate their recorded value.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF
In March 1995, Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long- Lived Assets and the Long-Lived
Assets to be Disposed of" ("SFAS 121"), was issued. This statement, which
will be required in 1996, establishes accounting standards for the impairment
of long-lived assets, certain indentifiable intangibles and goodwill related
to those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company does not expect that
the adoption of SFAS 121 will have a material impact on the financial
statements.
ADVERTISING
The Company expenses the production costs of advertising the first time
the advertising takes place.
Advertising expense was $960,990 and $996,602 in 1994 and 1995,
respectively.
F-7
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share has been computed by dividing pro
forma net loss by the pro forma number of common shares outstanding. As
required by the Securities and Exchange Commission rules, all warrants,
options and shares issued within one year of the public offering at less than
the public offering price are assumed to be outstanding for each year
presented for purposes of the per share calculation. Such incremental shares
were determined utilizing the treasury stock method as if they were
outstanding for all periods presented.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1996 include, in the opinion of management, all adjustments
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The results for the interim period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire
year.
NOTE 2: MERGER
The merger of Bunk Trunk into the Company in March 1995 has been accounted
for as a pooling of interests and, accordingly, the Company's financial
statements have been restated to include the accounts and operations of Bunk
Trunk for all periods prior to the merger.
Results of operations for the periods prior to the merger with Bunk Trunk
for the year ended December 31, 1995 are as follows:
NET SALES
Room Plus, Inc. ................... $12,978,052
Bunk Trunk ........................ 170,966
---------------
$13,149,018
===============
NET LOSS
Room Plus, Inc. ................... $(1,311,757)
Bunk Trunk......................... (194,691)
---------------
$(1,506,448)
===============
NOTE 3: GOING CONCERN
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has incurred working capital
deficiencies in each of the last three fiscal years and has a deficiency in
assets of approximately $794,500 at December 31, 1995, which raises
substantial doubt about the Company's ability to continue as a going concern.
The Company intends to raise additional capital through short term
borrowings, a private placement and an initial public offering (see Note 14).
The Company believes upon successful completion of the private placement
and initial public offering, the substantial doubt about the Company's
ability to continue as a going concern will be eliminated.
NOTE 4: INVENTORIES
Inventories consist of the following:
December 31, June 30,
1995 1996
-------------- -----------
(Unaudited)
Showrooms ................ $ 957,259 $ 960,185
Raw materials ............ 261,111 296,645
Work-in-process ........... 11,191 10,098
-------------- -----------
$1,229,561 $1,266,928
============== ===========
F-8
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- ------------
(Unaudited)
<S> <C> <C>
Automobiles ...................................... $ 20,304 $ 20,304
Showroom office furniture, fixtures and equipment 410,110 428,194
Factory machinery and equipment .................. 663,353 695,205
Leasehold improvements ........................... 910,105 966,827
-------------- ------------
$2,003,872 $2,110,530
============== ============
</TABLE>
NOTE 6: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- -----------
(Unaudited)
<S> <C> <C>
Obligations under capital leases are payable in monthly installments of
$3,206 maturing in 1999 and bear interest at rates between 10.70% and
19.70%. The obligations are collateralized by machinery and equipment and
guaranteed by three executive officers (see Note 7) ...................... $ 98,494 $101,616
Obligation payable to New York State Department of Finance, with interest,
payable in monthly installments of $9,650 until December, 1996 ........... 121,739 61,626
Various unsecured obligations payable to landlords of showrooms leased by
Room Plus, Inc. and maturing through September, 2001 ..................... 150,000 141,000
A note due a spouse of an executive officer bearing interest at 8%, due
January 15, 1997 ......................................................... 14,855 14,855
-------------- -----------
385,088 319,097
Less: Current portion, including obligations under capital leases of
$26,701 in 1995 .......................................................... 163,440 125,129
-------------- -----------
$221,648 $193,968
============== ===========
</TABLE>
Annual payments of long-term debt are as follows:
Years Ending
December 31 Amount
-------------- -----------
1996 ................................. $163,440
1997 ................................. 63,653
1998 ................................. 47,335
1999 ................................. 68,160
2000 ................................. 36,000
2001 ................................. 6,500
-----------
$385,088
===========
NOTE 7: OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain machinery and equipment under capital leases
with a capitalized cost of $170,628 less accumulated depreciation of $84,106.
F-9
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 7: OBLIGATIONS UNDER CAPITAL LEASES - (Continued)
The following is a schedule of future minimum payments required under the
leases together with their present value as of December 31, 1995:
Years Ending
December 31 Amount
----------------------------------- ----------
1996 ......................... $ 38,472
1997 ......................... 38,472
1998 ......................... 35,948
1999 ......................... 9,008
----------
121,900
Less: Amount representing interest.. 23,406
----------
$ 98,494
==========
NOTE 8: RELATED PARTY TRANSACTIONS
In 1995, the Company received $254,465, net of advances from three
officers. The balance due from the officers has been reduced to an aggregate
of $118,945 at December 31, 1995. The amounts, represented by promissory
notes, bear interest at 8% per annum and mature in January 1997.
During the year ended December 31, 1995, the Company accrued an obligation
of $150,000 to the owner of a commercial property in which the Company had
previously leased retail showroom space in settlement of claims in respect of
unpaid rent and related items. In connection with such settlement, certain
executive officers, who had been members of the partnership that owned such
commercial property, transferred their interests in such partnership to the
remaining partner in exchange for a release of certain claims against them.
In addition, during the year ended December 31, 1995, the Company incurred
advertising costs of approximately $66,000 payable to a related company.
Employment contracts between the Company and three executive officers
through 1998 each provide for minimum annual salaries of $125,000, adjusted
for incentives based on the Company's attainment of specified levels of
sales. In addition, the executive officers receive an allowance for certain
expenses.
See Notes 6, 10, 12, 13 and 14 for other related party transactions.
NOTE 9: INCOME AND DEFERRED TAXES
The Company was an "S" Corporation for Federal and New York state income
tax purposes through September 30, 1995. The stockholders accounted for their
share of the Company's earnings, losses, deductions and credits on their
income tax returns. Accordingly, these statements do not include any
provision for Federal and New York state income taxes prior to September 30,
1995. The Company was subject to New Jersey income taxes for the year ended
December 31, 1995.
The accompanying statements of operations include unaudited pro forma
adjustments for income tax expense which would have been recorded prior to
September 30, 1995 had the Company been subject to Federal and New York
income taxes based on the tax laws in effect during those periods.
A deferred tax asset results from timing differences in the recognition of
depreciation for tax and financial reporting purposes and the recognition of
net operating loss carryforwards for financial statement purposes in 1995 of
approximately $400,000 and $1,300,000. The carryforwards expire between 1998
and 2010. The Company has provided a valuation reserve of approximately
$155,000 in 1995 against the future benefits of the net operating loss
carryforwards.
F-10
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 9: INCOME AND DEFERRED TAXES - (Continued)
The Federal and State income tax expense (benefit) is comprised of the
following:
December 31,
----------------------------- June 30,
1994 1995 1996
----------- ------------- ----------
Current income tax expense
Federal ................ $ -- $ -- $ --
State .................. 9,267 3,197 --
----------- ------------- ----------
9,267 3,197 --
----------- ------------- ----------
Deferred income tax (benefit)
Federal ................ -- (79,400) 234
State .................. (17,132) (41,900) 66
----------- ------------- ----------
(17,132) (121,300) 300
----------- ------------- ----------
$ (7,865) $(118,103) $ 300
=========== ============= ==========
NOTE 10: COMMITMENTS AND CONTINGENCY
COMMITMENTS
Leases for retail showrooms in New York and New Jersey expire at various
dates through October 2005. The leases require the Company to pay certain
operating expenditures including real estate taxes, while certain leases
contain provisions for rent escalations.
The Company leases its manufacturing facility from M & S Realty Company, a
related party, under two leases which expire May 31, 1999 at an annual rental
of approximately $277,000. The leases require the Company to pay certain
operating expenses of the facility, including real estate taxes and
insurance. In addition, the leases contain provisions for rent escalations
and an optional renewal term of fifteen years.
Rent expense for retail showrooms and the manufacturing facility totaled
$1,440,700 and $1,409,500 in 1995 and 1994, respectively.
The Company has automotive and other equipment leases expiring through
December 2000, with future minimum lease payments of approximately $197,000.
Rent expense for these leases totaled approximately $47,000 and $32,000 in
1995 and 1994, respectively.
Approximate future minimum rentals under all operating lease arrangements
are due as follows:
Years Ending
December 31 Amount
-------------- -------------
1996 .... $1,069,300
1997 .... 1,079,200
1998 .... 930,000
1999 .... 628,700
2000 .... 385,000
Thereafter 838,000
-------------
$4,930,200
=============
F-11
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 10: COMMITMENTS AND CONTINGENCY - (Continued)
LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect
the financial position or the results of operations of the Company.
CONSULTING AGREEMENT
A director is a party to a consulting agreement with the Company pursuant to
which he makes recommendations aimed at reducing the Company's operating costs.
Under such consulting agreement, the director is entitled to receive 10% of any
cost savings realized by the Company in its manufacturing processes during the
period September 1, 1995 to November 1, 1996. The amount of such cost savings
cannot be determined with any certainty.
NOTE 11: PENSION PLAN
The Company funds a union sponsored defined contribution pension plan
which covers its union employees. Contributions totaled $16,311 in 1995 and
$16,375 in 1994.
The Company has a deferred compensation plan under section 401(k) of the
Internal Revenue Code. Under the plan, which may be funded at the employer's
discretion, all non-union employees may elect to defer a portion of their
salary. No contributions were made by the Company in 1995 and 1994.
NOTE 12: CAPITAL TRANSACTIONS
In addition to the merger with Bunk Trunk Manufacturing Company, Inc. (see
Note 2) the following occurred in June 1995:
1. The stockholders of the Company approved amendments to its
Certificate of Incorporation increasing the number of authorized shares to
10,000,000 with a designated par value of $.001.
2. The Company approved a 33,333 for 1 stock split whereby 1,999,940
additional shares of common stock were issued and additional paid-in
capital was increased by approximately $58,000.
3. As payment for consulting and advisory services to the Company,
three executive officers contributed an aggregate 50,000 shares of common
stock to a Director as additional compensation. In connection with the
transaction, professional fees related to these services charged to
expenses totaled $50,000 with a corresponding credit to additonal paid-in
capital. In addition, the Company granted an option to this Director of
25,000 common shares at $3 per share.
In September 1995, the Company, through a private placement, sold 750,000
shares of common stock to unrelated investors at $1.33 per share and received
net proceeds of approximately $831,000. The proceeds were utilized for
deposits on leased machinery in the factory, development of additional retail
showrooms and to provide working capital. In connection with the private
placement, the following other events occurred;
1. Three executive officers of the Company received warrants to
purchase 750,000 shares of common stock exercisable at $3 per share any
time up to five years after the Company's shares of common stock are first
offered to the public pursuant to a valid registration statement (see Note
14).
2. Warrants were granted to several lenders in connection with prior
bridge loan financing to purchase 75,000 shares of common stock at $.00133
per share and were exercised in June 1996.
3. A warrant was granted to the placement agents to purchase 75,000
shares at $.00133 per share which was exercised at the closing of the
private placement.
4. Warrants to purchase 750,000 additional common shares exercisable at
$1.20 per share were issued to the placement agents exercisable any time
up to five years after the Company's shares of common stock are first
offered to the public pursuant to a valid registration statement.
F-12
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 12: CAPITAL TRANSACTIONS - (Continued)
5. An unrelated individual who provided financial consulting, received
warrants to purchase 56,250 shares of common stock at $2.00 per share.
On July 1, 1996, the Board of Directors and the shareholders approved a 4
for 3 reverse stock split of the Company's common stock with an increase in
par value to $.00133.
All references in the accompanying financial statements to the number of
common shares for December 31, 1994 have been restated to reflect the stock
splits.
NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended
December 31, Six Months
------------------------ Ended June 30,
1994 1995 1996
---------- ---------- --------------
(Unaudited)
<S> <C> <C> <C>
Cash paid during the year for
Interest ............................... $50,686 $79,065 $ 22,326
Income taxes ........................... 9,267 3,198 --
NON CASH FINANCING ACTIVITY
Three executive officers contributed
50,000 common shares at $1 per share to
a director as additional compensation. $ -- $50,000 $ --
Issuance of 300,000 common shares at
$.80 per share to two consultants ..... -- -- 240,000
Issuance of 20,000 common shares to
unrelated parties and a Director at
$.80 per share for fees in connection
with receiving four bridge loans. ..... -- -- 16,000
</TABLE>
NOTE 14: SUBSEQUENT EVENTS
LINE OF CREDIT AND BANK LOAN
In March and June 1996, the Company received proceeds from a $350,000 line
of credit and a $50,000 note, from BSB Bank and Trust Company bearing
interest at prime plus 2% per annum and maturing in April 1997 and September
1996, respectively. Substantially all of the Company's assets collateralize
the loans, along with personal guarantees by three executive officers of the
Company. Both loans will be repaid from the proceeds of the initial public
offering.
Proceeds from the line were used to open a new retail showroom and provide
working capital. The additional proceeds received in June 1996 will fund
deposits on two new retail showrooms.
PRIVATE PLACEMENT
In July 1996, the Company expects to complete an additional private
placement of 500,000 shares of common stock which will raise approximately
$400,000 in capital, before expenses. The proceeds will be utilized for the
payment of fees incurred in connection with the public offering and provide
for working capital.
AGREEMENTS UNDER NEGOTIATION
In June 1996, the Company entered into a letter of intent with an
underwriting firm with respect to an initial public offering of common stock
and warrants to purchase common stock of the Company, which offering, if
consummated on the terms contemplated by such letter of intent would result
in proceeds to the Company of $5,220,000 before expenses. There is no
assurance that the offering will be completed.
F-13
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 14: SUBSEQUENT EVENTS - (Continued)
The Board has approved consulting agreements with two individuals for
which an aggregate of 300,000 shares of common stock were issued in June 1996
at $.80 per share.
In June 1996, the Company received four bridge loans totaling $150,000
from unrelated parties and a Director in the form of promissory notes which
will bear interest at 13% and mature in June 1997. In addition, the Company
issued 20,000 shares of common stock to the holders of the notes. The
effective price of $.80/share for such common stock represent a cost of
financing and will be amortized over the term of the promissory notes as
interest expense. The proceeds of the bridge loans will be used to finance
anticipated costs of a new retail showroom.
14
<PAGE>
==============================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or the Underwriters. This
Prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any security other than the Securities offered by this
Prospectus, nor does it constitute an offer to sell or a solicitation of an
offer to buy any of the Securities by anyone in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making
such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein
is correct as of any time subsequent, to the date hereof, or that there has
been no change in the affairs of the Company since the date hereof.
------
TABLE OF CONTENTS
Page
--------
PROSPECTUS SUMMARY ................ 3
RISK FACTORS ...................... 7
USE OF PROCEEDS ................... 11
DILUTION .......................... 12
CAPITALIZATION .................... 13
DIVIDEND POLICY ................... 13
SELECTED FINANCIAL DATA ........... 14
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ........ 15
BUSINESS .......................... 18
PRINCIPAL STOCKHOLDERS ............ 28
SELLING SECURITY HOLDERS .......... 29
CERTAIN TRANSACTIONS .............. 31
SHARES ELIGIBLE FOR FUTURE SALE ... 32
DESCRIPTION OF SECURITIES ......... 33
UNDERWRITING ...................... 35
LEGAL MATTERS ..................... 36
EXPERTS ........................... 36
ADDITIONAL INFORMATION ............ 36
FINANCIAL STATEMENTS .............. F-1
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
===============================================================================
<PAGE>
===============================================================================
1,100,000 Shares of Common Stock
and
2,200,000 Redeemable Warrants
ROOM PLUS
A LOT OF LIVING IN A LITTLE SPACE(R)
ROOM PLUS, INC.
------
PROSPECTUS
------
THE THORNWATER COMPANY, L.P.
_______ __, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Company provides that no director
of the Company shall be personally liable to the Company or its shareholders
for damages for any breach of duty in such capacity, except as otherwise
provided in the Business Corporation Law of the State of New York, as amended
from time to time.
Section 722 of the New York Business Corporation Law empowers a New York
corporation to indemnify any person, made, or threatened to be made, a party
to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type
or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of
the corporation served in any capacity at the request of the corporation, by
reason of the fact that he, his testator or intestate, was a director or
officer of the corporation, or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees actually and necessarily incurred as a
result of such action or proceeding, or any appeal therein, if such director
or officer acted, in good faith, for a purpose which he reasonably believed
to be in, or in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal
actions or proceedings, in addition, had no reasonable cause to believe that
his conduct was unlawful.
In addition, Section 722 of the New York Business Corporation Law states
that a New York corporation may indemnify any person made, or threatened to
be made, a party to an action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he, his testator
or intestate, is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of any
other corporation of any type or kind, domestic or foreign, of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in connection with
the defense or settlement of such action, or in connection with an appeal
therein if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan
or other enterprise, not opposed to, the best interests of the corporation,
except that no indemnification under this paragraph shall be made in respect
of (1) a threatened action, or a pending action which is settled or otherwise
disposed of, or (2) any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation, unless and only to the
extent that the court on which the action was brought, or, if no action was
brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount
and expenses as the court deems proper.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses, other than Underwriters' discounts and commissions, in
connection with this Offering which will be paid by the Company are estimated
to be substantially as follows:
<TABLE>
<CAPTION>
Amount
Payable
Item by Company
-------------------------------------------------------------------- --------------
<S> <C>
Registration fee ................................................... $8,856
NASDAQ Filing Fee. ................................................. *
National Association of Securities Dealers, Inc. filing fee. ....... 2,884
Blue Sky fees and expenses ......................................... *
Directors and Officers Insurance ................................... *
Printing and engraving expenses. ................................... *
Legal fees and expenses (other than Blue Sky fees and expenses). ... *
Accountant's fees and expenses ..................................... *
Representative's non-accountable expenses. ......................... *
Transfer agent fees and expenses ................................... *
Miscellaneous. ..................................................... *
--------------
TOTAL .............................................................. $ *
==============
</TABLE>
- ------
* To be filed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all securities issued and sold by the
Company since 1993.
<TABLE>
<CAPTION>
DATE OF AMOUNT OF PERSONS TO
ISSUE TITLE SECURITIES CONSIDERATION WHOM SOLD
------------------ -------------- ------------ --------------- --------------------------------
<S> <C> <C> <C> <C>
September 27, 1995 Common Stock 7,500 $1.33/share Nicoll Bills Borrow
7,500 Maria L. Finley, M.D.
7,500 Allen J. Fishman
7,500 Richard L. and Ricki Hoffman
7,500 Stanley Konchinski
3,750 Marc Wolfman
3,750 Arthur S. and Rene Brenner
5,250 Robert Cash
3,750 Angelo and Olen Dias
7,500 Ottavio Fazio
3,750 Vito and Maria Giroffi
3,750 Charles and Estelle Goldfard
3,000 Jeffrey Gross
3,750 Murray and Lorie Jonas
3,750 Alfred and Aurora Kramer
4,000 Martin Newman
3,750 Emmett O'Hare
7,500 Milton and Blanche Prane
7,500 Adam I. Ferguson
3,750 James Keagan and Marilyn Pickel
750 Lavoisier Dsa
3,750 William and Anita Baron
3,750 Alfred M. Weiss
7,500 N.E.P. Trading Corp.
3,750 Joseph Sterrantino
II-2
<PAGE>
DATE OF AMOUNT OF PERSONS TO
ISSUE TITLE SECURITIES CONSIDERATION WHOM SOLD
------------------ -------------- ------------ --------------- --------------------------------
September 27, 1995 Common Stock 7,500 $1.33/share Alan Royter
3,750 Louis Fountas, Jr.
3,750 Frank and Joann Aguis
3,750 Robert Lyons
4,500 Helen and Salvatore Cerrito
7,500 Keogh Plan of Francis H. McNamara
3,750 Beth and Marc Abrams
7,500 Andrea Garavuso and Andrew
Adlerstein
3,750 Sylvia and Andrew Adlerstein
7,500 Gerald and Gina Benedetto
3,750 Angelo D'Avino
3,750 Kim A. Donop
3,750 Robert J. Lehrman
3,750 David Lindner
3,750 Robert Lyons FBO Pearl Lyons
3,750 Michael and Juliette Madden
7,500 Christopher Parker
7,500 Robert Rosenberg
3,750 Ronald Wong
7,500 Peter A. Wutzer
3,750 Sarah Giambattista
3,750 Marilyn Reif
7,500 David Dorman
3,750 Donald Berger
7,500 Salvatore Mingoia
3,750 Elihu Zucker
3,750 Summer Family Trust
3,750 Alfred A. Gelfond
1,875 Josephine Falco
3,750 Harvey Jablon
3,750 Larry Dorfman
1,875 Marguerite McGrady
3,750 David Silver
3,750 Esther and Edward Corneilson
3,750 Michael Boxer
3,750 Herman Gross
3,750 Robert Chapman
7,500 Allan R. Lyons
15,000 Jomalco Promotions, Inc.
1,500 Bela Lakra
3,750 Joseph Scerra
750 Loeffler DSA
1,500 Rebecca and Jay Karp
1,500 Joan Boczkus
1,875 Seena and Fred Leavitt
3,750 George Walsh
7,500 John and Gertrude Klinger
7,500 John B. Klinger
18,750 Mark Rubin Keogh
II-3
<PAGE>
DATE OF AMOUNT OF PERSONS TO
ISSUE TITLE SECURITIES CONSIDERATION WHOM SOLD
------------------ -------------- ------------ --------------- --------------------------------
September 27, 1995 Common Stock 18,750 $1.33/share Mark Rubin
3,750 Frederic Laffie
3,750 Robert and Phyllis Levine
750 Doris Bader
22,500 Noury & Sons Oriental Rugs
7,500 Elliott Lichtstein
75,000 Kirlin Holding Corp.
75,000 Swan Alley (Nominees) Limited
37,500 The Clinton Company
3,750 Arthur Del Savio
75,000 Kirlin Securities, Inc.
October 16, 1995 Common Stock 2,250 $1.33/share Michael and Rhonda Wach
2,250 Betty Zarro
2,250 Larry Dorfman
1,875 Daniel and Antoinette Carbonaro
938 Marguerite McGrady
938 Josephine Falco
3,750 Simone and Justine Souquet
3,750 Justine Souquet and Vito Lucento
1,875 Michel and Linda Buscio
3,000 James Aitkenhead
18,750 Scott Rudolph
3,000 Arnold and Marsha Kanarek
2,250 Harvey Jablon
18,750 G.G. Management Co., Inc.
56,250 Kirlin Holding Corp.
November 22, 1995 Common Stock 7,500 $1.33/share Karen Balkin
3,750 Robert Uhler ACF Kjersten
Bunker
3,750 Ocrena and Lloyd Turner
June 17, 1996 Common Stock 50,000 $.80/share Mark Rubin
250,000 Frank Terzo
June 18, 1996 Common Stock 3,333 $.80/share Mark Rubin
3,333 Allan Lyons
3,334 Edmund J. McCormick
10,000 The Clinton Company
June 30, 1996 Common Stock 14,063 $.00133/share Mark Rubin
13,125 Kirlin Holding Corp.
6,250 Peter Lontai
28,125 Ronald Heineman
1,562 David Lindner
3,125 Robert J. Lehrman and Laura L.
Lehrman JTWROS
3,125 Susan Cohen, Claudene Bonanno and
Robyn Cohn JTWROS
2,500 Anthony Agnello and Annemarie
Agnello JTWROS
II-4
<PAGE>
DATE OF AMOUNT OF PERSONS TO
ISSUE TITLE SECURITIES CONSIDERATION WHOM SOLD
------------------ -------------- ------------ --------------- --------------------------------
June 30, 1996 Common Stock 3,125 $.001/share Michael Madden and Juliette Madden
JTWROS
July 25, 1996 Common Stock 25,000 $ .80/share Atlantis Capital Partners, Inc.
25,000 K. Barton
25,000 M. Behner
25,000 Ronald Bibbo
50,000 Monica Carreca
12,500 Alan Cohen
25,000 Jeffrey Gudin
12,500 Greg Khononov
4,250 A.C. Providenti
4,250 A. Rella
6,250 Marco Rossi
31,250 Mark Rubin
4,000 D. Scaringella
50,000 Robert Starr
200,000 Swan Alley (Nominees) Limited
</TABLE>
The securities issued on September 27, 1995, October 16, 1995 and November
22, 1995 were issued in reliance on the exemption provided by Rule 504 of
Regulation D.
All of the other securities listed above were issued in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933 (the
"Securities Act") and/or Regulation D promulgated thereunder and no public
offering was involved. All of such purchasers acquired the securities for
investment, and there was no general advertising or general solicitation in
connection with the offer and sale of the securities. The Company believes that
each such purchaser was given or had access to detailed financial and other
information with respect to the Company and in connection with these sales. The
Company believes that each such purchaser is either an accredited investor (as
defined in Regulation D) or a "sophisticated" investor. Other than the
transactions listed above, the Company has carried out no other unregistered
sales of securities since 1993.
ITEM 27. EXHIBITS
See Exhibit Index on Page II-9
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the provisions set forth in the Company's
Certificate of Incorporation or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission (the
"Commission"), such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the successful defense
of any action, suit or proceeding), is asserted by such director, officer or
controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes as follows:
(1) To provide the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) That for purposes of determining any liability under the Securities
Act, treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the small business issuer under Rule 424(b)(1),
or (4) or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declares it effective.
II-5
<PAGE>
(3) That for purposes of determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time as
the initial bona fide offering of those securities.
(4) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(5) To file a post effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this Amendment
No. 2 to the registration statement to be signed on its behalf by the
undersigned, in the City of Paterson, State of New Jersey, on October 2,
1996.
ROOM PLUS, INC.
By: /s/ Marc Zucker
---------------------------------
Marc Zucker
Chairman and Chief Executive
Officer
<PAGE>
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities and on the dates stated.
/s/ Marc Zucker Dated: October 2, 1996
- ---------------------------------------------
Marc Zucker
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ William Halpern* Dated: October 2, 1996
- --------------------------------------------
William Halpern
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Allan Socher* Dated: October 2, 1996
- --------------------------------------------
Allan Socher
Director, President and
Director of Marketing
/s/ Theodore Shapiro* Dated: October 2, 1996
- --------------------------------------------
Theodore Shapiro
Director, Executive Vice President
and Director of Manufacturing
/s/ Edmund J. McCormick, Jr.* Dated: October 2, 1996
- --------------------------------------------
Edmund J. McCormick, Jr.
Director
*By: /s/ Marc Zucker
----------------------------------------
Marc Zucker
Attorney-in-fact
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- -------------------------------------------------------------------------------------- --------
<S> <C> <C>
1 Form of Underwriting Agreement among the Company, the holders of the Directors Shares
and The Thornwater Company, L.P.
**3.1 Certificate of Incorporation of the Company, as amended(CE)
**3.2 Restated and Amended By-laws of the Company
4.1 Form of Representative Warrant Agreement between the Company and The Thornwater
Company, L.P., with form of Warrant attached
4.2 Form of Warrant Agreement between the Company and American Stock Transfer & Trust
Company, with form of Warrant attached
**4.3 Form of Warrant issued by the Company to Allan J. Socher, Theodore Shapiro, Marc I.
Zucker and Kirlin Securities Corp.
**4.4 Form of Warrant issued by the Company to Mark Rubin
5 Opinion of Wilentz, Goldman & Spitzer, P.A.
10.1 Employment Agreement dated June 16, 1995 between the Company and Allan J. Socher
10.2 Employment Agreement dated June 16, 1995 between the Company and Theodore Shapiro
10.3 Employment Agreement dated June 16, 1995 between the Company and Marc I. Zucker
**10.4 Lease dated June 1, 1984 between M&S Realty Company and Bunk Trunk Manufacturing
Company, Inc., as amended on December 1, 1988 and January 2, 1996(P)
**10.5 Lease dated June 6, 1996 between Milford Management Corp., as agent, and the
Company(P)
**10.6 Lease dated November 1, 1991 between Dilstan Realty Corporation and Room Plus
Furniture of Westchester, Inc.(P)
**10.7 Indenture of Lease dated October 1, 1988 between Daper Realty, Inc. and RPF Holding
Corporation(P)
**10.8 Lease dated June 1, 1983 between Hannon's and the Company, as modified by an Extension
of Lease dated July 31, 1993(P)
**10.9 Agreement of Lease dated August 9, 1985 between Patrician Equities Corp. and Room Plus
Furniture of East Brunswick, as modified by a Lease Extension Agreement dated August
25, 1995(P)
**10.10 Lease dated August 26, 1987 between County Glen Associates and Room Plus Furniture,
Inc.(P)
**10.11 Agreement of Lease between Austin Mall Associates and Room Plus Furniture of Forest
Hills, Inc.(P)
**10.12 Sublease Agreement dated February 5, 1988 between NYNEX Business Information Systems
Company and RPF Holding Corporation, as modified by a letter agreement dated March 25,
1993(P)
**10.13 Shopping Center Agreement of Lease dated October 1, 1995 between Alexander Carpet
Company and the Company(P)
**10.14 Lease dated November 21, 1995 between 205/215 Lexington Limited Partnership and the
Company(P)
**10.15 Assignment of Lease dated June 26, 1996 between Reliable Broadway, Inc. and the
Company(P)
**10.16 Lease dated January 11, 1996 between Comalgri Holding Corp. and the Company(P)
10.17 Form of Financial Advisory and Investment Banking Agreement between the Company and
The Thornwater Company, L.P.
**11 Calculation of Net Income (Loss) per Common Share
23.1 Consent of Ehrenkrantz and Company
**23.2 Consent of Wilentz, Goldman & Spitzer, P.A. (included in Exhibit 5)
**24 Power of Attorney (included in the Registration Statement following the signature
page)
**27 Financial Data Schedule
</TABLE>
- ------
**Previously filed
(P) Exhibit is filed in paper pursuant to a continuing hardship exemption.
(CE) Electronic confirming of Exhibit is filed pursuant to a temporary
hardship exemption
<PAGE>
ROOM PLUS, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1996
<PAGE>
The Thornwater Company, L.P., as
Representative of the several Underwriters.
107A East 37th Street
New York, N.Y. 10016
Dear Sirs:
The undersigned, Room Plus, Inc., a New York corporation (the
"Company"), hereby confirms its agreement with The Thornwater Company L.P., as
representative, (being referred to herein alternatively as "you" or the
"Representative") of the several underwriters (each an "Underwriter" and
collectively "Underwriters"), as follows:
1. Introduction. Pursuant to this Underwriting Agreement
("Agreement"), (i) the Company proposes to issue and sell to you an aggregate of
1,000,000 shares (the "Company Firm Shares") of the common stock, par value
$.00133 per share, of the Company (the "Common Stock") and 2,200,000 Redeemable
Common Stock Purchase Warrants (the "Redeemable Warrants"), each exercisable to
purchase one share of Common Stock, at any time commencing one year after the
date on which the Registration Statement (as defined in Section 2(a) hereof)
shall have become, or declared, effective (the "Effective Date"), and ending
five years thereafter (the Company Firm Shares and Redeemable Warrants are
called the "Company Firm Securities"); and each of the stockholders of the
Company named in Schedule A hereto (the "Selling Stockholders"), acting
severally and not jointly, proposes to sell to you the respective number of
shares of Common Stock set forth opposite the Selling Stockholders' names on
Schedule A for an aggregate of 100,000 shares of Common Stock (the "Selling
Stockholder Shares; and together with the Company Firm Shares, the "Firm
Securities"). The Redeemable Warrant exercise price, subject to adjustment as
described in the agreement providing for the Redeemable Warrants (the "Public
Agreement"), shall be $ _____ per share. The Common Stock and Redeemable
Warrants will be separately tradeable immediately upon issuance and may be sold
by the Underwriters separately and not necessarily together or in any particular
ratio.
Commencing one year from the date of issuance, the Redeemable Warrants
are subject to redemption by the Company at $.05 per Redeemable Warrant, if the
closing bid price of the
<PAGE>
Common Stock exceeds $____ per share for thirty consecutive trading days ending
on the 15th trading day immediately prior to the date of the redemption notice.
Upon your request, as provided in Section 3 of this Agreement, the
Company shall also issue and sell to you up to an additional 165,000 shares of
Common Stock and/or 330,000 Redeemable Warrants for the purpose of covering
over-allotments in the sale of the Firm Securities (the "Over-allotment
Option"). Such additional securities are hereinafter referred to as the "Option
Securities." The Firm Securities and the Option Securities are hereinafter
sometimes referred to as the "Securities." The Company also proposes to issue
and sell to you, pursuant to the terms of the warrant agreement, dated _______,
1996 between you and the Company (the "Underwriter's Warrant Agreement")
warrants (the "Underwriter's Warrants") to purchase up to 110,000 shares of
Common Stock and/or 220,000 Redeemable Warrants. The Underwriter's Warrants
shall be exercisable during the 4-year period commencing one (1) year from the
date of the Prospectus (as defined in Section 2(a) hereof) at a price of $____
per share of Common Stock or $.11 per Redeemable Warrant, subject to adjustment
in certain events to protect against dilution. The securities issuable upon
exercise of the Underwriter's Warrants are hereinafter sometimes referred to as
the "Underwriter's Securities." The Securities, the Underwriter's Warrants and
the Underwriter's Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
2. Representations and Warranties of the Company and Selling
Shareholders.
I. The Company represents and warrants to the Underwriters as of the
date hereof that:
a. Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement"), and an
amendment or amendments thereto, on Form SB-2 (No. 333- ), including any related
preliminary prospectus (the "Preliminary Prospectus"), for the registration of
the Securities and the Underwriter's Securities, under the Securities Act of
1933, as amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the rules and regulations (the "Regulations") of the Commission
promulgated under the Act. Before the Registration
2
<PAGE>
Statement becomes effective, the Company will not file any amendment to such
Registration Statement to which you shall have reasonably objected after having
been furnished with a copy thereof. Except as the context may otherwise require,
such Registration Statement, as amended, on file with the Commission at the time
the Registration Statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein and all information deemed to be a part
thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement," and the form
of prospectus, in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations (or included in the Registration Statement, if no
filing under Rule 424 is required), is hereinafter called the "Prospectus."
b. On the Effective Date and at all times subsequent thereto up to
Closing Date I and Closing Date II, if any (as such terms are defined in Section
3(d) hereof), the Registration Statement and the Prospectus will comply in all
material respects with the applicable provisions of the Act and the Regulations;
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The representation and warranty made in this Section 2(b)
does not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
expressly for use in the Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
c. This Agreement, the Underwriter's Warrant Agreement and the
Financial Advisory and Investment Banking Agreement (as defined in Section 5(r)
hereof), have been duly and validly authorized by the Company, and this
Agreement constitutes, and the Public Warrant Agreement, the Underwriter's
Warrant Agreement and the Financial Advisory and Investment Banking Agreement,
when executed and delivered pursuant to this Agreement, will (assuming due
execution by the Representative) each constitute a valid and binding agreement
of the Company, enforceable against the Company in accordance with its
respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization,
3
<PAGE>
moratorium, fraudulent conveyance or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification, contribution or
exculpation provision may be limited under applicable Federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The Securities and the Underwriter's Warrants to be issued and
sold by the Company pursuant to this Agreement, the Underwriter's Securities
issuable upon exercise of the Underwriter's Warrants and payment therefor, have
been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders; the Securities,
the Underwriter's Warrants and the Underwriter's Securities are not and will not
be subject to the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company; and all corporate
action required to be taken for the authorization, issuance and sale of the
Securities, the Underwriter's Warrants and the Underwriter's Securities has been
duly and validly taken. The Underwriter's Warrants constitute a valid and
binding obligation of the Company, enforceable in accordance with its terms, to
issue and sell, upon exercise in accordance with the terms thereof, the number
and type of the Company's securities called for thereby; except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification, contribution or
exculpation provision may be limited under applicable Federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
d. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the
issuances and sales of all such securities complied in all material respects
with applicable Federal and state securities laws; the holders thereof have no
rights of rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities were
4
<PAGE>
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company.
e. Except as set forth in the Registration Statement and the
Prospectus, the Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, respectively, free and clear of
all liens, encumbrances, claims, security interests, defects and restrictions of
any material nature whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable.
f. There is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding pending or to the knowledge of the Company
threatened against, or involving the properties or business of the Company which
if adversely determined could reasonably be expected to materially and adversely
affect the financial position, or prospects, or business of the Company, except
as referred to in the Prospectus.
g. All contracts and other documents required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement have been described in the Registration Statement or the
Prospectus or filed with the Commission as Exhibits to the Registration
Statement, as required.
h. The financial statements of the Company, together with the related
notes, included in the Registration Statement and Prospectus fairly present the
financial position and the results of operations of the Company, at the dates
and for the periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved. There has been no material
adverse change in financial condition or results of operations of the Company,
or to the knowledge of the Company, any development involving a prospective
change in the condition or prospects of the Company, financial or otherwise,
since the date of the financial statements included in the Prospectus, except as
disclosed therein.
i. Ehrenkrantz and Company, whose reports is filed with the Commission
as a part of the Registration Statement, is an independent accountant as
required by the Act and the Regulations.
5
<PAGE>
j. Except as otherwise set forth in the Prospectus, the Company does
not own, directly or indirectly, an interest in any corporation, partnership,
joint venture, trust or other business entity. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which its operations require such qualification or licensing, except where the
failure to be so qualified or licensed would not have a material adverse affect
on the Company. The Company has all requisite corporate power and authority, and
all necessary material authorizations, approvals, orders, licenses, certificates
and permits of and from all governmental regulatory officials and bodies, to own
or lease its properties and conduct its business as described in the Prospectus.
The Company is, and has been, doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates and permits and with
all applicable Federal, state and local laws, rules and regulations, including
but not limited to laws and regulations relating to environmental matters and
employee health and safety matters, except where non-compliance would not have a
material adverse effect on the Company, and none of the aforementioned
authorizations, approvals, orders, licenses, certificates or permits have been
suspended or revoked, nor to the knowledge of the Company are there any
proceedings pending or threatened which could result in a suspension or
revocation thereof. The Company has all requisite corporate power and authority
to enter into this Agreement, the Public Agreement, the Underwriter's Warrant
Agreement and the Financial Advisory and Investment Banking Agreement and to
carry out the provisions and conditions hereof and thereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained. No consent, authorization or order of, and no filing with, any court,
government agency or other body is required for the issuance of the Securities
and the Underwriter's Securities, pursuant to this Agreement, the Public
Agreement and the Underwriter's Warrant Agreement, and as contemplated by the
Prospectus, except with respect to applicable Federal and state securities laws.
k. The outstanding debt, the property and the business of the Company
conforms in all material respects to the descriptions thereof contained in the
Registration Statement and Prospectus.
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l. The Securities, the Underwriter's Warrants, the Underwriter's
Securities and any other securities issued or to be issued by the Company on or
before the Closing Dates (as defined in Section 3(d) hereof) described herein
conform, or will conform when issued, in all material respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
m. Except as set forth in the Prospectus, no material default exists in
the due performance and observance of any term, covenant or condition of any
license, contract, indenture, mortgage, deed of trust, note, loan or credit
agreement, or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company are subject, which default would reasonably be expected to
have a materially adverse effect on the financial condition or business of the
Company.
n. The Company is not in violation of any term or provision of its
Certificate of Incorporation or By-Laws. Neither the execution and delivery of
this Agreement, nor the issuance and sale of the shares of Common Stock, the
Redeemable Warrants, the Underwriter's Warrants and the Underwriter's
Securities, nor the consummation of any of the transactions contemplated herein
or therein, nor the compliance by the Company with the terms and provisions
hereof has materially conflicted with, or will materially conflict with, or has
resulted in, or will result in, a material breach of, any of the terms and
provisions of, or has constituted or will constitute a material default under,
or has resulted in or will result in the creation or imposition of any lien,
charge or encumbrance upon the property or assets of the Company pursuant to the
terms of any indenture, mortgage, deed of trust, note, loan or credit agreement
or any other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company is a party, or
by which the Company is or may be bound, or to which any of the property or
assets of the Company is subject; nor will such action result in any material
violation of the provisions of the Certificate of Incorporation or the By-Laws
of the Company or any contract or agreement, or any statute or any order, rule
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or regulation applicable to the Company or any other regulatory authority or
other governmental body having jurisdiction over the Company.
o. Except as disclosed in the Prospectus, all taxes which are due and
payable from the Company have been paid in full, unless being contested in good
faith by the Company, and the Company does not have any tax deficiency or claim
outstanding, proposed or assessed against it.
p. Subsequent to the respective dates as of which information is given
in the most recently circulated Preliminary Prospectus included as a part of the
Registration Statement, and except as may otherwise be indicated or contemplated
herein or therein, (i) the Company has not issued any securities, (ii) declared
or paid any dividend or made any other distribution on or in respect to its
capital stock; (iii) incurred any material liability or obligation, direct or
contingent, for borrowed money; or (iv) entered into any transaction other than
in the ordinary course of business.
q. To the Company's knowledge, the Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or part thereof.
r. On the Effective Date, (i) the authorization of capital stock of the
Company is as set forth in the Registration Statement; and (ii) not more than an
aggregate of 3,220,000 shares of Common Stock shall be issued and outstanding
excluding: (A) the 2,200,000 shares of Common Stock issuable upon the exercise
of the Redeemable Warrants; (B) up to an additional 165,000 shares of Common
Stock issuable upon the exercise of the Over-allotment Option or the 330,000
shares issuable upon the exercise of the Redeemable Warrants issuable upon the
exercise of the Over-allotment Option; (C) the 110,000 shares of Common Stock
issuable upon exercise of the Underwriter's Warrants or the 220,000 shares of
Common Stock issuable upon exercise of the Redeemable Warrants issuable upon the
exercise of the Underwriter's Warrant (which warrants are identical to the
Redeemable Warrants); and (D) 1,581,250 shares of Common Stock issuable upon
exercise of warrants issued and outstanding as of __________, 1996. Other than
the shares of Common Stock already issued (within the meaning of the immediately
preceding sentence), the Securities, the Underwriter's Warrant and the
Underwriter's Securities to be offered in or in connection with the public
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offering, no other shares of capital stock or securities convertible into
capital stock shall be outstanding or reserved for issuance at the completion of
the proposed public offering without the consent of the Representative.
s. Except for the registration rights granted under the Underwriter's
Warrant Agreement, to the Selling Stockholders named in the Registration
Statement or as disclosed in the Prospectus, no holders of any securities of the
Company or of any options, warrants or convertible or exchangeable securities of
the Company exercisable for or convertible or exchangeable for securities of the
Company have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company.
t. Assuming that there will be two "market makers" for the Common
Stock, at least 300 beneficial owners of the Common Stock and a sufficient
"public float" of the Shares, and that the Company's registration of the Common
Stock pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act") becomes effective (all as contemplated by the requirements of the National
Association of Securities Dealers, Inc.), the Common Stock is eligible for
quotation on the Nasdaq Stock Market ("Nasdaq"). The Company has filed a
registration statement with the Commission pursuant to Section 12(g) of the
Exchange Act, and has used its best efforts to have the same declared effective
by the Commission on an accelerated basis on the Effective Date.
u. Except as described in the Prospectus, to the Company's knowledge,
there are no claims, payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder or any other arrangements, agreements,
understandings, commitments, payments or issuances of securities with respect to
the Company that may affect the Underwriter's compensation, as determined by the
National Association of Securities Dealers, Inc. ("NASD").
v. Neither the Company, nor, to the knowledge of the Company, any of
its employees or officers or directors, agents or any other person acting on
behalf of the Company has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer, supplier, or official or governmental agency or instrumentality
of any government (domestic or foreign) or any political party or candidate for
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office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist it in
connection with any actual or proposed transaction) which (i) could reasonably
be expected to subject the Company to any material damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) if not given in
the past, could reasonably be expected to have had a materially adverse effect
on the assets, business or operations of the Company as reflected in any of the
financial statements contained in the Prospectus, or (iii) if not continued in
the future, could reasonably be expected to materially adversely affect the
assets, business, operations or prospects of the Company.
w. The Company owns or possesses the requisite licenses or rights to
use all trademarks, service marks, service names, trade names, patents and
patent applications, copyrights, methods, protocols, techniques, technologies,
procedures and other rights (collectively the "Intangibles") described as owned,
or used, by the Company in the Registration Statement. There is no claim, action
or proceeding by any person, pending or, to the Company's knowledge threatened,
which pertains to or challenges the rights of the Company with respect to any
Intangibles used in the conduct of the business of the Company, except as
described in the Prospectus. To the Company's knowledge, current products,
services and processes of the Company do not infringe on any Intangibles held by
any third party.
x. Except as set forth in the Registration Statement, the Company is
not under any obligation to pay royalties or fees of any kind whatsoever to any
third party with respect to Intangibles it has developed, uses, employs or
intends to use or employ.
y. The Company has generally enjoyed satisfactory employer/employee
relationships with its employees and is in material compliance in all material
respects with all Federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no material pending
or to the Company's knowledge, threatened investigations involving the Company
by the U.S. Department of Labor or corresponding foreign agency, or any other
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governmental agency responsible for the enforcement of such Federal, state or
local laws and regulations. There is no unfair labor practice charge or
complaint against the Company pending before the National Labor Relations Board
or corresponding foreign agency or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the Company's knowledge, threatened against
or involving the Company, or any predecessor entity, and none has occurred.
Except as disclosed in the Prospectus, no representation question exists
respecting the employees of the Company. No collective bargaining agreement or
modification thereof is currently in effect or being negotiated by the Company
and its employees. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company.
aa. Neither the Company, nor, to the Company's knowledge, any of
its officers or directors or any of its employees or stockholders, have taken,
directly or indirectly, any action designed to or which has constituted or which
could reasonably be expected to cause or result in, under the Exchange Act or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
ab. The Company does not maintain nor has it maintained,
sponsored or contributed to any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan" or a "multiemployer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). The Company neither presently maintains or contributes or at
any time in the past, maintained or contributed to a defined benefit plan, as
defined in Section 3(35) of ERISA. The Company has never completely or partially
withdrawn from a "multiemployer plan."
ac. Except as set forth in the Prospectus under "MANAGEMENT" or
"CERTAIN TRANSACTIONS," the Company is not a party to any agreement with any
officer, director or stockholder of the Company or any subsidiary or any
affiliate or associate of any such person or entity which is required to be
disclosed in the Prospectus pursuant to Regulation SB. Except as set forth in
the Prospectus, to the Company's knowledge, no officer, director or stockholder
of the Company or any "affiliate" or "associate" (as these terms are defined in
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Rule 405 promulgated under the Regulations) of any such person or entity or the
Company, has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected.
ad. The minute books of the Company have been made available to
counsel to the Underwriters and contain all available minutes of meetings and
actions by unanimous consent of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
ae. The statements in the Prospectus under "RISK FACTORS,"
"BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and "DESCRIPTION OF
SECURITIES," insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions are correct in all
material aspects.
II. Each of the Selling Stockholders, severally and not jointly,
represents and warrants to, the Underwriters as of the date hereof, as follows:
a. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated will not result in a The
breach by such Selling Stockholder of, or constitute a default by such Selling
Stockholder under, any material indenture, deed or trust, contract or other
agreement or instrument or any decree, judgment or order to which such Selling
Stockholder is a party or by which such Selling Stockholder may be bound.
b. Such Selling Stockholder has, and will have, at Closing Date
I, good and marketable title to the Selling Stockholder Shares to be sold by
such Selling Stockholder hereunder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equity, created by or arising through the
Selling Stockholder other then pursuant to this Agreement; such Selling
Stockholder has full right, power and authority to sell, transfer and deliver
the Selling Stockholder Shares to be sold by such Selling Stockholder hereunder;
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and upon delivery of the Selling Stockholders Shares to be sold by such Selling
Stockholder hereunder and payment of the purchase price thereof as herein
contemplated, the Underwriter will receive good and marketable title to the
Selling Stockholder Shares purchased by it from such Selling Stockholder, free
and clear of any pledge, lien, security interest, encumbrance, claim or equity.
c. Such Selling Stockholder has duly executed and delivered in
the form heretofore furnished to the Representative, a power of attorney and
custody agreement (the "Power of Attorney and Custody Agreement") with the
Company as the attorney-in-fact and the custodian (the "Attorney-in-Fact" and
the "Custodian", respectively); the Attorney-in-Fact is authorized to execute
and deliver this Agreement and the certificates referred to in Section 4(k) or
that may be required pursuant to Section 4(h) on behalf of such Selling
Stockholder, to authorize the delivery of the Selling Stockholder Shares to be
sold by such Selling Stockholder hereunder, to duly endorse (in blank or
otherwise) the certificate or certificates representing such Selling Stockholder
Shares, to accept payment therefor, and otherwise to act on behalf of such
payment therefor, and otherwise to act on behalf of such Seller in connection
with this Agreement.
d. All authorizations, approvals and consents necessary for the
execution and delivery by such Selling Stockholder of the Power of Attorney and
Custody Agreement, the execution and delivery by or on behalf of such Selling
Stockholder of this Agreement, and the sale and delivery of the Selling
Stockholder Shares to be sold by such Selling Stockholder hereunder and
thereunder (other than, at the time of the execution hereof, the issuance of the
order of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under the state
securities laws), have been obtained and are in full force and effect; and such
Selling Stockholder has the full right, power and authority to enter into this
Agreement and the Power of Attorney and Custody Agreement to sell, transfer and
deliver the Selling Stockholder Shares to be sold by such Selling Stockholder
hereunder.
e. For a period of two years from the Effective Date, such
Selling Stockholder will not, without the prior written consent of the
Representative, directly or indirectly, offer to sell, grant any option for the
sale of, or otherwise dispose of, any Common Stock of the Company or any
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<PAGE>
securities convertible into Common Stock owned by such Selling Stockholder or
with respect to which such Selling Stockholder has the power of disposition,
other than to the Underwriters pursuant to this Agreement.
f. Such Selling Stockholder has not taken, and will not take,
directly or indirectly any action which is designed to or which has constituted
or which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security or the Company to facilitate the sale
or exercise of the Shares.
g. Certificates in negotiable form for all Selling Stockholder
Shares to be sold by such Selling Stockholder hereunder have been placed in
custody with the Custodian by or for the benefit of such Selling Stockholder for
the purposes or effecting delivery by such Selling Stockholder hereunder.
3. Purchase, Sale and Delivery of the Securities and Underwriter's
Warrants.
a. On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriter severally, an aggregate of 1,000,000 shares of
Common Stock and 2,200,000 Redeemable Warrants, the Selling Stockholders,
severally and not jointly, agree to sell to the Underwriters severally an
aggregate of 100,000 shares of Common Stock and the Underwriters severally, and
not jointly agree to purchase from the Company and the Selling Stockholders
severally, such Securities on a firm commitment basis at a purchase price of
$______ per share of Common Stock and $_____ per Redeemable Warrant, to be sold
by the Underwriters at an initial public offering price of $_____ per share, and
$.10 per Redeemable Warrant.
b. In addition, upon not less than two (2) days' notice from the
Representative to the Company, for a period of forty-five (45) days from the
date of the Prospectus, the Company agrees to sell to the Underwriters at a
purchase price of $____ all or any part of the Option Securities, to be sold by
the Underwriters hereunder at an initial public offering price of $_____ per
share and $.09 per Redeemable Warrant. Delivery of the Option Securities shall
be made concurrently with tender of payment therefor. Option Securities may be
purchased by the Underwriters only for the purpose of covering over-allotments
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in the sale of the Firm Securities, and the Underwriters shall have no
obligation to make any over-allotments. No Option Securities shall be delivered
unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
c. On Closing Date I (defined below in Section 3(d)), the
Company shall issue and sell to the Representative, the Underwriter's Warrants,
which warrants shall entitle the holder thereof to purchase up to 110,000 shares
of Common Stock and/or 220,000 Redeemable Warrants. The total purchase price of
the Underwriter's Warrants shall be $10. The Underwriter's Warrants shall be
exercisable in whole or in part for up to an additional 110,000 shares of Common
Stock and/or 220,000 Redeemable Warrants for a period of four (4) years
commencing one (1) year from the date of the Prospectus at a price of $____ per
share on $.11 per Redeemable Warrant (150% of the initial public offering price
of the respective securities). The Underwriter's Warrant Agreement and form of
Underwriter's Warrant Certificate shall be substantially in the form filed as
Exhibit __ to the Registration Statement.
d. Payment for the Underwriter's Warrant shall be made on
Closing Date I. Payment for the Firm Securities and the Option Securities shall
be made on each of Closing Date I and Closing Date II, respectively, at the
Representative's election by certified or bank cashier's checks in New York
Clearing House funds, payable to the order of the Company and the Selling
Stockholders in appropriate amounts at the offices of the Representative, or at
such other place as agreed upon by the Representative and the Company or by wire
or transfer, upon delivery of certificates (in form and substance reasonably
satisfactory to the Representative) representing the Securities or by
confirmation of electronic transfer of the Securities to the Representative for
the account of the Underwriters. Delivery and payment for the Firm Securities
shall be made at 10:00 A.M. New York time, on or before the fifth business day
following the Effective Date or at such earlier time as the Representative shall
determine, or at such other time as shall be agreed upon by the Representative
and the Company. The hour and date of delivery and payment for the Firm
Securities are called "Closing Date I." The Firm Securities shall be registered
in such name or names and in such authorized denominations as the Representative
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may request in writing at least two (2) full business days prior to Closing Date
I. The Company will permit the Representative to examine and package any
certificates representing the Firm Securities for delivery, at least one (1)
full business day prior to Closing Date I. Delivery for each of the Option
Securities as provided above shall be made within the two (2) business day
period after notice of exercise to the Company, and against payment therefor, as
provided above. The hour and date of such delivery and payment made subsequent
to Closing Date I for Option Securities is referred to as "Closing Date II."
Closing Date I and Closing Date II are referred to collectively as "Closing
Dates." The Option Securities shall be registered in such name or names and in
such denominations as the Representative may request in writing at the time of
exercise of the Over-allotment Option.
e. The Company shall not be obligated to sell or deliver any
Firm Securities except upon tender of payment by the Underwriters for all the
Firm Securities.
4. Public Offering. The Underwriter is to make a public offering
of the Firm Securities and such of the Option Securities as it may determine.
The Securities are to be initially offered to the public at the offering price
set forth on the cover page of the Prospectus (such price being hereinafter
called the "Public Offering Price"). The Representative may, at its own expense,
enter into one or more agreements as it, in its sole discretion, deems
advisable, with one or more broker-dealers who shall act as dealers or
co-underwriters in connection with such public offering.
5. Covenants of the Company. The Company covenants and agrees
that it will:
a. Use its best efforts to cause the Registration Statement to
become effective and will notify the Representative immediately, and confirm the
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto becomes effective, (ii) of the issuance by the Commission of
any stop order or of the initiation, or the threatening, of any proceeding for
that purpose, (iii) of the issuance by any state securities commission of any
proceedings for the suspension of the qualification of the Securities and the
Underwriter's Securities for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose, and (iv) of
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the receipt of any comments from the Commission. If the Commission or any state
securities commission shall enter a stop order or suspend such qualification at
any time, the Company will make every reasonable effort to obtain promptly the
lifting of such order.
b. File the Prospectus (in form and substance reasonably
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission in accordance with
Rule 424, if the Prospectus is required to be so filed.
c. During the time when a prospectus is required to be delivered
under the Act, use all its reasonable best efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Regulations, as from time to time in force, so far
as necessary to permit the continuance of sales of or dealings in the Securities
and the Underwriter's Securities in accordance with the provisions hereof and
the Prospectus. If at any time when a prospectus relating to the Securities or
the Underwriter's Securities is required to be delivered under the Act, any
event shall have occurred as a result of which, in the opinion of counsel for
the Company or counsel for the Underwriters, or either of them, the Prospectus,
as then amended or supplemented, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Representative
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act.
d. Deliver to the Underwriters, without charge, such number of
copies of each Preliminary Prospectus and the Prospectus as the Representative
may reasonably request and, as soon as the Registration Statement or any
amendment or supplement thereto becomes effective, deliver to the Representative
two (2) signed copies of the Registration Statement, including exhibits, and all
post-effective amendments thereto and copies of all exhibits filed therewith or
incorporated therein by reference and signed copies of all consents of certified
experts.
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e. Endeavor in good faith, in cooperation with the Underwriters,
and Gersten, Savage, Kaplowitz & Curtin LLP at or prior to the time the
Registration Statement becomes effective, to qualify the Securities and the
Underwriter's Securities for offering and sale under the securities laws of such
jurisdictions as the Representative may reasonably designate, provided that no
such qualification shall be required in any jurisdiction where, as a result
thereof, the Company would be subject to service of general process or to
taxation as a foreign corporation doing business in such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Representative agrees that such action is not at the time necessary
or advisable, use its reasonable best efforts to file and make such statements
or reports at such times as are or may reasonably be required by the laws of
such jurisdiction.
f. Make generally available to its security holders as soon as
practicable, but not later than the first day of the fifteenth full calendar
month following the Effective Date, an earnings statement (which need not be
certified by independent public or independent certified public accountants
unless required by the Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Act) covering a period of at least twelve
(12) consecutive months beginning after the Effective Date.
g. For a period of five (5) years from the Effective Date,
furnish to the Underwriters copies of such financial statements and other
periodic and special reports as the Company from time to time furnishes
generally to holders of any class of its securities, and promptly furnish to
each Underwriter (i) a copy of each periodic report the Company shall file with
the Commission, (ii) a copy of every press release and every news item and
article with respect to the Company, or its affairs which was released by the
Company, (iii) a copy of each Form 8-K prepared by the Company, and (iv) such
additional documents and information with respect to the Company, and its
affairs or any future subsidiaries or affiliates of the Company as either
Underwriter may from time to time reasonably request.
h. Apply the net proceeds from the offering received by it in a
manner consistent in all material respects with the caption "USE OF PROCEEDS" in
the Prospectus.
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i. Deliver to the Representative, prior to filing, any amendment
or supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date and not file any such amendment or supplement to which
the Representative shall reasonably object, after being furnished such copy, in
writing with reasonable specificity as to the nature and extent of any
objection.
j. For a period of three (3) years from Closing Date I, provide
the Representative, upon its request, at the Company's sole expense, (i) with
access to daily consolidated financial transfer sheets relating to the Common
Stock and designate American Stock Transfer & Trust Company as transfer agent
for the Company's securities or such other transfer agent mutually agreeable by
the Company and the Representative and (ii) to cause the Company's depository to
fax a "special security position report" to the Representative on a weekly
basis.
k. For a period of three (3) years after Closing Date I,
nominate and use its best efforts to engage a designee of the Representative, as
a nonvoting advisor to the Company's Board of Directors (the "Advisor") or in
lieu thereof to designate an individual for election as a director, in which
case the Company shall use its best efforts to have such individual elected as a
director. The designee may be a director, officer, partner, employee or
affiliate of an Underwriter and the Representative shall designate such person
in writing to the Board. In the event the Representative shall not have
designated such individual at the time of any meeting of the Board or such
person is unavailable to serve, the Company shall notify the Representative of
each meeting of the Board. An individual, if any, designated by the
Representative shall receive all notices and other correspondence and
communications sent by the Company to members of the Board. Such Advisor or
director, as the case may be, shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to, food, lodging, and transportation. In addition, such Advisor or Director
shall be entitled to the same compensation as the Company gives to other
non-employee directors for acting in such capacity. The Company further agrees
that, during said three (3) year period, it shall give the Advisor or director,
as the case may be, the same notice of any meeting of the Company's Board of
Directors as it affords its other directors. Further, during such three (3) year
period, the Company shall give prior notice to the Representative with respect
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to any proposed acquisitions, mergers, reorganizations or other similar
transactions.
The Company agrees to indemnify and hold the Underwriters and such
Advisor harmless against any and all claims, actions, damages, costs and
expenses, and judgments arising solely out of the attendance and participation
of the Advisor at any such meeting described herein. In the event the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, it agrees, if possible to include the Advisor as an
insured under such policy.
l. Until the sooner of (i) seven (7) years from the date hereof,
or (ii) the sale to the public of the Underwriter's Securities, not take any
action or actions which are in the Company's direct control which may prevent or
disqualify the Company's use of Form SB-2 (or another appropriate form) for the
registration under the Act of the Underwriter's Securities and the shares of
Common Stock underlying the Redeemable Warrants.
m. For a period of five (5) years from the Effective Date, use
its best efforts to maintain the quotation by Nasdaq of the Securities.
n. Supply the Underwriters with four (4), and Gersten, Savage,
Kaplowitz & Curtin, L.L.P., counsel to the Representative, with three (3), bound
volumes of the underwriting materials within a reasonable time after the latest
Closing Date.
o. For a period of two (2) years from the Effective Date, not
issue any other shares of Common Stock or securities convertible into or
exercisable for Common Stock without the prior written consent of the
Representative, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the Company may issue securities upon (i) the
exercise of any warrants or options outstanding on the date hereof pursuant to
the terms thereof, and (ii) the exercise of the Redeemable Warrants and/or
Underwriter's Warrant.
p. So long as the Securities or the Underwriter's Securities are
registered under the Exchange Act, hold an annual meeting of stockholders for
the election of directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years, provide the Company's stockholders with the audited financial statements
of the Company as of the end of the fiscal year just completed prior thereto.
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Such financial statements shall be those required by Rule 14a-3 under the
Exchange Act and shall be included in an annual report pursuant to the
requirements of such Rule.
q. Engage a financial public relations firm reasonably
satisfactory to the Underwriter as soon as possible after Closing Date I, and
continuously engage such firm, or an acceptable substitute firm for at least the
period ending twenty-four (24) months after Closing Date I.
r. Enter into the Underwriter's Warrant Agreement and the
Financial Advisory and Investment Banking Agreement (the "Consulting Agreement")
in substantially the form filed as Exhibits ___ and ___, respectively, to the
Registration Statement.
s. As soon as possible after Closing Date I, take all necessary
and appropriate actions to be included in Standard and Poor's Corporation
Descriptions or other equivalent securities manual and to maintain its listing
therein for a period of five (5) years from the Effective Date.
t. Cause all of the Company's stockholders, to enter into
written agreements (the "Lock-up Agreements") that, for a period of two years
after the Effective Date as to officers, directors, employees of the Company and
their affiliates and family members, six months from the Effective Date as to
shareholders who acquired their securities of the Company in a private placement
concluded in 1996 and one year from the Effective Date as to all other
securityholders, they will not, without the consent of the Representative, (i)
publicly sell any securities of the Company owned directly or beneficially by
them (as defined in the Exchange Act); or (ii) otherwise sell, or transfer such
securities unless the transferee agrees in writing to be bound by an identical
lock-up.
u. Use its best efforts to qualify, by the Effective Date,
Common Stock and Redeemable Warrants for listing on the NASDAQ Small Cap System
and Boston Stock Exchange (the "BSE") or another regional exchange acceptable to
you, or in the alternative the NASDAQ National Market System.
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v. For a period of two years from the Effective Date, the
Company shall not issue any of its securities in any offering pursuant to
Regulation S under the 1933 Act, without the prior written consent of the
Representative.
w. (i) Grant to the Representative a preferential right on the
terms and subject to the conditions set forth in Sections 5(u) and 5(p), for a
period of two (2) years from the Effective Date, to purchase for its account, or
to sell for the account of the Company or its present affiliates or subsidiaries
or any of its stockholders listed in the Prospectus under the caption "PRINCIPAL
STOCKHOLDERS" (the "Principal Stockholders"), any securities of the Company, on
terms not more favorable to the Company or such present or future subsidiary or
affiliate or the Principal Stockholders than they can secure elsewhere, to
purchase or sell any such securities. If the Representative fails to notify the
Company in writing of its intention to act as underwriter or placement agent or
otherwise participate or introduces a third party to participate in such
offering within fifteen (15) days after receipt of a notice containing such
proposal, then the Underwriter shall have no further claim or right with respect
to the proposal contained in such notice. If, thereafter, such proposal is
materially modified, the Company, and each present or future affiliate or
subsidiary or its Principal Stockholders shall in all respects have the same
obligations and adopt the same procedures with respect to such proposal as are
provided hereinabove with respect to the original proposal; and (ii) If the
Representative is offered the right of first refusal and agree to perform such
functions, but fail to perform, the Representative will not be entitled to any
compensation, and will be deemed to have waived its right of first refusal with
respect to future offerings unless such failure to perform is caused by the
Company.
x. Designate the Representative (with the right of
Representative to designate an Underwriter) as the Company's exclusive Warrant
Solicitation Agents in the event of any solicitation of the exercise of the
Redeemable Warrants, in connection with a redemption of the Redeemable Warrants
or otherwise, and shall pay to the Representative a Warrant Solicitation fee of
five (5%) percent of the exercise price of all solicited Redeemable Warrants,
subject to the rules and regulations of the NASD with regard to such fees.
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y. Neither the Company nor any representative of the Company has
made or shall make any written or oral representation in connection with the
Offering and sale of the Securities or the Underwriters' Warrant which is not
contained in the Prospectus, which is otherwise inconsistent with or in
contravention of anything contained in the Prospectus, or which shall constitute
a violation of the Act, the Rules and Regulations, the Exchange Act or the rules
and regulations promulgated under the Exchange Act.
z. For so long as any Redeemable Warrant is outstanding, the
Company shall, at its own expense: (i) use its reasonable best efforts to cause
post-effective amendments to the Registration Statement, or new registration
statements relating to the Redeemable Warrants and the Common Stock underlying
the Redeemable Warrants to become effective in compliance with the Act and
without any lapse of time between the effectiveness of the Registration
Statement and of any such post-effective amendment or new registration
statement; provided, however, that the Company shall have no obligation to
maintain the effectiveness of such Registration Statement or file a new
Registration Statement, or to keep available a prospectus at any time at which
such registration or prospectus is not then required; (ii) cause a copy of each
Prospectus, as then amended, to be delivered to each holder of record of a
Redeemable Warrant; (iii) furnish to the Underwriters and dealers as many copies
of each such Prospectus as the Underwriters or dealers may reasonably request;
and (iv) maintain the "blue sky" qualification or registration of the Redeemable
Warrants and the Common Stock underlying the Redeemable Warrants, or have a
currently available exemption therefrom, in each jurisdiction in which the
Securities were so qualified or registered for purposes of the Offering.
6. Payment of Expenses.
a. The Company hereby agrees to pay all expenses (other than
fees of counsel to the Underwriters) in connection with the offering, including
but not limited to, (i) the preparation, printing, filing and mailing (including
the payment of postage and overnight delivery with respect to such mailing) of
the Registration Statement and the Prospectus and related documents, including
the cost of all copies thereof and of the Preliminary Prospectus and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriter in quantities as hereinabove stated, (ii) the printing, engraving,
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issuance and delivery of the shares of Common Stock, the Redeemable Warrants,
and the Underwriter's Warrants, (iii) the qualification of the Securities, the
Underwriter's Warrants and the Underwriter's Securities under state or foreign
securities or "Blue Sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," and "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and the fees and disbursements of counsel
for the Underwriter relating to Blue Sky matters (all of which fees under this
item (iii) shall be payable by the Company in the sum of $35,000 of which
$12,500 has previously been paid), (iv) advertising costs and expenses including
but not limited to the reasonable costs and expenses in connection with the
"road show," information meetings and presentations, bound volumes and
"tombstones" in the Wall Street Journal, New York Times, and Washington Post and
prospectus memorabilia, (v) costs and expenses in connection with due diligence
investigations, including but not limited to the reasonable fees of any
independent counsel or consultant retained, phone calls relating to due
diligence investigations, and all reasonable travel and lodging expenses
incurred by you and/or counsel to the Underwriters in connection with visits to,
and examination of, the Company's premises, (vi) fees and expenses of the
transfer agent and warrant agent, (vii) application and listing fees for
inclusion in Moody's OTC Manual or Standard and Poor's Corporation Descriptions
or other equivalent securities manuals, and (viii) the fees payable to the NASD
and Nasdaq. The $35,000 payment to counsel for the Underwriter shall not include
fees of special counsel if same is required to be incurred in a merit review
state which may require local counsel. In this connection, Blue Sky applications
shall be made in such states and jurisdictions as shall be requested by the
Underwriter. Payments due shall be made on each Closing Date I.
b. The Company shall pay to the Representative an aggregate
non-accountable expense allowance, in addition to the expenses payable pursuant
to Section 6(a), equal to three (3%) percent of the gross proceeds received by
the Company from the sale of the Securities less than $25,000 previously paid on
account thereof.
7. Conditions of Underwriter's Obligations. The obligations of
the Underwriters to purchase and pay for the Securities, as provided herein,
shall be subject to the continuing accuracy in all material aspects of the
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representations and warranties of the Company as of the date hereof and as of
each of the Closing Dates, to the accuracy in all material respects of the
statements of officers of the Company made pursuant to the provisions hereof and
to the performance by the Company of its obligations hereunder in all material
respects and to the following conditions:
a. The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by you, and, at each of the
Closing Dates, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Gersten, Savage, Kaplowitz &
Curtin LLP, counsel to the Representative.
b. At Closing Date I, the Underwriter shall have received the
favorable opinion of Wilentz, Goldman & Spitzer, P.A., counsel to the Company,
dated Closing Date I, addressed to the Underwriters and in form and substance
reasonably satisfactory to Gersten, Savage, Kaplowitz & Curtin LLP, counsel to
the Representative, in substantially the form attached as Exhibit A hereto.
c. On or prior to each of Closing Date I and Closing Date II,
counsel for the Underwriters shall have been furnished such documents,
certificates and opinions as it may reasonably require for the purpose of
enabling it to review or pass upon the matters referred to in Section 7(b), or
in order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
d. Prior to each of Closing Date I and Closing Date II, (i)
there shall have been no material adverse change, or development involving a
material adverse prospective change, in the condition or prospects of the
business activities, financial or otherwise, of the Company from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company from the latest date as of which
its financial conditions are set forth in the Registration Statement and
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Prospectus which is materially adverse to the Company; (iii) the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness which default would have a material adverse effect on
the Company; (iv) no amount of the assets of the Company shall have been pledged
or mortgaged, except as set forth in the Registration Statement and Prospectus;
(v) no action, suit or proceeding, at law or in equity, shall be pending or
threatened against the Company before or by any court or Federal or state
commission, board or other administrative agency wherein an unfavorable result,
decision, ruling or finding would adversely affect the business, prospects,
operations, or financial condition or income of the Company, except as set forth
in the Registration Statement and Prospectus and except where such a result is
deemed remote by counsel to the Company with respect to such action or
proceeding; (vi) no stop order shall have been issued under the Act and no
proceedings with respect thereto shall have been initiated or threatened by the
Commission; (vii) the market for securities in general or political, financial
or economic conditions shall not have materially adversely changed from those
reasonably foreseeable as of the date hereof as to render it impracticable in
the Representative's reasonable judgment to make a public offering of the
Securities, and there has not been a material adverse change in market levels
for securities in general or financial or economic conditions which render it
inadvisable in the Representative's judgment to proceed; and (viii) there shall
not have commenced or occurred any war or Act of God or other calamity which
would have a material adverse effect on, or result in a material loss to, the
Company.
The Company agrees and acknowledges that the Representative shall be
the sole determining party as to the presence of any such conditions, events,
occurrences and provisions set forth in this Section 7(d).
e. At each of Closing Date I and Closing Date II, the
Underwriters shall have received a certificate of the Company signed by the
President and the Secretary of the Company, dated Closing Date I and Closing
Date II, respectively, to the effect that the conditions set forth in section
7(d)(i) through (vi) above have been satisfied and that, as of Closing Date I
and Closing Date II, respectively, the representations and warranties of the
Company set forth in Section 2 hereof are true and correct.
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f. By the Effective Date, the Underwriters shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
g. At the time this Agreement is executed, and at each of
Closing Date I and Closing Date II, the Representative shall have received a
letter, addressed to the Representative and in form and substance reasonably
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (3) below) to the Underwriters and
to Gersten, Savage, Kaplowitz & Curtin LLP, counsel for the Representative, from
Ehrenkrantz and Company, dated, as of the date of this Agreement and as of each
of Closing Date I and Closing Date II:
(1) confirming that they are independent accountants
with respect to the Company within the meaning of the Act and the applicable
Regulations;
(2) stating that in their opinion the financial
statements of the Company included in the Registration Statement and Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act and the published Regulations thereunder;
(3) stating that, on the basis of a reading of the
latest available minutes of the stockholders and boards of directors and the
various committees of the boards of directors of the Company and any current or
former subsidiaries of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting matters, a
reading of the latest interim financial statements of the Company (which shall
be as of a date not later than thirty (30) days prior to the Effective Date) and
other specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the audited financial statements for
the years ended December 31, 1995 of the Company in the Registration Statement
does not comply as to form in all material respects with the applicable
accounting requirements of the Act, and the Regulations or are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial statements
of the Company included in the Registration Statement, (B) at a date not more
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than five (5) days prior to the Effective Date, there was any change in the
capital stock or long-term debt of the Company, or any decrease in the
stockholders' equity of the Company as compared with amounts shown in December
31, 1995 balance sheet included in the Registration Statement, other than as set
forth in or contemplated by the Registration Statement, or, if there was any
decrease, setting forth the amount of such decrease, and (C) during the period
from December 31, 1995 to a specified date not more than five (5) days prior to
the Effective Date there was any decrease in revenues, decrease (increase) in
net earnings (losses) or increases in net loss per common share outstanding of
the Company, in each case as compared with the corresponding period ending
December 31, 1995 other than as set forth in or contemplated by the Registration
Statement, or, if there was any such increase or decrease, setting forth the
amount of such increase or decrease;
(4) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including worksheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and statements as to such other matters incident to the transaction
contemplated hereby as the Representative may reasonably request.
(5) all proceedings taken in connection with the
authorization, issuance or sale of the Securities, the Underwriter's Warrants
and the Underwriter's Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Representative and to Gersten, Savage,
Kaplowitz & Curtin LLP, counsel to the Representative.
h. On each of Closing Date I and Closing Date II, there shall
have been duly tendered to you, for your account, the appropriate number of
Securities, and individually for your own account, the Underwriter's Warrants.
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i. No order suspending the sale of the Securities in any
jurisdiction designated by you pursuant to Section 5(e) hereof shall have been
issued on either Closing Date I or Closing Date II, and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Underwriters or
the Company, shall be contemplated.
j. Prior to each of the Closing Date I and Closing Date II there
shall not have been received or provided by the Company's independent public
accountants or attorneys, qualifications to the effect of either difficulties in
furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the Securities or as to
corporate proceedings or other matters.
k. On or prior to Closing Date I, the Underwriter's Warrant
Agreement and the Financial Advisory and Investment Banking Agreement shall have
been executed and delivered by the Company, and the Lock-Up Agreements shall
have been executed and delivered by all of the Company's existing stockholders.
l. Any certificate signed by any officer of the Company and
delivered to the Representative or to counsel to the Representative shall be
deemed a representation and warranty by the Company to the Underwriters as to
the statements made therein. If any condition to the Underwriters' respective
obligations hereunder to be fulfilled prior to or at any Closing Date is not so
fulfilled, the Representative may terminate this Agreement or, if the
Representative so elects, may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
8. Indemnification.
a. The Company and the Selling Stockholders, severally and not
jointly, shall indemnify and hold the Underwriters, and each controlling person,
if any, who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act), harmless against any and all liabilities,
claims, lawsuits, including any and all awards and/or judgments to which it may
become subject under the Act, the Exchange Act or any other Federal or state
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statute, at common law or otherwise, insofar as said liabilities, claims and
lawsuits (including awards and/or judgments) arise out of or are in connection
with the Registration Statement, Prospectus and related Exhibits filed under the
Act, except for any liabilities, claims and lawsuits (including awards and/or
judgments), arising out of acts or omissions of the Underwriter seeking such
indemnification. In addition, the Company shall also indemnify and hold the
Underwriter harmless against any and all costs and expenses, including
reasonable counsel fees, incurred or relating to the foregoing liabilities,
claims and lawsuits to which the indemnity applies.
An Underwriter shall give the Company, and the Selling Stockholders,
within two (2) business days of the time that such Underwriter first becomes
aware thereof, notice of any such liability, claim or lawsuit which such
Underwriter contends is the subject matter of the Company's indemnification, and
the Company thereupon shall be granted the right to take any and all necessary
and proper action, at its sole cost and expense, with respect to such liability,
claim and lawsuit, including the right to settle, compromise and dispose of such
liability, claim or lawsuit.
Each Underwriter, severally and not jointly, shall indemnify and hold
the Company, and each controlling person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
and the Selling Stockholders, harmless against any and all liabilities, claims,
lawsuits, including any and all awards and/or judgments to which it may become
subject under the Act, the Exchange Act or any other Federal or state statute,
at common law or otherwise, insofar as said liabilities, claims and lawsuits
(including awards and/or judgments) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact required to be stated
or necessary to make the statement therein, not misleading, which statement or
omission was made in reliance upon information furnished in writing to the
Company by or on behalf of such Underwriter for inclusion in the Registration
Statement or Prospectus or any amendment or supplement thereto. In addition,
such Underwriter shall also indemnify and hold the Company harmless against any
and all costs and expenses, including reasonable counsel fees, incurred or
relating to the foregoing.
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The Company and the Selling Stockholders shall give to the applicable
Underwriter and the Representative prompt notice of any such liability, claim or
lawsuit which the Company contends is the subject matter of such Underwriter's
indemnification and such Underwriter thereupon shall be granted the right to
take any and all necessary and proper action, at its sole cost and expense, with
respect to such liability, claim and lawsuit, including the right to settle,
compromise or dispose of such liability, claim or lawsuit, excepting therefrom
any and all proceedings or hearings before any regulatory bodies and/or
authorities.
b. In order to provide for just and equitable contribution under
the Act in any case in which (i) any person entitled to indemnification under
this Section 8 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 8 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 8, then, and in each such case, the Company, the Selling Stockholders
and the Underwriters shall contribute to the aggregate losses, claims, damages
or liabilities to which they may be subject (after any contribution from others)
in such proportion taking into consideration the relative benefits received by
each party from the offering covered by the Prospectus (taking into account the
portion of the proceeds of the offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect to which
the claim was assessed, the opportunity to correct and prevent any statement or
omission and other equitable considerations appropriate under the circumstances;
provided, however, that notwithstanding the above in no event shall either
Underwriter be required to contribute any amount in excess of 10% of the initial
public offering price of the Securities purchased by such Underwriter as set
forth the final Prospectus; and provided, that, in any such case, no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
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Within fifteen (15) days after receipt by any party to this Agreement
(or its representative) of notice of the commencement of any action, suit or
proceeding, such party will, if a claim for contribution in respect thereof is
to be made against another party (the "contributing party"), notify the
contributing party of the commencement thereof, but the omission so to notify
the contributing party will not relieve it from any liability which it may have
to any other party other than for contribution hereunder. In case any such
action, suit or proceeding is brought against any party, and such party notifies
a contributing party or his or its representative of the commencement thereof
within the aforesaid fifteen (15) days, the contributing party will be entitled
to participate therein with the notifying party and any other contributing party
similarly notified. Any such contributing party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of such contributing party. The indemnification provisions contained in
this Section 8 are in addition to any other rights or remedies which either
party hereto may have with respect to the other or hereunder.
9. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Dates, and such representations, warranties and
agreements of the Underwriters, the Company and the Selling Stockholders,
including the indemnity agreements contained in Section 8 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any of the Underwriters, the Company or any controlling person,
and shall survive termination of this Agreement or the issuance and delivery of
the Securities to the Underwriters until the earlier of the expiration of any
applicable statute of limitations or the seventh anniversary of Closing Date II,
at which time the representations, warranties and agreements shall terminate and
be of no further force and effect.
10. Effective Date of This Agreement and Termination hereof.
a. This Agreement shall become effective at 9:30 a.m., New York
time, on the first full business day following the day on which the Registration
Statement becomes effective or at the time of the initial public offering by the
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Underwriters of the Securities, whichever is earlier. The time of the initial
public offering, for the purpose of this Section 10, shall mean the time, after
the Registration Statement becomes effective, of the release by the Underwriters
for publication of the first newspaper advertisement which is subsequently
published relating to the Securities or the time, after the Registration
Statement becomes effective, when the Securities are first released by the
Representative for offering by the Underwriters or dealers by letter or
telegram, whichever shall first occur. The Representative may prevent this
Agreement from becoming effective without liability to any other party, except
as noted below, by giving the notice indicated below in this Section 10 before
the time this Agreement becomes effective. The Representative agrees to give the
undersigned notice of the commencement of the offering described herein.
b. The Representative shall have the right, in its sole
discretion, to terminate this Agreement, including without limitation, the
obligations to purchase the Firm Securities and the obligation to purchase the
Option Securities after the exercise of the Over-Allotment Option, by notice
given to the Company prior to delivery and payment for all the Firm Securities
or the Option Securities, as the case may be, only if any of the conditions
enumerated in Section 7 are not either fulfilled or waived by the Representative
on or before any Closing Date.
c. If the Representative elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Company shall be notified on the same day as such election is made by
the Representative by telephone or telegram, confirmed by letter.
d. Anything herein to the contrary notwithstanding, if this
Agreement shall not be carried out within the time specified herein, or any
extensions thereof granted by the Representative, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition of
this Agreement by it to be performed or satisfied then, in addition to the
obligations assumed by the Company pursuant to Section 6(a) hereof, the
Representative shall provide the Company with a statement of the Underwriters'
accountable expenses.
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e. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or termination of this Agreement, and whether
or not this Agreement is otherwise carried out, the provisions of Section 8
shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
11. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to the Underwriters,
shall be mailed, delivered or telegraphed and confirmed to The Thornwater
Company L.P., 107A East 37th Street, New York, New York 10016 Attention:
Managing Director, with a copy to Gersten, Savage, Kaplowitz & Curtin LLP, 575
Lexington Avenue, New York, New York 10022, Attention: Jay Kaplowitz, Esq.; if
to the Company, shall be mailed, delivered or telegraphed and confirmed to Room
Plus, Inc., 91 Michigan Avenue, Paterson, New Jersey 07503, Attention: Chairman
of the Board, with a copy to Wilentz Goldman & Spitzer P.A., 90 Woodbridge
Center Drive, Woodbridge, New Jersey, Attention: Kenneth Shank, Esq..
12. Parties. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 8 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
13. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws. The parties agree to submit
themselves to the jurisdiction of the courts of the State of New York or of the
United States of America for the Southern District of New York, which shall be
the sole tribunals in which any parties may institute and maintain a legal
proceeding against the other party arising from any dispute in this Agreement.
In the event either party initiates a legal proceeding in a jurisdiction other
than in the courts of the State of New York or of the United States of America
for the Southern District of New York, the other party may assert as a complete
defense and as a basis for dismissal of such legal proceeding that the legal
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proceeding was not initiated and maintained in the courts of the State of New
York or of the United States of America for the Southern District of New York,
in accordance with the provisions of this Section 13.
14. Entire Agreement. This Agreement, the Underwriter's Warrant
Agreement and the Financial Advisory and Investment Banking Agreement contain
the entire agreement between the parties hereto in connection with the subject
matter hereof and thereof.
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If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
ROOM PLUS, INC.
By: ______________________________
Name: Marc Zucker
Title: Chairman of the Board
ROOM PLUS, INC.
By:___________________________
Marc Zucker, on behalf of and
as attorney in fact for the
Selling Stockholders
Accepted as of the date
first above written.
New York, New York
THE THORNWATER COMPANY L.P.
By: ______________________________
Name: Thomas O'Rouke
Title: Managing Director
<PAGE>
ROOM PLUS, INC.
AND
THE THORNWATER COMPANY, L.P.
UNDERWRITER'S
WARRANT AGREEMENT
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of ______, 1996 by
and between ROOM PLUS, INC., (the "Company") and THE THORNWATER COMPANY, L.P.
("Representative" or "Thornwater") individually and as representative of the
several underwriters (each an "Underwriter" and collectively "Underwriters".
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter
warrants (the "Underwriter's Warrants") to purchase up to 110,000 shares of the
Company's common stock, par value $.00133 per share (the "Common Stock") and/or
redeemable Common Stock purchase warrants (the "Redeemable Warrants") each
exercisable to purchase one share of Common Stock.
WHEREAS, the Representative has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated ______, 1996, by and
between the Representative and the Company, to act as the underwriter in
connection with the Company's proposed initial public offering (the "Initial
Public Offering") of 1,100,000 shares of Common Stock and 2,200,000 Redeemable
Warrants (the "Offering Securities"), such Offering Securities being identical
to the respective securities issuable upon exercise of the Underwriter's
Warrants; and
WHEREAS, the Underwriter's Warrants to be issued pursuant to
this Agreement will be issued on Closing Date I (as such term is defined in the
Underwriting Agreement) by the Company to the Representative in consideration
for, and as part of, the Underwriters' compensation in connection with the
Underwriters acting as the underwriters pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of Ten Dollars ($10.00), the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holder (as defined in Section 3 below) is hereby
granted the right to purchase, at any time from ______, 1997 until 5:00 p.m.,
New York time, ______, 2001, an aggregate of up 110,000 shares of Common Stock
and/or 220,000 Redeemable Warrants, at an initial purchase price (subject to
<PAGE>
adjustment as provided in Section 8 hereof) of $____ per share of Common Stock
and $.11 per Redeemable Warrant (150% of the Initial Public Offering price per
the respective security), subject to the terms and conditions of this Agreement.
The securities issuable upon exercise of the Underwriter's Warrants are
sometimes referred to herein as the "Underwriter's Securities."
2. Warrant Certificates. The warrant certificate (the
"Underwriter's Warrant Certificate") to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Underwriter's Warrants. The Underwriter's
Warrants are exercisable during the term set forth in Section 1 hereof payable
by certified or cashier's check or money order in lawful money of the United
States. Upon surrender of an Underwriter's Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Purchase Price (as hereinafter defined) for the Underwriter's Securities (and
such other amounts, if any, arising pursuant to Section 4 hereof) at the
Company's principal office located at 91 Michigan Avenue, Patterson, New Jersey
07503, the registered holder of an Underwriter's Warrant Certificate ("Holder"
or "Holders") shall be entitled to receive a certificate or certificates for the
Underwriter's Securities so purchased. The purchase rights represented by each
Underwriter's Warrant Certificate are exercisable at the option of the Holder or
Holders thereof, in whole or in part as to Underwriter's Securities. The
Underwriter's Warrants may be exercised to purchase all or any part of the
Underwriter's Securities represented thereby. In the case of the purchase of
less than all the Underwriter's Securities purchasable on the exercise of the
Underwriter's Warrants represented by an Underwriter's Warrant Certificate, the
Company shall cancel the Underwriter's Warrant Certificate represented thereby
upon the surrender thereof and shall execute and deliver a new Underwriter's
Warrant Certificate of like tenor for the balance of the Underwriter's
Securities purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Underwriter's
Warrants and payment of the Purchase Price therefor, the issuance of
certificates representing the Underwriter's Securities or other securities,
properties or rights underlying such Underwriter's Warrants, shall be made
forthwith (and in any event within five (5) business days thereafter) without
<PAGE>
further charge to the Holder thereof, and such certificates shall (subject to
the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The Underwriter's Warrant Certificates and the certificates
representing the Underwriter's Securities or other securities, property or
rights (if such property or rights are represented by certificates) shall be
executed on behalf of the Company by the manual or facsimile signature of the
then present Chairman or Vice Chairman of the Board of Directors or President or
Vice President of the Company, attested to by the manual or facsimile signature
of the then present Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer of the Company. The Underwriter's Warrant Certificates shall be dated
the date of issuance thereof by the Company upon initial issuance, transfer or
exchange.
5. Restriction On Transfer of Underwriter's Warrants. The Holder of an
Underwriter's Warrant Certificate (and its Permitted Transferee, as defined
below), by its acceptance thereof, covenants and agrees that the Underwriter's
Warrants may be sold, transferred, assigned, hypothecated or otherwise disposed
of, in whole or in part, until ______, 1997 (one year following the effective
date of the Initial Public Offering), only to officers and partners of the
Underwriters, or any Initial Public Offering selling group member and their
respective officers and partners, ("Permitted Transferees"). Thereafter the
Underwriter's Warrant may be transferred, assigned, hypothecated or otherwise
disposed of in compliance with applicable law.
6. Purchase Price.
(a) Initial and Adjusted Purchase Price. Except as otherwise
provided in Section 8 hereof, the initial purchase price of the Underwriter's
Securities shall be $____ per share of Common Stock and $.11 per Redeemable
Warrant. The adjusted purchase price shall be the price which shall result from
time to time from any and all adjustments of the initial purchase price in
accordance with the provisions of Section 8 hereof.
<PAGE>
(b) Purchase Price. The term "Purchase Price" herein shall
mean the initial purchase price or the adjusted purchase price, depending upon
the context.
7. Registration Rights.
(a) Registration Under the Securities Act of 1933 as amended
("Act"). The Underwriter's Warrants may have not been registered under the Act.
The Underwriter's Warrant Certificates may bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), and may not be offered
for sale or sold except pursuant to (i) an effective registration statement
under the Act, or (ii) an opinion of counsel, if such opinion and counsel shall
be reasonably satisfactory to counsel to the issuer, that an exemption from
registration under the Act is available".
(b) Demand Registration. (1) At any time commencing on the
first anniversary of and expiring on the fifth anniversary of the effective date
of the Company's Registration Statement relating to the Initial Public Offering
(the "Effective Date"), the Holders of a Majority (as hereinafter defined) in
interest of the Underwriter's Warrants, or the Majority in interest of the
Underwriter's Securities (assuming the exercise of all of the Underwriter's
Warrants) shall have the right, exercisable by written notice to the Company, to
have the Company prepare and file with the U.S. Securities and Exchange
Commission (the "Commission"), on one (1) occasion, a registration statement on
Form SB-2, S-1 or other appropriate form, and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale, for a period of nine (9) months, of
the Underwriter's Securities by such Holders and any other Holders of the
Underwriter's Warrants and/or the Underwriter's Securities who notify the
Company within fifteen (15) business days after receipt of the notice described
in Section 7(b)(2). The Holders of the Underwriter's Warrants may demand
registration prior to exercising the Underwriter's Warrants, and may pay such
exercise price from the proceeds of such public offering.
(1) The Company covenants and agrees to give written notice of any
registration request under this Section 7(b) by any Holders to all other
registered Holders of the Underwriter's Warrants and the Underwriter's
<PAGE>
Securities within ten (10) calendar days from the date of the receipt of any
such registration request.
(2) For purposes of this Agreement, the term "Majority" in reference to
the Holders of the Underwriter's Warrants or Underwriter's Securities, shall
mean in excess of fifty percent (50%) of the then outstanding Underwriter's
Warrants or Underwriter's Securities that (i) are not held by the Company, an
affiliate, officer, creditor, employee or agent thereof or any of their
respective affiliates, members of their family, persons acting as nominees or in
conjunction therewith, or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
(c) Piggyback Registration. (1) If, at any time within the
period commencing on the first anniversary and expiring on the sixth anniversary
of the Effective Date, the Company should file a registration statement with the
Commission under the Act (other than in connection with a merger or other
business combination transaction or pursuant to Form S-8), it will give written
notice at least twenty (20) calendar days prior to the filing of each such
registration statement to the Representative and to all other Holders of the
Underwriter's Warrants and/or the Underwriter's Securities of its intention to
do so. If an Underwriter or other Holders of the Underwriter's Warrants and/or
the Underwriter's Securities notify the Company within fifteen (15) calendar
days after receipt of any such notice of its or their desire to include any
Underwriter's Securities in such proposed registration statement, the Company
shall afford the Underwriter and such Holders of the Underwriter's Warrants
and/or Underwriter's Securities the opportunity to have any such Underwriter's
Securities registered under such registration statement. Notwithstanding the
provisions of this Section 7(c)(1) and the provisions of Section 7(d), the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7(c)(1) (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
(2) If the underwriter of an offering to which the above
piggyback rights apply, in good faith and for valid business reasons, objects to
such rights, such objection shall preclude such inclusion.
(d) Covenants of the Company With Respect to Registration. In
connection with any registrations under Sections 7(b) and 7(c) hereof, the
Company covenants and agrees as follows:
<PAGE>
(1) The Company shall use its best efforts to file a
registration statement within thirty (30) calendar days of receipt of any demand
therefor pursuant to Section 7(b); provided, however, that the Company shall not
be required to produce audited or unaudited financial statements for any period
prior to the date such financial statements are required to be filed in a report
on Form 10-K or Form 10-Q, as the case may be. The Company shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Underwriter's
Securities such number of prospectuses as shall reasonably be requested.
(2) The Company shall pay all costs (excluding fees
and expenses of Holders' counsel and any underwriting discounts or selling fees,
expenses or commissions), fees and expenses in connection with any registration
statement filed pursuant to Sections 7(b) and 7(c) hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, blue sky
fees and expenses.
(3) The Company will use its best efforts to qualify
or register the Underwriter's Securities included in a registration statement
for offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Holders, provided that the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(4) The Company shall indemnify the Holders of the
Underwriter's Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement, but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the Underwriter
contained in Section 8 of the Underwriting Agreement.
<PAGE>
(5) The Holders of the Underwriter's Securities to be
sold pursuant to a registration statement, and their successors and assigns,
shall indemnify the Company, its officers and directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such Holders,
or their successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 8 of the Underwriting Agreement pursuant to which the
Underwriter has agreed to indemnify the Company.
(6) Nothing contained in this Agreement shall be
construed as requiring the Holders to exercise their Underwriter's Warrants
prior to the initial filing of any registration statement or the effectiveness
thereof, provided that such Holders have made arrangements reasonably
satisfactory to the Company to pay the exercise price from the proceeds of such
offering.
(7) The Company shall furnish to each underwriter for
the offering, if any, such documents as such underwriter may reasonably require.
(8) The Company shall as soon as practicable after
the effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(9) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below and
any managing underwriter copies of all correspondence between the Commission and
the Company, its counsel or auditors with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
<PAGE>
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(10) The Company shall enter into an underwriting
agreement with the managing underwriter selected for such underwriting by
Holders holding a Majority of the Underwriter's Securities requested to be
included in such underwriting, provided, however that such managing underwriter
shall be reasonably acceptable to the Company, except that in connection with an
offering for which the Holders have piggyback rights, the Company shall have the
sole right to select the managing underwriter or underwriters. Such underwriting
agreement shall be satisfactory in form and substance to the Company, a Majority
of such Holders (in respect of a registration under Section 7(b) only) and such
managing underwriter, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Underwriter's Securities.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
8. Adjustments to Purchase Price and Number of Securities.
(a) Computation of Adjusted Purchase Price. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock (other than the issuances
referred to in Section 8(g) hereof), including shares held in the Company's
treasury, for a consideration per share less than the greater of (i) 85% of the
Purchase Price in effect immediately prior to the issuance or (ii) 85% sale of
such shares or the "Market Price" (as defined in Section 8(a)(6) hereof) per
share of Common Stock on the date immediately prior to the issuance or sale of
such shares, or without consideration, then forthwith upon any such issuance or
sale, the Purchase Price shall (until another such issuance or sale) be reduced
to the price (calculated to the nearest full cent) determined by dividing (1)
the product of (a) the Purchase Price in effect immediately before such issuance
or sale and (b) the sum of (i) the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, and (ii) the number of
shares determined by dividing (A) the aggregate consideration, if any, received
by the Company upon such sale or issuance, by (B) the lesser of (x) 85% of the
<PAGE>
Market Price, and (y) 85% of the Purchase Price, in effect immediately prior to
such issuance or sale; by (2) the total number of shares of Common Stock
outstanding immediately after such issuance or sale provided, however, that in
no event shall the Purchase Price be adjusted pursuant to this computation to an
amount in excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock, as provided by Section 8(c) hereof.
For the purposes of this Section 8, the term "Purchase Price"
shall mean the allocated Purchase Price of the Common Stock forming a part of
the Underwriter's Securities set forth in Section 6 hereof, as adjusted from
time to time pursuant to the provisions of this Section 8.
For the purposes of any computation to be made in accordance
with this Section 8(a), the following provisions shall be applicable:
(1) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(2) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(3) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
<PAGE>
(4) The reclassification of securities of the Company other than shares
of Common Stock into securities including shares of Common Stock shall be deemed
to involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in Section 8(a)(2).
(5) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares of Common Stock issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(6) As used herein in the phrase "Market Price" at any date shall be
deemed to be the last reported sale price, or, in the case no such reported sale
takes place on such day, the average of the last reported sales prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average closing bid price as furnished by the
NASD through the NASD Automated Quotation System ("NASDAQ") or similar
organization if NASDAQ is no longer reporting such information, or if the Common
Stock is not quoted on NASDAQ, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available to
it.
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed to all the stockholders of the Company and
Holders of Underwriter's Warrants pursuant to Section 8(i) hereof, if the
Company shall at any time after the date hereof issue options, rights or
warrants to purchase shares of Common Stock, or issue any securities convertible
into or exchangeable for shares of Common Stock (other than the issuances
referred to in Section 8(g) hereof), (i) for a consideration per share less than
the greater of (a) 85% of the Purchase Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities or (b) 85% of the Market Price, or (ii) without
consideration, the Purchase Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price determined by making
<PAGE>
a computation in accordance with the provisions of Section 8(a) hereof, provided
that:
(1) The aggregate maximum number of shares of Common
Stock issuable under such options, rights or warrants shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
and for a consideration equal to the minimum purchase price per share provided
for in such options, rights or warrants at the time of issuance, plus the
consideration (determined in the same manner as consideration received on the
issue or sale of shares in accordance with the terms of the Underwriter's
Warrants), if any, received by the Company for such options, rights or warrants;
provided, however, that upon the expiration or other termination of such
options, rights or warrants, if any thereof shall not have been exercised, the
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this Section 8(b)(1) (and for the purposes of Section 8(a)(5) hereof) shall be
reduced by such number of shares as to which options, warrants and/or rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only of shares
actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not be expired or terminated
unexercised.
(2) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of the Underwriter's
Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the termination of the right to convert or
exchange such convertible or exchangeable securities (whether by reason or
redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this Section 8(b)(2) (and for the purpose of Section
8(a)(5) hereof) shall be reduced by such number of shares as to which the
conversion or exchange rights shall have expired or terminated unexercised, and
such number of shares shall no longer be deemed to be issued and outstanding and
the Purchase Price then in effect shall forthwith be readjusted and thereafter
<PAGE>
be the price which it would have been had adjustment been made on the basis of
the issuance only of the shares actually issued or issuable upon the conversion
or exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated unexercised.
(3) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in Section
8(b)(1), or in the price per share at which the securities referred to in
Section 8(b)(2) are convertible or exchangeable, such options, rights or
warrants or conversion or exchange rights, as the case may be, shall be deemed
to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
(c) Subdivision and Combination. In case the Company shall at
any time issue any shares of Common Stock in connection with a stock dividend in
shares of Common Stock or subdivide or combine the outstanding shares of Common
Stock, the Purchase Price shall forthwith be proportionately decreased in the
case of a stock dividend or a subdivision or increased in the case of
combination.
(d) Adjustment in Number of Securities. Upon each adjustment
of the Purchase Price pursuant to the provisions of this Section 8, the number
of Underwriter's Securities issuable upon the exercise of the Underwriter's
Warrant shall be adjusted to the nearest whole share by multiplying a number
equal to the Purchase Price in effect immediately prior to such adjustment by
the number of Underwriter's Securities issuable upon exercise of the
Underwriter's Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Purchase Price.
(e) Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean the class of stock designated as
Common Stock in the Memorandum of Association, of the Company as it may be
amended as of the date hereof.
(f) Reclassification, Merger or Consolidation. The Company
will not merge, reorganize or take any other action which would terminate the
Underwriter's Warrants without first making adequate provision for the
Underwriter's Warrants. In case of any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value to no par
<PAGE>
value, or from nor par value to par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of the outstanding
Common Stock except a change as a result of a subdivision or combination of such
shares or a change in par value, as aforesaid), or in the case of a sale or
conveyance to another corporation or other entity of the property of the Company
as an entirety, the Holders of each Underwriter's Warrant then outstanding or to
be outstanding shall have the right thereafter (until the expiration of such
Underwriter's Warrant) to purchase, upon exercise of such Underwriter's Warrant,
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owner of the shares of Common Stock
underlying the Underwriter's Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares issuable upon exercise of
the Underwriter's Warrants and (y) the Purchase Price in effect immediately
prior to the record date for such reclassification, change, consolidation,
merger, sale or conveyance, as if such Holders had exercised the Underwriter's
Warrants. In the event of a consolidation, merger, sale or conveyance of
property, the corporation formed by such consolidation or merger, or acquiring
such property, shall execute and deliver to the Holders a supplemental
underwriter's warrant agreement to such effect. Such supplemental underwriter's
warrant agreement shall provide for adjustments which shall be identical to the
adjustment provided for in this Section 8. The provisions of this Section 8(f)
shall similarly apply to successive consolidations or mergers.
(g) No Adjustment of Purchase Price in Certain
Cases. No adjustment of the Purchase Price shall be made:
(1) Upon the issuance or sale of (i) the
Underwriter's Warrants or the securities underlying the Underwriter's Warrants,
(ii) the securities sold pursuant to the Initial Public Offering, including the
securities underlying the Redeemable Warrants sold as part of the Units in the
Initial Public Offering, or (iii) the shares issuable pursuant to the options,
warrants, rights, stock purchase agreements or convertible or exchangeable
securities outstanding or in effect on the date hereof as described in the
prospectus relating to the Initial Public Offering.
<PAGE>
(2) If the amount of said adjustments shall aggregate
less than two ($.02) cents for one (1) share of Common Stock; provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall aggregate at least two ($.02) cents for one (1) share of Common
Stock.
9. Exchange and Replacement of Warrant Certificates. Each Underwriter's
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holders at the principal executive office of the Company, for
a new Underwriter's Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of Underwriter's Securities
in such denominations as shall be designated by the Holders thereof at the time
of such surrender.
10. Loss, Theft etc. of Certificates Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Underwriter's Warrant Certificate, and, in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to it, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Underwriter's Warrant Certificates, if
mutilated, the Company will make and deliver a new Underwriter's Warrant
Certificate of like tenor, in lieu thereof
11. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
and/or Redeemable Warrants upon the exercise of the Underwriter's Warrants, nor
shall it be required to issue scrip or pay cash in lieu of fractional interests;
provided, however, that if a Holder exercises all Underwriter's Warrants held of
record by such Holder the fractional interests shall be eliminated by rounding
any fraction to the nearest whole number of shares of Common Stock or other
securities, properties or rights. Notwithstanding the foregoing, in no event
shall the Company be required to issue scrip, cash on fractional shares of
Common Stock upon the exercise of an odd number of Redeemable Warrants, it being
the understanding that Redeemable Warrants may only be exercised in pairs.
12. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Underwriter's
<PAGE>
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof and the exercise of the
Redeemable Warrants. The Company covenants and agrees that, upon exercise of
Underwriter's Warrants and payment of the Purchase Price therefor, all the
shares of Common Stock and other securities issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Underwriter's Warrants
shall be outstanding, the Company shall use its best efforts to cause the Common
Stock to be listed (subject to official notice of issuance) on all securities
exchanges on which the Common Stock issued to the public in connection herewith
may then be listed or quoted.
13. Notices to Underwriter's Warrant Holders. Nothing
contained in this Agreement shall be construed as conferring upon the Holders
the right to vote or to consent or to receive notice as a stockholder in respect
of any meetings of stockholders for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Underwriter's Warrants and
their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an entirety
shall be proposed; then, in any one or more of said events, the Company shall
give written notice of such event at least fifteen (15) calendar days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
<PAGE>
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or five days after being mailed by registered or
certified mail, return receipt requested:
If to the registered Holders of the Underwriter's Warrants, to the
address of such Holders as shown on the books of the Company; or
(b) If to the Company to 91 Michigan Avenue, Patterson, New
Jersey 07503 or to such other address as the Company may designate by notice to
the Holders.
15. Supplements and Amendments. The Company and the
Underwriter may from time to time supplement or amend this Agreement without the
approval of any Holders of Underwriter's Warrant Certificates (other than the
Underwriter) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem shall not
adversely affect the interests of the Holders of Underwriter's Warrant
Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Underwriter, the Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close
of business on ______, 2001. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on the expiration of any applicable statue of limitations.
18. Governing Law; Submission to Jurisdiction. This Agreement
and each Underwriter's Warrant Certificate issued hereunder shall be deemed to
be a contract made under the laws of the State of New York and for all purposes
<PAGE>
shall be construed in accordance with the laws of said state without giving
effect to the rules of said state governing the conflicts of laws. The Company,
the Underwriter and the Holders hereby agree that any action, proceeding or
claim against it arising out of, or relating in any way to, this Agreement shall
be brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriter and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Underwriter and the Holders (at the option
of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
13 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement, to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and thereof. This Agreement may not be
modified or amended except by a writing duly signed by the Company and the
Holders of a Majority in Interest of the Underwriter's Securities (for this
purpose, treating all then outstanding Underwriter's Warrants as if they had
been exercised).
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Underwriter and any other registered Holders of the Underwriter's
Warrant Certificates or Underwriter's Securities any legal or equitable right,
remedy or claim under this Agreement; and this Agreement shall be for the sole
<PAGE>
and exclusive benefit of the Company and the Underwriter and any other Holders
of the Underwriter's Warrant Certificates or Underwriter's Securities.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
24. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Underwriter and their respective
successors and assigns and the Holders from time to time of the Underwriter's
Warrant Certificates or any of them.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
ROOM PLUS, INC.
By:_____________________________
Marc Zucker, Chairman
THE THORNWATER COMPANY, L.P..
By:____________________________
Name: Thomas O'Rourke
Title: Managing Director
<PAGE>
ROOM PLUS, INC.
WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED FOR SALE OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR
(ii) AN OPINION OF COUNSEL, IF SUCH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING ______, 1997 THROUGH
5:00 P.M., NEW YORK TIME ON ______, 2001
Warrants covering 110,000 shares of Common
Stock and/or 220,000 Redeemable Warrants
No. UW-1
<PAGE>
This Warrant Certificate certifies that The Thornwater Company
L.P. or registered assigns, is the registered holder of Warrants to purchase
initially, at any time from ______, 1997, until 5:00 p.m., New York time on
______, 2001 (the "Expiration Date"), up to 110,000 shares of Common Stock,
$.00133 par value (the "Common Stock") of Room Plus, Inc. ("Company") and/or
220,000 Redeemable Common Stock Purchase Warrants ("Redeemable Warrants"),
exercisable to purchase one share of Common Stock at $____ per share(the "Common
Stock Warrants"), at a purchase price of $____ per shares of Common Stock and
$.11 per Redeemable Warrant (the "Purchase Price"), upon the surrender of this
Warrant Certificate and payment of the applicable Purchase Price at an office or
agency of the Company, but subject to the conditions set forth herein and in the
Underwriter's Warrant Agreement, dated as of _________, 1996, by and between the
Company and The Thornwater Company, L.P. (the "Warrant Agreement"). Payment of
the Purchase Price shall be made by certified or cashier's check or money order
payable to the order of the Company or the surrender of that portion of the
Underwriter's Warrants having equivalent value (as determined in accordance with
the provisions of paragraph 3(ii) of the Underwriter's Warrant Agreement).
No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement
between the Company and the Underwriter, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Purchase Price and the type and/or number of the Company's
securities issuable upon the exercise of this Warrant, may, subject to certain
22
<PAGE>
conditions, be adjusted. In such event, the Company will, at the request of the
holder, issue a new Warrant Certificate evidencing the adjustment in the
Purchase Price and the number and/or type of securities issuable upon the
exercise of the Warrants; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange as provided herein, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
23
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
certificate this ____ day of ______, 1996.
ROOM PLUS, INC.
By:_____________________________
Marc Zucker,
Chairman
ATTEST:
By:_________________________
Name:
Title:
24
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED___________________________
hereby sells, assigns and transfers unto _____________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________
Attorney, to transfer the within Warrant Certificate on the books of Room Plus,
Inc., with full power of substitution.
Dated:
Signature_____________________
(Signature must conform in all respects to the name of holder
as specified on the face of the Warrant Certificate.)
25
<PAGE>
[Signature guarantee] ________________________________
(Insert Social Security or Other
Identifying Number of Holders)
26
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase ______ shares of Common Stock and/or
______Redeemable Warrants and herewith tenders in payment for such securities a
certified or cashier's check or money order payable to the order of Room Plus,
Inc. in the amount of $______, all in accordance with the terms hereof. The
undersigned requests that certificates for such securities be registered in the
name of ___________________________ whose address is _____________________ and
that such certificates be delivered to _____________________________________
whose address is______________________________________________________________.
Dated:
Signature_______________________
(Signature must conform in all respects to the name of holder
as specified on the face of the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holders)
[Signature guarantee]
<PAGE>
Exhibit 4.2
AGREEMENT, dated this ____ day of _____, 1996 by and between
ROOM PLUS, INC., a New York corporation (the "Company"), and AMERICAN STOCK
TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of
up to 1,100,000 shares of Common Stock, par value $.00133 per share of the
Company ("Common Stock"), and one redeemable warrant entitling the holder to
purchase one share of Common Stock ("Redeemable Warrants"; the shares of Common
Stock and Redeemable Warrants sometimes collectively referred to as the
"Securities"); (ii) the over-allotment option to purchase up to 165,000 shares
of Common Stock and/or 330,000 Redeemable Warrants (the "Over-allotment
Option"); and (iii) the sale to The Thornwater Company, L.P. ("Representative"),
as representative of the several underwriters (individually "Underwriter" and
collectively "Underwriters"), its successors and assigns of warrants (the
"Underwriter's Warrants") to purchase up to 110,000 shares of Common Stock
and/or 220,000 Redeemable Warrants, such securities, except as otherwise set
forth herein, being identical to the Securities being sold to the public (the
Redeemable Warrants issuable upon the exercise of the Underwriter's Warrants are
referred to as the "Common Stock Warrants"), the Company will issue up to
2,530,000 Redeemable Warrants and may issue up to 220,000 Common Stock Warrants
(subject to increase as provided in the Underwriter's Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Redeemable Warrants and the Common Stock Warrants
(collectively, the "Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer and exchange of certificates
representing the Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
<PAGE>
Warrants and the respective rights and obligations thereunder of the Company,
the Underwriters, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions
As used herein, the following terms shall have the following
meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the
Company, par value $.00133 per share.
(b) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located on the date hereof at 40
Wall Street, New York, New York 10005.
(c) "Exercise Date" shall mean, subject to the
provisions of Section 5(b) hereof, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder hereof with such Registered Holder's signature guaranteed, and (ii)
payment in cash or by bank or cashier's check made payable to the Warrant Agent
for the account of the Company, of the amount in lawful money of the United
States of America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean
________, 1997 for the Redeemable Warrants and for the Common Stock Warrants.
(e) "Initial Warrant Redemption Date" shall mean
________, 1997.
(f) "Purchase Price" shall mean, subject to
modification and adjustment as provided in Section 8, $_____ per share of Common
Stock.
2
<PAGE>
(g) "Registered Holder" shall mean the person in
whose name any certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(h) "Subsidiary" or "Subsidiaries" shall mean any
corporation or corporations, as the case may be, of which stock having ordinary
power to elect a majority of the Board of Directors of such corporation
(regardless of whether or not at the time stock of any other class or classes of
such corporation shall have or may have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the Company
or by one or more Subsidiaries, or by the Company and one or more Subsidiaries.
(i) "Transfer Agent" shall mean American Stock
Transfer & Trust Company, or its authorized successor.
(j) "Underwriting Agreement" shall mean the
underwriting agreement dated _______, 1996 between the Company and
Representative, relating to the purchase for resale to the public of the
Securities.
(k) "Underwriter's Warrant Agreement" shall mean the
agreement dated as of ________, 1996 between the Company and Representative
relating to and governing the terms and provisions of the Underwriter's
Warrants.
(l) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(m) "Warrant Expiration Date" shall mean, unless the
Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:00
p.m. (Eastern time) on ________, 2001 for the Redeemable Warrants and for the
Common Stock Warrants or, if such date shall in the State of New York be a
holiday or a day on which banks are authorized to close, than 5:00 p.m. (Eastern
time) on the next following day which in the State of New York is not a holiday
or a day on which banks are authorized to close.
3
<PAGE>
2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase at the Purchase Price therefor from the Initial Warrant Exercise Date
until the Warrant Expiration Date one share of Common Stock upon the exercise
thereof, subject to modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing 2,200,000 Redeemable Warrants to purchase up to an
aggregate of 2,200,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(c) Upon exercise of the Over-allotment Option, in
whole or in part as to the Redeemable Warrants, and payment of the applicable
sums, Warrant Certificates representing up to 330,000 Redeemable Warrants to
purchase up to an aggregate of 330,000 shares of Common Stock (subject to
modification and adjustment as provided in Section 8) shall be executed by the
Company and delivered to the Warrant Agent.
(d) Upon exercise of the Underwriter's Warrants as to
the Redeemable Warrants as provided therein, and payment of the applicable
exercise price, Warrant Certificates representing 220,000 Common Stock Warrants
to purchase up to an aggregate of up to 220,000 shares of Common Stock (subject
to modification and adjustment as provided in Section 8 hereof and in the
Underwriter's Warrant Agreement), shall be executed by the Company and delivered
to the Warrant Agent.
(e) From time to time, up to the Warrant Expiration
Date, as the case may be, the Warrant Agent shall countersign and deliver
Warrant Certificates in required denominations of one or whole number multiplies
thereof to the person entitled thereto in connection with any transfer or
exchange permitted under this Agreement. Except as provided in Section 7 hereof,
no Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder, (ii) Warrant Certificates issued upon any transfer
4
<PAGE>
or exchange of Warrants, (iii) Warrant Certificates issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7,
(iv) Warrant Certificates issued upon exercise of the Underwriter's Warrant
Agreement (including Common Stock Warrants in excess of 220,000 Underwriter's
Warrants issued as a result of the antidilution provisions contained in the
Underwriter's Warrant Agreement), and (v) at the option of the Company, Warrant
Certificates in such form as may be approved by its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares of
Common Stock purchasable upon exercise of the Warrants or the Redemption Price
therefor made pursuant to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates).
Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Treasurer or
an Assistant Treasurer or its Secretary or an Assistant Secretary, by manual
signatures or by facsimile signatures printed thereon, and shall have imprinted
thereon a facsimile of the Company's seal. Warrant Certificates shall be
manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
5
<PAGE>
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company.
SECTION 4. Exercise.
(a) Warrants may be exercised commencing at any time
on or after the Initial Warrant Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
(including the provisions set forth in Sections 5 and 9 hereof) and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date, provided that
the Warrant Certificate representing such Warrant, with the exercise form
thereon duly executed by the Registered Holder thereof with such Registered
Holder's signature guaranteed, together with payment in cash or by bank or
cashier's check made payable to the order of the Company, of an amount in lawful
money of the United States of America equal to the applicable Purchase Price has
been received in good funds by the Warrant Agent. The person entitled to receive
the securities deliverable upon such exercise shall be treated for all purposes
as the holder of such securities as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date and in any event
within five business days after such date, the Warrant Agent on behalf of the
Company shall cause to be issued to the person or persons entitled to receive
the same a Common Stock certificate or certificates for the shares of Common
Stock deliverable upon such exercise, and the Warrant Agent shall deliver the
same to the person or persons entitled thereto. Upon the exercise of Warrants,
the Warrant Agent shall promptly notify the Company in writing of such fact and
of the number of securities delivered upon such exercise and, subject to
subsection (b) below, shall cause all payments of an amount in cash or by check
made payable to the order of the Company, equal to the Purchase Price, to be
deposited promptly in the Company's bank account.
6
<PAGE>
(b) At any time upon the exercise of Warrants after
one year and one day from the date hereof, (i) the Market Price (as hereinafter
defined) of the Company's Common Stock in equal to or greater than the Purchase
Price, (ii) the exercise of the Warrant is solicited by an Underwriter at such
time as such Underwriter is a member of the National Association of Securities
Dealers, Inc. ("NASD"), (iii) the Warrant is not held in a discretionary
account, (iv) disclosure of the compensation arrangement is made in documents
provided to the holders of the Warrants, and (v) the solicitation of the Warrant
is not in violation of Rule 10b-6 promulgated under the Securities Exchange Act
of 1934, then the soliciting Underwriter shall be entitled to receive from the
Company upon exercise of each of the Warrants so exercised, a fee of five
percent (5%) of the aggregate price of the Warrants so exercised (the "Exercise
Fee"). Within five (5) day after the end of each month, commencing in _____
1997, the Warrant Agent will notify Representative of each Warrant Certificate
which has been properly completed for exercise by holders of Warrants during the
last month. The Warrant Agent will provide Representative with such information,
in connection with the exercise of each Warrant, as Representative shall
reasonably request. The Company hereby authorizes and instructs the Warrant
Agent to deliver to the soliciting Underwriters if known to Warrant Agent, or to
Representative if not so known, the Exercise Fee promptly after receipt by the
Warrant Agent from the Company of a check payable to the order of the
appropriate Underwriter in the amount of the Exercise Fee. The Warrant Agent
shall not issue the shares of Common Stock issuable upon exercise of the
Warrants until receipt and forwarding of such check. In the event that an
Exercise Fee is paid to an Underwriter with respect to a Warrant which was not
properly completed for exercise or in respect of which such Underwriter is not
entitled to an Exercise Fee, such Underwriter will return such Exercise Fee to
the Warrant Agent which shall forthwith return such fee to the Company.
Representative and the Company may at any time after ____ 1997, and during
business hours, examine the records of the Warrant Agent, including its ledger
of original Warrant Certificates returned to the Warrant Agent upon exercise of
Warrants. Notwithstanding any provision to the contrary, the provisions of this
7
<PAGE>
Section 4(b) may not be modified, amended or deleted without the prior consent
of Representative.
(c) The Company shall not be obligated to issue any
fractional share interests or fractional warrant interests upon the exercise of
any Warrant or Warrants, nor shall it be obligated to issue scrip or pay cash in
lieu of fractional interests. Any fractional interest shall be eliminated.
(d) Anything in this Section 4 notwithstanding, no
Warrant will be exercisable unless at the time of exercise the Company has filed
with the Securities and Exchange Commission a registration statement under the
Securities Act of 1933 covering the shares of Common Stock issuable upon
exercise of such Warrant and such shares have been so registered or qualified or
deemed to be exempt under the securities laws of the state of residence of the
holder of such Warrant.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery thereof, be duly
and validly issued and fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens and charges with respect to the issuance
thereof, and that upon issuance such shares shall be listed on each securities
exchange, if any, on which the other shares of outstanding Common Stock of the
Company are then listed.
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(b) The Company covenants that, so long as any
unexpired Warrants remain outstanding, the Company will file such post-effective
amendments to the registration statement, Form SB-2, Registration No. 333-_____
(the "Registration Statement"), filed pursuant to the Securities Act of 1933
(the "Act") with respect to the Warrants (or other appropriate registration
statements or post-effective amendment or supplements) as may be necessary to
permit it to deliver to each person exercising a Warrant, a prospectus meeting
the requirements of Section 10(a)(3) of the Act and otherwise complying
therewith, and will deliver such a prospectus to each such person. To the extent
that during any period it is not reasonably likely that the Warrants will be
exercised, due to market price or otherwise, the Company need not file such a
post-effective amendment during such period. The Company will use its reasonable
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Warrants; provided, however, that if shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably
authorized as the Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required upon exercise
of the Warrants, and the Company will comply with all such requisitions.
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SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants or may
be transferred in whole or in part. Warrant Certificates to be so exchanged
shall be surrendered to the Warrant Agent at its Corporate Office, and the
Company shall execute and the Warrant's Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office,
books in which, subject to such reasonable regulations as it may prescribe, it
shall register Warrant Certificates and the transfer thereof. Upon due
presentment for registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue and deliver
to the transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants.
(c) With respect to any Warrant Certificates
presented for registration of transfer, or for exchange or exercise, the
subscription or exercise form, as the case may be, on the reverse thereof shall
be duly endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof with such Registered
Holder's signature guaranteed.
(d) A $10 service charge shall be made for any
exchange, registration or transfer of Warrant Certificates. However, the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise
or for exchange shall be promptly canceled by the Warrant Agent.
(f) Prior to due presentment for registration or
transfer thereof, the Company and the Warrant Agent may deem and treat the
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Registered Holder of any Warrant Certificate as the absolute owner thereof of
each Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of any Warrant Certificate and (in the
case of loss, theft or destruction) of indemnity satisfactory to them, and (in
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall countersign and deliver in lieu thereof a
new Warrant Certificate representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall also comply with such
other reasonable regulations and pay such other reasonable costs and expenses as
the Warrant Agent may impose.
SECTION 8. Adjustment of Purchase Price and reasonable charges
as the Warrant Agent may prescribe.
(a) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof, sell any
shares of Common Stock for a consideration per share less than the greater of
(i) 85% of the closing bid price of the Common Stock as reported on NASDAQ on
the trading date next preceding such sale (the "Market Price"), or (ii) 85% the
Purchase Price then in effect, or issue any shares of Common Stock as a stock
dividend to the holders of Common Stock, or subdivide or combine the outstanding
shares of Common Stock into a greater or lesser number of shares (any such sale,
issuance, subdivision or combination being herein called a "Change of Shares"),
then, and thereafter immediately before the date of such sale or the record date
for each Change of Shares, the Purchase Price for the Warrants (whether or not
the same shall be issued and outstanding) in effect immediately prior to such
Change of Shares shall be changed to a price (including any applicable fraction
of a cent to the nearest cent) determined by dividing (1) the product of (a) the
Purchase Price in effect immediately before such Change of Shares and (b) the
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sum (i) the total number of shares of Common Stock outstanding immediately prior
to such Change of Shares, and (ii) the number of shares determined by dividing
(A) the aggregate consideration, if any, received by the Company upon such sale,
issuance, subdivision or combination, by (B) the lesser of (x) the Market Price,
and (y) the Purchase Price, in effect immediately prior to such Change of
Shares; by (2) the total number of shares of Common Stock outstanding
immediately after such Change of Shares.
(b) For the purposes of any adjustment to be made in
accordance with this Section 8(a) the following provisions shall be applicable:
(A) In case of the issuance or sale of
shares of Common Stock (or of other securities deemed hereunder to
involve the issuance or sale of shares of Common Stock) for a
consideration part or all of which shall be cash, the amount of the
cash portion of the consideration therefor deemed to have been received
by the Company shall be (i) the subscription price (before deducting
any commissions or any expenses incurred in connection therewith), if
shares of Common Stock are offered by the Company for subscription, or
(ii) the public offering price (before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith), if
such securities are sold to underwriters or dealers for public offering
without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other
case.
(B) In case of the issuance or sale
(otherwise than as a dividend or other distribution on any stock of the
Company, and otherwise than on the exercise of options, rights or
warrants or the conversion or exchange of convertible or exchangeable
securities) of shares of Common Stock (or of other securities deemed
hereunder to involve the issuance or sale of shares of Common Stock)
for a consideration part or all of which shall be other than cash, the
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amount of the consideration therefor other than cash deemed to have
been received by the Company shall be the value of such consideration
as determined in good faith by the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way
of dividend or other distribution on any stock of the Company shall be
deemed to have been issued immediately after the opening of business on
the day following the record date for the determination of shareholders
entitled to receive such dividend or other distribution and shall be
deemed to have been issued without consideration.
(D) The reclassification of securities of
the Company other than shares of Common Stock into securities including
shares of Common Stock shall be deemed to involve the issuance of such
shares of Common Stock for a consideration other than cash immediately
prior to the close of business on the date fixed for the determination
of security holders entitled to receive such shares, and the value of
the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at
any one time outstanding shall be deemed to include the aggregate
maximum number of shares issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise of options, rights or
warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(ii) Upon each adjustment of the Purchase Price
pursuant to this Section 8, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment by the Purchase Price in effect prior to such adjustment and dividing
the product so obtained by the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
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Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Section
8(a) and as provided below) less than the greater of (i) 85% of the Market
Price, or (ii) 85% of the Purchase Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration (including the issuance of any
such securities by wazzu way of dividend or other distribution), the Purchase
Price for the Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 8(a) hereof, provided that:
(A) The aggregate maximum number of shares
of Common Stock, as the case may be, issuable or that may become
issuable under such options, rights or warrants (assuming exercise in
full even if not then currently exercisable or currently exercisable in
full) shall be deemed to be issued and outstanding at the time such
options, rights or warrants were issued, for a consideration equal to
the minimum purchase price per share provided for in such options,
rights or warrants at the time of issuance, plus the consideration, if
any, received by the Company for such options, rights or warrants;
provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been
exercised, the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (A) (and for the purposes of
subsection (E) of Section 8(a) hereof) shall be reduced by the number
of shares as to which options, warrants and/or rights shall have
expired, and such number of shares shall no longer be deemed to be
issued and outstanding, and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have
been had adjustment been made on the basis of the issuance only of the
shares actually issued plus the shares remaining issuable upon the
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exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares
of Common Stock issuable or that may become issuable upon conversion or
exchange of any convertible or exchangeable securities (assuming
conversion or exchange in full even if not then currently convertible
or exchangeable in full) shall be deemed to be issued and outstanding
at the time of issuance of such securities, for a consideration equal
to the consideration received by the Company for such securities, plus
the minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof; provided, however, that upon the
expiration or other termination of the right to convert or exchange
such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares of Common Stock deemed
to be issued and outstanding pursuant to this subsection (B) (and for
the purposes of subsection (E) of Section 8(a) hereof) shall be reduced
by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares
shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and
thereafter be the price that it would have been had adjustment been
made on the basis of the issuance only of the shares actually issued
plus the shares remaining issuable upon conversion or exchange of those
convertible or exchangeable securities as to which the conversion or
exchange rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the
exercise price per share provided for in any of the options, rights or
warrants referred to in subsection (A) of this Section 8(b), or in the
price per share or ratio at which the securities referred to in
subsection (B) of this Section 8(b) are convertible or exchangeable,
such options, rights or warrants or conversion or exchange rights, as
the case may be, to the extent not theretofore exercised, shall be
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deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant
to the exercise or conversion or exchange thereof, and the Company
shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities.
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of subdivision or combination), or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants) or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the Corporate Office of the Warrant Agent
a statement signed by its President or a Vice President and by its Treasurer or
an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing
such provision. Such provisions shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in Section 8(a) and (b). The above provisions of this Section 8(c) shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales or conveyances.
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(e) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the Purchase
Price per share and the number of shares purchasable thereunder as the Purchase
Price per share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price
pursuant to this Section 8, the Company will promptly prepare a certificate
signed by the Chairman or President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, of the Company setting
forth: (i) the Purchase Price as so adjusted, (ii) the number of shares of
Common Stock purchasable upon exercise of each Warrant, after such adjustment,
and (iii) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Warrant Agent and cause a
brief summary thereof to be sent by ordinary first class mail to each Registered
Holder at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(g) No adjustment of the Purchase Price shall be made
as a result of or in connection with (A) the issuance or sale of the
Underwriter's Warrants or the Securities underlying the Underwriter's Warrants,
(B) the issuance or sale of the securities pursuant to the Initial Public
Offering, including the securities underlying the Securities, (C) the issuance
or sale of shares of Common Stock pursuant to options, warrants, stock purchase
agreements and convertible or exchangeable securities outstanding or in effect
on the date hereof, or (D) the issuance or sale of shares of Common Stock if the
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amount of said adjustment shall be less than $.02 for one share of Common Stock,
provided, however, that in such case, any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least $.02 for one share of Common
Stock. In addition, Registered Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption
Date, the Company may, on thirty (30) days prior written notice redeem all the
Redeemable Warrants at $.05 per Redeemable Warrant, provided, however, that
before any such call for redemption of Warrants can take place, the (A) average
closing bid price for the Common Stock in the over-the-counter market as
reported by the NASD Automated Quotation System or (B) the average closing sale
price on the primary exchange on which the Common Stock is traded, if the Common
Stock is traded on a national securities exchange, shall have for thirty (30)
consecutive trading days ending on the 15th day prior to the notice of
redemption exceeded 150% of the Purchase Price (initially $____ per share of
Common Stock) (subject to adjustment in the event of any stock splits or other
similar events as provided in Section 8 hereof). All Redeemable Warrants must be
redeemed if any are redeemed.
(b) In the event the Company exercises its right to
redeem all of the Redeemable Warrants, it shall give or cause to be given notice
to the Registered Holders of the Redeemable Warrants, by mailing to such
Registered Holders a notice of redemption, first class, postage prepaid, within
30 calendar days of the aforementioned thirty (30) consecutive trading days and
not later than the twenty-fifth (25th) day before the date fixed for redemption,
at their last address as shall appear on the records of the Warrant Agent. Any
notice mailed in the manner provided herein shall be conclusively presumed to
have been duly given whether or not the Registered Holder receives such notice.
At the time of the mailing to the Registered Holders of the Warrants of the
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notice of redemption, the Company shall deliver or cause to be delivered to
Representative a similar notice telephonically and confirmed in writing together
with a list of the Registered Holders (including their respective addresses and
number of Warrants beneficially owned) to whom such notice of redemption has
been or will be given.
(c) The notice of redemption shall specify (i) the
redemption price, (ii) the date fixed for redemption, (iii) the place where the
Warrant Certificate shall be delivered and the redemption price shall be paid,
and (iv) that the right to exercise the Warrant shall terminate at 5:00 p.m.
(New York time) on the business day immediately preceding the date fixed for
redemption. The date fixed for the redemption of the Warrants shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a Registered Holder (a) to whom notice was not mailed or (b) whose
notice was defective. An affidavit of the Warrant Agent or the Secretary or
Assistant Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate
at 5:00 p.m. (New York time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the Registered Holders shall be
mailed to such persons at their addresses of record.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in
a ministerial capacity for the Company and Representative, and its duties shall
be determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
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(b) The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustment, or with respect to the nature or extent of any such adjustment, when
made, or with respect to the method employed in making the same. It shall not
(i) be liable for any recital or statement of fact contained herein or for any
action taken, suffered or omitted by it in reliance on any Warrant Certificate
or other document or instrument believed by it in good faith to be genuine and
to have been signed or presented by the proper party or parties, (ii) be
responsible for any failure on the part of the Company to comply with any of its
covenants and obligations contained in this Agreement or in any Warrant
Certificate, or (iii) be liable for any act or omission in connection with this
Agreement except for its own gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company) and shall incur
no liability or responsibility for any action taken, suffered or omitted by it
in good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Vice-Chairman or
Secretary (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for action taken, suffered or
omitted by it in accordance with such notice, statement, instruction, request,
direction, order or demand.
(e) The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses and
liabilities, including judgments, costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers hereunder
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except losses, expenses and liabilities arising as a result of the Warrant
Agent's gross negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or willful
misconduct), after giving 30 days prior written notice to the Company. At least
15 days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation the Company shall appoint in writing a new warrant agent. If
the Company shall fail to make such appointment within a period of 30 days after
it has been notified in writing of such resignation by the resigning Warrant
Agent, then the Registered Holder of any Warrant Certificate may apply to any
court of competent jurisdiction for the appointment of a new warrant agent. Any
new warrant agent, whether appointed by the Company or by such a court, shall be
a bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company doing business in New York, New York. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the warrant agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(g) Any corporation into which the Warrant Agent or
any new warrant agent may be converted or merged, any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
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Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and
affiliates, and any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as though
it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of
two years from the date of exercise any Warrant Certificate received by it upon
such exercise, marked to indicate its cancellation thereof in accordance with
Section 6(e) hereof.
SECTION 12. Modification of Agreement.
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement without the approval
of any holders of Warrants (i) that they shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; (ii) that they may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Warrant Certificates; or (iii) which may be required by law; provided, however,
that this Agreement shall not otherwise be modified, supplemented or altered in
any respect except with the consent in writing of the Registered Holders
representing not less than 50% of the Warrants then outstanding; provided,
further, that no change in the number of the securities purchasable upon the
exercise of any Warrant, or the Purchase Price therefor, shall be made without
the consent in writing of the Registered Holder of the Warrant Certificate,
other than such changes as are specifically permitted or prescribed by this
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Agreement as originally executed. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of
Representative, other than (i) to cure any ambiguity or to correct any provision
which is inconsistent or which is a manifest mistake or error; (ii) to make any
such change that is necessary or desirable and which shall not adversely affect
the interests of Representative; or (iii) except as may be required by law.
SECTION 13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or five days after mailed first-class postage prepaid, or upon receipt
when sent by facsimile, with confirmation received, if to the Registered Holder
of a Warrant Certificate, at the address of such holder as shown on the registry
books maintained by the Warrant Agent; if to the Company at 91 Michigan Avenue,
Patterson, New Jersey 07503, Attention: Chairman, or at such other address as
may have been furnished to the Warrant Agent in writing by the Company; and if
to the Warrant Agent, at its Corporate Office. Copies of any notice delivered
pursuant to this Agreement shall be delivered to The Thornwater Company, L.P.,
107A East 37th Street, New York, New York 10016, Attention: Managing Director,
or at such other addresses as may have been furnished to the Company and the
Warrant Agent in writing.
SECTION 14. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
SECTION 15. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the Company, the Warrant Agent and their respective successors and assigns
and the holders from time to time of Warrant Certificates or any of them. Except
as hereinafter stated, nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim or to
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impose upon any other person any duty, liability or obligation. Representative
is, and shall at all times irrevocably be deemed to be, a third-party
beneficiary of this Agreement, with full power, authority and standing to
enforce the rights granted to it hereunder. In the event of any conflict
relating to the Underwriter's Warrant between the terms hereof and the terms of
the Underwriter's Warrant Agreement, the terms of the Underwriter's Warrant
Agreement shall prevail.
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
ROOM PLUS, INC.
By: ________________________________
Mark Zucker, Chairman
[SEAL]
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:_________________________________
[SEAL]
24
<PAGE>
Exhibit A
No. W__________ VOID AFTER ______, 2001
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
ROOM PLUS, INC.
NO. _______ CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $.00133 par
value, of Room Plus, Inc., a New York corporation (the "Company"), at any time
I
<PAGE>
from ______, 1997 and prior to the Expiration Date (as hereinafter defined) upon
the presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $____ per share, subject to adjustment (the
"Purchase Price"), in lawful money of the United States of America in cash or by
check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
______, 1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional interests will be issued. In the
case of the exercise of less than all the warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on _______, 2001. If each such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the Expiration
Date shall mean 5:00 P.M. (New York time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
II
<PAGE>
securities is effective or an exemption thereunder is available. The Company has
covenanted and agreed that, if required by the Act, and unless during any period
it is not reasonably likely that the Warrants will be exercised, it will file a
registration statement under the Act, use its best efforts to cause the same to
become effective, keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration or transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a shareholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this
Warrant may be redeemed at the option of the Company, at a redemption price of
$.05 per Warrant, at any time commencing after ______, 1997, provided that (i)
the average closing bid price for the Common Stock in the over-the-counter
market as reported by the National Association of Securities Dealers Automated
Quotation System, or (ii) the average closing sale price on the primary exchange
III
<PAGE>
on which the Common Stock is traded, if the Common Stock is traded on a national
securities exchange, or (iii) the average closing sale price on NASDAQ, if the
Common Stock is quoted on NASDAQ, shall have for thirty (30) consecutive trading
days ending on the fifteenth (15th) day prior to the Notice of Redemption, as
defined below, exceeded 150% of the exercise price (initially $____ per share)
of the Redeemable Warrants (subject to adjustment in the event of any stock
splits or other similar events). Notice of redemption (the "Notice of
Redemption") shall be given not later than the twenty-fifth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the $.05 per Warrant upon surrender of
this Certificate.
Under certain circumstances, The Thornwater Company, L.P., its
successors and assigns shall be entitled to receive an aggregate of five percent
(5%) of the Purchase Price of the Warrants represented hereby.
Prior to due presentment for registration or transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
IV
<PAGE>
Dated: ____________, 1996
ROOM PLUS, INC.
By:___________________________
Name: Mark Zucker
Title: Chairman
SEAL
By:____________________________
Name:
Title: Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By:_________________________
Authorized Officer
V
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
exercise ___________________ Warrants represented by this Warrant Certificate,
and to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
----------------------------------------------
----------------------------------------------
----------------------------------------------
(please print or type name and address)
and be delivered to
----------------------------------------------
----------------------------------------------
----------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by
The Thornwater Company, L.P. [ ]
H. J. Meyers, Inc. [ ]
2. The exercise of this Warrant was solicited by
----------------------------------. [ ]
3. If the exercise of this Warrant was not
solicited, please check the following box. [ ]
X_____________________________
Dated:_________________199____
______________________________
______________________________
Address
______________________________
Social Security or Taxpayer
Identification Number
______________________________
Signature Guaranteed
______________________________
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _____________________________,
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
______________________________________________
______________________________________________
______________________________________________
(please print or type name and address)
___________________________________________________ of the Warrants represented
by this Warrant Certificate, and hereby irrevocably constitutes and appoints
_____________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
X_____________________________
Dated:_________________199____ Signature Guaranteed
______________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE MEDALLION
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
<PAGE>
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE, WHO IS A MEMBER OF THE
MEDALLION PROGRAM.
<PAGE>
[LETTERHEAD OF WILENTZ, GOLDMAN & SPITZER, P.A.]
Woodbridge
October 2, 1996
Room Plus, Inc.
91 Michigan Avenue
Paterson, New Jersey 07503
Registration Statement on Form SB-2
Registration Statement No. 333-10483
1,100,000 Shares of Common Stock and
2,200,000 Redeemable Warrants
------------------------------------
Dear Sirs:
We are acting as special counsel for Room Plus, Inc. (the
"Company"), in connection with the proposed issue and sale by the Company of
1,000,000 shares of Common Stock with a par value of $0.00133 per share (the
"Public Shares"), the sale by certain shareholders of the Company of 100,000
shares of Common Stock (the "Directors Shares") and the issuance and sale by the
Company of 2,200,000 Redeemable Common Stock Purchase Warrants (the "Warrants"),
as described in the Company's Registration Statement on Form SB-2 (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), on August 20, 1996.
<PAGE>
Room Plus, Inc.
October 2, 1996
Page 2
As such counsel, we have:
(a) reviewed the actions heretofore taken by the Board of
Directors of the Company in connection with the authorization of the issuance
and sale of the Public Shares and the Warrants and related matters, including
the issuance and registration of the Directors Shares; and
(b) made such examination of fact and law and examined
originals or copies, certified or otherwise authenticated to our satisfaction,
of such corporate records, instruments, certificates of public officials or
bodies, certificates of officers and representatives of the Company, and other
documents as we have deemed necessary in order to render the opinions
hereinafter expressed.
Based on the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is a validly
existing corporation under the laws of State of New York.
2. The Directors Shares have been legally issued, fully paid
and nonassessable.
3. When (i) the Registration Statement becomes effective, (ii)
the issue and sale of the Public Shares and the Warrants have been duly
authorized by proper corporate action on the part of the Company, and (iii) the
Public Shares and the Warrants have been delivered and paid for as contemplated
by the Prospectus forming part of the Registration Statement, the Public Shares
and the Warrants will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement and to the reference to this firm under the
heading "Legal Matters" in the Prospectus forming part of said Registration
Statement. By giving the foregoing consent, we do not admit that we are within
the category of persons whose consent is required by Section 7 of the Securities
Act.
Very truly yours,
/s/ Wilentz, Goldman & Spitzer, P.A.
------------------------------------
WILENTZ, GOLDMAN & SPITZER, P.A.
<PAGE>
[LETTERHEAD OF WILENTZ, GOLDMAN & SPITZER, P.A.]
Woodbridge
October 2, 1996
Room Plus, Inc.
91 Michigan Avenue
Paterson, New Jersey 07503
Registration Statement on Form SB-2
Registration Statement No. 333-10483
1,100,000 Shares of Common Stock and
2,200,000 Redeemable Warrants
------------------------------------
Dear Sirs:
We are acting as special counsel for Room Plus, Inc. (the
"Company"), in connection with the proposed issue and sale by the Company of
1,000,000 shares of Common Stock with a par value of $0.00133 per share (the
"Public Shares"), the sale by certain shareholders of the Company of 100,000
shares of Common Stock (the "Directors Shares") and the issuance and sale by the
Company of 2,200,000 Redeemable Common Stock Purchase Warrants (the "Warrants"),
as described in the Company's Registration Statement on Form SB-2 (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), on August 20, 1996.
<PAGE>
Room Plus, Inc.
October 2, 1996
Page 2
As such counsel, we have:
(a) reviewed the actions heretofore taken by the Board of
Directors of the Company in connection with the authorization of the issuance
and sale of the Public Shares and the Warrants and related matters, including
the issuance and registration of the Directors Shares; and
(b) made such examination of fact and law and examined
originals or copies, certified or otherwise authenticated to our satisfaction,
of such corporate records, instruments, certificates of public officials or
bodies, certificates of officers and representatives of the Company, and other
documents as we have deemed necessary in order to render the opinions
hereinafter expressed.
Based on the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is a validly
existing corporation under the laws of State of New York.
2. The Directors Shares have been legally issued, fully paid
and nonassessable.
3. When (i) the Registration Statement becomes effective, (ii)
the issue and sale of the Public Shares and the Warrants have been duly
authorized by proper corporate action on the part of the Company, and (iii) the
Public Shares and the Warrants have been delivered and paid for as contemplated
by the Prospectus forming part of the Registration Statement, the Public Shares
and the Warrants will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement and to the reference to this firm under the
heading "Legal Matters" in the Prospectus forming part of said Registration
Statement. By giving the foregoing consent, we do not admit that we are within
the category of persons whose consent is required by Section 7 of the Securities
Act.
Very truly yours,
/s/ Wilentz, Goldman & Spitzer, P.A.
------------------------------------
WILENTZ, GOLDMAN & SPITZER, P.A.
<PAGE>
Exhibit 10.1
Dated June 16, 1995,
as amended on August 1, 1996
EMPLOYMENT AGREEMENT
Between
ROOM PLUS, INC.
and
Allan Socher
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 2
EMPLOYMENT AGREEMENT
DATE: June 16, 1995, as amended on August 1, 1996
THE PARTIES
Room Plus, Inc. a company registered to do business in New York
and whose registered office is at 91 Michigan Avenue, Paterson,
New Jersey (the "Company")
and
Allan Socher of 5 Roller Road East, Ocean Township, NJ 07712
(the "Appointee")
1. DEFINITIONS
In this Agreement (except where the context otherwise
requires) the words and expressions set out below shall have
the following meanings:
a) Associated Company: Associated Company means from
time to time any company designated by the Board
as an Associated Company.
b) Board: The Board means the board of directors of
the Company from time to time or a duly authorized
committee thereof.
c) Compensation Committee: Compensation Committee is
the committee established by the Board for the
purposes of determining the annual salary, any
bonuses and other remuneration payable to the
Appointee and other executive officers of the
Company. In the event no such committee is
established by the Board, the Compensation
Committee shall mean the entire Board.
d) Employment: The term of employment of the
Appointee pursuant to this Agreement.
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 3
e) Group: The Group means the Company and any
Associated Company and any holding company of the
Company and any subsidiary of such holding company
or of the Company from time to time.
f) Clause Headings: Clause headings are inserted for
ease of reference only and shall not affect
construction.
g) Miscellaneous: Words importing one gender shall
be treated as importing any gender; words
importing individuals shall be treated as
importing corporations and vice-versa; words
importing singular shall be treated as importing
plural and vice-versa; and words importing whole
shall be treated as including a reference to any
part thereof.
2. APPOINTMENT
The Company shall employ the Appointee and the Appointee shall serve
the Company as the Company's President and Director of Marketing.
3. DURATION
3.1 The Employment shall be deemed to have commenced on June 30,
1995 ("the Commencement Date") and, subject to Paragraph 3.2,
shall continue unless terminated by not less than three years
written notice if given by the Company or not less than three
months' written notice if given by the Appointee, such notice
to be given at any time after the Commencement Date.
3.2 After notice of termination has been given by the Company or
Appointee pursuant to the provisions of this Agreement, the
Company shall, in its sole discretion, have the right to
relieve Appointee of his duties and deny Appointee access to
Company property PROVIDED THAT the Appointee shall be entitled
to receive his salary and any bonus in accordance with
paragraph 6 hereof during any such period.
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 4
4. DUTIES
The Appointee will:
a) perform all the duties and exercise all the powers of
his office and such other functions within the Group
(not being inconsistent with his position as President
and Director of Marketing) as the Board may reasonably
require to the best of his ability, giving the Company
the full benefit of his knowledge, expertise and
technical skills and will comply with all lawful
directions given by or with the authority of the Board,
and will promptly, whenever required to do so, give a
full account to the Board or a person duly authorized
by the Board of all matters with which he is entrusted;
b) whenever so required for the proper fulfillment of his
duties work, without further remuneration, in excess of
the normal hours of work of the Company, which are 35
hours per week; and
c) attend and work at any premises of the Group
wheresoever situated, and travel and work both in the
United States and abroad, as may be required for the
proper fulfillment of his duties provided the Company
shall not, without the Appointee's prior consent,
require him to go to or reside anywhere outside the
United States other than occasional visits in the
ordinary course of his duties and any expenses of such
relocation will be paid according to current Group
policy in appropriate circumstances.
5. FULL-TIME EMPLOYMENT
The Employment is full time and the Appointee will not, without the prior
authority of the Compensation Committee (and if the Appointee shall be a member
of the Compensation Committee, he shall not vote on the matter), engage or be
concerned or undertake or be interested in (whether directly or indirectly), any
other business or occupation (except real estate holdings) or become or an
employee or agent or consultant or partner of any other person, firm or company
(other than a company within the Group), except that
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 5
a) the Appointee may beneficially own any shares or
securities listed on a recognized stock exchange; and
b) the Appointee may maintain his interest in and perform
his duties for Retail Media Plus, Inc.
6. REMUNERATION
6.1 The Appointee will be compensated at the rate of $125,000 per
annum which shall accrue from day to day and be payable by
equal biweekly installments in arrears and shall be inclusive
of any director's and other fees and emoluments receivable by
the Appointee as a director of the Company or of any member of
the Group. Such salary will be increased annually based on the
New York-Northeastern New Jersey CPI published by the Bureau
of Labor Statistics of the United States Department of Labor.
6.2 The Appointee will be compensated by a performance bonus based
on .75% of revenues of the Company as paid as a monthly draw
in advance. "Revenues" shall mean the revenues as shown on the
Company's financial statements.
At the end of the Company's fiscal year, the draw account will
be adjusted based on the actual gross profit for that year as
reported by the Company's then accountants and any over or
under adjustments will be reconciled 30 days after receipt of
the Company's audited year-end financial report. Should there
be a shortage in the draw account, the Appointee may repay
such shortage at the monthly rate of 1/12 of the shortage over
the next 12 months without interest.
6.3 The Company may also pay to the Appointee such further sum or
sums by way of bonus or otherwise in such manner and subject
to such conditions as the Compensation Committee (and if the
Appointee shall be a member of the Compensation Committee, he
shall not vote on the matter) shall determine in each year.
7. EXPENSES
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 6
The Company shall reimburse the Appointee during the Employment
(against receipts or other appropriate evidence) for all expenses
properly and reasonably incurred by him in the course of his duties
under this Agreement. Such reimbursements will also be made for all
such expenses incurred by the Employee (against receipts or other
appropriate evidence) prior to the date of this Employment Agreement.
8. AUTOMOBILE
8.1 The Company shall provide an annual automobile allowance of
$7,800 to the Appointee for the Appointee's use for the
fulfillment of his duties under this Agreement on the
following terms:
a) the Company will insure the automobile and
reimburse the Appointee (against receipts or other
appropriate evidence) for all maintenance, oil,
repair and other running costs hereof;
b) the Appointer shall ensure that the automobile is
fully serviced at such intervals as are
recommended by the manufacturer of such model; and
c) the Company shall pay for fuel consumed by the
automobile for the fulfillment of the Appointee's
duties under this Agreement and for private
mileage.
8.2 The automobile shall at all times remain the absolute property
of the Company and shall be returned immediately on
termination of Employment.
9. BENEFITS
The Appointee shall be entitled to participate in any life insurance,
retirement plan (including, but not limited to, pension, annuity,
profit-sharing and deferred compensation plans), accident, disability,
health and dental insurance and stock purchase plan maintained by the
Company, on terms no less favorable to those extended to any other
executive of the Company.
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 7
10. SICKNESS PAY
10.1 The Appointee will be entitled to full pay during the first
six months of absence from Employment in any calendar year due
to sickness or injury and, for any subsequent such absence in
the same calendar year, to such pay as the Board may deem
appropriate, subject to the Company's right to terminate
Appointee's Employment pursuant to paragraphs 3.1 and 13.1
hereof.
10.2 The Appointee shall, at the request and expense of the
Company, submit to a medical examination at any time when the
Company sees fit as part of his Employment.
11. HOLIDAYS AND VACATION
11.1 The Appointee shall be entitled, with full remuneration, to
the usual public and statutory holidays and a further 20
working day's vacation in each calendar year to be taken at
such times as shall be agreed between the Board and the
Appointee, or failing agreement, as the Board may determine.
11.2 Such vacation entitlement shall be deemed to accrue from day
to day and may be carried over from one calendar year to the
next. The Appointee shall not be entitled to receive vacation
pay in respect to vacation days accrued but not taken by him
except on the termination of Employment (other than
termination pursuant to paragraph 14.1), when he shall be
entitled to receive vacation pay only in respect of vacation
days accrued in the calendar year in which the Employment
terminates but not taken at the date of such termination.
12. CONFIDENTIALLY
12.1 Without prejudice to the obligations of the Appointee arising
by law during the Employment or at any time thereafter, the
Appointee shall not, except with the prior written authority
of the Board or under legal process, use for his own purpose
or disclose to any third party and shall use his best
endeavors to prevent
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 8
the publication or disclosure of any information relating to
the business, prospective business, technical process,
systems, procedures, finances, designs, inventions, price
lists or lists of customers and suppliers of any member of the
Group (both current and those who were customers or suppliers
during the previous two years) which comes into his possession
by virtue of the Employment, and which the relevant member of
the Group regards, or could reasonably be expected to regard,
as confidential or commercially valuable.
12.2 All plans, programs, designs, drawings, formulae, software,
correspondence, specification, price lists, lists of customers
and suppliers and all other documents, papers and property
which may have been made or prepared by, or at the request of,
the Appointee or have come into his possession or under his
control in the course of the Employment or which relate in any
way to the business (including prospective business) or
affairs of the Group or of any customer, supplier, agent,
distributor or sub-contractor of any member of the Group,
shall, as between the Company and the Appointee, be deemed to
be the property of the Company and shall, together with all
other documents, papers and property in the possession or
under the control of the Appointee and belonging to the Group,
be delivered by the Appointee to the Company immediately upon
termination of the Employment (or at any earlier time on
demand of the Company) and the Appointee shall not, without
the prior written consent of the Board, retain any copy
thereof.
13. TERMINATION
13.1 Notwithstanding the provisions of Paragraph 3.1, the Company
may terminate the Employment by written notice having
immediate effect if the Appointee:
a) is convicted of a criminal offense (excluding a
motor vehicle violation) irrespective of which he
is sentenced to any term of imprisonment, whether
immediate or suspended; or
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 9
b) is disqualified from being a director of the
Company by any reason of an order made by any
competent court; or
c) is unable to perform the duties of the Employment
through sickness or injury for twenty-six
consecutive weeks or an aggregate of thirty-nine
weeks in any fifty-two consecutive weeks; or
d) suffers from mental disorder, substance abuse or
becomes of unsound mind which prevents him, in the
sole judgment of the Company, from carrying out
the duties of the Employment.
13.2 Upon termination of Employment or if the Appointee shall cease
for any reason to be a director of the Company, the Appointee
shall forthwith, if so required by the Company, resign from
his office as director of all companies of which is a director
which are members of the Group, and of all other companies of
which he shall have been appointed a director any member of
the Group by virtue of any right of nomination vested in such
member, and if he shall fail or refuse to do so, the Company
is hereby irrevocably authorized by the Appointee to appoint a
person in his place and on his behalf to do all such things
and execute all such documents as may be necessary for or
incidental to give effect to such resignation.
14. CHANGE OF CONTROL
14.1 In the event that any person or persons acting in concert
shall become beneficially entitled to 50% plus one share or
more of issued voting share capital of the Company pursuant to
an offer, the terms of which are not recommended by the Board
of the Company, the Appointee can, at his sole discretion,
terminate this Agreement within one week of such change of
control becoming absolute, or such later date as may be
subsequently agreed with the acquirer.
14.2 In the event of such termination, the Appointee will be
entitled to receive an amount equal to three (3) times
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 10
his annual salary plus bonus, if any, subject to any tax
deductions or other withholdings as may be required by law.
15. RESTRICTIONS
The Appointee shall not, either alone or jointly with another or
others, whether as principal, agent, consultant, director, partner, or
employee, whether directly or indirectly through any other person, firm
or company, and whether for his own benefit or that of others:
a) for a period of one year following the termination of
the Employment, solicit or endeavor to entice away any
employee, director, agent or independent contractor or
of any member of the Group or do any act whereby such
employee, director, agent or independent contractor is
encouraged to terminate his employment, appointment or
contract with any member of the Group, whether or not
such person would, by reason of terminating his service
with or that member of the Group, be committing a
breach of his contract with such company; or
b) at any time during or after the termination of the
Employment, use the name "Room Plus," "Just 'Round the
Corner," "A Lot of Living in a Little Space" or any
name likely to cause confusion therewith in the minds
of members of the public for the purpose of a business
similar to or competing with any business carried on by
or any member of the Group whether such name is part of
a corporate name, corporate motto or otherwise.
16. SEVERABILITY
16.1 Each of the restrictions contained in paragraphs 12 and 15
hereof constitutes an entirely separate and independent
restriction and is considered by the parties to be reasonable
and necessary for the protection of the legitimate interests
of the Group, but if any such restriction or part thereof
shall be found void by any court of competent jurisdiction but
would be valid if some words were deleted therefrom, or the
period thereof reduced, or are covered or range of
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 11
activities reduced, such restrictions shall apply with such
modification as may be necessary to make it valid and
effective.
16.2 In the event of any paragraph contained in this Agreement or
any part thereof being declared invalid or unenforceable by
any court of competent jurisdiction, all other paragraphs or
parts thereof contained in this Agreement shall remain in full
force and effect and shall not be affected thereby.
17. AMENDMENTS AND WAIVERS
17.1 No amendment to the provisions of this Agreement shall be
effective unless in writing and signed by the parties hereto
or their duly authorize representatives.
17.2 All rights, remedies and powers conferred upon the parties
hereto are cumulative and shall not be deemed or construed to
be exclusive of other rights, remedies or powers now or
hereafter conferred upon the parties hereto or either of them
by law or otherwise.
17.3 Any failure of either party at any time to insist upon or
enforce any such right, remedy or power shall not be construed
as a waiver thereof.
18. NOTICES
18.1 Any notice required or authorized hereunder shall be in
writing and may be served by personal delivery or
registered mail.
18.2 Notices shall be deemed to be served at the time of delivery
in the case of personal delivery, and upon receipt in the case
of registered mail.
19. POST TERMINATION PROVISIONS
Any provision of this Agreement which contemplates or is capable of
operation after termination of the Employment shall apply,
notwithstanding termination of the Employment for whatever reason.
<PAGE>
Employment Agreement
- --------------------
Allan Socher
Page 12
20. WHOLE AGREEMENT
This Agreement constitutes the whole agreement between the parties. All
other agreements (if any) for service between the Company and the
Appointee or any other member of the Group are hereby abrogated and
superseded.
ROOM PLUS, INC.
By: /s/ Marc Zucker
-----------------------
Marc Zucker
Chairman
/s/ Allan Socher
-----------------------
Allan Socher
<PAGE>
Exhibit 10.2
Dated June 16, 1995,
as amended on August 1, 1996
EMPLOYMENT AGREEMENT
Between
ROOM PLUS, INC.
and
Theodore Shapiro
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 2
EMPLOYMENT AGREEMENT
DATE: June 16, 1995, as amended on August 1, 1996
THE PARTIES
Room Plus, Inc. a company registered to do business in New York
and whose registered office is at 91 Michigan Avenue, Paterson,
New Jersey (the "Company")
and
Theodore Shapiro of 454 Prospect Avenue, Unit 179, West Orange,
NJ 07052 (the "Appointee")
1. DEFINITIONS
In this Agreement (except where the context otherwise
requires) the words and expressions set out below shall have
the following meanings:
a) Associated Company: Associated Company means from
time to time any company designated by the Board
as an Associated Company.
b) Board: The Board means the board of directors of
the Company from time to time or a duly authorized
committee thereof.
c) Compensation Committee: Compensation Committee is
the committee established by the Board for the
purposes of determining the annual salary, any
bonuses and other remuneration payable to the
Appointee and other executive officers of the
Company. In the event no such committee is
established by the Board, the Compensation
Committee shall mean the entire Board.
d) Employment: The term of employment of the
Appointee pursuant to this Agreement.
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 3
e) Group: The Group means the Company and any
Associated Company and any holding company of the
Company and any subsidiary of such holding company
or of the Company from time to time.
f) Clause Headings: Clause headings are inserted for
ease of reference only and shall not affect
construction.
g) Miscellaneous: Words importing one gender shall
be treated as importing any gender; words
importing individuals shall be treated as
importing corporations and vice-versa; words
importing singular shall be treated as importing
plural and vice-versa; and words importing whole
shall be treated as including a reference to any
part thereof.
2. APPOINTMENT
The Company shall employ the Appointee and the Appointee shall serve
the Company as the Company's Executive Vice President and Director of
Manufacturing.
3. DURATION
3.1 The Employment shall be deemed to have commenced on June 30,
1995 ("the Commencement Date") and, subject to Paragraph 3.2,
shall continue unless terminated by not less than three years
written notice if given by the Company or not less than three
months' written notice if given by the Appointee, such notice
to be given at any time after the Commencement Date.
3.2 After notice of termination has been given by the Company or
Appointee pursuant to the provisions of this Agreement, the
Company shall, in its sole discretion, have the right to
relieve Appointee of his duties and deny Appointee access to
Company property PROVIDED THAT the Appointee shall be entitled
to receive his salary and any bonus in accordance with
paragraph 6 hereof during any such period.
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 4
4. DUTIES
The Appointee will:
a) perform all the duties and exercise all the powers of
his office and such other functions within the Group
(not being inconsistent with his position as Executive
Vice President and Director of Manufacturing) as the
Board may reasonably require to the best of his
ability, giving the Company the full benefit of his
knowledge, expertise and technical skills and will
comply with all lawful directions given by or with the
authority of the Board, and will promptly, whenever
required to do so, give a full account to the Board or
a person duly authorized by the Board of all matters
with which he is entrusted;
b) whenever so required for the proper fulfillment of his
duties work, without further remuneration, in excess of
the normal hours of work of the Company, which are 35
hours per week; and
c) attend and work at any premises of the Group
wheresoever situated, and travel and work both in the
United States and abroad, as may be required for the
proper fulfillment of his duties provided the Company
shall not, without the Appointee's prior consent,
require him to go to or reside anywhere outside the
United States other than occasional visits in the
ordinary course of his duties and any expenses of such
relocation will be paid according to current Group
policy in appropriate circumstances.
5. FULL-TIME EMPLOYMENT
The Employment is full time and the Appointee will not, without the prior
authority of the Compensation Committee (and if the Appointee shall be a member
of the Compensation Committee, he shall not vote on the matter), engage or be
concerned or undertake or be interested in (whether directly or indirectly), any
other business or occupation (except real estate holdings) or become or an
employee or agent or consultant or partner of any
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 5
other person, firm or company (other than a company within the
Group), except that
a) the Appointee may beneficially own any shares or
securities listed on a recognized stock exchange; and
b) the Appointee may maintain his interest in and perform
his duties for Retail Media Plus, Inc.
6. REMUNERATION
6.1 The Appointee will be compensated at the rate of $125,000 per
annum which shall accrue from day to day and be payable by
equal biweekly installments in arrears and shall be inclusive
of any director's and other fees and emoluments receivable by
the Appointee as a director of the Company or of any member of
the Group. Such salary will be increased annually based on the
New York-Northeastern New Jersey CPI published by the Bureau
of Labor Statistics of the United States Department of Labor.
6.2 The Appointee will be compensated by a performance bonus based
on 1.5% of gross profit of the Company as paid as a monthly
draw in advance. "Gross profit" shall mean the gross profit as
shown on the Company's financial statements.
At the end of the Company's fiscal year, the draw account will
be adjusted based on the actual gross profit for that year as
reported by the Company's then accountants and any over or
under adjustments will be reconciled 30 days after receipt of
the Company's audited year-end financial report. Should there
be a shortage in the draw account, the Appointee may repay
such shortage at the monthly rate of 1/12 of the shortage over
the next 12 months without interest.
6.3 The Company may also pay to the Appointee such further sum or
sums by way of bonus or otherwise in such manner and subject
to such conditions as the Compensation Committee (and if the
Appointee shall be a member of the Compensation Committee, he
shall not vote on the matter) shall determine in each year.
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 6
7. EXPENSES
The Company shall reimburse the Appointee during the Employment
(against receipts or other appropriate evidence) for all expenses
properly and reasonably incurred by him in the course of his duties
under this Agreement. Such reimbursements will also be made for all
such expenses incurred by the Employee (against receipts or other
appropriate evidence) prior to the date of this Employment Agreement.
8. AUTOMOBILE
8.1 The Company shall provide an annual automobile allowance of
$7,800 to the Appointee for the Appointee's use for the
fulfillment of his duties under this Agreement on the
following terms:
a) the Company will insure the automobile and
reimburse the Appointee (against receipts or other
appropriate evidence) for all maintenance, oil,
repair and other running costs hereof;
b) the Appointer shall ensure that the automobile is
fully serviced at such intervals as are
recommended by the manufacturer of such model; and
c) the Company shall pay for fuel consumed by the
automobile for the fulfillment of the Appointee's
duties under this Agreement and for private
mileage.
8.2 The automobile shall at all times remain the absolute property
of the Company and shall be returned immediately on
termination of Employment.
9. BENEFITS
The Appointee shall be entitled to participate in any life insurance,
retirement plan (including, but not limited to, pension, annuity,
profit-sharing and deferred compensation plans), accident, disability,
health and dental insurance and stock purchase plan maintained by the
Company, on terms
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 7
no less favorable to those extended to any other executive
of the Company.
10. SICKNESS PAY
10.1 The Appointee will be entitled to full pay during the first
six months of absence from Employment in any calendar year due
to sickness or injury and, for any subsequent such absence in
the same calendar year, to such pay as the Board may deem
appropriate, subject to the Company's right to terminate
Appointee's Employment pursuant to paragraphs 3.1 and 13.1
hereof.
10.2 The Appointee shall, at the request and expense of the
Company, submit to a medical examination at any time when the
Company sees fit as part of his Employment.
11. HOLIDAYS AND VACATION
11.1 The Appointee shall be entitled, with full remuneration, to
the usual public and statutory holidays and a further 20
working day's vacation in each calendar year to be taken at
such times as shall be agreed between the Board and the
Appointee, or failing agreement, as the Board may determine.
11.2 Such vacation entitlement shall be deemed to accrue from day
to day and may be carried over from one calendar year to the
next. The Appointee shall not be entitled to receive vacation
pay in respect to vacation days accrued but not taken by him
except on the termination of Employment (other than
termination pursuant to paragraph 14.1), when he shall be
entitled to receive vacation pay only in respect of vacation
days accrued in the calendar year in which the Employment
terminates but not taken at the date of such termination.
12. CONFIDENTIALLY
12.1 Without prejudice to the obligations of the Appointee
arising by law during the Employment or at any time
thereafter, the Appointee shall not, except with the
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 8
prior written authority of the Board or under legal process,
use for his own purpose or disclose to any third party and
shall use his best endeavors to prevent the publication or
disclosure of any information relating to the business,
prospective business, technical process, systems, procedures,
finances, designs, inventions, price lists or lists of
customers and suppliers of any member of the Group (both
current and those who were customers or suppliers during the
previous two years) which comes into his possession by virtue
of the Employment, and which the relevant member of the Group
regards, or could reasonably be expected to regard, as
confidential or commercially valuable.
12.2 All plans, programs, designs, drawings, formulae, software,
correspondence, specification, price lists, lists of customers
and suppliers and all other documents, papers and property
which may have been made or prepared by, or at the request of,
the Appointee or have come into his possession or under his
control in the course of the Employment or which relate in any
way to the business (including prospective business) or
affairs of the Group or of any customer, supplier, agent,
distributor or sub-contractor of any member of the Group,
shall, as between the Company and the Appointee, be deemed to
be the property of the Company and shall, together with all
other documents, papers and property in the possession or
under the control of the Appointee and belonging to the Group,
be delivered by the Appointee to the Company immediately upon
termination of the Employment (or at any earlier time on
demand of the Company) and the Appointee shall not, without
the prior written consent of the Board, retain any copy
thereof.
13. TERMINATION
13.1 Notwithstanding the provisions of Paragraph 3.1, the Company
may terminate the Employment by written notice having
immediate effect if the Appointee:
a) is convicted of a criminal offense (excluding a
motor vehicle violation) irrespective of which he
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 9
is sentenced to any term of imprisonment, whether
immediate or suspended; or
b) is disqualified from being a director of the
Company by any reason of an order made by any
competent court; or
c) is unable to perform the duties of the Employment
through sickness or injury for twenty-six
consecutive weeks or an aggregate of thirty-nine
weeks in any fifty-two consecutive weeks; or
d) suffers from mental disorder, substance abuse or
becomes of unsound mind which prevents him, in the
sole judgment of the Company, from carrying out
the duties of the Employment.
13.2 Upon termination of Employment or if the Appointee shall cease
for any reason to be a director of the Company, the Appointee
shall forthwith, if so required by the Company, resign from
his office as director of all companies of which is a director
which are members of the Group, and of all other companies of
which he shall have been appointed a director any member of
the Group by virtue of any right of nomination vested in such
member, and if he shall fail or refuse to do so, the Company
is hereby irrevocably authorized by the Appointee to appoint a
person in his place and on his behalf to do all such things
and execute all such documents as may be necessary for or
incidental to give effect to such resignation.
14. CHANGE OF CONTROL
14.1 In the event that any person or persons acting in concert
shall become beneficially entitled to 50% plus one share or
more of issued voting share capital of the Company pursuant to
an offer, the terms of which are not recommended by the Board
of the Company, the Appointee can, at his sole discretion,
terminate this Agreement within one week of such change of
control becoming absolute, or such later date as may be
subsequently agreed with the acquirer.
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 10
14.2 In the event of such termination, the Appointee will be
entitled to receive an amount equal to three (3) times his
annual salary plus bonus, if any, subject to any tax
deductions or other withholdings as may be required by law.
15. RESTRICTIONS
The Appointee shall not, either alone or jointly with another or
others, whether as principal, agent, consultant, director, partner, or
employee, whether directly or indirectly through any other person, firm
or company, and whether for his own benefit or that of others:
a) for a period of one year following the termination of
the Employment, solicit or endeavor to entice away any
employee, director, agent or independent contractor or
of any member of the Group or do any act whereby such
employee, director, agent or independent contractor is
encouraged to terminate his employment, appointment or
contract with any member of the Group, whether or not
such person would, by reason of terminating his service
with or that member of the Group, be committing a
breach of his contract with such company; or
b) at any time during or after the termination of the
Employment, use the name "Room Plus," "Just 'Round the
Corner," "A Lot of Living in a Little Space" or any
name likely to cause confusion therewith in the minds
of members of the public for the purpose of a business
similar to or competing with any business carried on by
or any member of the Group whether such name is part of
a corporate name, corporate motto or otherwise.
16. SEVERABILITY
16.1 Each of the restrictions contained in paragraphs 12 and 15
hereof constitutes an entirely separate and independent
restriction and is considered by the parties to be reasonable
and necessary for the protection of the legitimate interests
of the Group, but if any such restriction or part thereof
shall be found void by any court of competent jurisdiction but
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 11
would be valid if some words were deleted therefrom, or the
period thereof reduced, or are covered or range of activities
reduced, such restrictions shall apply with such modification
as may be necessary to make it valid and effective.
16.2 In the event of any paragraph contained in this Agreement or
any part thereof being declared invalid or unenforceable by
any court of competent jurisdiction, all other paragraphs or
parts thereof contained in this Agreement shall remain in full
force and effect and shall not be affected thereby.
17. AMENDMENTS AND WAIVERS
17.1 No amendment to the provisions of this Agreement shall be
effective unless in writing and signed by the parties hereto
or their duly authorize representatives.
17.2 All rights, remedies and powers conferred upon the parties
hereto are cumulative and shall not be deemed or construed to
be exclusive of other rights, remedies or powers now or
hereafter conferred upon the parties hereto or either of them
by law or otherwise.
17.3 Any failure of either party at any time to insist upon or
enforce any such right, remedy or power shall not be construed
as a waiver thereof.
18. NOTICES
18.1 Any notice required or authorized hereunder shall be in
writing and may be served by personal delivery or
registered mail.
18.2 Notices shall be deemed to be served at the time of delivery
in the case of personal delivery, and upon receipt in the case
of registered mail.
19. POST TERMINATION PROVISIONS
Any provision of this Agreement which contemplates or is
capable of operation after termination of the Employment
<PAGE>
Employment Agreement
- --------------------
Theodore Shapiro
Page 12
shall apply, notwithstanding termination of the Employment
for whatever reason.
20. WHOLE AGREEMENT
This Agreement constitutes the whole agreement between the parties. All
other agreements (if any) for service between the Company and the
Appointee or any other member of the Group are hereby abrogated and
superseded.
ROOM PLUS, INC.
By: /s/ Marc Zucker
--------------------------
Marc Zucker
Chairman
/s/ Theodore Shapiro
--------------------------
Theodore Shapiro
<PAGE>
Dated June 16, 1995,
as amended on August 1, 1996
EMPLOYMENT AGREEMENT
Between
ROOM PLUS, INC.
and
Marc Zucker
<PAGE>
Employment Agreement
- --------------------
Marc Zucker
Page 2
EMPLOYMENT AGREEMENT
DATE: June 16, 1995, as amended on August 1, 1996
THE PARTIES
Room Plus, Inc. a company registered to do business in New York
and whose registered office is at 91 Michigan Avenue, Paterson,
New Jersey (the "Company")
and
Marc Zucker of 800 Palisade Avenue, Apt. 22C, Fort Lee, NJ 07024
(the "Appointee")
1. DEFINITIONS
In this Agreement (except where the context otherwise
requires) the words and expressions set out below shall have
the following meanings:
a) Associated Company: Associated Company means from
time to time any company designated by the Board
as an Associated Company.
b) Board: The Board means the board of directors of
the Company from time to time or a duly authorized
committee thereof.
c) Compensation Committee: Compensation Committee is
the committee established by the Board for the
purposes of determining the annual salary, any
bonuses and other remuneration payable to the
Appointee and other executive officers of the
Company. In the event no such committee is
established by the Board, the Compensation
Committee shall mean the entire Board.
d) Employment: The term of employment of the
Appointee pursuant to this Agreement.
<PAGE>
Employment Agreement
- --------------------
Marc Zucker
Page 3
e) Group: The Group means the Company and any
Associated Company and any holding company of the
Company and any subsidiary of such holding company
or of the Company from time to time.
f) Clause Headings: Clause headings are inserted for
ease of reference only and shall not affect
construction.
g) Miscellaneous: Words importing one gender shall
be treated as importing any gender; words
importing individuals shall be treated as
importing corporations and vice-versa; words
importing singular shall be treated as importing
plural and vice-versa; and words importing whole
shall be treated as including a reference to any
part thereof.
2. APPOINTMENT
The Company shall employ the Appointee and the Appointee shall serve
the Company as the Company's Chief Executive Officer.
3. DURATION
3.1 The Employment shall be deemed to have commenced on June 30,
1995 ("the Commencement Date") and, subject to Paragraph 3.2,
shall continue unless terminated by not less than three years
written notice if given by the Company or not less than three
months' written notice if given by the Appointee, such notice
to be given at any time after the Commencement Date.
3.2 After notice of termination has been given by the Company or
Appointee pursuant to the provisions of this Agreement, the
Company shall, in its sole discretion, have the right to
relieve Appointee of his duties and deny Appointee access to
Company property PROVIDED THAT the Appointee shall be entitled
to receive his salary and any bonus in accordance with
paragraph 6 hereof during any such period.
<PAGE>
Employment Agreement
- --------------------
Marc Zucker
Page 4
4. DUTIES
The Appointee will:
a) perform all the duties and exercise all the powers of
his office and such other functions within the Group
(not being inconsistent with his position as Chief
Executive Officer) as the Board may reasonably require
to the best of his ability, giving the Company the full
benefit of his knowledge, expertise and technical
skills and will comply with all lawful directions given
by or with the authority of the Board, and will
promptly, whenever required to do so, give a full
account to the Board or a person duly authorized by the
Board of all matters with which he is entrusted;
b) whenever so required for the proper fulfillment of his
duties work, without further remuneration, in excess of
the normal hours of work of the Company, which are 35
hours per week; and
c) attend and work at any premises of the Group
wheresoever situated, and travel and work both in the
United States and abroad, as may be required for the
proper fulfillment of his duties provided the Company
shall not, without the Appointee's prior consent,
require him to go to or reside anywhere outside the
United States other than occasional visits in the
ordinary course of his duties and any expenses of such
relocation will be paid according to current Group
policy in appropriate circumstances.
5. FULL-TIME EMPLOYMENT
The Employment is full time and the Appointee will not, without the prior
authority of the Compensation Committee (and if the Appointee shall be a member
of the Compensation Committee, he shall not vote on the matter), engage or be
concerned or undertake or be interested in (whether directly or indirectly), any
other business or occupation (except real estate holdings) or become or an
employee or agent or consultant or partner of any other person, firm or company
(other than a company within the Group), except that
<PAGE>
Employment Agreement
- --------------------
Marc Zucker
Page 5
a) the Appointee may beneficially own any shares or
securities listed on a recognized stock exchange; and
b) the Appointee may maintain his interest in and perform
his duties for Retail Media Plus, Inc.
6. REMUNERATION
6.1 The Appointee will be compensated at the rate of $125,000 per
annum which shall accrue from day to day and be payable by
equal biweekly installments in arrears and shall be inclusive
of any director's and other fees and emoluments receivable by
the Appointee as a director of the Company or of any member of
the Group. Such salary will be increased annually based on the
New York-Northeastern New Jersey CPI published by the Bureau
of Labor Statistics of the United States Department of Labor.
6.2 The Appointee will be compensated by a performance bonus based
on 1.5% of gross profit of the Company as paid as a monthly
draw in advance. "Gross profit" shall mean the gross profit as
shown on the Company's financial statements.
At the end of the Company's fiscal year, the draw account will
be adjusted based on the actual gross profit for that year as
reported by the Company's then accountants and any over or
under adjustments will be reconciled 30 days after receipt of
the Company's audited year-end financial report. Should there
be a shortage in the draw account, the Appointee may repay
such shortage at the monthly rate of 1/12 of the shortage over
the next 12 months without interest.
6.3 The Company may also pay to the Appointee such further sum or
sums by way of bonus or otherwise in such manner and subject
to such conditions as the Compensation Committee (and if the
Appointee shall be a member of the Compensation Committee, he
shall not vote on the matter) shall determine in each year.
<PAGE>
Employment Agreement
- --------------------
Marc Zucker
Page 6
7. EXPENSES
The Company shall reimburse the Appointee during the Employment
(against receipts or other appropriate evidence) for all expenses
properly and reasonably incurred by him in the course of his duties
under this Agreement. Such reimbursements will also be made for all
such expenses incurred by the Employee (against receipts or other
appropriate evidence) prior to the date of this Employment Agreement.
8. AUTOMOBILE
8.1 The Company shall provide an annual automobile allowance of
$7,800 to the Appointee for the Appointee's use for the
fulfillment of his duties under this Agreement on the
following terms:
a) the Company will insure the automobile and
reimburse the Appointee (against receipts or other
appropriate evidence) for all maintenance, oil,
repair and other running costs hereof;
b) the Appointer shall ensure that the automobile is
fully serviced at such intervals as are
recommended by the manufacturer of such model; and
c) the Company shall pay for fuel consumed by the
automobile for the fulfillment of the Appointee's
duties under this Agreement and for private
mileage.
8.2 The automobile shall at all times remain the absolute property
of the Company and shall be returned immediately on
termination of Employment.
9. BENEFITS
The Appointee shall be entitled to participate in any life insurance,
retirement plan (including, but not limited to, pension, annuity,
profit-sharing and deferred compensation plans), accident, disability,
health and dental insurance and stock purchase plan maintained by the
Company, on terms
<PAGE>
Employment Agreement
- --------------------
Marc Zucker
Page 7
no less favorable to those extended to any other executive
of the Company.
10. SICKNESS PAY
10.1 The Appointee will be entitled to full pay during the first
six months of absence from Employment in any calendar year due
to sickness or injury and, for any subsequent such absence in
the same calendar year, to such pay as the Board may deem
appropriate, subject to the Company's right to terminate
Appointee's Employment pursuant to paragraphs 3.1 and 13.1
hereof.
10.2 The Appointee shall, at the request and expense of the
Company, submit to a medical examination at any time when the
Company sees fit as part of his Employment.
11. HOLIDAYS AND VACATION
11.1 The Appointee shall be entitled, with full remuneration, to
the usual public and statutory holidays and a further 20
working day's vacation in each calendar year to be taken at
such times as shall be agreed between the Board and the
Appointee, or failing agreement, as the Board may determine.
11.2 Such vacation entitlement shall be deemed to accrue from day
to day and may be carried over from one calendar year to the
next. The Appointee shall not be entitled to receive vacation
pay in respect to vacation days accrued but not taken by him
except on the termination of Employment (other than
termination pursuant to paragraph 14.1), when he shall be
entitled to receive vacation pay only in respect of vacation
days accrued in the calendar year in which the Employment
terminates but not taken at the date of such termination.
12. CONFIDENTIALLY
12.1 Without prejudice to the obligations of the Appointee
arising by law during the Employment or at any time
thereafter, the Appointee shall not, except with the
<PAGE>
Employment Agreement
- --------------------
Marc Zucker
Page 8
prior written authority of the Board or under legal process,
use for his own purpose or disclose to any third party and
shall use his best endeavors to prevent the publication or
disclosure of any information relating to the business,
prospective business, technical process, systems, procedures,
finances, designs, inventions, price lists or lists of
customers and suppliers of any member of the Group (both
current and those who were customers or suppliers during the
previous two years) which comes into his possession by virtue
of the Employment, and which the relevant member of the Group
regards, or could reasonably be expected to regard, as
confidential or commercially valuable.
12.2 All plans, programs, designs, drawings, formulae, software,
correspondence, specification, price lists, lists of customers
and suppliers and all other documents, papers and property
which may have been made or prepared by, or at the request of,
the Appointee or have come into his possession or under his
control in the course of the Employment or which relate in any
way to the business (including prospective business) or
affairs of the Group or of any customer, supplier, agent,
distributor or sub-contractor of any member of the Group,
shall, as between the Company and the Appointee, be deemed to
be the property of the Company and shall, together with all
other documents, papers and property in the possession or
under the control of the Appointee and belonging to the Group,
be delivered by the Appointee to the Company immediately upon
termination of the Employment (or at any earlier time on
demand of the Company) and the Appointee shall not, without
the prior written consent of the Board, retain any copy
thereof.
13. TERMINATION
13.1 Notwithstanding the provisions of Paragraph 3.1, the Company
may terminate the Employment by written notice having
immediate effect if the Appointee:
a) is convicted of a criminal offense (excluding a
motor vehicle violation) irrespective of which he
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Employment Agreement
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Marc Zucker
Page 9
is sentenced to any term of imprisonment, whether
immediate or suspended; or
b) is disqualified from being a director of the
Company by any reason of an order made by any
competent court; or
c) is unable to perform the duties of the Employment
through sickness or injury for twenty-six
consecutive weeks or an aggregate of thirty-nine
weeks in any fifty-two consecutive weeks; or
d) suffers from mental disorder, substance abuse or
becomes of unsound mind which prevents him, in the
sole judgment of the Company, from carrying out
the duties of the Employment.
13.2 Upon termination of Employment or if the Appointee shall cease
for any reason to be a director of the Company, the Appointee
shall forthwith, if so required by the Company, resign from
his office as director of all companies of which is a director
which are members of the Group, and of all other companies of
which he shall have been appointed a director any member of
the Group by virtue of any right of nomination vested in such
member, and if he shall fail or refuse to do so, the Company
is hereby irrevocably authorized by the Appointee to appoint a
person in his place and on his behalf to do all such things
and execute all such documents as may be necessary for or
incidental to give effect to such resignation.
14. CHANGE OF CONTROL
14.1 In the event that any person or persons acting in concert
shall become beneficially entitled to 50% plus one share or
more of issued voting share capital of the Company pursuant to
an offer, the terms of which are not recommended by the Board
of the Company, the Appointee can, at his sole discretion,
terminate this Agreement within one week of such change of
control becoming absolute, or such later date as may be
subsequently agreed with the acquirer.
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Employment Agreement
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Marc Zucker
Page 10
14.2 In the event of such termination, the Appointee will be
entitled to receive an amount equal to three (3) times his
annual salary plus bonus, if any, subject to any tax
deductions or other withholdings as may be required by law.
15. RESTRICTIONS
The Appointee shall not, either alone or jointly with another or
others, whether as principal, agent, consultant, director, partner, or
employee, whether directly or indirectly through any other person, firm
or company, and whether for his own benefit or that of others:
a) for a period of one year following the termination of
the Employment, solicit or endeavor to entice away any
employee, director, agent or independent contractor or
of any member of the Group or do any act whereby such
employee, director, agent or independent contractor is
encouraged to terminate his employment, appointment or
contract with any member of the Group, whether or not
such person would, by reason of terminating his service
with or that member of the Group, be committing a
breach of his contract with such company; or
b) at any time during or after the termination of the
Employment, use the name "Room Plus," "Just 'Round the
Corner," "A Lot of Living in a Little Space" or any
name likely to cause confusion therewith in the minds
of members of the public for the purpose of a business
similar to or competing with any business carried on by
or any member of the Group whether such name is part of
a corporate name, corporate motto or otherwise.
16. SEVERABILITY
16.1 Each of the restrictions contained in paragraphs 12 and 15
hereof constitutes an entirely separate and independent
restriction and is considered by the parties to be reasonable
and necessary for the protection of the legitimate interests
of the Group, but if any such restriction or part thereof
shall be found void by any court of competent jurisdiction but
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Employment Agreement
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Marc Zucker
Page 11
would be valid if some words were deleted therefrom, or the
period thereof reduced, or are covered or range of activities
reduced, such restrictions shall apply with such modification
as may be necessary to make it valid and effective.
16.2 In the event of any paragraph contained in this Agreement or
any part thereof being declared invalid or unenforceable by
any court of competent jurisdiction, all other paragraphs or
parts thereof contained in this Agreement shall remain in full
force and effect and shall not be affected thereby.
17. AMENDMENTS AND WAIVERS
17.1 No amendment to the provisions of this Agreement shall be
effective unless in writing and signed by the parties hereto
or their duly authorize representatives.
17.2 All rights, remedies and powers conferred upon the parties
hereto are cumulative and shall not be deemed or construed to
be exclusive of other rights, remedies or powers now or
hereafter conferred upon the parties hereto or either of them
by law or otherwise.
17.3 Any failure of either party at any time to insist upon or
enforce any such right, remedy or power shall not be construed
as a waiver thereof.
18. NOTICES
18.1 Any notice required or authorized hereunder shall be in
writing and may be served by personal delivery or
registered mail.
18.2 Notices shall be deemed to be served at the time of delivery
in the case of personal delivery, and upon receipt in the case
of registered mail.
19. POST TERMINATION PROVISIONS
Any provision of this Agreement which contemplates or is
capable of operation after termination of the Employment
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Employment Agreement
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Marc Zucker
Page 12
shall apply, notwithstanding termination of the Employment
for whatever reason.
20. WHOLE AGREEMENT
This Agreement constitutes the whole agreement between the parties. All
other agreements (if any) for service between the Company and the
Appointee or any other member of the Group are hereby abrogated and
superseded.
ROOM PLUS, INC.
By: /s/ Allan J. Socher
-----------------------
Allan J. Socher
President
/s/ Marc Zucker
-----------------------
Marc Zucker
<PAGE>
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the ____ day of
_________ , 1996 by and between The Thornwater Company, L.P. ("Consultant"), and
Room Plus, Inc., a New York corporation (the "Company").
In consideration of the mutual promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Purpose: The Company hereby engages Consultant for the term
specified in Paragraph 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters upon the terms and
conditions set forth herein.
2. Term: Except as otherwise specified in Paragraph 4 hereof, this
Agreement shall be effective for a two (2) year period commencing , 1996 and
ending to _________ , 1998.
3. Duties of Consultant: During the term of this Agreement, Consultant
shall seek out Transactions (as hereinafter defined) on behalf of the Company
and shall furnish advice to the Company in connection with any such
Transactions.
4. Compensation: In consideration for the services rendered by
Consultant to the Company pursuant to this Agreement (and in addition to the
expenses provided for in Paragraph 5 hereof), the Company shall compensate
Consultant as follows:
(a) The Company shall pay Consultant a fee of $4,766.67 per
month for the term of this Agreement. The aggregate sum of $114,400 shall be due
and payable upon the execution of this Agreement.
(b) In the event that any Transaction occurs during the term
of this Agreement or one year thereafter, the Company shall pay fees to
Consultant as follows:
<PAGE>
Consideration Fee
------------- ---
$ - 0 - to $ 500,000 Minimum Fee of $25,000
$ 500,000 to $5,000,000 5% of Consideration
$5,000,000 or more $250,000 plus 1% of the
Consideration in excess of
$5,000,000
For the purposes of this Agreement, "Consideration" shall mean
the total market value on the day of the closing of stock, cash, assets and all
other property (real or personal) exchanged or received, directly or indirectly
by the Company or any of its security holders in connection with any
Transaction. Any co-broker retained by Consultant shall be paid by Consultant.
(c) For the purposes of the Agreement, a "Transaction" shall
mean (i) any transaction originated by Consultant, other than in the ordinary
course of trade or business of the Company, whereby, directly or indirectly,
control of, or a material interest in, the Company or any of its businesses or
any of their respective assets, is transferred for Consideration, or (ii) any
transaction originated by Consultant whereby the Company acquires any other
company or the assets of any other company or an interest in any other company
(an "Acquisition").
In the event Consultant originates a line of credit with a
lender or a corporate partner, the Company and Consultant will mutually agree on
a satisfactory fee and the terms of payment of such fee. In the event Consultant
introduces the Company to a joint venture partner or customer and sales develop
as a result of the introduction, the Company agrees to pay a fee of five percent
(5%) of total sales generated directly from this introduction during the first
two years following the date of the first sale. Total sales shall mean gross
receipts less any applicable refunds, returns, allowances, credits, taxes and
shipping charges and monies paid by the Company by way of settlement or judgment
arising out of claims made by or threatened against the Company. Commission
payments shall be paid on the 15th day of each third month following the receipt
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<PAGE>
of customers' payments. In the event any adjustments are made to the total sales
after the commission has been paid, the Company shall be entitled to an
appropriate refund or credit against future payments under this Agreement.
(d) All fees to be paid pursuant to this Agreement, except as
otherwise specified, are due and payable to Consultant in cash or company check
at the closing or closings of any Transaction specified in Paragraph 4. In the
event that this Agreement shall not be renewed or if terminated for any reason,
notwithstanding any such non-renewal or termination, Consultant shall be
entitled to a full fee as provided under Paragraphs 4 and 5 hereof, for any
Transaction for which the discussions were initiated during the term of this
Agreement and which is consummated within a period of twelve months after
non-renewal or termination of this Agreement. Nothing herein shall impose any
obligation on the part of the Company to enter into any Transaction.
5. Expenses of Consultant: In addition to the fees payable hereunder
and regardless of whether any Transaction set forth in Paragraph 4 hereof is
proposed or consummated, the Company shall reimburse Consultant for the
reasonable fees and disbursements of Consultant's counsel and Consultant's
reasonable travel and out-of-pocket expenses incurred in connection with the
services performed by Consultant pursuant to this Agreement and at the request
of the Company, including without limitation, hotels, food and associated
expenses and long-distance telephone calls, except that all expenses exceeding
$500 must be pre-approved in writing by the Company.
6. Liability of Consultant: The Company acknowledges that all opinions
and advice (written or oral) given by Consultant to the Company in connection
with Consultant's engagement are intended solely for the benefit and use of the
Company in considering the Transaction to which they relate, and the Company
agrees that no person or entity other than the Company shall be entitled to make
use of or rely upon the advice of Consultant to be given hereunder, and no such
opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor may the Company make any public references to Consultant, or use
Consultant's name in any annual reports or any other reports or releases of the
Company without Consultant's prior written consent.
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<PAGE>
The Company acknowledges that Consultant makes no commitment whatsoever
as to making a market in the Company's securities or to recommending or advising
its clients to purchase the Company's securities. Research reports or corporate
finance reports that may be prepared by Consultant will, when and if prepared,
be done solely on the merits or judgment of analysis of Consultant or any senior
corporate finance personnel of Consultant.
7. Consultant's Services to Others: The Company acknowledges that
Consultant or its affiliates are in the business of providing financial services
and consulting advice to others. Nothing herein contained shall be construed to
limit or restrict Consultant in conducting such business with respect to others,
or in rendering such advice to others, except that Consultant will not provide
services to others when such services may materially and adversely affect the
Company.
8. Company Information:
(a) The Company recognizes and confirms that, in advising the
Company and in fulfilling its engagement hereunder, Consultant will use and rely
on data, material and other information furnished to Consultant by the Company.
The Company acknowledges and agrees that in performing its services under this
engagement, Consultant may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same.
(b) Except as contemplated by the terms hereof or as required
by applicable law, Consultant shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as Consultant reasonably determines to have a need to
know.
9. Indemnification:
(a) The Company shall indemnify and hold Consultant harmless
against any and all liabilities, claims, lawsuits, including any and all awards
and/or judgments to which it may become subject under the Securities Act of
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<PAGE>
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "Act") or any other federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including costs,
expenses, awards and/or judgments) arise out of or are in connection with the
services rendered by Consultant or any transactions in connection with this
Agreement, except for any liabilities, claims and lawsuits (including awards
and/or judgments), arising out of acts or omissions of Consultant. In addition,
the Company shall also indemnify and hold Consultant harmless against any and
all costs and expenses, including reasonable counsel fees, incurred relating to
the foregoing.
Consultant shall give the Company prompt notice of any such
liability, claim or lawsuit which Consultant contends is the subject matter of
the Company's indemnification and the Company thereupon shall be granted the
right to take any and all necessary and proper action, at its sole cost and
expense, with respect to such liability, claim and lawsuit, including the right
to settle, compromise and dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
Consultant shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the 1933 Act, the
Act or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including costs, expenses, awards
and/or judgments) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact required to be stated or necessary to make
the statement therein, not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by or on behalf of
Consultant for inclusion in any registration statement or prospectus or any
amendment or supplement thereto or in connection with any Transaction to which
this Agreement applies or which otherwise arises. In addition, Consultant shall
also indemnify and hold the Company harmless against any and all costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
-5-
<PAGE>
The Company shall give Consultant prompt notice of
any such liability, claim or lawsuit which
the Company contends is the subject matter of Consultant's indemnification and
Consultant thereupon shall be granted the right to take any and all necessary
and proper action, at its sole cost and expense, with respect to such liability,
claim and lawsuit, including the right to settle, compromise or dispose of such
liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
(b) In order to provide for just and equitable contribution
under the Act in any case in which (i) any person entitled to indemnification
under this Paragraph 9 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Paragraph 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Paragraph 9, then, and in each such case, the Company and Consultant shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after any contribution from others) in such proportion taking
into consideration the relative benefits received by each party from the
transactions undertaken in connection with this Agreement (taking into account
the portion of the proceeds realized by each), the parties' relative knowledge
and access to information concerning the matter with respect to which the claim
was assessed, the opportunity to correct and prevent any statement or omission
and other equitable considerations appropriate under the circumstances; and
provided, that, in any such case, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "Contributing Party"), notify
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<PAGE>
the Contributing Party of the commencement thereof, but the omission so to
notify the Contributing Party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a Contributing Party or his or its representative of the commencement
thereof within the aforesaid fifteen (15) days, the Contributing Party will be
entitled to participate therein with the notifying party and any other
Contributing Party similarly notified. Any such Contributing Party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of the Contributing Party, which consent shall not be
unreasonably withheld. The indemnification provisions contained in this
Paragraph 9 are in addition to any other rights or remedies which either party
hereto may have with respect to the other or hereunder.
10. Consultant an Independent Contractor: Consultant shall perform its
services hereunder as an independent contractor and not as an employee of the
Company or an affiliate thereof. The parties hereto expressly understand and
agree that Consultant shall have no authority to act for, represent or bind the
Company or any affiliate thereof in any manner, except as may be agreed to
expressly by the Company in writing from time to time.
11. Miscellaneous:
(a) This Agreement between the Company and Consultant
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required
hereunder shall be in writing and shall be deemed sufficiently given if
hand-delivered (i) five calendar days after being sent postage prepaid by
registered mail, return receipt requested, or (ii) one business day after being
sent by facsimile with confirmatory notice by U.S. mail, to the respective
parties as set forth below, or to such other address as either party may notify
the other in writing:
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<PAGE>
If to the Company, to: Room Plus Inc.
91 Michigan Avenue
Patterson, New Jersey 07503
Att: Chairman
Telecopy No.:
If to Consultant, to: The Thornwater Company, L.P.
107A East 37th Street
New York, New York 10016
Att: Managing Director
Telecopy No.:
with a copy to: Jay M. Kaplowitz, Esq.
Gersten, Savage, Kaplowitz
& Curtin
575 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 980-5192
(c) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same original
document.
(e) No provision of this Agreement may be amended, modified or
waived, except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without giving effect to its
conflict of law principles. The parties hereby agree that any dispute which may
arise between them arising out of or in connection with this Agreement shall be
adjudicated before a court located in New York City, and they hereby submit to
the exclusive jurisdiction of the courts of the State of New York located in New
York, New York and of the federal courts in the Southern District of New York
with respect to any action or legal proceeding commenced by any party, and
irrevocably waive any objection they now or hereafter may have respecting the
venue of any such action or proceeding brought in such a court or respecting the
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<PAGE>
fact that such court is an inconvenient forum, relating to or arising out of
this Agreement, and consent to the service of process in any such action or
legal proceeding by means of registered or certified mail, return receipt
requested, in care of the address set forth in Paragraph 11(2) hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
THE THORNTON COMPANY, L.P.
By:________________________________
Name: Thomas O'Rorke
Title: Managing Director
ROOM PLUS INC.
By:________________________________
Marc Zucken, Chairman
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
registration statement.
/s/ Ehrenkrantz and Company
----------------------------------------
EHRENKRANTZ AND COMPANY
Roseland, New Jersey
October 2, 1996
