U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 1-14478
December 31, 1996
ROOM PLUS, INC.
(Name of small business issuer in its charter)
New York 11-2622051
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
91 Michigan Avenue, Paterson, New Jersey 07503
(Address of principal executive offices) (Zip Code)
(201) 523-4600
(Issuer's telephone number,
including area code)
Securities registered under Section 12 (b) of the Exchange Act:
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Title of each Class Name of each exchange on which registered
Common Stock, par value $.00133 per share NASDAQ SmallCap & Boston Stock Exchange
- ----------------------------------------- ---------------------------------------
Redeemable Common Stock Purchase Warrants NASDAQ SmallCap & Boston Stock Exchange
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Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, par value $.00133 per share
(Title of Class)
Redeemable Common Stock Purchase Warrants
(Title of Class)
Check whether issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended December 31, 1996 were
$14,427,108.
The aggregate market value of the voting stock hold by non-affiliates
computed by reference to the closing price of the stock on February 28, 1997 was
$11,193,750.
The number of shares of the issuer's Common Stock, par value $.00133
per share, outstanding as of March 20, 1997 was 4,385,000. The actual number of
the issuer's Redeemable Common Stock Purchase Warrants outstanding as of March
20, 1997 was 2,530,000.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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TABLE OF CONTENTS
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ROOM PLUS, INC. PAGE #
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PART I..........................................................................
Item 1 Description of Business....................................... 1
Item 2 Description of Property....................................... 6
Item 3 Legal Proceedings............................................. 7
Item 4 Submission of Matters to a Vote of Security Holders........... 7
PART II.........................................................................
Item 5 Market for Common Equity and Related Stockholder Matters...... 7
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 8
Item 7 Financial Statements.......................................... 12
Item 8 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure........................ 27
PART III........................................................................
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act............ 27
Item 10 Executive Compensation........................................ 28
Item 11 Security Ownership of Certain Beneficial Owners and
Management.................................................... 29
Item 12 Certain Relationships and Related Transactions................ 31
Item 13 Exhibits, Lists and Reports on Form 8-K....................... 32
SIGNATURES...................................................................... 35
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Forward Looking Statements
This Report on Form 10-KSB may contain statements that are
forward-looking in nature and such statements should not be considered as
guarantees of future performance because they involve many uncertainties and
risks. Actual results may vary materially from projected results based upon a
number of factors, including, but not limited to, the Company's ability to
successfully open additional retail showrooms, to automate the manufacturing
process to increase productivity and reduce costs and to compete with its direct
and indirect competitors.
Item 1. Description of Business
(a) General
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 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 16 retail showrooms located in the greater New York City metropolitan
area and Pennsylvania. 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 $327 per square foot.
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.
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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 is in the process of using a substantial portion of the proceeds from
its Initial Public Offering ("IPO") consummated on November 6, 1996 to establish
12 to 14 additional retail showrooms, primarily in the Boston 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.
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.
(b) 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 has utilized and will continue to
utilize a portion of the net proceeds of the IPO 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 acquisition of several pieces of
computer controlled machine tools which would streamline production while
significantly reducing manufacturing costs. In addition, in January 1997, the
Company established Team Plus, an employee management work group whose mission
is to improve quality control through teamwork, pride and unity. One
recommendation of Team Plus that was implemented was to change from a
conventional open container for waste removal to a highly efficient compactor
system. This change is expected to result in an annualized savings of $50,000.
(c) Raw Materials and Suppliers
The raw materials used by the Company in manufacturing its products
include laminate, lumber, plywood, fiber-board, 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
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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.
(d) 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
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
began producing a thinner, low-pressure laminated furniture line that sells at
lower prices, and management believes that there is sufficient demand for this
product line. 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 "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.
(e) 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,
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.
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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 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.
(f) Advertising and Promotion.
The Company 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.
For fiscal year ended December 31, 1996, the Company's advertising
budget was approximately $1,100,000 or 8% 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 on radio.
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
Relationships and Related Transactions".
In May 1996, an agreement was reached with King Features to utilize the
Dennis the Menace character as part of the corporate logo. The Company believes
that this recognizable character will assist in market recognition as the
Company begins its expansion in 1997 outside its traditional market areas.
(g) 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, Washington, DC and Virginia. In
February and March 1997, management opened three sites in the metropolitan New
York area and two sites in the Pennsylvania market. The Company intends to use
approximately 50% of the proceeds from the IPO to open twelve to fourteen new
retail showrooms in the next 24 months. To support the growth of new store
openings, the Company will be supplementing its management information system in
1997 with point of sale equipment to permit on line order processing, and
provide on demand sales and marketing information.
(h) 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
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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.
(i ) 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, workers' 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 uses 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.
(j) Competition.
The home furniture industry is a highly competitive and fragmented
market with annual U.S. sales of over $47.7 billion in 1995 and estimated annual
U.S. sales of $49 billion in 1996.
The Company is the largest retailer of mica-laminated home furniture in
the New York metropolitan area and Pennsylvania, where its 16 retail showrooms
are located. 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, 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 Huffmann 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.
(k) 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
herein 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
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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 December 31, 1996, the Company had approximately 161 employees,
of whom four were executive officers, 73 were engaged in sales, 66 were engaged
in manufacturing and 18 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.
Item 2. Description of Property.
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 10-KSB, the Company operates 16 retail showrooms
in New York, New Jersey and Pennsylvania, which showrooms are set forth below:
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Month and Year Square Feet
Location Opened (Approximately)
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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
Staten Island, NY March 1997 4,000
Brooklyn, NY December 1996 2,720
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
Cherry Hill, NJ March 1997 5,000
Langhorne, PA February 1997 3,200
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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.
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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 plan 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
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 Relationships and Related Transactions".
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders.
None during the fourth quarter of the year ended December 31, 1996.
PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
(a) Market Information.
Since the consummation of the Company's IPO on November 6, 1996, the
Company's Common Stock and Redeemable Common Stock Purchase Warrants have been
traded on the National Association of Securities Dealers Automated Quotation
System (NASDAQ) SmallCap Market under the Symbols "PLUS" and "PLUSW"
respectively, and on the Boston Stock Exchange under the symbols "RPI" and
"RPIW", respectively. Set forth below are the range of reported high and low
sales price information for the Company's Common Stock and Redeemable Common
Stock Purchase Warrants for the fourth quarter of 1996 as reported by NASDAQ.
All over-the-counter market price quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
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Price Per
Price Per Share Redeemable
of Common Common Stock
Year ended December 31, 1996 Stock Purchase Warrant
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Fourth Quarter High 8 7/8 High 4
Low 4 5/8 Low 1 1/4
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(b) Holders.
As of February 11, 1997, the Company had approximately 746 beneficial
owners of its Common Stock and 6 record holders of its Redeemable Common Stock
Purchase Warrants.
(c) Dividends.
The Company has not paid any dividends on its Common Stock in the last
two fiscal year and does not anticipate paying dividends to its shareholders in
the foreseeable future. The Company currently intends to reinvest earnings, if
any, in the development and expansion of its business. The declaration and
payment of dividends in the future will be at the election of the Board of
Directors and will depend upon the Company's earnings, current and anticipated
capital requirements, results of operations, financial position of the Company,
plans for expansion, future prospects, general economic conditions, and
restrictions under then existing credit and other debt instruments and
arrangements, and other factors deemed pertinent by the Board.
Item 6. 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 Form 10-KSB.
Description of Business.
(a) General.
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 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.
On November 1, 1996, the Securities and Exchange Commission declared
effective the Company's Registration Statement relating to the issuance of
1,100,000 shares of its Common Stock (including 100,000 shares of Common Stock
registered for the account of certain selling securityholders) and 2,200,000
Redeemable Common Stock Purchase Warrants at a price of $5.00 per share and
$0.10 per warrant. On November 6, 1996, the underwriter also exercised its over
allotment option for an additional 165,000 shares of the Company's Common Stock
and 330,000 Redeemable Common Stock Purchase Warrants. Net proceeds to the
Company after underwriting commissions, related underwriting expenses, and
additional expenses incurred in connection with the offering were approximately
$4,600,000.
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(b) 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.
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Years ended
December 31
1996 1995
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Revenues 100% 100%
Cost of goods sold 40.3% 52.3%
Gross profit 59.7% 47.7%
Selling, general & administrative
expenses 59.6% 60.3%
Earnings (loss) from operations 0% (12.7%)
Other income (deductions) 0% (1.2%)
Net earnings (loss) 0% (13%)
</TABLE>
Fiscal 1996 Compared with Fiscal 1995.
Revenues.
Revenues for the fiscal year ended December 31, 1996 were $14,427,108,
as compared to $13,149,018 for the fiscal year ended December 31, 1995, or an
increase of $1,278,090 or 9.7%. This increase is primarily the result of four
new showroom openings during October/November 1995 and 1996, which increased
revenues by approximately $1,391,382, increased revenues of $399,687 for
existing showroom sales, and was partially offset by the closing of one showroom
in 1996. Management believes that due to the short period of time they were
open, revenues realized in fiscal year 1996 by such showrooms are not indicative
of future results. Management believes that the four new showrooms will realize
aggregate revenues of approximately $2.5 million in 1997. In addition to these
showrooms, the Company has opened three additional showrooms in the first
quarter of 1997, and will open a fourth showroom in April 1997. Management
believes that these additional showrooms will realize aggregate revenues of
approximately $1.6 million in 1997.
Cost of Sales.
Cost of sales for the fiscal year ended December 31, 1996 were
$5,811,602 or 40.3% of revenues as compared to $6,881,282 or 52.3% of revenues
for the same period in 1995. This decrease is due to changes in the
manufacturing processes and sale of inventory recommended by the Target Team,
including a reduction of direct labor, and manufacturing overhead of $264,197
and $120,422, respectively, as compared to the same period for 1995. In
addition, inventory was reduced from $1,739,995 in January 1995 to $1,229,561 in
December 1995. The inventory was sold at our Paramus, New Jersey Showroom, which
was used as a Clearance Center for several months in 1995. At December 31, 1996
inventory increased by $220,846 to $1,450,407, primarily due to the addition of
four showrooms in late 1995 and 1996.
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 $8,615,506 or 59.7%
of revenues in the fiscal year ended December 31, 1996, as compared to
$6,267,736 or 47.7% of revenues achieved during the same period in 1995.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses amounted to $8,605,096 or
59.6% of revenues in fiscal year 1996 as compared to $7,932,515 or 60.3% of
revenues in fiscal year 1995. The increase of $672,581 is primarily due to
expenses associated with the opening of four new showrooms in late 1995 and
1996. Such expenses included payroll, rent and related showroom overhead
expenses of $588,231 and an increase in advertising of $300,000 over the 1995
levels.
9
<PAGE>
These additional expenses were partially offset by a reduction in employee
benefits and related Workers' Compensation insurance premiums achieved when the
Company entered into an employee leasing agreement with CMGR, Inc., in January
of 1996.
Operating Income.
Operating income for the fiscal year ended December 31, 1996 was
$10,410 as compared to an operating loss of $1,664,779 or 12.7% of revenues
during the fiscal year ended December 31, 1995. Although there can be no
assurance as to the Company's future profitability, Management believes that
1996 represented a positive turning point in the Company's operations and
believes that fiscal year 1997 will show further improvement. The Company plans
to open showrooms in new geographic areas, including Alexandria, Virginia, and
Rockford, Maryland and while the expenses associated with opening the new
showrooms may adversely affect operating income in the near term, Management
believes this expansion strategy will enhance operating income as the showrooms
gain recognition in new markets. See "Liquidity and Capital Resources."
Other Income and Expenses.
Other income and expenses for the fiscal year ended December 31, 1996
was ($32,672) as compared to ($159,572) in fiscal year ended December 31, 1995.
The primary reasons, for the $126,900 net decrease in other expenses were a
reduction in interest expenses and proceeds from an insurance claim for water
damage.
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 benefit of $426,388 in the
fiscal year ended December 31, 1995, as a result of the operating loss incurred
by the Company during that period.
Income Before Income Taxes.
The preceding factors combined to show an increase in net income
totaling $1,802,089 in the fiscal year ended December 31, 1996 as compared to
the fiscal year ended December 31, 1995. There was a net loss of $22,262 in 1996
as compared to a net loss of $1,824,351 or 13.9% of revenues in 1995.
Liquidity and Capital Resources.
The Company had a working capital surplus of $2,774,488 at December 31,
1996 which represented an increase in working capital of $4,021,078 or 323% from
the working capital deficit of $1,246,590 at December 31, 1995. The decrease in
the deficit was mainly due to the IPO which supplied approximately $4,200,000 of
working capital. The IPO also increased the Company's cash and cash equivalents
position from ($61,436) on December 31, 1995 to $3,178,088 on December 31, 1996.
The Company's operating activities used cash of $989,274 and $1,385,761
for the fiscal years ended December 31, 1996 and 1995, respectively. The
principal use of the cash in 1996 was to finance operating expenses and
inventory associated with the opening of four new retail showrooms in late 1995
and 1996 and a $480,631 reduction in accounts payable, which represented
payments of accrued liabilities to various landlords and vendors. Payment of
outstanding accounts payable also permitted the Company to negotiate lower
prices for several raw materials. In fiscal year 1995, cash was primarily used
to finance an approximate 15% decrease in accounts payable, to finance expenses
associated with the June 1995 bridge loan and 1995 private placement and to
finance an increase in cost of goods sold relating to the manufacture of a new
line of rounded-edge furniture.
10
<PAGE>
The Company's investing activities provided (used) cash of ($975,506)
and $195,094 for the fiscal years ended December 31, 1996 and 1995 respectively.
The principal use of cash in 1996 was the purchase of property and inventory for
the four new showrooms and the purchase of equipment to improve manufacturing
efficiency. The principal sources of the cash provided in 1995 were loans from
officers in the amount of $254,465.
The Company's financing activities provided cash of $5,204,304 and
$1,116,716 for the fiscal years ended December 31, 1996 and 1995 respectively.
The cash provided by the Company's financing activities for the fiscal year 1996
primarily resulted from the proceeds of the sale of common stock of $6,478,000
which was partially offset by $1,716,583 of charges connected with the IPO. The
cash provided by the Company's financing activities for the fiscal year ended
1995 was the result of the 1995 Private Placement as defined below.
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 warrants to purchase 750,000 shares of Common Stock at a purchase price of
$1.20 per share.
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.
In June 1996, the Company also obtained a bank loan in the amount of $50,000,
which bore interest at prime rate plus 2% per annum. The Company repaid all
outstanding balances on the bank loan and the line of credit with a portion of
the net proceeds from the IPO.
In June 1996, a bridge loan in the amount of $150,000 was obtained from
four investors. The loan bore 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 the
IPO, repayment of a portion of the Company's bank borrowings and working
capital.
11
<PAGE>
Item 7. Financial Statements
The following financial statements are furnished as part of this Annual
Report on Form 10-KSB:
Index to Financial Statements Page #
- ----------------------------- ------
Independent Auditors' Report F-2
Balance Sheet as of December 31, 1996 F-3
Statements of Operations for the Years Ended
December 31, 1996 and 1995 F-4
Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
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, 1996, and the related statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements as of December 31, 1995,
were audited by Ehrenkrantz and Company, who merged with Ehrenkrantz Sterling &
Co., L.L.C., as of January 1, 1997, and whose report dated March 12, 1996
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Room Plus, Inc. as of December
31, 1996, and the results of its operations and cash flows for each of the two
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ EHRENKRANTZ STERLING & CO., L.L.C.
EHRENKRANTZ STERLING & CO., L.L.C.
Roseland, New Jersey
March 19, 1997
F-2
<PAGE>
ROOM PLUS, INC.
BALANCE SHEET
December 31, 1996
-----------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,178,088
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,888
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,450,407
Notes receivable, officers . . . . . . . . . . . . . . . . . . . . . . . . . 48,600
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,538
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,329
------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,158,850
------------
PROPERTY AND EQUIPMENT, at cost . . . . . . . . . . . . . . . . . . . . . . . . 2,820,083
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . 1,752,099
------------
1,067,984
------------
OTHER ASSETS
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,549
Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,476
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,048
Notes receivable, officers . . . . . . . . . . . . . . . . . . . . . . . . . 177,092
Miscellaneous assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,304
------------
683,469
------------
$ 6,910,303
============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . $ 190,869
Notes payable, bridge loans. . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Due to related companies . . . . . . . . . . . . . . . . . . . . . . . . . . 135,514
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,220,726
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,077
Payroll and sales taxes payable . . . . . . . . . . . . . . . . . . . . . . 122,772
Customer deposits and other advances . . . . . . . . . . . . . . . . . . . 475,404
------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 2,384,362
------------
LONG -TERM DEBT, less current portion . . . . . . . . . . . . . . . . . . . . . 118,866
------------
COMMITMENTS AND CONTINGENCY --
STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock
Authorized, 10,000,000 shares at $.00133 par value, 4,385,000
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . 5,832
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 6,512,645
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,111,402)
------------
4,407,075
------------
$ 6,910,303
============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995
------------ ------------
<S> <C> <C>
REVENUES ..................................................................... $ 14,427,108 $ 13,149,018
COST OF GOODS SOLD ........................................................... 5,811,602 6,881,282
------------ ------------
GROSS PROFIT ................................................................. 8,615,506 6,267,736
------------ ------------
EXPENSES
Selling ................................................................... 7,062,219 5,713,534
General and administrative ................................................ 1,542,877 2,218,981
------------ ------------
8,605,096 7,932,515
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS .............................................. 10,410 (1,664,779)
------------ ------------
OTHER INCOME (DEDUCTIONS)
Interest Expense .......................................................... (65,135) (182,605)
Miscellaneous Income ...................................................... 32,463 23,033
------------ ------------
(32,672) (159,572)
------------ ------------
LOSS BEFORE INCOME
TAXES (BENEFITS) .......................................................... (22,262) (1,824,351)
INCOME TAXES (BENEFITS) ...................................................... (19,177) (118,103)
------------ ------------
NET LOSS ..................................................................... $ (3,085) $ (1,706,248)
============ ============
PRO FORMA NET LOSS DATA
(UNAUDITED)
Loss before provision for income tax benefits ............................. $ -- $ (1,824,351)
Pro forma income tax (benefits) ........................................... -- (426,388)
------------ ------------
Pro forma net loss ...................................................... $ -- $ (1,397,963)
============ ============
PRO FORMA NET LOSS PER
COMMON SHARES OUTSTANDING ................................................. $ -- $ (0.42)
============ ============
PRO FORMA COMMON SHARES ...................................................... 3,896,875 3,363,850
============ ============
OUTSTANDING
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ROOM PLUS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Issued and Issued and
Authorized Outstanding Outstanding Additional
Common Common Common Paid-in
Shares Shares Amount Warrants Amount Capital
------------- --------------- ----------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1994 10,000,000 1,500,000 $ 1,992 -- $ -- $ 230,082
Stock Split -- -- 58,000
Issuance of common stock 750,000 1,000 -- -- 1,022,647
Issuance of common stock 75,000 100 -- -- --
Net Loss -- -- -- -- --
------------- --------------- ----------- -------------- ------------- ---------------
BALANCE - December 31, 1995 10,000,000 2,325,000 3,092 -- -- 1,310,729
Issuance of common stock 300,000 399 -- -- 240,000
Issuance of common stock 20,000 27 -- -- 16,000
Issuance of common stock 75,000 100 -- -- --
Issuance of common stock 500,000 665 -- -- 331,499
Initial Public Offering 1,165,000 1,549 2,530,000 253,000 4,361,417
Net Loss -- -- -- -- --
------------- --------------- ----------- -------------- ------------- ---------------
BALANCE - December 31, 1996 10,000,000 4,385,000 $ 5,832 2,530,000 $ 253,000 $ 6,259,645
============= =============== =========== ============== ============= ===============
</TABLE>
See notes to financial statements. F-5
[RESTUBBED TABLE]
Deficit Total
BALANCE - December 31, 1994 ---------------- -------------
Stock Split $ (402,069) $ (169,995)
Issuance of common stock -- 58,000
Issuance of common stock -- 1,023,647
Net Loss -- 100
BALANCE - December 31, 1995 (1,706,248) (1,706,248)
---------------- -------------
Issuance of common stock (2,108,317) (794,496)
Issuance of common stock -- 240,399
Issuance of common stock -- 16,027
Issuance of common stock -- 100
Initial Public Offering -- 332,164
Net Loss -- 4,615,966
BALANCE - December 31, 1996 (3,085) (3,085)
---------------- -------------
$ (2,111,402) $ 4,407,075
================ =============
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss ............................................................ $ (3,085) $(1,706,248)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation ........................................................ 134,901 136,849
Loss on sale of equipment ........................................... -- 1,335
Reserve for bad debts ............................................... (77,412) 77,412
Deferred income taxes ............................................... (18,877) (121,300)
(Increase) decrease in operating assets
Accounts receivable ............................................. 203,687 (191,438)
Inventories ..................................................... (220,846) 510,394
Prepaid expenses ................................................ (230,694) (17,331)
Deferred charges ................................................ (237,476) --
Increase (decrease) in operating liabilities
Accounts payable, accrued expenses and
other liabilities ............................................... (480,631) (153,984)
Payroll and sales taxes payable ................................. (64,159) 78,074
Cash surrender value, officers' life insurance .................. 5,318 476
----------- -----------
Net cash used in operating
activities ..................................................... (989,274) (1,385,761)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................................ (816,210) (59,124)
Net loans (to) from officers ....................................... (106,747) 254,465
Increase in security deposits and other assets ..................... (52,549) (247)
----------- -----------
Net cash provided by (used in) investing activities ............. (975,506) 195,094
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of short-term debt .................................... 75,000 --
Proceeds (repayment) of long-term debt ............................. (75,352) 34,969
Proceeds from issuance of common stock ............................. 6,478,000 1,081,747
Charges in connection with initial public offering ................. (1,273,344) --
----------- -----------
Net cash provided by financing activities ........................ 5,204,304 1,116,716
----------- -----------
NET INCREASE (DECREASE) IN CASH ..................................... 3,239,524 (73,951)
CASH (OVERDRAFT),
beginning of year ............................................... (61,436) 12,515
----------- -----------
CASH (OVERDRAFT),
end of year ..................................................... $ 3,178,088 $ (61,436)
=========== ===========
</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 13 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, which ranges between five and thirteen years.
GUARANTY AND WARRANTY POLICIES
The Company maintains a limited lifetime defective product warranty for
products that are manufactured by the Company to ultimate retail customers.
Product warranty expense is not significant in relation to the product sale and
is expensed when incurred. The effect of this accounting treatment is not
material to the financial position or the results of operations for any period
presented.
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.
F-7
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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 was adopted in
1996, establishes accounting standards for the impairment of long-lived assets,
certain identifiable 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 believes that the adoption of SFAS 121 has not had 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 $1,295,839 and $996,602 in 1996 and 1995, respectively.
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.
Note 2: INVENTORIES
Inventories consist of the following as of December 31, 1996:
Showrooms $1,151,107
Raw materials 290,498
Work-in-process 8,802
-------------
$1,450,407
=============
Note 3: PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31,
1996:
Automobiles.......................................$ 20,304
Office furniture, fixtures and equipment.......... 426,149
Factory machinery and equipment................... 1,009,612
Leasehold improvements............................ 1,364,018
----------
$2,820,083
==========
F-8
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 4: LINE OF CREDIT AND BANK LOAN
The Company has a line of credit of $350,000 from BSB Bank and Trust
Company bearing interest at prime plus 2% per annum and expiring in April 1997.
Substantially all of the Company's assets collateralize the loan, along with
personal guarantees by three executive officers of the Company. There was no
outstanding balance at December 31, 1996.
Note 5: LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
<S> <C>
Five obligations under capital leases are payable in monthly
installments of $3,691 maturing in 2000 and bear interest at rates
between 4.5% and 23.18%. The obligations are collaterized by
machinery and equipment and guaranteed by certain executive officers
(see Note 6) ............................................................. $ 86,558
Unsecured obligation payable to a landlord which matures
in November, 1997......................................................... 91,667
Non-interest bearing note due a spouse of an executive
officer due in August, 1997............................................... 9,909
Note due a finance company relating to Directors and
Officers insurance requires monthly payments of $5,289
including interest at 7.85% and matures in January 1999................... 121,601
--------
309,735
Less: Current portion, including obligations under capital
leases of $33,391 in 1996................................................. 190,869
---------
$118,866
========
Annual payments of long-term debt are as follows:
Years ending
December 31 Amount
----------- ------
1997 $190,869
1998 95,577
1999 18,129
2000 5,160
----------
$309,735
==========
</TABLE>
Note 6: OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain machinery and equipment under capital leases
with a capitalized cost of $160,776 less accumulated depreciation of $103,636.
F-9
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 6: 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, 1996:
Years Ending
December 31 Amount
----------- ------
1997 .............................................. $ 44,304
1998 .............................................. 41,154
1999 .............................................. 14,840
2000 .............................................. 5,832
-----------
106,130
Less: Amount representing interest...................... 19,572
----------
$ 86,558
==========
Note 7: RELATED PARTY TRANSACTIONS
The aggregate balance due from certain executive officers was $225,692
at December 31, 1996, which is represented by promissory notes bearing interest
at 8% per annum, and maturing in January 1998.
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, 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.
During the years ended December 31, 1996 and 1995, the Company
incurred advertising costs of approximately $1,069,000 and $66,000,
respectively, with 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 revenues or
gross profit. In addition, the executive officers receive an allowance for
certain expenses.
The Company had a Consulting Agreement with a Director pursuant to
which he made recommendations aimed at reducing the Company's operating costs
which resulted in payments of approximately $91,000.
See Notes 4, 5, 9, 12, 13 and 14 for other related party transactions.
Note 8: 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 1995 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.
F-10
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 8: INCOME AND DEFERRED TAXES -- (Continued)
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 1996 of
approximately $198,000 for Federal income taxes. In addition, net operating loss
carryforwards of $198,000 and $1,988,000 for the States of New York and New
Jersey, respectively, expire between 2003 and 2011. The Company has provided a
valuation reserve of approximately $39,000 and $155,000 in 1996 and 1995,
respectively, against the future benefits of the net operating loss
carryforwards.
The Federal and State income taxes (benefits) is comprised of the
following:
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995
----------- --------
<S> <C> <C>
Current income taxes (benefits)
Federal $ -- $ --
State (711) 3,197
------------- -----------
(711) 3,197
------------- -----------
Deferred income taxes (benefits)
Federal (27,896) (79,400)
State 9,430 (41,900)
------------- ------------
(18,466) (121,300)
------------- ------------
$(19,177) $(118,103)
============= ============
</TABLE>
Note 9: COMMITMENTS AND CONTINGENCY
LEASING ACTIVITIES
Leases for retail showrooms in New York and New Jersey expire at
various dates through October 2006. The leases require the Company to pay
various 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 a lease which expires May 31, 1999 at an annual
rental of approximately $281,000. The lease requires the Company to pay certain
operating expenses of the facility, including real estate taxes and insurance.
In addition, the lease contains provisions for rent escalations and an optional
renewal term of fifteen years.
In 1996, the Company entered into two capital leases totaling $680,000
for equipment that will be operational in 1997. They will require monthly
rentals of approximately $7,800 including interest and mature through the year
2001.
Rent expense for retail showrooms and the manufacturing facility
totaled $1,600,919 and $1,409,500 in 1996 and 1995, respectively.
The Company has automotive and other equipment leases expiring through
December 2001 with future minimum lease payments of approximately $160,000. Rent
expense for these leases totaled approximately $49,000 and $47,000 in 1996 and
1995, respectively.
F-11
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 9: COMMITMENTS AND CONTINGENCY -- (Continued)
LEASING ACTIVITIES -- (Continued)
Approximate future minimum rentals under all operating lease
arrangements, including four new showroom leases which opened in 1997, are due
as follows:
Years Ending
December 31 Amount
----------- ------
1997 $2,074,100
1998 2,001,300
1999 1,396,900
2000 999,600
2001 887,000
Thereafter 1,786,000
----------
$9,144,900
==========
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.
Note 10: PENSION PLANS
The Company funds a union sponsored defined contribution pension plan
which covers its union employees. Contributions totaled $13,523 in 1996 and
$16,311 in 1995.
The Company has a deferred compensation plan under section 401 (k) of
the Internal Revenue Code. Under the plan, additional contributions may be
funded at the employer's discretion. All eligible non-union employees may elect
to defer a portion of their salary. No contributions were made by the Company in
1996 and 1995.
Note 11: OUTSTANDING WARRANTS
At December 31, 1996 and 1995, the Company had outstanding warrants to
purchase 4,441,250 and 1,581,250 shares of its common stock, respectively, at
prices ranging from $1.20 to $8.25 per share. The warrants became exercisable in
1995 and expire at various dates through 2001. At December 31, 1996 and 1995,
4,441,250 and 1,581,250 shares of common stock, respectively, were reserved for
that purpose.
F-12
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 12: CAPITAL TRANSACTIONS
1. In June 1996, the Company entered into a three year consulting
agreement with a Director which included a $25,000 cash payment
and 250,000 shares of common stock issued at $.80 per share. In
addition, the Company issued 50,000 shares of common stock at $.80
per share to an unrelated individual under a one year consulting
agreement.
2. In June 1996, the Company received four bridge loans totaling
$150,000 ($75,000 of which is due at December 31, 1996) from
unrelated parties and a Director in the form of promissory notes
which 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
represents a cost of financing and is being amortized over the
term of the promissory notes as interest expense. The proceeds of
the bridge loans were used to finance costs of opening a new
retail showroom.
3. 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.
4. In July 1996, the Company completed an additional private
placement of 500,000 shares of common stock which raised
approximately $332,000 in capital, net of expenses. The proceeds
were utilized for the payment of fees incurred in connection with
the public offering and to provide for working capital.
5. On November 1, 1996, the Company sold to the public in an initial
public offering 1,000,000 shares of the Company's common stock at
a price of $5.00 per share as well as 2,200,000 redeemable common
stock purchase warrants (the "warrants") at a price of $.10 per
warrant. In addition, 165,000 shares of the Company's common stock
and 330,000 of the Company's warrants were issued upon the
exercise of an over-allotment option granted to the underwriters
of the initial public offering. Net proceeds to the Company after
underwriting expenses and additional expenses were approximately
$4,616,000.
In June 1995, the following occurred:
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 effected 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 additional 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 until November 2001.
F-13
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 12: CAPITAL TRANSACTIONS (Continued)
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. Interest
expense of $99,900 relating to the issuance of the warrants was
charged to expenses with a corresponding credit to additional
paid-in capital.
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. Compensation expense of $99,900 relating to
these services was charged to expenses with a corresponding credit
to additional paid-in capital.
4. Warrants to purchase 750,000 additional common shares exercisable
at $1.20 per share were issued to the placement agents exercisable
any time until November 2001.
5. An unrelated individual who provided financial consulting,
received warrants to purchase 56,250 shares of common stock at
$2.00 per share.
All references in the accompanying financial statements to the number
of common shares for December 31, 1995 have been restated to reflect the stock
splits.
Note 13: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended
December 31
----------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash paid during the year for
Interest ............................................................... $ 55,385 $79,065
Income taxes (benefits) ................................................ (711) 3,198
NON CASH FINANCING ACTIVITY
Three executive officers contributed 50,000 common shares at $1 per
share to a Director as additional compensa-
tion ................................................................... -- 50,000
Issuance of 300,000 common shares
at $.80 per share to a Director and a
consultant ............................................................. 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 --
Issuance of 75,000 common shares at
$1.33 per share to placement agents as
compensation .......................................................... -- 99,900
Issuance of 75,000 common shares at
$1.33 per share to several lenders in
connection with bridge loan financing .................................. -- 99,900
</TABLE>
F-14
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 14: 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
-----------
$13,149,018
===========
NET LOSS
Room Plus, Inc. ..............................$(1,511,557)
Bunk Trunk.................................... (194,691)
------------
$(1,706,248)
============
Note 15: CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at a financial institutions located
in New Jersey. Accounts at these institutions are secured by the Federal Deposit
Insurance Corporation up to $100,000.
NOTE 16: RECLASSIFICATIONS
Certain reclassifications have been reflected on the 1995 financial
statements to conform to 1996 classifications.
F-15
<PAGE>
Note 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Part III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
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
Alan Hirschfeld 45 Director
Alan Granetz 52 Director
Frank Terzo 37 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 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 co-founder of RPF Holding from 1982 until its merger with Bunk
Trunk in March 1995 and was a VicePresident 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.
Alan Hirschfeld has been a Director of the Company since December 1996.
Since 1987 he has been the Executive Vice President, Chief Financial Officer and
a Director of IVC Industries, Inc., a public traded company that manufactures
and distributes vitamins and nutritional supplements. Prior to that, Mr.
Hirschfeld was a partner in Grossman, Brown, Weinberg & Lawson, certified public
accountants.
Alan Granetz has been a Director of the Company since December 1996.
Since 1968 he has been the Vice President of Granetz Group, a holding company
for real estate ventures and retail and commercial furniture sales. From 1988 to
the present, Mr. Granetz has also been the Executive Director of the
Metropolitan Furnishings Association of New Jersey.
Frank Terzo has been a Director of the Company since December 1996. He
was founder of the New York retail clothing chain, Nicholas Flynn Men's Club,
from 1983 until 1988. From 1987 to May 1996 Mr. Terzo was a registered
representative with a number of different NASD member firms. He is currently
President of Small Cap. Consulting International, Inc., a consulting and
investment advisory company which also invests in small capital
27
<PAGE>
market companies. Mr. Terzo was elected a member of the Board pursuant to the
right of the underwriter of the Company's IPO to designate one member of the
Board until November 1999, subject to the Company's good faith approval.
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.
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 are expected to be held on an annual basis. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
The Securities Exchange Act of 1934 requires that the Company's
executive officers, Directors, and any persons owning more than 10% of a class
of the Company's stock to file certain reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Copies of
these reports must also be furnished to the Company.
Based solely on a review of copies of all reports filed with the SEC
and representations of certain officers, Directors and shareholders holding more
than 10% of the Company's Common Stock, the Company believes that Frank Terzo
and Alan Granetz, Directors of the Company each filed one late Form 3 for the
fiscal year ended December 31, 1996.
Item 10. 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, 1996.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
Name of Individual
and Principal Position Year Salary Bonus
- ---------------------- ---- ------ --------
<S> <C> <C> <C>
Marc Zucker
Chairman, Chief Executive
Officer ................................. 1996 $125,000 $42,500
Allan Socher
President and Director of
Marketing ............................... 1996 $125,000 $43,159
Theodore Shapiro
Executive Vice President and
Director of Manufacturing ............... 1996 $125,000 $42,800
</TABLE>
28
<PAGE>
Compensation of Directors
Outside Directors of the Company are currently entitled to receive $500
for attendance at each Board meeting.
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.
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.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock by each person or group that
is known by the Company to be the beneficial owner of more than 5% of its
outstanding Common Stock, each Director of the Company, each person named in the
Summary Compensation Table, and all Directors and executive officers of the
Company as a group as of March 7, 1997. Unless otherwise indicated, the Company
believes that the persons named in the table below, based on information
furnished by such owners, have sole voting and investment power with respect to
the Common Stock beneficially owned by them, subject to community property laws,
where applicable.
29
<PAGE>
Principal Stockholders
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent Ownership of
Name and Address of Beneficial Owner Beneficially Owned Common Stock Outstanding
- ------------------------------------ ------------------- ------------------------
<S> <C> <C>
Marc Zucker 701,668(1) 16%
91 Michigan Avenue
Paterson, NJ 07503
Allan Socher 701,666(2) 16%
91 Michigan Avenue
Paterson, NJ 07503
Theodore Shapiro 701,666(3) 16%
91 Michigan Avenue
Paterson, NJ 07503
Edmund J. McCormick, Jr 70,000(4) 1.6%
91 Michigan Avenue
Paterson, NJ 07503
Frank Terzo 490,000(5) 11.4%
26 Tunnel Street
Floral Park, NY 11011
Alan Hirschfeld 2,000 0%
500 Hallsmill Road
Freehold, NJ 07728
Alan Granetz 0 0%
205 West Main Street
Somerville, NJ 08876
Swan Alley (Nominees) Limited(6) 775,000(7) 17.7%
40 Queen Street
London ECR IDD England
Kirlin Holding Corp. 234,687(8) 5.4%
6901 Jericho Turnpike
Syosset, NY 11791
All Directors and Officers as a Group 2,667,000(9) 60.8%
(7 Persons)
- --------------
(1) Includes currently exercisable warrants to purchase 250,000 shares of Common Stock.
(2) Includes currently exercisable warrants to purchase 250,000 shares of Common Stock.
(3) Includes currently exercisable warrants to purchase 250,000 shares of Common Stock.
(4) Includes currently exercisable options to purchase 25,000 shares of Common Stock.
(5) Includes currently exercisable warrants of Small Cap. Consulting International, Inc. to purchase 240,000
shares of Common Stock. Frank Terzo is the President, sole director and sole stockholder of Small Cap. Consulting
International, Inc.
(6) Swan Alley (Nominees) Limited is an entity formed to acquire and hold
securities for customers of Astaire & Partners Limited ("Astaire"), a member of
the London Stock Exchange. Based upon information provided to the Company by
Astaire, none of the customers of Astaire is the beneficial owner of more than
5% of the Company's outstanding Common Stock.
</TABLE>
30
<PAGE>
(7) Includes currently exercisable warrants to purchase 500,000 shares of Common
Stock.
(8) Includes (i) 219,375 shares of Common Stock owned by Kirlin Holding
Corp. and its wholly owned subsidiary, Kirlin Securities, Inc. (collectively,
"Kirlin"), (ii) 5,312 shares of Common Stock owned by David Lindner, the Chief
Executive Officer of Kirlin, and (iii) currently exercisable warrants to
purchase 10,000 shares of Common Stock.
(9) Includes an aggregate of 1,015,000
shares of Common Stock issuable upon exercise of outstanding options and
warrants.
Item 12. Certain Relationships and Related 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
$281,000.
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. At December 31, 1996,
the three principals' aggregate indebtedness to the Company increased by
$106,747 to $225,692. Such increase consisted of additional advanced to the
principals in the amount of $90,711 and accrued interest in the amount of
$16,036. In January 1997, the principals repaid $39,600 to the Company, bringing
an aggregate balance of $186,092. Such balance bears interest at the rate of 8%
per annum and matures in January 1998.
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 settlements, 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
1996, the Company reimbursed Retail Media Plus $65,695 and approximately
$1,069,246 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 options (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.
In June 1996, Edmund J. McCormick lent 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 was entitled to receive 10% of any cost savings realized by the
Company in its manufacturing process during the period of September 1, 1995 to
November 1, 1996. The amount of such cost savings totaled $909,370, and,
accordingly, Mr. McCormick was paid $90,937 as required by the consulting
agreement.
31
<PAGE>
In June 1995, Mark Rubin, a stockholder of the Company, became a
consultant to the Company. As compensation for these services under his
consulting agreement, as amended, Mr. Rubin receives $3,000 per month, of which
$1,000 per month has not yet been paid, and in June 1995, he received the Rubin
Warrant to purchase 56,250 shares of Common Stock at $2.00 per share. In
connection with an extension of the consulting agreement until June 1997,
subject to the Company's right to terminate such agreement after December 1996,
Mr. Rubin received 50,000 shares of Common Stock, which shares were valued at
$.80 per share (the price of the stock sold in the 1996 Private Placement) for
financial accounting purposes.
Kirlin acted a placement agent in the 1995 Private Placement and
received a placement agent commission of $100,000 plus the Kirlin Warrant, which
Kirlin sold to Swan Alley (Nominees) Limited and Small Cap. Consulting
International, Inc.
In July 1996, Frank Terzo became a consultant to the Company. Under his
consulting agreement, which is for a term of three years, Mr. Terzo received a
cash payment of $25,000 and 250,000 shares of Common Stock, which shares were
valued at $.80 per share (the price of the stock sold in the 1996 Private
Placement) for financial accounting purposes. Mr. Terzo became a director of the
Company in December 1996.
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.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits to Form 10-KSB
Additional exhibits filed herewith are as follows:
EXHIBIT INDEX
Exhibit
No.
- --------------
1 Form of Underwriting Agreement among the Company, the holders of the
Directors Shares and The Thornwater Company, L.P. (1)
3.1 Certification of Incorporation of the Company, as amended (1)
3.2 Restated and Amended By-laws of the Company (1)
4.1 Form of Representative Warrant Agreement between the Company and The
Thornwater Company, L.P., with form of Warrant attached (1)
4.2 Form of Warrant Agreement between the Company and American Stock
Transfer & Trust Company, with form of Warrant attached (1)
4.3 Form of Warrant issued by the Company to Allan J. Socher, Theodore
Shapiro, Marc I. Zucker and Kirlin Securities Corp. (1)
4.4 Form of Warrant issued by the Company to Mark Rubin (1)
5 Opinion of Wilentz, Goldman & Spitzer, P.A. (1)
10.1 Employment Agreement dated June 16, 1995 between the Company and Allan
J. Socher (1)
10.2 Employment Agreement dated June 16, 1995 between the Company and
Theodore Shapiro (1)
10.3 Employment Agreement dated June 16, 1995 between the Company and Marc
I. Zucker (1)
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 (1)
10.5 Lease dated June 6, 1996 between Milford Management Corp., as agent,
and the Company (1)
10.6 Lease dated November 1, 1991 between Dilstan Realty Corporation and
Room Plus Furniture of Westchester, Inc. (1)
10.7 Indenture of Lease dated October 1, 1988 between Daper Realty, Inc.
and RPF Holding Corporation (1)
10.8 Lease dated June 1, 1983 between Hannon's and the Company, as modified
by an Extension of Lease dated July 31, 1993 (1)
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 (1)
32
<PAGE>
10.10 Lease dated August 26, 1987 between Country Glen Associates and Room
Plus Furniture, Inc. (1)
10.11 Agreement of Lease between Austin Mall Associates and Room Plus
Furniture of Forest Hills, Inc. (1)
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 (1)
10.13 Shopping Center Agreement of Lease dated October 1, 1995 between
Alexander Carpet Company and the Company (1)
10.14 Lease dated November 21, 1995 between 205/215 Lexington Limited
Partnership and the Company (1)
10.15 Assignment of Lease dated June 26, 1996 between Reliable Broadway,
Inc. and the Company (1)
10.16 Lease dated January 11, 1996 between Comalgri Holding Corp. and the
Company (1)
10.17 Form of Financial Advisory and Investment Banking Agreement between
the Company and The Thornwater Company, L.P. (1)
10.18 Lease dated September 20, 1996, between Heartland Shopping Center LLC
and Room Plus, Inc. (2)
10.19 Sublease and Assumption Agreement dated October 11, 1996 between
Bedding Discount Center, Inc. and Room Plus, Inc. (2)
10.20 Lease dated December 19, 1996 between Ackrik Associates, and Room
Plus, Inc. (*)
11 Calculation of Net Income (Loss) per Common Share (*)
23.1 Consent of Ehrenkrantz Sterling and Co., LLC (1)
23.2 Consent of Wilentz, Goldman & Spitzer, P.A. (Included in Exhibit 5)
(1)
27 Financial Data Schedule (*)
- ----------------
(1) Incorporated by reference to the exhibit of the same number filed as part
of the Registration Statement on Form SB-2 (File No. 333-10483).
(2) Incorporated by reference to the exhibit of the same number filed as part
of the Quarterly Report on Form 10-QSB for the period ended September 30,
1996 (File No. 1-14478).
(*) Exhibit filed with this Form 10-KSB.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the last quarter
of fiscal year ended December 31, 1996.
33
EXHIBIT 11
ROOM PLUS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
----------- ------------
<S> <C> <C>
Historical net income (loss) $ (3,085) $(1,706,248)
Increase in pro forma income tax benefits -- (308,285)
------------ ------------
Proforma net income (loss) $ (3,085) $(1,397,963)
============ ============
Historical number of common share out-
standing 2,983,125 1,706,250
Stock options and warrants issued to out-
side consultants and employees within
one year of the Offering at less than the
initial public offering price 913,750 1,562,600
------------ -----------
Total historical common shares and equiva-
lent common shares 3,896,875 3,268,850
Additional shares considered in pro forma
per share data:
Issuance of shares in connection
with bridge financing -- 95,000
------------ ---------
Pro forma weighted average number of
common shares 3,896,875 3,363,850
============ ===========
Earnings (loss) per share:
Historical net (loss) income $ -- $ (.51)
Pro forma net (loss) income $ -- $ (.42)
</TABLE>
34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROOM PLUS, INC.
Date: March 28, 1997 By: /s/ Marc Zucker
------------------------------------
Marc Zucker, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature and Title Date
------------------- ----
By: /s/ Marc Zucker March 28, 1997
-------------------------------------
Name: Marc Zucker
Title: Chairman of the Board, Chief
Executive Officer and a Director
By: /s/ Allan Socher March 28, 1997
-------------------------------------
Name: Allan Socher
Title: President and a Director
By: /s/ William Halpern March 28, 1997
-------------------------------------
Name: William Halpern
Title: Chief Financial Officer
By: /s/ Frank Terzo March 28, 1997
-------------------------------------
Name: Frank Terzo
Title: Director
By: /s/ Edmund J. McCormick, Jr. March 28, 1997
-------------------------------------
Name: Edmund J. McCormick, Jr.
Title: Director
35
EXHIBIT 10.20
AGREEMENT OF LEASE, made as of this day of November 1996, by and
between ACKRIK ASSOCIATES, (hereinafter the "Landlord"), a New Jersey
Partnership, having an office at c/o Irwin Ackerman, 235 West 56th Street, New
York, N.Y. 10019 Suite 16-M, and ROOM PLUS, INC., a New York Corporation having
an office at 91 Michigan Avenue, Patterson, New Jersey (hereinafter the
"Tenant").
W I T N E S E T H
WHEREAS, Landlord is the owner of the Shopping Center located on
Route 38, in the Township of Cherry Hill, Camden County, New Jersey, known as
The Plaza at Cherry Hill, as shown on the Plot Plan annexed hereto and made a
part hereof as Exhibit A (the "Shopping Center"); and
WHEREAS, the parties hereto desire that a portion of the Shopping
Center (the "Demised Premises") be leased to Tenant by Landlord, for a term and
upon the covenants, conditions and provisions hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual premises herein
contained, and other good and valuable considerations, the receipt and
sufficiency of which are hereby mutually acknowledged, Landlord and Tenant
hereby mutually agree as follows:
Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, for the term, at the rental, and subject to the provisions herein set
forth, certain store premises, containing approximately 5,000 square feet of
enclosed building with approximate dimensions of 40 feet in frontage by 125 feet
in depth, as shown cross-hatched on Exhibit A. All measurements are made from
center to center of shared interior walls; provided however that a wall not
shared is measured from outside its exterior. The floor area of the Demised
Premises, as determined by Landlord pursuant to this paragraph, shall be binding
on the parties hereto.
- 1-
<PAGE>
TOGETHER WITH:
The right, in common with Landlord, other tenants of Landlord and
their customers, employees and invitees to the use by Tenant and Tenant's
customers, employees and invitees of the "Common Areas" of the Shopping Center,
as hereinafter defined, for the purposes of pedestrian and vehicular access,
ingress and egress, and the parking of cars, subject to such reasonable
non-discriminatory rules and regulations as Landlord may from time to time
impose. The "Common Areas" shall be those portions of the Shopping Center
intended for use of all tenants, including parking areas, roadways, driveways,
entrances, exits, landscaped areas, loading areas, ramps, sidewalks, steps,
malls, promenades, lighting and drainage facilities, utility lines, pipes and
installations of every kind serving the Shopping Center. Landlord reserves full
right to use portions of the Shopping Center for future construction with the
effect of withdrawing such areas from the Common Areas, provided such use does
not materially interfere with access to or visibility of the Demised Premises.
Landlord agrees with Tenant that, subject to the provisions of Article VI,
during the term of this Lease, the Common Areas shall contain not less than the
number of parking spaces required pursuant to applicable zoning regulations in
effect from time to time.
SUBJECT TO:
1. The terms, covenants, conditions and provisions hereof.
2. Liens, encumbrances, easements, reservations, covenants
and conditions, of record.
3. All federal, state and local laws, ordinances, rules and
regulations affecting the Demised Premises including but not limited to zoning
regulations and ordinances now existing, or hereafter enacted, by any applicable
governmental authority in which the Demised Premises lie. If future laws or
regulations prohibit Tenant's Permitted Use, Tenant has the right on a minimum
of ninety (90) days prior written notice to Landlord, to terminate this lease.
- 2-
<PAGE>
4. Any state of facts a physical inspection of the Shopping
Center, the Demised Premises or the Common Areas would disclose.
This Lease is made upon the foregoing and following terms,
provisions, conditions and limitations, and the parties respectively covenant
and agree as follows:
ARTICLE I
Term, Renewal Options and Construction
Section 1.1. The term of this Lease (the "Term") shall commence
on the date Landlord substantially completes its work ("Landlord's Work") set
forth on Exhibit B and delivers possession of the Demised Premises to Tenant
(the "Term Commencement Date"), and shall expire at midnight on the last day of
the month in which the fifth (5th) anniversary of the Term Commencement Date
shall occur, subject to earlier termination as herein elsewhere provided.
Landlord agrees to give Tenant a minimum of ten (10) days prior notice before it
delivers possession of the Demised Premises to Tenant. Tenant shall commence
paying Rent and Additional Rent on that date which is the earlier of: (i)
forty-five (45) days from the Term Commencement Date; or (ii) the date Tenant
opens all or any portion of the Demised Premises for business (the "Rent
Commencement Date"). Tenant shall deposit with Landlord its first monthly
installment of rent due hereunder upon the execution of this Lease.
Landlord's Work shall be deemed substantially completed in
accordance with Exhibits B notwithstanding the following: (i) items that cannot
be completed until Tenant first completes its work, and (ii) minor items, either
such as mechanical adjustments or are cosmetic in nature, all which are known as
"punch list items", which items shall be completed reasonably promptly after
said punch list is furnished Landlord by Tenant.
- 3-
<PAGE>
Section 1.2. Renewal Option.
(A) Provided this Lease then be in full force and effect and Tenant
shall not be in default beyond the expiration of any applicable grace period
hereunder, Tenant shall have the option to extend the term of this Lease for one
(1) additional term of five (5) years commencing at the end of the original
Term, upon the same terms and conditions hereof, except: (i) as hereinafter
provided with respect to Fixed Rent, and (ii) that Tenant shall have no further
option to renew or extend the term hereof. The option to extend must be
exercised by Tenant by giving notice to Landlord not later than six (6) months
prior to the expiration of the original Term. In the event such notice of
exercise shall not be given as aforesaid, Tenant shall be deemed to have waived
and forfeited all rights to extend the term of this Lease as time is "of the
essence" with regard to the giving of such notice.
<TABLE>
<CAPTION>
<S> <C>
(B) The Annual Fixed Rent for the option term shall be as follows:
1st year: $72,500.00 per annum, $6,041.67 per month figured at $14.50 per
square foot per annum;
2nd year: $74,700.00 per annum, $6,225.00 per month figured at $14.94 per
square foot per annum;
3rd year: $76,950.00 per annum, $6,412.50 per month figured at $15.39 per
square foot per annum;
4th year: $79,250..00 per annum, $6,604.17 per month figured at $15.85 per
square foot per annum; and
5th year: $81,650.00 per annum, $6,804.17 per month figured at $16.33 per
square foot per annum.
</TABLE>
Section 1.3. This Lease shall terminate at the end of the Term
without the necessity of any notice from either Landlord or Tenant to terminate
the same, and Tenant hereby waives notice to vacate or quit the Demised Premises
and agrees that Landlord shall be entitled to the benefit of all provisions of
law respecting the summary recovery of possession of the Demised Premises from a
tenant holding over to the same extent as if
- 4-
<PAGE>
statutory notice had been given. For the period of three (3) months prior to the
expiration of the Term , Landlord shall have the right to display on the
exterior of the Demised Premises a "For Rent" sign (not to exceed one foot by
one foot in size) and during such period Landlord may show the Demised Premises
and all parts thereof to prospective tenants duringnormal business hours and in
a manner not to interfere with Tenant's business.
Section 1.4. If the Tenant retains possession of the Demised
Premises or any part thereof after the termination of the Term or any extension
thereof, by lapse of time or otherwise, the Tenant shall pay the Landlord rent
at double the rate payable for the year immediately preceding said holdover,
computed on a per month basis, for the time the Tenant remains in possession.
The provisions of this Section do not waive the Landlord's right of reentry or
any other right hereunder. Any retention of the Demised Premises after the
termination of this Lease or any extension thereof shall be considered as a
month to month holdover unless otherwise agreed to in writing by both parties.
Section 1.5. Tenant has been given full opportunity to inspect
and examine the Demised Premises and Shopping Center, and has so inspected and
examined them to its complete satisfaction, and thus does hereby accept them in
their present "AS IS" condition as of the date hereof, subject to Landlord's
completion of its work set forth on Exhibit B.
Section 1.6. All betterments and improvements in or upon the
Demised Premises, made by either party (except Tenant's personal property,
equipment, stock in trade, furniture and furnishings, signs and trade fixtures
provided at Tenant's expense - collectively "Tenant's Personal Property")
including, without limitation, all lighting fixtures, heating, ventilating and
air conditioning equipment and all pipes, ducts, conduits, wiring, paneling,
partitions, railings and the like shall remain upon and be surrendered with the
Demised Premises as a part thereof at the expiration or sooner termination of
the Lease Term, and shall become the property of Landlord at such time,
- 5-
<PAGE>
provided, however, with respect to any alterations Tenant may make, Landlord may
elect to have all or portions thereof removed by Tenant (which election shall be
made by Landlord not less than forty five (45) days prior to the expiration or
sooner termination of the Lease Term), and Tenant shall repair any damage such
removal may cause. Tenant's Personal Property may be removed by Tenant at the
termination of this Lease, provided Tenant repairs any damage caused by said
removal. Tenant's obligation to repair the Demised Premises as aforesaid shall
survive the termination of this Lease.
Section 1.7. Tenant may commence its work during the progress of
Landlord's Work, provided however, that while Landlord's Work is continuing: (i)
Tenant's work shall comply with all legal requirements and the approved plans,
and shall not interfere with nor delay Landlord's Work; (ii) Landlord shall have
no liability to Tenant for damage to any of Tenant's property stored in the
Demised Premises, unless caused by willful acts or gross negligence of Landlord
or its employees or agents; and (iii) Tenant shall indemnify Landlord, and hold
Landlord harmless from and against any claims, losses, damages or expenses
arising out of the acts or omissions of Tenant, or of its employees or agents.
Tenant shall obtain temporary and permanent certificates of
occupancy, and other governmental approvals which may be required to permit
Tenant's use and occupancy of the Demised Premises. Landlord represents that the
Demised Premises is presently zoned for Tenant's Permitted Use as provided in
3.1(A).
Tenant agrees that it will not at any time prior to or during the
term hereof, either directly or indirectly, employ or permit the employment of
any contractor, mechanic or laborer, or permit any materials in the Demised
Premises, if the use of such contractor, mechanic or laborer or such materials
would, in Landlord's reasonable opinion, create any difficulty, strike or
jurisdictional dispute with other contractors, mechanics or laborers engaged by
Landlord or others, or would in any way disturb the construction, maintenance,
cleaning, repair, management, security or operation of the
- 6-
<PAGE>
Shopping Center or any part thereof. In the event of any interference or
conflict, Tenant, upon demand of Landlord, shall cause all contractors,
mechanics or laborers, or all materials causing such interference, difficulty or
conflict, to leave or be removed from the Demised Premises and Shopping Center
immediately. Tenant shall be liable to Landlord for all extra costs and damages
resultant from Tenant's failure to comply herewith.
ARTICLE II
Fixed Rent, Free Rent,
Additional Rent, and Other Charges
Section 2.1.
(A) Fixed Rent and Additional Rent (as hereinafter defined) shall
be payable to Landlord at the address hereinabove first set forth, or to
such address as Landlord may from time to time otherwise designate, in
lawful money of the United States which shall be legal tender for the
payment of all debts, public and private, without any counterclaim,
set-off or deduction whatsoever, and without any prior demand therefor.
(B) "Additional Rent" shall be deemed to consist of all sums of
money which shall become due from and payable by Tenant hereunder
(excluding Rent), including but not limited to Tenant's Tax Charge,
Tenant's Common Area Charge and any other payments made by Landlord on
behalf of Tenant or otherwise payable by Tenant hereunder. If Tenant
defaults in the payment of Additional Rent, Landlord shall have the same
remedies as for a default in the payment of Fixed Rent.
Section 2.2. Tenant shall pay to Landlord during the Lease Term
commencing on the Rent Commencement Date the Fixed Rent as hereinafter set forth
in equal monthly installments, in advance, on the first day of each and every
calendar month
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<PAGE>
throughout the balance of the Lease Term. In the event the Rent
Commencement Date is other than the first day of a calendar month, the Fixed
Rent for the portion of the then current calendar month shall be prorated and
shall be paid immediately upon the Rent Commencement Date. The Fixed Rent
commencing on the Rent Commencement Date is as follows:
<TABLE>
<CAPTION>
<S> <C>
(i) for the first year of the Lease Term (figured from the Term
Commencement Date): $62,500.00 per annum, $5,208.33 per month, figured
at $12.50 per square foot per annum;
(ii) for the second year of the Lease Term: $64,400.00 per annum,
$5,366.67 per month, figured at $12.88 per square foot per annum;
(iii) for the third year of the Lease Term: $66,350.00 per annum,
$5,529.17 per month figured at $13.27 per square foot per annum;
(iv) for the fourth year of the Lease Term: $68,350.00 per annum,
$5,695.83 per month figured at $13.67 per square foot per annum; and
(v) for the fifth year of the Lease Term: $70,400.00 per annum,
$5,866.67 per month, figured at $14.08 per square foot per annum.
</TABLE>
Section 2.3. If Tenant shall fail to pay any Fixed Rent or
Additional Rent within ten (10) days of the due date thereof, such unpaid
amounts shall bear interest at a rate of 2% above the prime rate set by Citibank
N.A., but in no event more than the highest legal rate, from the due date
thereof to the date of payment of the default rent.
Section 2.4 Additional Rent - Real Estate Taxes.
Landlord agrees to pay, before they become delinquent, all real
estate taxes and special assessments lawfully levied or assessed against the
Shopping Center; however, Landlord may, at its expense, contest and dispute the
same and in such case the disputed item need not be paid by Landlord until
finally adjudged to be valid. Tenant
- 8-
<PAGE>
agrees to pay to Landlord, from and after the Rent Commencement Date, as
additional rent within fifteen (15) days after written demand from the Landlord,
and at least ten days prior to Landlord's due date, its pro rata share of all
real estate taxes lawfully levied or assessed against the Shopping Center (land,
building and improvements). If an assessment covers a period outside of the
Lease Term, it will be prorated so that Tenant is charged for only that portion
falling within the Lease Term. Landlord's demand shall be accompanied by a copy
of the tax bill(s) for the Shopping Center, together with a computation as to
the amount of Tenant's pro rata share. For the purposes of this Section and
Section 2.4, Tenant's pro rata share is 2.7% and is based upon the ratio which
the ground floor square feet of the premises leased to Tenant (i.e. 5,000 square
feet) bears to the leasable ground floor square feet of all buildings (including
the Demised Premises, i.e.,186,248 square feet), as the same may be increased or
decreased from time to time in the Shopping Center. In the event any proceeding
is instituted for the reduction of assessed valuation which results in a refund
of taxes, Tenant shall be entitled to its pro rata share (less any expenses in
connection therewith), including any refund after the expiration/termination of
this Lease relating to a period prior to such expiration/ termination. As used
herein "real estate taxes" shall include but shall not be limited to, betterment
and other assessments, water and sewer rents, if any, and other charges and for
otherwise levied, assessed or imposed, general or special, ordinary or
extraordinary, for land or improvements.
Section 2.5 Additional Rent -Common Area Maintenance Costs.
(A) The term "Common Area Maintenance Costs" shall mean the cost
paid or incurred for the operation, maintenance and repairs of the
Common Areas, and of any installations therein or thereon, including,
without limitation, cleaning, snow and ice removal (including salting
and sanding); striping, patching, seal coating and repaving of all paved
areas including parking areas and roadways; planting, replanting and
replacing flowers and landscaping; maintaining and cleaning sidewalks
and curbs; maintenance and repair of utility systems (including all
- 9-
<PAGE>
common lighting, stantions, poles and fixtures); premiums for liability, fire
(including all additional and extended coverages thereunder) and workmen's
compensation insurance; salaries (including employee benefits) of employees
performing service in connection with the Shopping Center; management fees;
accounting fees; unemployment taxes; social security taxes, personal property
taxes if any; sales and use taxes on material and equipment; supplies; operation
of loudspeakers and other equipment, if any; generic advertising the Shopping
Center; supply of music to the Common Area or any part thereof; policing,
security, and patrolling the Common Areas (including costs relating to
controlling traffic thereto and/or therefrom); reasonable straight line
depreciation of movable equipment (and rental thereof) used in the operation,
repair and maintenance of the Common Areas, but in any such case without
duplication as to depreciation charges on any such movable equipment (as to the
rental of such movable equipment, Landlord agrees to rent such equipment only if
the rental thereof will, in the good faith judgment of Landlord, be less
expensive to Tenant than depreciation on owned equipment would be in assessing
common area maintenance costs to Tenant); and other similar direct costs
properly chargeable to such operation.
(B) From and after the Rent Commencement Date, Tenant shall pay
to Landlord as additional rent, Tenant's pro rata share (i.e.,2.7%, as
defined in Section 2.4) of the Common Area Maintenance Costs. Landlord
shall in the first instance, and prior to the beginning of each Calendar
Year, estimate Tenant's pro rata share of the Common Area Maintenance
Costs for each year and shall give notice thereof to Tenant. Tenant
shall be required to pay Landlord on the first day of each calendar
month during the Lease Term, one-twelfth of the annual estimated pro
rata share for such year. Within ninety (90) days after the end of each
Calendar Year, Landlord shall furnish to Tenant a statement ("Landlord's
Statement") in reasonable detail of the actual Common Area Maintenance
Costs paid or incurred by Landlord for said year, and thereupon there
shall be an adjustment between Landlord and Tenant. In the event (a) the
aggregate of Tenant's monthly contributions in any year
- 10-
<PAGE>
shall be less than the Tenant's actual annual pro rata share as shown on
Landlord's Statement, Tenant shall pay the Landlord the difference within
fifteen (15) days from receipt of Landlord's statement, or (b) the aggregate of
Tenant's monthly contributions are in excess of Tenant's actual annual pro rata
share, the amount of such excess shall be credited against Tenant's next ensuing
monthly common area contribution.
Section 2.6. From and after the Term Commencement Date, Tenant
agrees to pay, within fifteen (15) days after receipt of an invoice, all charges
for heat, air conditioning, water, gas, electricity, sprinkler charges and other
utilities used in its operations in the Demised Premises. Landlord shall provide
separate meters to measure such utilities, and Tenant shall pay the charge
therefor directly to the utility company; provided, however, if separate meters
are not furnished, then and in such event, Tenant agrees to pay its pro rata
share of such utilities determined by multiplying the amount charged by a
fraction, the numerator of which shall be the ground floor square footage
contained in the Demised Premises, and the denominator of which shall be the
total leased ground floor square footage of all premises (including the Demised
Premises) serviced by such meter(s). Landlord represents that the Demised
Premises presently has separate utility meters.
Section 2.7. Landlord reserves the right to interrupt any of the
foregoing services when necessary by reason of accident, damage by the elements,
strikes, laws, orders or regulations, or any other reason beyond the control of
Landlord, and Landlord's sole responsibility or liability in the event of
interruption in the supplying of any such services shall be to use its
reasonable efforts to repair or restore the same as promptly as reasonably
possible.
ARTICLE III
Use, Operation,and Maintenance
Section 3.1 Tenant agrees:
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<PAGE>
(A) To use the Demised Premises, and operate therein, solely for
the retail sale of formica and wood furniture and home furnishings (the
"Permitted Use") and for any other use or purpose incidental or similar
thereto and for no other use or purpose.
(B) Except when, and to the extent that, as elsewhere in this
Lease provided, the Demised Premises may be untenantable by reason of
damage by fire or other casualty, to continuously and uninterruptedly
occupy and use during the Lease Term the entire Demised Premises for the
Permitted Use, and to conduct Tenant's business therein in a reputable
manner; to remain open for business during all hours and all days when
the Shopping Center is open for business, but no earlier than 9:30 a.m.
or later than 9:30 p.m., and including Sundays from 10:00a.m. to 6:00
p.m.; to adequately staff its store with a sufficient number of
employees to handle the maximum business possible therein, and to carry
sufficient stock, character and quality to accomplish same; to keep the
display windows, if any, and all signs well lighted during such hours
and days that the Common Areas are lighted by Landlord; to keep and
maintain the Demised Premises and Tenant's Personal Property and signs
therein or thereon, and the exterior and interior portions of all
windows, doors and all glass or plate glass, in a neat, clean,
sanitary and safe condition; to apply for, secure, maintain and comply
with all licenses or permits which may be required for the conduct by
Tenant of the Permitted Use, and to pay, if, as and when due, all
required license, permit fees and charges of a similar nature pertaining
to Tenant's Use.
(C) To store all trash and refuse (including but not limited to
grease, which must be stored in its own labeled container) in
appropriate containers within the Demised Premises prior to permanent
disposal so as not to be visible to the public, and to attend to the
daily disposal thereof in the manner and by the agency designated by
Landlord. Tenant may make its own arrangements to dispose of its trash.
If Tenant utilizes any compactor installed by Landlord, Tenant shall pay
its
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<PAGE>
pro rata share of the operating cost thereof, including Tenant's pro rata share
of the cost of removal of such compacted garbage by an independent collector
designated by Landlord and whose prices shall be competitive. Tenant shall keep
all drains inside the Demised Premises open; and
(D) To comply with any local, state or federal laws, rules or
regulations regarding the storage and disposal of hazardous waste and
environmental protection. In connection with the foregoing, Tenant shall
promptly complete and deliver to Landlord any requests for information
concerning the nature and conduct of its business.
Section 3.2. Tenant shall comply with all laws and requirements
of all governmental authorities applicable to the Demised Premises, excluding
the requirement of making structural changes to the Demised Premises, unless
such changes are required by reason of Tenant's use. Notwithstanding the
foregoing, Tenant may, in good faith (and wherever necessary, in the name of,
but without expense to, Landlord, and having secured Landlord to its reasonable
satisfaction by cash, securities or a surety company bond against loss or
damage), contest the validity or application in whole or in part, of any such
legal requirements; and, pending the final determination of such contest, may
postpone compliance therewith, but not so as to subject Landlord to any fine or
penalty or to prosecution for a crime, or to cause the Demised Premises, or any
part thereof, to be placed in danger of forfeiture, sale or condemnation.
Section 3.3.
(A) Tenant shall keep the Demised Premises and improvements in
good and substantial order and repair at the sole cost and expense of
Tenant, and shall make all repairs, renewals and replacements necessary
to that end, except for repairs expressly required to be made by
Landlord as hereinafter provided.
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<PAGE>
(B) Landlord shall, at its own cost and expense, make all
necessary structural repairs and replacements to the building of which
the Demised Premises forms a part, including the roof, and exterior
walls (excluding store front, signs, window glass, plate glass and all
doors and door frames), exterior pipes and equipment, all electric and
plumbing systems up to the point of entry into the Demised Premises and
foundation; excepted from the foregoing obligations are (i) any repairs
or replacements to alterations or improvements made by Tenant, and (ii)
any repairs or replacements required by reason of the negligence of
Tenant, its agents or employees, unless, however, if such damage is
covered by Landlord's insurance, then Landlord will either make the
repairs or give Tenant such insurance proceeds to effect the repairs. As
used herein, the expressions "roof" and "exterior walls" do not include
roof top heating and/or air conditioning units which service the Demised
Premises exclusively, the maintenance, repair and replacement of which
shall be done by Landlord throughout the Term at Tenant's sole cost and
expense. HVAC maintenance, repair and replacement charges shall be paid
by Tenant, as Additional Rent, within fifteen days of billing by
Landlord. Notwithstanding the foregoing, if the HVAC system needs
replacement within the last three (3) years of the Lease Term (provided
said term is not being extended), Tenant will only be billed its prorata
share of the cost thereof determined by taking the cost thereof and
multiplying it by a fraction as follows: the remainder of the base term
over the useful life of said equipment according to generally accepted
accounting principals.
Section 3.4. Tenant shall not permit (i) the extermination of
vermin to be performed in, on or about the Demised Premises except by a person
or company, if any, approved by Landlord; or (ii) window cleaning or janitorial
services or any other cleaning or maintenance service in or for the Demised
Premises, or on the exterior of the Demised Premises to be performed except by
its own employees or an outside person or company designated or approved by
Landlord during reasonable hours designated from time to time for such purposes
by Landlord; in each of the aforesaid Landlord designated
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services, the prices to be charged shall be competitive.
Section 3.5. Landlord represents that the HVAC system will be
delivered in working order on the Commencement Date of the Lease.
Section 3.6. Landlord represents that at the Commencement Date of
the Lease, the Demised Premises shall be delivered free of hazardous and toxic
materials including, but not limited to, asbestos. Further, the electrical and
plumbing systems will be in working order, and roof free of leaks.
ARTICLE IV
Indemnity & Insurance
Section 4.1. Tenant agrees to protect, indemnify and save
harmless Landlord from time to time, from and against any and all claims,
demands and causes of action of any nature whatsoever, and any expenses
(including reasonable attorneys' fees and disbursements) incident to defense of
Landlord therefrom, for injury to or death of persons or loss of or damage to
property (i) occurring in, on, or about the Demised Premises unless caused by
Landlord, Landlord's employees agents or guest, or (ii) in any manner growing
out of or connected with Tenant's use and occupancy of the Demised Premises, or
the condition thereof, or (iii) occurring anywhere on the Shopping Center if
caused by or resulting from any act, omission or negligence of Tenant, or anyone
claiming under Tenant.
Section 4.2. Tenant shall also maintain for the mutual benefit of
Landlord and Tenant, as their respective interests may appear, insurance against
claims for personal injury or property damage, under a policy of general public
liability insurance of not less than a combined single limit of Three Million
($3,000,000.00) Dollars in respect of bodily injury and property damage.
Landlord shall accept a general blanket policy covering the Demised Premises and
any of Tenant's other stores.
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Section 4.3. Landlord agrees to carry fire and extended coverage
insurance on the buildings located in the Shopping Center, including the Demised
Premises. Such insurance shall not cover Tenant's inventory, fixtures,
equipment, furnishings and installations which Tenant must separately insure at
its own cost and expense. Tenant shall not permit any operations to be conducted
in the Demised Premises which would cause suspension or cancellation of the fire
and extended coverage insurance policies carried by Landlord.
Section 4.4. All insurance provided for under this Lease shall be
effected under valid enforceable policies issued by insurers of recognized
responsibility, and licensed or authorized to do business in the State of New
Jersey. The original policies or certificates thereof of any insurance required
to be obtained by Tenant shall be delivered to Landlord, at least ten (10) days
prior to the Term Commencement Date. If Tenant enters the Demised Premises
before the Term Commencement Date, policies or certificates must be delivered to
Landlord prior to entry. At least ten (10) days prior to the expiration date of
any policy, the original renewal policy for such insurance or certificates
thereof shall be delivered by Tenant to Landlord together with satisfactory
evidence of payment of the premium on such policy. Each policy shall name
Landlord as an additional insured. Each policy shall contain the insurer's
agreement that it shall not be canceled without at least ten (10) days' prior
written notice to all parties who are insured thereunder other than Tenant.
Insofar as, and to the extent that, the following provisions may be effective
without invalidating or making it impossible to secure insurance coverage
obtainable from responsible insurance companiesdoing business in the State of
New Jersey (even though extra premiums may result therefrom), Landlord and
Tenant mutually agree that with respect to any loss which is covered by
insurance then being carried by them respectively, the one carrying such
insurance and suffering said loss releases the other of and from any and all
claims with respect to such loss, and they further mutually agree that their
respective insurance companies shall have no right of subrogation against the
other on account thereof. In the event that extra premiums are
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payable by either party as a result of this provision, the other party shall
reimburse the party paying the amount of such extra premium. If, at the written
request of one party, this release and nonsubrogation provision is waived, then
the obligation of reimbursement shall cease for such period or time as such
waiver shall be effective, but nothing contained in this Section shall be deemed
to modify or otherwise affect releases elsewhere herein contained for claims of
either party.
Section 4.5. That neither Landlord nor Landlord's agents shall be
liable for, and Tenant waives all claims for any and all loss, cost, liability,
damage and expense (including attorney's fees and disbursements), penalties and
fines incurred in connection with or arising from any injury to Tenant or to any
other person or for any damage to, or loss (by theft or otherwise) of, any of
Tenant's property and/or of the property of any other person, irrespective of
the cause of such injury, damage or loss (including the acts or negligence of
any tenant or occupant of the Shopping Center or of any owners or occupants of
adjacent or contiguous property) and whether occasioned by or from explosion,
falling plaster, broken glass, electricity, smoke, wind, water, snow or ice
being upon or coming through or from the street, roof, subsurface, skylight,
trapdoor or windows, electric wiring, plumbing, dampness, water, gas, steam or
other pipes or sewage, or the failure of the air-conditioning or refrigeration
system, or the breaking of any electric wire, the bursting, leaking or running
of water from any tank, washstand, water closet, wastepipe, sprinkler system,
radiator, or any other pipe in, above, upon or about the Demised Premises or the
Building, or which may at any time hereafter be placed therein, or from any
other cause whatsoever, excluding, however, if any of the foregoing results from
the negligence of Landlord or its servants, agents, and/or employees.
ARTICLE V
Damage - Destruction
Section 5.1. If the Demised Premises shall be damaged by fire or
other cause, the damage shall be repaired by, and at the expense of, Landlord
promptly and with due diligence after Landlord receives the insurance proceeds
(i.e. commenced within
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thirty (30) days after said receipt), but in all events, not more than three (3)
months after the occurrence of the damage, and the rent until such repairs shall
be made shall be apportioned according to the part of the Demised Premises which
is usable by Tenant. Notwithstanding anything to the contrary herein, in the
event the Demised Premises are substantially damaged by fire or other causes so
that the Demised Premises cannot be operated by Tenant, then the rent and
additional rent (except taxes) shall be fully abated until (a) Landlord
completes repairs to the Demised Premises and same may be lawfully occupied by
Tenant for the purposes set forth in Section 3.1 hereof, and (b) the earlier of
the date Tenant opens for business or thirty (30) days after (a) occurs. Tenant
acknowledges that Landlord is not obligated to carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements,
alterations or appurtenances owned, made or installed by Tenant, and agrees that
Landlord is not obligated to repair any damages thereto or replace the same.
Landlord's obligation to repair and restore the Demised Premises is limited to
the condition of the Demised Premises as it was immediately preceding the
damage. No penalty shall accrue for unavoidable delays, or any other cause
beyond Landlord's control; provided, Landlord uses due diligence to complete the
required repairs. Notwithstanding anything to the contrary herein, in the event
the premises are substantially damaged by fire or other cause during the last
two (2) years of the initial or any extended term, Tenant and Landlord shall
each have the right to terminate this Lease by giving thirty (30) days notice to
the other party of its election to terminate this Lease, and thereupon the term
of this Lease shall expire upon the date set forth in said notice, and Tenant
shall surrender possession of the Demised Premises to Landlord on or before said
date, and the rent and additional rent shall be apportioned and paid to said
date. If neither party elects to terminate this Lease, then Rent shall abate
until the Demised Premises are restored.
Section 5.2. If fifty percent (50%) or more of the gross leasable
area of the Shopping Center shall be damaged or destroyed by fire or other
cause, Landlord and Tenant shall each have the right, to be exercised by giving
written notice to the other, within sixty (60) days after said occurrence to
elect to cancel and terminate this Lease.
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Upon the giving of such notice, the Lease term hereof shall expire upon the
thirtieth (30th) day after such notice is given, and Tenant shall vacate the
Demised Premises and surrender the same to Landlord.
ARTICLE VI
Condemnation
Section 6.1. If, at any time during the term of this Lease there
shall be a total permanent taking of the Shopping Center, or the buildings
comprising same, in condemnation proceedings, or by any right of eminent domain,
or police power, this Lease shall terminate on the date of vesting of title in
the taking authority, and the Rent, Additional Rent and other charges Payable by
Tenant hereunder shall be apportioned and paid to said date. If fifty percent
(50%) or more of the Shopping Center is taken, Landlord may cancel this Lease on
thirty (30) days notice to Tenant. If the Demised Premises are taken or the
taking reduces parking below the amount required by the zoning regulations, and
Landlord cannot replace such Demised Premises and/or the parking, then Landlord
or Tenant shall, at any time prior to sixty (60) days after the date of vesting
of title in and to said parking or Demised Premises, have the option of
terminating this Lease upon giving written notice to the other party. Said
termination shall be effective as of the date possession of the part so taken
shall vest in the taking authority.
Section 6.2. In the event of any such total taking or partial
taking resulting in termination of the Lease as aforesaid, Landlord shall be
entitled to receive and retain the entire amount of any award, except as
provided in Section 6.5.
Section 6.3. In the event of a taking not resulting in a
termination of this Lease as set forth in this Article VI, this Lease shall not
be affected in any way, except as provided in Section 6.4, and Landlord shall
proceed within thirty (30) days after receipt of the award monies, but no more
than one hundred twenty (120) days after the taking, subject to unavoidable
delays, to restore, repair, replace or rebuild the Demised Premises to their
former condition as nearly as may be reasonably possible. The Rent and
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Additional Rent provided hereunder shall abate to the extent to which the
Demised Premises are no longer available to Tenant.
Section 6.4. In the event of a partial taking of the Demised
Premises not resulting in termination of this Lease, this Lease shall terminate
as to the portion of the Demised Premises so taken, and the Rent and Additional
Rent payable for the balance of the term of this Lease shall be equitably and
proportionately reduced from the date of such taking.
Section 6.5. Notwithstanding anything in this Article VI to the
contrary, Tenant shall have the right, in connection with any taking of all or a
portion of the Demised Premises, provided such awards are made by the
condemnation court (in addition to, and do not result in a reduction of any
award made by it for the land and buildings taken) to claim, prove and receive
such awards as may be allowed for furnishings, movable trade fixtures and other
items of personalty owned by Tenant, as well as moving expenses. In no event
shall Tenant, as a result of any condemnation referred to in this Article VI,
have or make any claim for the value of the unexpired term of this Lease.
Section 6.6. Tenant Kickout - If at any time during the term
hereof more than fifty (50%) percent of the Shopping Center is unleased for
three (3) months or more, over a period of time, Tenant has right to terminate
the lease on a minimum of sixty (60) days prior written notice to Landlord.
ARTICLE VII
Changes and Alterations by Tenant
Section 7.1. Tenant shall have the right to make all
non-structural alterations, additions or improvements, to any part of the
Demised Premises without Landlord's priorwritten consent provided advance
written notice of such work is given Landlord. Landlord's prior written consent
is required for all structural alterations,
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additions or improvements. All alterations, additions or improvements are
subject to the following conditions, which Tenant covenants to observe and
perform:
(a) No change or alteration shall be undertaken until Tenant
shall have procured and paid for, so far as the same may be required,
all municipal and other governmental permits and authorizations of the
various municipal departments and governmental subdivisions having
jurisdiction, and Landlord agrees to join in the application for such
permits or authorizations whenever such action is necessary. Landlord
shall be responsible for the removal of any violation(s) affecting the
Demised Premises which exist as of the Commencement Date of the Lease.
(b) All work done in connection with any alteration, addition or
improvement shall be done in a good and workmanlike manner, without
impairing the structural soundness of the building of which the Demised
Premises forms a part and without lessening the value thereof, and in
compliance with all laws, ordinances, orders and requirements of all
federal, state and municipal governments, and the appropriate
departments, commissions, boards and officers thereof. Before commencing
any such work, Tenant shall obtain from its contractor(s) Workmen's
compensation insurance covering all persons employed in connection with
the work and with respect to whom death or bodily injury claims could be
asserted against Landlord, Tenant, or the Demised Premises, and general
liability and property damage insurance for the mutual benefit of Tenant
and Landlord with limits of not less than those required to be carried
pursuant to Section 4.2., including Workmen's Compensation or similar
insurance in form and amounts required by law. An insurance certificate
or copy of said policy shall be delivered to Landlord before the
commencement of any such work at the Demised Premises.
(c) In the performance of said alterations, additions or
improvements Tenant shall not unreasonably interfere with the use and
enjoyment of the Shopping Center by others entitled thereto, and at the
request of Landlord shall make such
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reasonable provisions as may be required so as to minimize any interference or
annoyance to other tenants in the Shopping Center arising out of or in
connection with such work.
(d) Tenant shall furnish Landlord with copies of all drawings,
including "as built", as Landlord may reasonably request in connection
with Tenant's alterations, additions or improvements.
ARTICLE VIII
Mechanic's Liens
Section 8.1. Tenant shall not suffer or permit any mechanic'S
liens to be filed against the Demised Premises, or the building or any part of
the Shopping Center, nor against Tenant's leasehold interest in the Demised
Premises by reason of work, labor, services or materials supplied, or claimed to
have been supplied, to Tenant, or anyone holding any interest in the Demised
Premises. If any such mechanic's lien shall at any time be filed against such
property, Tenant shall, within thirty (30) days after notice of the filing
thereof, proceed to cause the same to be discharged of record by payment,
deposit, bond, or order of a court of competent jurisdiction. If Tenant shall
fail to proceed to cause such lien to be discharged within the period aforesaid,
then in addition to any other right or remedy of Landlord, Landlord may, but
shall not be obligated to, discharge the same either by paying the amount
claimed to be due or by procuring the discharge of such lien by deposit or by
bonding proceedings. Tenant shall promptly, on demand, and as Additional Rent,
reimburse Landlord for all costs incurred in discharging said lien, including
but not limited to reasonable attorney's fees and interest at the rate provided
for in Section 2.3 hereof.
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ARTICLE IX
Lawful Use; Surrender of the Demised Premises;
Inspection of the Demised Premises
Section 9.1. Tenant shall not use or allow the Demised Premises,
or any part thereof, to be used or occupied for any unlawful purpose or for any
dangerous or noxious trade or business, or in violation of any certificate of
occupancy affecting the use of the Demised Premises. No auction, fire,
bankruptcy, going out of business or similar sale will be conducted, or be
advertised as being conducted, in the Demised Premises, without the prior
written consent of Landlord, which shall not be unreasonably withheld, provided
it is in fact a fire, bankruptcy or going out of business sale. No merchandise
shall be displayed or stored outside the Demised Premises.
Section 9.2. Tenant shall, upon the expiration or termination of
this Lease, surrender the Demised Premises to Landlord without delay, in broom
clean condition, and, subject to the provisions of Article V, in good order,
condition and repair, reasonable wear and tear excepted. All installations,
alterations, additions and improvements made to, or upon, the Demised Premises,
whether made by Landlord or Tenant (except only permitted signs, trade fixtures
and movable equipment installed in the Demised Premises during the term of this
Lease at Tenant's cost) shall be deemed part of the Demised Premises, and, upon
the expiration or earlier termination of this Lease, shall be surrendered with
the Demised Premises, in the condition as aforesaid. Said signs, movable
equipment and trade fixtures shall not be deemed part of the Demised Premises,
and may be removed by Tenant at any time or times during the term hereof. Upon
the termination of this Lease, all signs, movable equipment and trade fixtures
shall be removed by Tenant, and Tenant will promptly repair and restore any
damage caused by such removal. Any such property not so removed may be deemed,
at Landlord's option, abandoned by Tenant, and may be removed or otherwise
disposed of by Landlord at Tenant's expense, and Landlord shall have no
liability therefor; provided, however, nothing herein shall be deemed to waive
Tenant's obligation to remove said property.
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Section 9.3. Tenant agrees to permit Landlord and the authorized
representatives of Landlord and of the holder of any fee or leasehold mortgage
to enter the leased premises (upon notice unless in the event of an emergency)
at all reasonable times during usual business hours for the purpose of
inspecting the same or exhibiting the same to purchasers or mortgagees of
Landlord's interest in the Shopping Center and to prospective lessees during the
last six (6) months of the Lease term. Landlord shall also have the right to
enter the Demised Premises during said hours (and, in case of emergency, at any
time) to make or facilitate repairs or alterations including to install and
maintain in, and remove from the Demised Premises, pipes, wires and other
conduits, the same to be in locations within the Demised Premises as will not
unreasonably deny Tenant's use thereof. All of the foregoing shall be performed
at such time and in a manner as not to unreasonably interfere with Tenant's
business.
ARTICLE X
Assignment and Subletting
Section 10.1.
(A) Except as herein expressly provided, neither this Lease nor
any interest of Tenant hereunder shall be assigned, mortgaged, pledged
or otherwise encumbered, or the Demised Premises sublet, in whole or in
part, or used or occupied, by anyone other than Tenant without
Landlord'S prior written consent.
(B) If Tenant desires to assign all of its interest in this
Lease, or to sublet all of the Demised Premises for the then unexpired
term thereof (an assignment or subletting of a portion of the Demised
Premises being prohibited hereunder), Tenant shall so advise Landlord in
writing. Within thirty (30) days from the date of receipt of said
notice, Landlord shall have the option to recapture the Demised Premises
and terminate this Lease by notice to Tenant of its intention to so
recapture the Demised Premises.
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(C) Should Landlord elect to recapture the Demised Premises as
aforesaid, the
resultant termination shall be effective sixty (60) days following
Landlord's notice of election to recapture.
(D) Solely in connection with the sale of Tenant's entire
business (including the sale of a majority or controlling interest of
the stock ownership of Tenant) Tenant shall have the right, without
triggering the aforesaid recapture provision, to assign, only for the
Permitted Use hereunder, all, but not part, of Tenant's interest in this
Lease; subject, however, to the provisions set forth in Subparagraph (E)
(i) through (iv) of this Article X.
(E) In the event Landlord elects not to recapture the Demised
Premises, as provided above, then the following shall apply. During the
first two (2) years of the Lease Term, Landlord can withhold its consent
to an assignment/subletting request by Tenant for any or no reason
whatsoever, excluding, however, an assignment permitted under
Subdivision (D) hereof. Subsequent to the second (2nd) anniversary of
the Term Commencement Date, Landlord's consent to an
assignment/subletting request by Tenant cannot be unreasonably withheld
or delayed, provided that: (i) the intended use does not vary from the
Permitted Use; (ii) the assignee's or subleasee's net worth at such time
is the same or better than Tenant'S net worth as of the date hereof;
(iii) Tenant remains liable on the Lease; and (iv) one hundred percent
(100%) of any and all excess profits, as hereinafter defined, resulting
from such subletting or assignment shall be the property of, and be
delivered monthly to, Landlord ("excess profits" shall mean the amount
Tenant receives exceeding its Rent, Additional Rent, and other money
obligations hereunder, minus reasonable brokerage commissions and other
reasonable expenses incurred in connection with such subletting or
assignment, which expenses must be substantiated by Tenant). If the
proposed assignee's or sublessee's use should vary from the Permitted
Use, Landlord can withhold its consent for any reason in its sole
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discretion.
(F) In the case of any assignment or subletting permitted
pursuant to this Article X, Tenant shall in each case comply with each of the
following conditions:
(1) A duplicate original executed copy of any such
assignment or sublease shall be delivered to Landlord
thirty (30) days prior to the commencement date thereof;
and, in the case of any assignment, an assumption
agreement by Assignee of all obligations of Tenant
thereafter arising, reasonably satisfactory in form and
substance to Landlord;
and
(2) Each sublease shall provide that, in the event of
cancellation of this Lease, the subtenant under said
sublease shall, at the option of Landlord, attorn to and
become the direct subtenant of Landlord on the same terms
and conditions as are provided in said sublease, except
that Landlord shall not be liable for defaults of Tenant
as sublandlord occurring prior to such attornment.
(G) No assignment or sublease shall operate to release or
discharge Tenant from liability hereunder, it being distinctly
understood and agreed that the liability of Tenant shall survive any
such assignment or sublease, and shall continue with the same force and
effect as if no such assignment or sublease had been made.
ARTICLE XI
Subordination
Section 11.1. This Lease is, and all of Tenant's rights hereunder
are, and shall be subject and subordinate at all times to all covenants,
restrictions, easements and
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encumbrances now or hereafter affecting the fee title of the Shopping Center and
to all ground and underlying leases, if any, and mortgages or any other method
of financing in any amounts, and all advances thereon, which may now or
hereafter be placed against or affect any or all of the land or the Demised
Premises, or any or all of the buildings and improvements now or at any time
hereafter constituting a part of or adjoining the Shopping Center, and to all
renewals, modifications, consolidations, participations, replacements, spreaders
and extensions thereof. The term "mortgages" as used herein shall be deemed to
include trust indentures and deeds of trust, and the term "mortgagees" as used
in this Lease shall be deemed to include trustees or beneficiaries under trust
indentures and deeds of trust. The aforesaid provisions shall be self-operative
and no further instrument of subordination shall be necessary unless required by
any such ground or underlying lessors or mortgagees. Should Landlord or any
ground or underlying lessors or mortgagees desire confirmation of such
subordination, Tenant within fifteen (15) days following Landlord's request
therefor, agrees to execute, acknowledge and deliver, without charge, any and
all documents (in form acceptable to such ground or underlying lessors or
mortgagees) subordinating this Lease and Tenant's rights hereunder. However,
should any such ground or underlying lessors or any mortgagees request that this
Lease be made superior, rather than subordinate, to any such ground or
underlying lease or mortgage, then Tenant within fifteen (15) days following
Landlord'S request therefor, agrees to execute, acknowledge and deliver, without
charge, any and all documents (in form acceptable to such ground or underlying
lessors or mortgagees) effectuating such priority. In the event Tenant fails to
execute, acknowledge and deliver any of such documents within ten (10) days
after Landlord's request, Tenant shall be deemed to be in default under this
Lease. If, in connection with the obtaining, continuing or receiving of
financing for which all or any part of the Shopping Center, in whole or in part,
represents collateral, any such mortgagee, trustee or lessor shall request
reasonable modifications of this Lease as a condition of such financing, Tenant
shall not unreasonably withhold or delay its consent thereto, provided that such
modifications do not materially and adversely affect the rights of Tenant under
this Lease.
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ARTICLE XII
Default Provisions - Conditional Limitation
Section 12.1. In case one or more of the following events (herein
called an "Event of Default") shall have occurred, and shall not have been
remedied within the time, and in the manner, hereinafter set forth:
(a) default shall be made in the payment of the Fixed Rent, or of
Additional Rent, and such default shall continue for a period of seven
(7) days after written notice, specifying such default, shall have been
given to Tenant; or
(b) default shall be made in the performance of any other
covenant or agreement on the part of Tenant to be performed hereunder,
and such default shall continue for a period of twenty (20) days after
written notice specifying such default shall have been given to Tenant;
provided, however, in the case of a default which is of such a nature
that it cannot, with due diligence, be remedied by Tenant within a
period of twenty (20) days, so long as Tenant commences, as promptly as
may reasonably be possible within said twenty (20) days after the
service of such notice, to cure the default, and thereafter to prosecute
such cure with all due diligence to completion, the twenty (20) day
period aforesaid within which to remedy the default shall be extended
for such period as may be necessary to cure the same with all due
diligence;
(c) (i) if a receiver, trustee or liquidator of Tenant, or of
all, or a substantial part of Tenant's assets, shall be appointed; or
(ii) Tenant shall be adjudicated a bankrupt or insolvent; or (iii)
Tenant shall make an assignment of its property for the benefit of
creditors, or shall file a petition seeking reorganization or an
arrangement with creditors, or seek to take advantage of any insolvency
law; or (iv) an involuntary petition shall be filed against Tenant under
any bankruptcy, reorganization or insolvency law, and Tenant has not
proceeded to take the necessary steps to discontinue the petition within
ninety (90) days from the filing
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thereof;
Then, and in any of such events set forth in subparagraphs (a),
(b) and (c) above, Landlord may, at its option, give to Tenant a notice
of election to end the term of this Lease at the expiration of ten (10)
days from the date of such notice; and, if said notice is given, then at
the expiration of said ten (10) days the term of this Lease and all
right, title and interest of Tenant hereunder, shall expire as fully and
completely as if that day were the date herein specifically fixed for
the expiration of the term of this Lease, and Tenant will then quit and
surrender the Demised Premises to Landlord; provided, however, that
Tenant shall nevertheless remain liable to Landlord as hereinafter
provided.
Section 12.2.
(A) Upon any such expiration or termination of this Lease
pursuant to Section 12.1 above, or any termination by summary
proceedings or otherwise, Landlord may, without further notice, re-enter
upon the Demised Premises, and possess and repossess itself thereof, by
force, summary proceedings, ejectment or otherwise, and may dispossess
Tenant, and remove Tenant and all other persons and property from the
Demised Premises, and may have, hold and enjoy the Demised Premises, and
the right to receive all rental income of and from the same.
(B) At any time, or from time, after any such expiration or
termination of this Lease, Landlord may relet the Demised Premises, or
any part thereof, in the name of Landlord or otherwise, for such term or
terms (which may be greater or less than the period which would
otherwise have constituted the balance of the term of this Lease) and on
such conditions as Landlord, in its uncontrolled discretion, may
determine, and may collect and receive the rents therefor. Landlord
shall in no way be responsible or liable for any failure to relet the
Demised Premises, or any part thereof, or for any failure to relet the
Demised Premises, or any part thereof, or for any failure to collect any
rent due upon any such reletting.
- 29-
<PAGE>
(C) No expiration or termination of this Lease pursuant to
Section 12.1 above, shall relieve Tenant of its liability and
obligations under this Lease, and such liability and obligations shall
survive any such expiration, termination or reentry. In the event of any
such expiration, termination or reentry, whether or not the Demised
Premises or any part thereof shall have been relet, Tenant shall pay to
Landlord the rent, and all other charges required to be paid by Tenant,
up to the time of such expiration or termination of this Lease; and
thereafter Tenant, until the end of what would have been the term hereof
in the absence of such expiration, termination or reentry, shall be
liable to Landlord and shall pay to Landlord, as and for agreed upon
liquidated damages resulting from Tenant's default, and not as a
penalty, the equivalent of the amount of Fixed Rent and Additional Rent
and charges, which would be payable by Tenant under this Lease if were
still in effect, less the net proceeds of any reletting effected
pursuant to the provisions of (B) above, after deducting all of
Landlord's expenses in connection therewith, including, without
limitation, all repossession costs, brokerage and management
commissions, operating expenses, reasonable attorneys' fees, alteration
costs and expenses of preparation for such reletting.
Tenant shall pay such liquidated damages (hereinafter
"Deficiency") to Landlord monthly, on the days on which the Fixed Rent
would have been payable hereunder if this Lease were still in effect,
and Landlord shall be entitled to recover from Tenant each monthly
Deficiency as the same shall arise.
Section 12.3. Tenant hereby expressly waives any and all right to
redemption in case Tenant shall be dispossessed by a judgment, or by warrant of
any court or judge. Tenant hereby waives the right to interpose any counterclaim
in a summary proceeding or in any action based on non-payment by Tenant of Fixed
Rent or Additional Rent.
- 30-
<PAGE>
Section 12.4. If Tenant shall default in the observation or
performance of any of the terms, covenants or conditions upon its part to be
observed or performed under the terms of this Lease, the Landlord after fifteen
(15) days' written notice, and provided Tenant has not proceeded to cure said
default (except in cases of emergency, where only notice reasonable under the
circumstances need be given), may, but shall not be required to, perform the
same for the account and on behalf of the Tenant and, if Landlord makes any
expenditure or incurs any obligations in connection with the default of Tenant,
then the amount thereof shall be paid by Tenant to Landlord on demand. The term
"expenditure" or "obligation", as used in this Section, shall include reasonable
attorneys' fees, and interest at the prime rate of Landlord'S bank, on any
monies advanced for, or on account of Tenant.
ARTICLE XIII
Limitation of Landlord's Liability
Section 13.1. The term "Landlord" as used in this Lease shall be
limited to mean, and include only, the owner or owners at the time in question
of Landlord's interest in the Demised Premises, and in the event of any transfer
or transfers of the title to such interest, Landlord herein named (and in case
of any subsequent transfers or conveyances the then transferor) shall be
automatically freed and relieved, from and after the date of such transfer or
conveyance, of all personal liability as respects the performance of any
covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed; provided that, any funds in the hands of such
Landlord, or the then transferor at the time of such transfer, in which Tenant
has an interest, shall be turned over and/or assigned to the transferee, and any
amount then due and payable to Tenant by Landlord, or the then transferor under
any provisions of this Lease, shall be paid to the new Landlord; and provided
further, that upon such transfer, the transferee shall be deemed to expressly
assume, subject to the limitations of this Article XIII, all of the terms,
covenants and conditions in this Lease contained on the part of Landlord
thereafter to be performed; it being intended hereby that the covenants and
obligations contained in this Lease on the part of the Landlord shall, subject
as aforesaid, be binding on Landlord, its
- 31-
<PAGE>
successors and assigns, only during,and in respect of, their respective
successive periods of ownership.
Section 13.2. Waiver of Liability. Anything contained in this
Lease to the contrary notwithstanding, Tenant agrees that Tenant shall look
solely to the estate and property of Landlord in the land and buildings
comprising the Shopping Center of which the Demised Premises forms a part and
the rentals therefrom for the collection of any judgment requiring the payment
of money by Landlord in the event of any default or breach by Landlord with
respect to any of the terms, covenants and conditions of this Lease to be
observed and performed by Landlord, subject, however, to the prior rights of any
ground or underlying lessor or the holder of any mortgage covering the Shopping
Center. No other assets of Landlord shall be subject to levy, execution or other
judicial process for the satisfaction of Tenant'S claim.
ARTICLE XIV
Invalidity of Particular Provisions
Section 14.1. If any term or provision of this Lease, or the
application thereof, to any person or circumstance, shall to the any extent to
be held to be invalid or unenforceable by any court having jurisdiction
hereover, the remainder of this Lease (or the application of such term or
provision to persons or circumstances other than those as to which it has been
held invalid or unenforceable), shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforceable to the fullest extent
permitted by law.
ARTICLE XV
Certificates of Tenant
Section 15.1. Tenant agrees at any time, and from time to time,
within fifteen (15) days after notice by Landlord, or any fee mortgage, to
execute, acknowledge and deliver to such requesting party, a statement in
writing, certifying that this Lease is
- 32-
<PAGE>
unmodified and in full force and effect (or if there have been modifications,
that the Lease is in full force and effect, as modified, and stating the
modification), and the dates to which the Rent and Additional Rent has been
paid; and stating whether or not to the best knowledge of Tenant, Landlord is in
default in keeping, observing or performing any term, covenant, or provision,
contained in this Lease and, if in default, specifying each such default; it
being intended that any such statement delivered pursuant to this Section 15.1
may be relied upon by Landlord, or any prospective purchaser of Landlord'S
interest in the Demised Premises, or any mortgage thereof, or any assignee of
any such mortgage, but reliance on such statement may not exceed to any default
as to which Tenant shall have had no actual knowledge.
ARTICLE XVI
Notices
Section 16.1. Any notice, demand or request which, under the
terms hereof, or under any statute, must or may be given the parties hereto,
must be in writing, by mailing thesame: (A) If to Landlord: then to Landlord at
its address as set forth on page 1 hereof, to the attention of Mr. Irwin
Ackerman; and, (B) If to Tenant: a certified or registered copy to Tenant at its
address set forth on Page 1 hereof. All notices given hereunder shall be made by
depositing same in a United States general or branch post office, by certified
or registered mail, return receipt requested. The date of delivery shall be
deemed to be either (a) the date shown on the return receipt; or (b) in the
event the addressee refuses delivery, then two (2) days after said mailing date.
If requested in writing by any mortgagee of Landlord's interest in the Demised
Premises, Tenant agrees that notice shall also be given to such mortgagee.
Either party, and any mortgagee may designate by notice in writing, given as
herein specified, a new or other address to which such notice or demand shall
thereafter be so given or made.
ARTICLE XVII
Cumulative Remedies
No Waiver - No Oral Change
- 33-
<PAGE>
Section 17.1. The specified remedies to which Landlord or Tenant
may resort under the terms of this Lease are cumulative, and are not intended to
be exclusive of any other remedies or means of redress to which Landlord or
Tenant may be lawfully entitled, in case of any breach or threatened breach by
Tenant or Landlord, as the case may be, of any provisions of this Lease. The
failure of Landlord or Tenant to insist upon the strict performance of any of
the covenants of this Lease, shall not be construed as a waiver for the future
of such covenant. No waiver by Landlord or Tenant of any provision of this Lease
shall be deemed to have been made, unless expressed in writing, and signed by
the other party. The receipt and retention by Landlord of any Fixed Rent or
Additional Rent with the knowledge of the breach of any covenant, agreement,
term provision or condition contained in this Lease, shall not be deemed a
waiver of such breach. In addition to the other remedies in this Lease provided,
Landlord and Tenant shall be entitled to an injunction against any violation, or
threatened violation, of any of the covenants, conditions or provisions of this
Lease.
ARTICLE XVIII
Quiet Enjoyment
Section 18.1. Landlord covenants and agrees that Tenant, upon
paying the Rent, Additional Rent and all other charges herein provided for, and
upon observing and keeping all of the covenants, agreements and provisions
hereof on its part to be observed and kept, shall lawfully and quietly hold,
occupy and enjoy the Demised Premises during the term hereof, without hindrance
or molestation by, or from anyone claiming by, through or under Landlord,
subject to the terms, covenants and conditions hereof.
ARTICLE XIX
Waiver of Jury Trial
Section 19.1. The parties hereto waive a trial by jury on any or
all issues arising in any action or proceeding between them, or their
successors, arising hereunder, or resulting from the Tenant's use or occupancy
of the Demised Premises.
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<PAGE>
ARTICLE XX
Sign Provisions
Section 20.1. Subject to compliance by Tenant with provisions of
this Lease, and with applicable laws and regulations of governmental
authorities, Landlord agrees that it will not unreasonably withhold its consent
to the installation by Tenant of: (i) an illuminated sign designating Tenant's
name and business affixed flush to the front facade of the Demised Premises; and
(ii) a sign on the Route 38 and Church Road Pylons in the area shown
crosshatched on Exhibit C, which is attached hereto and made a part hereof.
Tenant agrees to deliver, in advance of installation, a detailed drawing of any
such signs for Landlord's consent, such consent not be unreasonably withheld or
delayed. The withholding of consent shall not be deemed unreasonable for any
proposed sign that includes flashing or blinking lights in its design. Tenant is
required to maintain its sign(s) in good condition and repair, to remove the
same at the end of the Term hereof, and to promptly repair any damage caused by
said removal. Tenant agrees to pay its pro rata share of the operation,
maintenance and repair of the Route 38 and Church Road Pylons. Landlord
represents that there is available space on the pylon for Tenant's sign as set
forth in Exhibit "C".
ARTICLE XXI
Deposit on Signing
Section 21.1. Upon the execution of this Lease, Tenant shall
deposit with Landlord the sum of $5,208.33 to be applied to the first rents
coming due under this Lease.
ARTICLE XXII
Miscellaneous
Section 22.1. Accord and Satisfaction. No payment by Tenant or
receipt by Landlord of a lessor amount than the monthly Rent and Additional Rent
herein stipulated shall be deemed to be other than on account and no endorsement
or statement
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<PAGE>
on any check or any letter accompanying any check or payment of any
rent or charge shall be deemed an accord and satisfaction, and Landlord shall
accept such check or payment without prejudice to Landlord's rights to recover
the balance of such rent or charge or pursue any other remedy provided in this
Lease.
Section 22.2. Tenant agrees not to generate, store, manufacture,
refine, transport, treat, dispose of or otherwise permit to be present on or
about the Demised Premises, any Hazardous Substances. As used herein, Hazardous
Substances shall be defined as any "hazardous chemical", "hazardous substance",
or similar term as defined in the Comprehensive Environmental Responsibility
Compensation and Liability Act, as amended (42 U.S.C. S9601, et. seq.), any
rules or regulations promulgated thereunder, or in any other applicable federal,
state or local law, rule or regulation dealing with environmental protection. It
is understood and agreed that the provisions contained in this Section shall be
applicable notwithstanding the fact that any substance shall not be deemed to be
a Hazardous Substance at the time of its use by the Tenant but shall thereafter
be deemed to be a Hazardous Substance. Tenant agrees to indemnify and hold
Landlord harmless for all costs, expenses (including reasonable attorneys'
fees), actions, damages, claims, and the like arising out of, or in connection
with, the presence or use of Hazardous Substances at the Shopping Center caused
by Tenant or its agents, employees, contractors, and invitees.
Section 22.3. Corporate and Partnership Authority. If Tenant is a
corporation, the persons executing this Lease on behalf of Tenant hereby
covenant and warrant that: (a) they are duly authorized by appropriate
resolution and/or the articles and bylaws of the corporation to execute this
Lease and thereby bind Tenant to all the terms and conditions thereof, (b)
Tenant is a duly qualified corporation and all steps have been taken prior to
the execution of this Lease to qualify Tenant to do business in the state where
the Shopping Center is situated, (c) all franchise and corporate taxes have been
paid as of the date of execution, and (d) all future forms, reports, fees and
other documents necessary to comply with applicable laws will be filed when due.
- 36-
<PAGE>
Section 22.4. This instrument shall not be recorded by either
party hereto. Each party agrees to execute, at the request of the other, a
memorandum of this Lease to be recorded at the expense of the party requesting
it.
Section 22.5. Each party hereto represents that it has had no
dealings with any broker or agent in connection with this Lease other than
Michael Ullian of Julius Feinblum Real Estate Inc., and Anita Stiles of
Commercial Real Estate (the "Brokers"), whose brokerage commission will be paid
by Landlord in accordance with its separate agreement with said Brokers. Tenant
agrees to indemnify and hold Landlord harmless from the claims of any other
broker or agent whom Tenant, and not Landlord, has dealt with or employed.
Section 22.6. The agreements herein contained shall bind and
inure to the benefit of the parties hereto, their respective heirs, successors
and assigns except that no assignment, subletting, or transfer by Tenant shall
operate to grant, transfer, or vest any rights unless the prior written consent
of Landlord in accordance with the provisions of this Lease has been obtained in
each instance.
Section 22.7. The captions herein are inserted only as a matter
of convenience and for reference and in no way define, limit, construe or
describe the scope of this Sublease or the meaning or intent of any provision
hereof.
Section 22.8. This Lease shall not be considered in force,
binding or in effect in any way until duly executed and delivered by Landlord
and Tenant, and at all times prior to such execution and delivery by Landlord
and Tenant, either party shall be absolutely free to terminate discussions with
the other party and Landlord shall be free to dispose of or retain its interest
in the Demised Premises in any manner Landlord deems desirable.
- 37-
<PAGE>
Section 22.9. This Lease (i) supersedes all prior negotiations,
representations, understandings and agreements of, by or between the parties,
which are fully merged herein; (ii) contains the entire agreement of the
parties; (iii) shall be construed and governed by the laws of the State of New
Jersey; and (iv) may not be changed or amended except by a written instrument
duly executed by the party sought to be bound.
Section 22.10. Additions and Relocations of Improvements by
Landlord Notwithstanding anything set forth in this Lease to the contrary, it is
agreed that Landlord reserves the right, without invalidating this Lease or
modifying any provisions thereof, at any time, once or more often as long as
additions and relocations do not materially interfere with Tenant's Use and
Occupancy: (i) to make alterations, changes and additions to the other buildings
and other improvements in the Shopping Center, (ii) to add and permit to be
added additional areas to the Shopping Center, (iii) to construct and to permit
to be constructed additional buildings and other improvements in the Shopping
Center, and (iv) to remove or relocate the whole or any part of any building or
other improvements in the Shopping Center so long as neither the ingress and
egress nor visibility of the Demised Premises is materially hindered or
restricted and as long as construction, additions and relocations of Landlord
improvements do not increase Tenant's common area charges.
Section 22.11. Late Charge. Anything in this Lease to the
contrary notwithstanding, at Landlord's option and in addition to interest
charges, Tenant shall pay a "Late Charge" of five percent (5%) of any
installment of Rent (or any other sum payable to Landlord under the terms of
this Lease) that is paid more than fifteen (15) days after the due date hereof,
to cover the extra expense involved in handling delinquent payments.
Section 22.12. Legal Expense. In case suit shall be brought for
recovery of
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<PAGE>
possession of the Demised Premises, for the recovery of rent or any
other amount due under the provisions of this Lease, or because of the breach of
any other covenant herein contained on the part of Tenant to be kept or
performed, and a breach shall be established, Tenant shall pay to Landlord all
expense incurred thereof, including a reasonable attorney's fee.
Section 22.13. Personal Property Taxes. Tenant shall pay before
delinquency all personal taxes and assessments on the furniture, fixtures,
equipment and other property of Tenant located in the Demised Premises and on
additions and improvements in the Demised Premises belonging to Tenant.
Section 22.14. Rules and Regulations. Tenant agrees to comply
with and observe the rules and regulations which are provided by Landlord
simultaneous with the execution and delivery of this Lease attached hereto as
Exhibit D. Landlord may, by written notice to, amend or supplement said rules
and regulations in a reasonable manner.
Section 22.15. Exclusivety. From and after the date hereof
Landlord agrees not to lease premises within the Shopping Center to any tenant
whose primary use would be the sale of (i) laminated youth and adult bedroom
sets, or (ii) x-rated adult videos or similar adult material. The foregoing
restriction shall in no way be deemed to apply to any tenant existing as of the
date of this Lease, or to prevent any future tenant from selling the exclusive
items provided said sale is not their primary use.
Section 22.16. Condition of Premises. Landlord shall deliver the
Demised Premises in a vacant broom clean condition and with Landlord's work set
forth on Exhibit B substantially completed. Landlord represents to Tenant that
to the best of its knowledge thereare no violations of record filed against the
Demised Premises.
IN WITNESS WHEREOF, the parties hereto duly executed this
Agreement as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
WITNESS: ACKRIK ASSOCIATES, Landlord
By:_______________________ By: ______________________________
Irwin Ackerman, General Partner
ATTEST: ROOM PLUS, INC., Tenant
</TABLE>
By:
Secretary (Title)
[SEAL]
<PAGE>
ACKNOWLEDGMENTS
LANDLORD
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the day of , 1996, before me came Irwin Ackerman, to me known,
who, being by me duly sworn did depose and say that he resides in New York, New
York; that he is the General Partner of Ackrik Associates, the partnership
described in, and which executed the foregoing instrument.
------------------------
Notary Public
TENANT
STATE OF )
) ss.:
COUNTY OF )
<TABLE>
<CAPTION>
<S> <C>
On the________day of______________________, 1996, before me personally came, __________
to me known, who being by me duly sworn, did depose and say that he
resides at ;that he is the of
---------------------------------------------------------------------------------------- ----------
ROOM PLUS, INC., the corporation described in, and which executed, the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was affixed by order of the Board of Directors of said
corporation; and that he signed his name thereto by like order.
</TABLE>
Notary Public
<PAGE>
EXHIBIT B
LANDLORD'S WORK
1. Take down all partitions.
2. Remove slot boards.
3. Replace existing ceiling tiles.
4. Remove platform and office in front of store.
5. Take up all carpet.
(Note: Tenant responsible for all other work not mentioned above to fit \
the premises for their use)
<PAGE>
<TABLE>
<CAPTION>
INDEX
ARTICLE CAPTION PAGE
<S> <C>
I. Term, Renewal Options and Construction ...............................3
II. Rent, Additional Rent and Other Charges ..............................7
III. Use, Operation and Maintenance ......................................11
IV. Indemnity & Insurance ...............................................14
V. Damage - Destruction ................................................17
VI. Condemnation ........................................................18
VII. Changes and Alterations by Tenant ...................................19
VIII. Mechanic's Liens ....................................................21
IX. Lawful Use; Surrender of the Demised Premises;
Inspection of the Demised Premises ..................................22
X. Assignment and Subletting ...........................................23
XI. Subordination .......................................................25
XII. Default Provisions - Conditional Limitation .........................26
XIII. Limitation of Landlord's Liability ..................................30
XIV. Invalidity of Particular Provisions .................................31
XV. Certificate of Tenant ...............................................31
XVI. Notices .............................................................31
XVII. Cumulative Remedies-No Waiver-No Oral Change ........................32
XVIII. Quiet Enjoyment .....................................................33
XIX. Waiver of Jury Trail ................................................33
XX. Sign Provisions .....................................................33
XXI. Deposit on Signing...................................................34
XXII. Miscellaneous .......................................................34
Exhibit A Plot Plan/Demised Premises
Exhibit B Landlord's Work
Exhibit C Pylon Signs
Exhibit D Rules and Regulations
</TABLE>
<PAGE>
AGREEMENT of LEASE
by and between
ACKRIK ASSOCIATES
as Landlord
and
ROOM PLUS, INC.
as Tenant
Premises: The Plaza at Cherry Hill
2100 Route 38
Cherry Hill, New Jersey
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,178,088
<SECURITIES> 0
<RECEIVABLES> 38,888
<ALLOWANCES> 0
<INVENTORY> 1,450,407
<CURRENT-ASSETS> 5,158,850
<PP&E> 2,820,083
<DEPRECIATION> 1,752,099
<TOTAL-ASSETS> 6,910,303
<CURRENT-LIABILITIES> 2,384,362
<BONDS> 0
0
0
<COMMON> 5,832
<OTHER-SE> 6,512,645
<TOTAL-LIABILITY-AND-EQUITY> 6,910,303
<SALES> 14,427,108
<TOTAL-REVENUES> 14,427,108
<CGS> 5,811,602
<TOTAL-COSTS> 7,062,219
<OTHER-EXPENSES> 1,542,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,135
<INCOME-PRETAX> (22,262)
<INCOME-TAX> (19,177)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,085)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
