U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934 For The
Quarterly Period Ended March 31, 1998.
[ ] Transition Report Under Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Transition Period from ________ to ________
Commission File Number 1-14478
ROOM PLUS, INC.
(Exact name of small business issuer as specified in its charter)
New York 11-2622051
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
91 Michigan Avenue
Paterson, NJ 07503
(Address of principal executive offices)
(973) 523-4600
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
The number of shares outstanding of the Issuer's Common Stock $.00133 par value,
as of May 11, 1998 was 4,385,000.
The number of the Issuer's Common Stock Purchase Warrants outstanding as of May
11, 1998 was 2,530,000.
Transitional small business disclosure format:
Yes [ ] No [X]
<PAGE>
ROOM PLUS, INC.
Form 10-QSB
<TABLE>
<CAPTION>
INDEX
Part I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets as of March 31, 1998 and December 31, 1997 3
Statements of Operations for the three months ended
March 31, 1998 and 1997 4
Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussions and Analysis of
Financial Condition and Results of Operations 7
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index 9
Signatures 11
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ROOM PLUS, INC.
BALANCE SHEETS
(Unaudited)
March 31 December 31
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................................................... $ 72,640 $ 185,843
Accounts receivable.......................................................... 106,250 67,685
Inventories.................................................................. 2,381,596 1,904,326
Notes receivable, officers................................................... 12,000 12,400
Prepaid expenses............................................................. 369,158 492,555
Deferred income taxes........................................................ 134,700 134,500
--------- ---------
Total Current Assets...................................................... 3,076,344 2,797,309
--------- ---------
Property and Equipment, net 1,758,165 1,804,303
--------- ---------
Other Assets
Security deposits and deferred charges....................................... 225,759 249,474
Deferred income taxes........................................................ 1,024,300 1,038,500
Notes receivable, officers................................................... 175,445 177,965
--------- ---------
1,425,504 1,465,939
--------- ---------
$6,260,013 $6,067,551
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt............................................ $ 195,192 $ 212,791
Notes payable................................................................ 499,123 400,070
Due to related companies..................................................... 297,872 258,770
Accounts payable and accrued expenses........................................ 1,678,887 1,604,047
Sales taxes payable.......................................................... 110,361 108,475
Customer deposits and other advances......................................... 533,865 528,517
--------- ---------
Total Current Liabilities................................................ 3,315,300 3,112,670
--------- ---------
Long-Term Debt, less current portion............................................ 405,538 447,857
--------- ---------
Stockholders' Equity
Common stock; authorized, 10,000,000 shares; $.00133 par value;
4,385,000 shares issued and outstanding.................................... 5,832 5,832
Additional paid-in capital................................................... 6,512,645 6,512,645
Deficit...................................................................... (3,979,302) (4,011,453)
--------- ---------
2,539,175 2,507,024
--------- ---------
$6,260,013 $6,067,551
========== ==========
</TABLE>
3
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
------------ ------------
<S> <C> <C>
Revenues.......................................................... $ 4,559,934 $ 3,426,026
Cost of goods sold................................................ 1,687,474 1,455,207
------------ ------------
Gross profit...................................................... 2,872,460 1,970,819
------------ ------------
Expenses
Selling....................................................... 2,290,545 2,259,096
General and administrative.................................... 508,075 635,637
------------ ------------
2,798,620 2,894,733
------------ ------------
Earnings (loss) from operations................................... 73,840 (923,914)
------------ ------------
Other income (expenses)
Interest income................................................... -- 28,579
Interest expense.................................................. (29,546) (22,615)
Miscellaneous income.............................................. 1,857 1,200
------------ ------------
(27,689) 7,164
------------ ------------
Earnings (loss) before income taxes (benefits).................... 46,151 (916,750)
Income taxes (benefits)........................................... 14,000 (434,241)
------------ ------------
Net earnings (loss)............................................... 32,151 (482,509)
Deficit, beginning of period...................................... (4,011,453) (2,111,402)
------------ ------------
Deficit, end of period............................................ $(3,979,302) $(2,593,911)
============ ===========
Weighted average common shares outstanding........................ 4,385,000 4,385,000
============ ===========
Basic and diluted earnings (loss) per share....................... $ .01 $ (.11)
============ ===========
</TABLE>
4
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1998 1997
--------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net earning (loss)................................................ $ 32,151 $ (482,509)
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities
Depreciation...................................................... 66,524 51,561
Deferred income taxes ............................................ 14,000 (435,623)
(Increase) decrease in operating assets
Accounts receivable........................................... (38,565) (32,259)
Inventories................................................... (477,270) (323,022)
Prepaid expenses.............................................. 123,397 (36,994)
Deferred charges.............................................. 25,215 33,108
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses......................... 119,290 205,133
Sales taxes payable........................................... 1,886 4,537
--------- -----------
Net cash used in operating activities......................... (133,372) (1,016,068)
--------- -----------
Cash Flows from Investing Activities
Purchases of property and equipment.............................. (20,386) (488,325)
Net loans from certain shareholders.............................. 2,920 36,878
Increase in security deposits.................................... (1,500) (5,883)
--------- -----------
Net cash used in investing activities......................... (18,966) (457,330)
--------- -----------
Cash Flows from Financing Activities
Net proceeds (repayment) of short-term debt....................... 99,053 (75,000)
Net repayment of long-term debt................................... (59,918) (66,339)
--------- -----------
Net cash provided by (used in) financing activities........... 39,135 (141,339)
--------- -----------
Net Decrease in Cash.......................................... (113,203) (1,614,737)
Cash, beginning of period......................................... 185,843 3,178,088
--------- -----------
Cash, end of period............................................... $ 72,640 $1,563,351
========= ==========
</TABLE>
5
<PAGE>
ROOM PLUS, INC.
Notes to Financial Statements
Note 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements, which are for
interim periods, do not include all disclosures provided in the
annual financial statements. These unaudited financial statements
should be read in conjunction with the financial statements and
footnotes thereto contained in the Annual Report on Form 10-KSB for
the year ended December 31, 1997 of Room Plus, Inc. (the
"Company"), as filed with the Securities and Exchange Commission.
In the opinion of management of the Company, the accompanying
unaudited financial statements contain all adjustments (which
include only normal recurring adjustments) necessary in order to
make the balance sheets, statements of operations and deficit and
statements of cash flow not misleading.
The results of operations for the three-month period ended March
31, 1998, are not necessarily indicative of the operating results
to be expected for the full year.
Note 2: INVENTORIES
Inventories are stated at the lower of cost determined by the
first-in, first-out method or market and consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
------------------------ ----------
1998 1997 1997
----------- --------- ----------
<S> <C> <C> <C>
Finished goods $1,778,148 $1,362,025 $1,451,814
Work in process 135,247 95,041 25,258
Raw materials 468,201 316,362 427,254
---------- ---------- ----------
$2,381,596 $1,773,428 $1,904,326
========== ========== ==========
</TABLE>
Note 3: SUBSEQUENT EVENT
In April 1998, the Company obtained bridge loans totaling $200,000
from certain unaffiliated individuals. The loans are due in June
1998. In consideration for these loans, the Company issued the
lenders options to acquire an aggregate 500,000 shares of the
Company's common stock at $2.125 per share.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company is a fully-integrated manufacturer and retailer of mica-laminated
furniture for residential uses, primarily bedroom furniture targeted at 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.
Three Months Ended March 31, 1998 and 1997
Revenues for the three months ended March 31, 1998 totaled $4,559,934 as
compared to 3,426,026 for the three months ended March 31, 1997 an increase of
$1,133,908 or 33.1%. The increase is attributable to existing store revenues
increasing $470,556, or 13.7%, as compared to March 31, 1997, while revenues of
new stores were $663,352 during the same period. The increase in existing store
revenues is the result of the maturation and stabilization of the Company's
sales personnel.
Cost of goods sold totaled $1,687,474 for the first three months of 1998 as
compared to $1,455,207 for the first three months of 1997, an increase of
$232,267 or 16.0%. The cost of goods sold decreased as a percentage of revenues
from 42.5% to 37.0%. The decrease was primarily the result of the improved
operating efficiencies realized through better utilization of new computerized
manufacturing equipment and increased unit production allowing for better
absorption of labor and overhead. As a result of the foregoing, the Company
realized an increase in gross profit in 1998 of $901,641 as compared to 1997,
with a gross profit of $2,872,460 or 63.0%% of revenues in the first three
months of 1998 as compared to $1,970,819 or 57.5% of revenues achieved during
the same period in 1997.
Selling, general and administrative expenses totaled $2,798,620 or 61.4% of
revenues for the first three months of 1998 as compared to $2,894,733 or 84.5%
of revenues for the first three months of 1997. The net decrease of $96,113 or
3.3% was primarily the result of significant decreases in professional fees and
advertising expense partially offset by increases in commissions and delivery
costs.
Operating income for the period ended March 31, 1998 was $73,840 or 1.6% of
revenues as compared to an operating loss of $923,914 or 27.0% of revenues
during the period ended March 31, 1997, an improvement of $997,754.
Other expenses for the period ended March 31, 1998 were $27,689 as compared to
income of $7,164 for the three months ended March 31, 1997. The decrease in
other income of $34,853 is primarily due to a decrease in interest income of
approximately $29,000 and an increase in interest expense of $8,000. These
changes result from the Company's utilization of its cash reserves and increased
use of its borrowing facility.
For the first three months of 1998, the Company recorded a net deferred income
tax provision of $14,000, as compared to a net deferred tax benefit of $434,241
in the three months ended March 31, 1997.
Due to the combination of the preceding factors, the Company realized net income
of $32,151 or 0.7% of revenues during the three months ended March 31, 1998 as
compared to a net loss of $482,509 during the three months ended March 31, 1997.
Liquidity and Capital Resources
The Company had a working capital deficit of $238,956 at March 31, 1998, which
represented a decrease in the working capital deficit of $76,405 from $315,361
at December 31, 1997. The decrease in the working capital deficit was primarily
the result of increased showroom inventories.
The Company's operating activities used cash of $133,372 and $1,016,068 for the
three months ended March 31, 1998 and 1997, respectively. For the three months
ended March 31, 1998, cash was used primarily to fund inventory. In the three
months ended March 31, 1997, cash was used primarily to finance inventory and
selling expenses for six new retail showrooms.
7
<PAGE>
Item 2. (Continued)
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The Company's investing activities used cash of $18,966 and $457,330 for the
three months ended March 31, 1998 and 1997, respectively. The cash used by the
Company's investing activities for the three months ended March 31, 1998 was not
material. The cash used for the three months ended March 31, 1997 was primarily
the result of the purchase of computerized manufacturing machinery and
equipment.
The Company's financing activities provided (used) cash of $39,135 and
$(141,339) for the three months ended March 31, 1998 and 1997, respectively. The
cash provided by financing activities for the three months ended March 31, 1998,
was the result of further utilization of the Company's short-term line of credit
offset by the repayment of long-term debt. The cash used for the three months
ended March 31, 1997, was the result of the repayment of debt.
The Company had substantially depleted its cash reserves at March 31, 1998. The
Company obtained a $200,000 bridge loan in April 1998, which is due in June
1998. The Company has received several financing proposals and is currently
considering such proposals and other possible financing alternatives. While
there can be no assurances as to the ultimate availability or terms of such
additional financing, the Company believes that sufficient financing will be
available to fund its operations for at least the next twelve months.
Historically, demand for the Company's products has been seasonal, with demand
increasing in the third and fourth quarters, corresponding to the beginning of
the school year and the holiday season. The Company generally realizes 60% of
its annual revenues during those quarters.
The Company's operations have not been materially affected by the impact of
inflation.
"Safe Harbor" Statement
Forward-looking statements made herein are based on current expectations of the
Company that involve a number of risks and uncertainties and such forward-
looking statements should not be considered guarantees of future performance.
These statements are made under the "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995. The factors that could cause actual
results to differ materially from the forward-looking statements include the
impact of competitive products and pricing, product demand and market acceptance
risks, the presence of competitors with greater financial resources than the
Company and an inability to arrange additional debt or equity financing.
8
<PAGE>
Part II.
Other Information
Item 1. - Legal Proceedings
Not applicable
Item 2. - Changes in Securities
Not applicable
Item 3. - Defaults upon Senior Securities
Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. - Other Information
Not applicable
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibits description
4.5 Letter dated April 24, 1998 confirming terms and
conditions to lend the Company $200,000
4.6 Promissory Note in the amount of $100,000 due June
11, 1998, between the Company and Finbar O'Neill
4.7 Stock Purchase Option dated April 24, 1998 for
250,000 shares of common stock issued to Finbar
O'Neill
4.8 Promissory Note in the amount of $100,000 due June
11, 1998, between the Company and Mark Rubin
4.9 Stock Purchase Option dated April 24, 1998 for
250,000 shares of common stock issued to Mark Rubin
11 Calculation of net earnings per common share
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on February 18,
1998, disclosing the issuance of a press release
announcing that its agreement in principle to acquire
The Baby's Room, Inc. and Baby's Room USA, Inc. had been
terminated.
9
<PAGE>
Exhibit No. 11
ROOM PLUS, INC.
Computation of Earnings (Loss) per Common Share
(See Note 1 of Notes to Financial Statements)
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------------
1998 1997
--------------- ----------
<S> <C> <C>
Basic and Diluted
Net earnings (loss) applicable to common stock $ 32,151 $ (482,509)
=============== ==========
Shares
Weighted average common shares outstanding 4,385,000 4,385,000
Basic and diluted earnings (loss) per common share $ .01 $ (.11)
=============== ==========
</TABLE>
Assumed exercise of options and warrants which could have been purchased with
the proceeds from the exercise of such options and warrants would have an
anti-dilutive effect on earnings per share.
10
<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: May 15, 1998 ROOM PLUS, INC.
By: /s/ Jay H. Goldberg
-------------------
Name: Jay H. Goldberg
Title: Chief Financial Officer and
Principal Accounting Officer
11
April 24, 1998
Mr. Mark Rubin Mr. Finbar O'Neill
19 Cardinal Drive 136 Loughmallon Road
Roslyn, NY Pomeroy Dunganon
County Tyrone
North Ireland
Gentlemen:
This letter will confirm certain of the terms and conditions upon which
each of you, severally and not jointly, have agreed to lend Room Plus, Inc. (the
"Company") the aggregate sum of $200,000.
The loan will be evidenced by a promissory note ("Note") payable to each
of you. In lieu of cash interest on the Note, rights to purchase an aggregate of
500,000 shares of the Company's Common Stock at $2.125 per share pursuant to an
option ("Option") will be issued. The Note and Option will be issued to each of
you pro rata to the amount loaned by each.
The Company agrees, at its sole cost and expense, to register the resale
of the shares issuable on the conversion of the Note ("Conversion Shares") and
those issuable upon the exercise of the Option ("Option Shares") under the
Securities Act of 1933, as amended ("Act") on a Form S-3 registration statement.
Such registration statement will be filed not later than 45 days after the
consummation of the transactions contemplated by this letter. In the event such
registration statement has not become effective within 60 days of the date
hereof, (i) within 30 days after the conversion of a Note and/or (ii) within 30
days after the exercise of options, in whole or in part, the Company shall file
a registration statement on Form SB-2, or Form S-1 registering the sale of the
"Conversion Securities" (as defined in the Note) and/or the "Option Shares" (as
defined in the Option), as the case may be, by the holder(s) thereof. Once
effective, the Company shall use its best efforts to maintain the effectiveness
of any such registration statement until all of the shares covered thereby have
been sold by the Holder. The provisions of Paragraph 7 of the Option shall be
applicable to the registration contemplated in this letter.
If required to maintain the NASDAQ SmallCap listing, the Company will use
its best efforts to obtain shareholder approval of the issuance of the Option,
conversion shares and Option Shares.
Contemporaneously with the making of the loan, the Company will pay
Gersten Savage Kaplowitz & Fredericks, LLP $3,850 in payment of legal fees for
its preparation of the Note and Option on your behalf.
The Company warrants and represents to each of you that: (i) the
transactions herein contemplated (I) have been duly and validly authorized by
all requisite corporate action and (II) represent the valid and binding
obligations of the Company enforceable against it in
<PAGE>
accordance with the terms hereof and of the Note and Option; (ii) do not
violate, and will not result in a breach or default (with the passage of time,
giving of notice or both) under any agreement, instrument or document to which
the Company is a party or by which it, or its assets, are bound or subject;
(iii) the officer executing this letter, the Note and Option is duly authorized
to execute and deliver the same; and (iv) the Company has reserved, and will
keep reserved, for issuance that number of shares of its Common Stock necessary
for issuance of the Conversion Shares and Option Shares.
Each of you, severally and not jointly, warrant and represent to the
Company that you are an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended and that
you acknowledge that the Company is relying on such representation in entering
into the transactions contemplated by this letter.
Upon your making of the loan herein contemplated, this letter will be a
binding agreement between the Company and each of you, severally and not
jointly.
Very truly yours,
Room Plus, Inc.
By: /s/ Marc Zucker
---------------
Marc Zucker
Chief Executive Officer
Agreed and Accepted:
- ------------------ ---------------------
Mark Rubin Finbar O'Neill
<PAGE>
April 24, 1998
Mr. Mark Rubin Mr. Finbar O'Neill
19 Cardinal Drive 136 Loughmallon Road
Roslyn, NY Pomeroy Dunganon
County Tyrone
North Ireland
Gentlemen:
This letter will confirm certain of the terms and conditions upon which
each of you, severally and not jointly, have agreed to lend Room Plus, Inc. (the
"Company") the aggregate sum of $200,000.
The loan will be evidenced by a promissory note ("Note") payable to each
of you. In lieu of cash interest on the Note, rights to purchase an aggregate of
500,000 shares of the Company's Common Stock at $2.125 per share pursuant to an
option ("Option") will be issued. The Note and Option will be issued to each of
you pro rata to the amount loaned by each.
The Company agrees, at its sole cost and expense, to register the resale
of the shares issuable on the conversion of the Note ("Conversion Shares") and
those issuable upon the exercise of the Option ("Option Shares") under the
Securities Act of 1933, as amended ("Act") on a Form S-3 registration statement.
Such registration statement will be filed not later than 45 days after the
consummation of the transactions contemplated by this letter. In the event such
registration statement has not become effective within 60 days of the date
hereof, (i) within 30 days after the conversion of a Note and/or (ii) within 30
days after the exercise of options, in whole or in part, the Company shall file
a registration statement on Form SB-2, or Form S-1 registering the sale of the
"Conversion Securities" (as defined in the Note) and/or the "Option Shares" (as
defined in the Option), as the case may be, by the holder(s) thereof. Once
effective, the Company shall use its best efforts to maintain the effectiveness
of any such registration statement until all of the shares covered thereby have
been sold by the Holder. The provisions of Paragraph 7 of the Option shall be
applicable to the registration contemplated in this letter.
If required to maintain the NASDAQ SmallCap listing, the Company will use
its best efforts to obtain shareholder approval of the issuance of the Option,
conversion shares and Option Shares.
Contemporaneously with the making of the loan, the Company will pay
Gersten Savage Kaplowitz & Fredericks, LLP $3,850 in payment of legal fees for
its preparation of the Note and Option on your behalf.
The Company warrants and represents to each of you that: (i) the
transactions herein contemplated (I) have been duly and validly authorized by
all requisite corporate action and (II) represent the valid and binding
obligations of the Company enforceable against it in
<PAGE>
accordance with the terms hereof and of the Note and Option; (ii) do not
violate, and will not result in a breach or default (with the passage of time,
giving of notice or both) under any agreement, instrument or document to which
the Company is a party or by which it, or its assets, are bound or subject;
(iii) the officer executing this letter, the Note and Option is duly authorized
to execute and deliver the same; and (iv) the Company has reserved, and will
keep reserved, for issuance that number of shares of its Common Stock necessary
for issuance of the Conversion Shares and Option Shares.
Each of you, severally and not jointly, warrant and represent to the
Company that you are an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended and that
you acknowledge that the Company is relying on such representation in entering
into the transactions contemplated by this letter.
Upon your making of the loan herein contemplated, this letter will be a
binding agreement between the Company and each of you, severally and not
jointly.
Very truly yours,
Room Plus, Inc.
By: /s/ Marc Zucker
---------------
Marc Zucker
Chief Executive Officer
Agreed and Accepted:
- ------------------ ---------------------
Mark Rubin Finbar O'Neill
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS
DECLARED EFFECTIVE UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
IS AVAILABLE.
ROOM PLUS, INC.
$100,000 PROMISSORY NOTE
Due June 11, 1998
1. Amount of Note. ROOM PLUS, INC., a New York corporation
(the "Company"), for value received, hereby promises to pay to the order of
Finbar O'Neill (the "Payee"), at the Company's principle place of business, 91
Michigan Avenue, Paterson, New Jersey 07503, on June 11, 1998 ("Due Date"), the
principal sum of One Hundred Thousand ($100,000) Dollars. Interest on the
principal balance is being paid upon the execution hereof by the execution and
delivery of a options to purchase 250,000 shares of the common stock of the
Company ("Common Stock"). In the event of the failure of the Company to pay the
principal when due, the principal balance of this Note shall bear interest at
the rate of eighteen (18%) per annum from the Due Date until paid in full,
unless the Payee elects to convert this Note as hereinafter provided. The
principal amount of the Note may be prepaid by the Company, in whole or in part,
without premium or penalty, at any time. All payments hereunder shall be applied
first to interest then to principal. Payments of principal and interest are to
be made in lawful money of the United States of America.
2. Event of Default. If the Company shall fail to make a
payment of principal when due on this Note or on a note of similar tenor made by
the Company on the date hereof; or shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt,
suffer an order for relief under any federal bankruptcy law, petition or apply
to any tribunal for the appointment of a custodian, receiver or any trustee for
the Company or any substantial part of its assets, or shall commence any
proceeding under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction, whether now
or hereafter in effect; or if there shall have been filed any such petition or
application, or any such proceeding shall have been commenced against the
Company, which remains undismissed for a period of thirty (30) days or more; or
if the Company, by any act or omission shall indicate consent to, approve of or
acquiescence in any such petition, application or proceeding or the appointment
of, a custodian, receiver or any trustee for all or any substantial part of its
properties, or if the Company shall suffer such custodianship, receivership, or
trusteeship to continue undischarged for a period of thirty (30) days or more,
or the Company violates any term or provision of this Note and same remains
uncured for a period of 15 days, then and in any such event (each such event, an
"Event of Default"), the outstanding principal amount of this Note shall be and
become immediately due and payable.
3. Restrictions on Transfer.
The holder acknowledges that he has been advised by the
Company that this Note and the shares of Common Stock issuable upon conversion
hereof (the "Conversion Shares") have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), that the Note is being issued,
on the basis of the statutory exemption provided by Section 4(2) of the
Securities Act relating to transactions by an issuer not involving any public
offering, and that the Company's reliance upon this statutory exemption is based
in part upon the representations made by the
1
<PAGE>
holder that he is an "accredited investor" as defined in Rule 501 of the
Securities Act. The holder acknowledges that he has been informed by the Company
of, or is otherwise familiar with, the nature of the limitations imposed by the
Securities Act and the rules and regulations thereunder on the transfer of
securities. In particular, the holder agrees that no sale, assignment,
hypothecation or transfer of the Note or the Conversion Shares shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment, hypothecation, transfer or other disposition, unless (i) the
sale, assignment, hypothecation, transfer or other disposition of the Note or
the Conversion Shares is registered under the Securities Act, provided, that the
Company has no obligation or intention to so register the Note in connection
herewith, or (ii) the Note is sold, assigned, hypothecated, transferred or
otherwise disposed of in accordance with all the requirements and limitations of
Rule 144 under the Securities Act, or such sale, assignment, or transfer is
otherwise exempt from registration under the Securities Act.
4. Conversion. (a) In the event this Note is not paid in full
on or before the Due Date, the Payee, at his sole election, may convert a
portion outstanding principal amount of this Note, and all accrued but unpaid
interest thereon, into up to 187,500 shares of Common Stock of the Company,
subject to adjustment as hereinafter provided at a conversion price of $.40 per
share. The conversion shall be effectuated by the Payee delivering written
notice of conversion to the Company on or before the earlier of payment of the
principal and interest due hereon or 15 business days after the Due Date
specifying the number of shares of Common Stock up to 187,500 as to which the
Payee elects to convert. The failure of Payee to elect to so convert the Note on
or before such date shall be deemed a waiver by Payee to so convert the Note.
The conversion shall be effective on the date specified in the notice and the
Company shall promptly issue certificates representing such Common Stock. Any
portion of the principal not so converted shall remain due and payable, with
interest as aforesaid.
(b) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon conversion of this Note (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
conversion of this Note) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Payee shall have the right thereafter to receive on conversion of
this Note the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon conversion of this Note immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and the Company shall forthwith send the Payee a statement signed by
its President or a Vice President and by its Treasurer or an Assistant Treasurer
or its Secretary or an Assistant Secretary evidencing such provision. The above
provisions of this Section 4(b) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
5. Miscellaneous.
Presentment, demand, protest, notice of protest, dishonor,
notice of dishonor and any and all notices of any kind, except as are required
to be given hereunder or cannot under applicable law be waived, are hereby
waived.
Notwithstanding any provision contained herein, the total
liability of Company for payment of interest pursuant hereto, shall not exceed
the maximum amount of such interest permitted by law to be charge, collected, or
received from Company, and if any payments by Company include interest in excess
of such a maximum amount, Payee shall apply such excess to the reduction of the
unpaid principal amount due pursuant hereto, or if none is due, such excess
shall be refunded to Company.
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Payee shall not by any act of omission or commission be deemed
to waive any of his rights or remedies hereunder unless such waiver be in
writing an signed by Payee, and then only to the extent specifically set forth
therein; a waiver on one event shall not be construed as continuing or as a bar
to or waiver of such right or remedy on a subsequent event.
Company shall pay the cost of any revenue, tax or other stamps
now or hereafter required by law at any time to be affixed to this Note; and if
any taxes be imposed with respect to debts secured by mortgages or deeds of
trust, or with respect to notes evidencing debts so secured, Company agrees to
pay to the holder hereof upon demand the amount of such taxes, and hereby waives
any contrary provisions of any laws or rules of court now or hereafter in
effect.
This Note cannot be modified orally. This Note shall be
governed and construed in accordance with the internal law of the State on New
Jersey without reference to the doctrine of conflict of laws.
ROOM PLUS, INC.
Attest:
/s/ Jay Goldberg By: /s/ Marc Zucker
- ---------------- ---------------
Secretary Marc Zucker
Chief Executive Officer
3
Dated: April 24, 1997 Option to purchase 250,000 shares
of Common Stock
STOCK PURCHASE OPTION
THIS CERTIFIES THAT Finbar O'Neill (the "Holder") is entitled to purchase
from ROOM PLUS, INC. a Delaware corporation (the "Company"), up to 250,000
shares (the "Option Shares" or "Shares") of the Company's common stock, $.00133
par value ("Common Stock"), at $2.125 per share (the "Exercise Price"), subject
to adjustment as provided herein, at any time during the period commencing on
the date hereof (the "Effective Date") and ending on April 23, 2003 ("Exercise
Term").
1. The rights represented by this Option may be exercised at the
Exercise Price, subject to adjustment in accordance with paragraph 8 hereof, at
any time, or from time to time, during the Exercise Term.
2. (a) The rights represented by this Option may be exercised at any
time within the Exercise Term, in whole or in part, by (i) the surrender of the
Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Shares specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any and statement as to the number of Shares and Exercise Price as to which such
exercise is made; and (iii) delivery to the Company of a duly executed agreement
signed by the person(s) designated in the purchase form to the effect that such
person(s) agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. The Option shall be deemed
to have been exercised, in whole or in part, to the extent specified,
immediately prior to the close of business on the date the Option is surrendered
and payment is made in accordance with the foregoing provisions of this
paragraph 2, and the person or persons in whose name or names the certificates
for Shares shall be issuable upon such exercise shall become the holder or
holders of record of such Shares at that time.
(b) Notwithstanding anything to the contrary contained in subparagraph
2(a), the Holder may elect to exercise this Option, in whole or in part, by
exchanging Option Shares otherwise issuable upon the exercise of this Option
computed using the following formula:
<PAGE>
X = Y(A-B)
----------
A
Where: X = the number of shares of Common Stock to be issued to the Holder;
Y = the number of shares of Common Stock issuable upon exercise of
this Option;
A = the current fair market value of one share of Common Stock
(calculated as described below); and
B = the Exercise Price.
The Holder may also pay the Exercise Price by delivery to the
Company of shares of the Company's Common Stock owned by the Holder having a
fair market value equal to the aggregate Exercise Price for the number of Shares
as to which this Option is being exercised.
As used herein, the current fair market value of Common Stock shall
mean the greater of (x) the average of the closing prices of the Company's
Common Stock sold on all securities exchanges on which the Common Stock may at
the time be listed and the NASDAQ National Market, or, if there have been no
sales on any such exchange or the NASDAQ National Market on such day, the
average of the highest bid and lowest asked price on such day on The Nasdaq
SmallCap Market or otherwise in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar successor
organization (the "Market Price"), on the trading day immediately preceding the
date notice of exercise of this Option is given or (y) the average of the Market
Price per share of Common Stock for the five trading days immediately preceding
the date notice of exercise of this Option is given. If on any date for which
the Market Price per share of Common Stock is to be determined the Common Stock
is not listed on any securities exchange or quoted on the NASDAQ National Market
or on The Nasdaq SmallCap Market or otherwise in the over-the-counter market,
the Market Price per share of Common Stock shall be the highest price per share
which the Company could then obtain from a willing buyer (not a current employee
or director) for shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of Directors of the
Company, unless prior to such date the Company has become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the Market Price per share of Common Stock shall
be deemed to be the value received by the holders of the Company's Common Stock
for each share thereof pursuant to the Company's acquisition.
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<PAGE>
3. The Option shall not be transferred, sold, assigned, or hypothecated
(other than by will or pursuant to the laws of descent and distribution), except
if such transfer is exempt from registration under the Securities Act of 1933 as
amended ("Act") or except if such transfer is otherwise in compliance with the
Act. Any assignment shall be effected by the Holder by (i) executing the form of
assignment at the end hereof and (ii) surrendering the Option for cancellation
at the office or agency of the Company referred to in paragraph 2 hereof,
accompanied by a certificate (signed by an officer of the Holder if the Holder
is a corporation), stating that each transferee is a permitted transferee under
this paragraph 3; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Option or Option of like
tenor and representing in the aggregate rights to purchase the same number of
Shares as are purchasable hereunder.
4. The Company covenants and agrees that all Option Shares which may be
purchased hereunder will, upon issuance against payment of the purchase price
therefor, be duly and validly issued, fully paid and nonassessable, and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that, during the periods within which the Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the Option.
5. The Option shall not entitle the Holder to any voting rights or
other rights as stockholders of the Company.
6. (a) The Company shall advise the Holder or its transferees, whether
the Holder holds the Option or has exercised the Option and holds shares of
Common Stock, by written notice at least four weeks prior to the filing of any
registration statement or post-effective amendment thereto under the Act
covering any shares of the Company, for its own account or for the account of
others, except for any registration statement filed on Form S-4 or S-8
(including a Form S-3 related to a Form S-8) and will, for a period of five
years beginning one year after the Effective Date, upon the request of the
Holder, and subject to subparagraph 6(a)(ii), include in any such post-effective
amendment to the Registration Statement or in any new registration statement
such information as may be required to permit a public offering of the Option
Shares issuable upon the exercise of this Option (collectively, the "Registrable
Shares"). The Company shall supply prospectuses and such other document as the
Holder may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares, use its best efforts to register and
qualify any of the Registrable Shares for sale in such states as the Holder
designates and do any and all other reasonable acts and things which may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registrable Shares, all at no expense to the Holder
(other than the fees and disbursements of counsel for the Holder and the
underwriting discounts and commission, if any, payable in respect of the
Registrable Shares) of the Holder or any such holders, and furnish
indemnification in the manner provided in paragraph 7 hereof; provided, however,
the Company shall not be required to (A) qualify to do business in any state by
reason of this Section 6 in which it is not otherwise required to qualify to do
business, (B) or register or
3
<PAGE>
qualify in any state which will impose material burdens on the Company,
including without limitation, the obligation to pay any corporate taxes. The
Holder shall furnish information and indemnification as set forth in paragraph 7
hereof. (ii) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to subparagraph
6(a)(i). If the managing underwriter determines that a limitation of the number
of shares to be underwritten is required, the underwriter may exclude some or
all Registrable Shares from such registration (the "Excluded Registrable
Shares"); provided, however, that if any securities of the Company are included
in suh registration statement for the account of any person other than the
Company and the Holder or any such holder, the Option Shares included in such
registration statement for such other person shall have been reduced pro rata to
the reduction of the Holder's Option Shares which were requested to be included
in such registration.
(b) The provisions of paragraph 6(b) shall not be applicable if
the Company has registered the Option Shares for resale by the Holder pursuant
to a registration statement on Form S-3, or other applicable form, and such
registration statement remains effective when the registration statement
referred to in paragraph 6(a) is filed.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option Shares is filed under the Act, amended or supplemented,
the Company will indemnify and hold harmless each Holder of the Shares covered
by such registration statement, amendment or supplement (such Holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such Shares and each person, if
any, who controls (within the meaning of the Act) any such underwriter, against
any losses, claims, damages or liabilities, joint or several, to which the
Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or therein not
misleading and will reimburse the Distributing Holder or such controlling person
or underwriter for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished by such
Distributing Holder or any other Distributing Holder foruse in the preparation
thereof.
(b) The Distributing Holder will indemnify and hold harmless the
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<PAGE>
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint, or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arises out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
In order to provide for just equitable contribution under the Act in
any case in which (i) any person entitled to indemnification under this Section
7 makes claim for indemnification pursuant hereto but it is judicially
determined (by entry of a final judgment or decree by a court of competent
jurisdiction an the expiration of time to appeal or the denial of the last right
of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 8 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 7, then, and in each such case, the Company and each Holder shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after
5
<PAGE>
any contribution from others) in such proportion taking into consideration the
relative benefits received by each party from the offering covered by the
Prospectus (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was assessed, the
opportunity to correct and prevent any statement or omission and other equitable
considerations appropriate under the circumstances; and provided, that, in any
such case, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "contribution party"), notify
the contributing party of the commencement thereof, but the omission so to
notify the contributing party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a contributing party or his or its representative of the commencement
thereof within the aforesaid fifteen (15) days, the contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of such contributing party. The provisions contained in this
Section 7 are in addition to any other rights or remedies which either party
hereto may have with respect to the other or hereunder.
8. Adjustment of Exercise Price
----------------------------
(a) Except as hereinafter provided, in the event the Company
shall, at any time or from time to time after the date hereof, sell any shares
of Common Stock for a consideration per share less than the Market Price or
issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter
immediately before the date of such sale or the record date for each Change of
Shares, the Exercise Price for the Common Stock included in this Option (whether
or not the same shall be issued and outstanding) in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent to the nearest cent) determined by dividing (1) the product
of (a) the Exercise Price in effect immediately before such Change of Shares and
(b) the sum (i) the total number of shares of Common Stock outstanding
immediately prior to such Change of Shares, and (ii) the number of shares
determined by dividing (A) the aggregate consideration, if any, received by the
Company upon such sale, issuance, subdivision or combination, by (3) the lesser
of (x) the Market Price, and (y) the Exercise Price, in effect immediately prior
to such Change of Shares; by (2) the total number of shares of Common Stock
outstanding immediately after such Change of Shares. Notwithstanding anything to
the contrary contained herein, no adjustment shall be made as a result of the
exercise of any Option or
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<PAGE>
options previously issued by the Company and which are outstanding on the date
hereof.
(b) For the purposes of any adjustment to be made! in accordance
with this Section 8(a) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or sale
of shares of Common Stock) for a consideration part or all of which shall be
cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price (before
deducting any commissions or any expenses incurred in connection therewith), if
shares of Common Stock are offered by the Company for subscription, or (ii) the
public offering price (before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services, or any expenses incurred in
connection therewith), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or Option or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company other
than shares of Common Stock into shares including shares of Common Stock shall
be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or Option and upon the conversion or exchange of
convertible or exchangeable securities.
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<PAGE>
(ii) Upon each adjustment of the Exercise Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the exercise of
this Option shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Exercise Price.
(c) In case the Company shall at any time after the date hereof
issue options, rights or Option to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock, for a consideration per share (determined as provided in Section 8(a) and
as provided below) less than the Market Price immediately prior to the issuance
of such options, rights or Option, or such convertible or exchangeable
securities, or without consideration (including the issuance of any such
securities by way of dividend or other distribution), the Exercise Price for the
Common Stock included in this Option (whether or not the same shall be issued
and outstanding) in effect immediately prior to the issuance of such options,
rights or Option, or such convertible or exchangeable securities shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 8(a) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable or that may become issuable under such options,
rights or Option (assuming exercise in full even if not then currently
exercisable or currently exercisable in full) shall be deemed to be issued and
outstanding at the time such options, rights or Option were issued, for a
consideration equal to the minimum Exercise Price per share provided for in such
options, rights or Option at the time of issuance, plus the consideration, if
any, received by the Company for such options, rights or Option; provided,
however, that upon the expiration or other termination of such options, rights
or Option, if any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this subsection (A)
(and for the purposes of subsection (E) of Section 8(a) hereof) shall be reduced
by the number of shares as to which options, Option and/or rights shall have
expired, and such number of shares shall no longer be deemed to be issued and
outstanding, and the Exercise Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or Option as to
which the exercise rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
expiration or other termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of
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<PAGE>
redemption or otherwise), the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this subsection (B) (and for the purposes of
subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares
as to which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding, and the Exercise Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon conversion or exchange of those convertible
or exchangeable securities as to which the conversion or exchange rights shall
not have expired or terminated unexercised.
(C) If any change shall occur in the exercise price per
share provided for in any of the options, rights or Option referred to in
subsection (A) of this section 8(b), or in the price per share or ratio at which
the securities referred to in subsection (3) of this Section 8(b) are
convertible or exchangeable, such options, rights or Option or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new options, rights or Option or convertible or
exchangeable securities.
(d) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Option (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Option) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Option then outstanding shall have the right
thereafter to receive on exercise of such Option the kind and amount of Shares
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
issuable upon exercise of such Option immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith mail to the Holder, at the Holder's address on the records of the
Company, a statement signed by its President or a Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary
evidencing such provision. Such provisions shall include provision for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 8(a) and (b). The above provisions of this
Section 8(c) shall similarly apply to successive reclassifications and changes
of shares of Common Stock and to successive consolidations, mergers, sales or
convyances.
(e) Irrespective of any adjustments or changes in the Exercise
Price or
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<PAGE>
the number of shares of Common Stock purchasable upon exercise of the Option,
the Option Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Option Certificates pursuant
hereto, continue to express the Exercise Price per share and the number of
shares purchasable thereunder as the Exercise Price per share and the number of
shares purchasable thereunder were expressed in the Option Certificates when the
same were originally issued.
(f) After each adjustment of the Exercise Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Option, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly cause a brief summary thereof to be sent by ordinary first class mail
to each Holder at his last address as it shall appear on the registry books of
the Company. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of the Secretary or an Assistant Secretary
of the Company that such notice has been mailed shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
(g) No adjustment of the Exercise Price or the number of shares
issuable upon exercise of this Option shall be made as a result of or in
connection with (A) the issuance or sale of the Option or the Shares underlying
the Option, (B) the issuance or sale of shares of Common Stock pursuant to
options, Option, stock purchase agreements and convertible or exchangeable
securities outstanding or in effect on the date hereof, including options that
may be granted under the Company's existing stock option plan or Common Stock
issuable on the exercise of such options; or (C) the issuance or sale of shares
of Common Stock if the amount of said adjustment shall be less than $.10 for one
share of Common Stock, provided, however, that in such case, any adjustment that
would otherwise be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment that
shall amount, together with any adjustment so carried forward, to at least $.10
for one share of Common Stock. In addition, any Holder shall not be entitled to
cash dividends paid by the Company prior to the exercise of any Option held by
them.
(h) All notices herein required to be given to the Holder shall be
given to the Holders at their addresses on the records of the Company.
9. This Agreement shall be governed by and in accordance with the laws
of the State of New York applicable to agreements made and to be performed
solely within such state.
IN WITNESS WHEREOF, ROOM PLUS, INC., has caused this Option to be signed
by its duly authorized officers, and this Option to be dated as of the date
first above written.
10
<PAGE>
ROOM PLUS, INC.
By: /s/ Marc Zucker
------------------------------
Name: Marc Zucker
Title: Chief Executive Officer
11
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder, ______ Shares of ROOM PLUS, INC., par value $.00133 (or
shares of Common Stock) per share, at an exercise price of $____ per Share, and
herewith makes payment of $____ therefor (or hereby surrenders and delivers that
portion of the Option having equivalent value (as determined in accordance with
the provisions of subparagraph (d) of paragraph 2 of the Option)), and requests
that the certificates for shares of Common Stock and/or Option be issued in the
name(s) of, and delivered to whose addressees) is
(are):_________________________________________________
If the exercise price is paid in accordance with Paragraph 2(b) check here: f
Dated: ____________, 19___
Signature: _____________________________
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Option).
__________________________
(Insert Social Security or Other Identifying Number of Holder)
12
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Option)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print
name and address of transferee) this Option, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint Attorney,
to transfer the within Option on the books ROOM PLUS, INC. with full power of
substitution.
Dated:______________________, 19____
Signature: ________________________________
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Option.
__________________________
(Insert Social Security or Other Identifying Number of Holder)
13
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS
DECLARED EFFECTIVE UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
IS AVAILABLE.
ROOM PLUS, INC.
$100,000 PROMISSORY NOTE
Due June 11, 1998
1. Amount of Note. ROOM PLUS, INC., a New York corporation (the
"Company"), for value received, hereby promises to pay to the order of MARK
RUBIN (the "Payee"), at the Company's principle place of business, 91 Michigan
Avenue, Paterson, New Jersey 07503, on June 11, 1998 ("Due Date"), the principal
sum of One Hundred Thousand ($100,000) Dollars. Interest on the principal
balance is being paid upon the execution hereof by the execution and delivery of
a options to purchase 250,000 shares of the common stock of the Company ("Common
Stock"). In the event of the failure of the Company to pay the principal when
due, the principal balance of this Note shall bear interest at the rate of
eighteen (18%) per annum from the Due Date until paid in full, unless the Payee
elects to convert this Note as hereinafter provided. The principal amount of the
Note may be prepaid by the Company, in whole or in part, without premium or
penalty, at any time. All payments hereunder shall be applied first to interest
then to principal. Payments of principal and interest are to be made in lawful
money of the United States of America.
2. Event of Default. If the Company shall fail to make a payment
of principal when due on this Note or on a note of similar tenor made by the
Company on the date hereof; or shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt,
suffer an order for relief under any federal bankruptcy law, petition or apply
to any tribunal for the appointment of a custodian, receiver or any trustee for
the Company or any substantial part of its assets, or shall commence any
proceeding under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction, whether now
or hereafter in effect; or if there shall have been filed any such petition or
application, or any such proceeding shall have been commenced against the
Company, which remains undismissed for a period of thirty (30) days or more; or
if the Company, by any act or omission shall indicate consent to, approve of or
acquiescence in any such petition, application or proceeding or the appointment
of, a custodian, receiver or any trustee for all or any substantial part of its
properties, or if the Company shall suffer such custodianship, receivership, or
trusteeship to continue undischarged for a period of thirty (30) days or more,
or the Company violates any term or provision of this Note and same remains
uncured for a period of 15 days, then and in any such event (each such event, an
"Event of Default"), the outstanding principal amount of this Note shall be and
become immediately due and payable.
<PAGE>
3. Restrictions on Transfer.
-------------------------
The holder acknowledges that he has been advised by the Company that
this Note and the shares of Common Stock issuable upon conversion hereof (the
"Conversion Shares") have not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), that the Note is being issued, on the basis
of the statutory exemption provided by Section 4(2) of the Securities Act
relating to transactions by an issuer not involving any public offering, and
that the Company's reliance upon this statutory exemption is based in part upon
the representations made by the holder that he is an "accredited investor" as
defined in Rule 501 of the Securities Act. The holder acknowledges that he has
been informed by the Company of, or is otherwise familiar with, the nature of
the limitations imposed by the Securities Act and the rules and regulations
thereunder on the transfer of securities. In particular, the holder agrees that
no sale, assignment, hypothecation or transfer of the Note or the Conversion
Shares shall be valid or effective, and the Company shall not be required to
give any effect to any such sale, assignment, hypothecation, transfer or other
disposition, unless (i) the sale, assignment, hypothecation, transfer or other
disposition of the Note or the Conversion Shares is registered under the
Securities Act, provided, that the Company has no obligation or intention to so
register the Note in connection herewith, or (ii) the Note is sold, assigned,
hypothecated, transferred or otherwise disposed of in accordance with all the
requirements and limitations of Rule 144 under the Securities Act, or such sale,
assignment, or transfer is otherwise exempt from registration under the
Securities Act.
4. Conversion. (a) In the event this Note is not paid in full on
or before the Due Date, the Payee, at his sole election, may convert a portion
outstanding principal amount of this Note, and all accrued but unpaid interest
thereon, into up to 187,500 shares of Common Stock of the Company, subject to
adjustment as hereinafter provided at a conversion price of $.40 per share. The
conversion shall be effectuated by the Payee delivering written notice of
conversion to the Company on or before the earlier of payment of the principal
and interest due hereon or 15 business days after the Due Date specifying the
number of shares of Common Stock up to 187,500 as to which the Payee elects to
convert. The failure of Payee to elect to so convert the Note on or before such
date shall be deemed a waiver by Payee to so convert the Note. The conversion
shall be effective on the date specified in the notice and the Company shall
promptly issue certificates representing such Common Stock. Any portion of the
principal not so converted shall remain due and payable, with interest as
aforesaid.
(b) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon conversion of this Note (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
conversion of this Note) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Payee shall have the right thereafter to receive on conversion of
this Note the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a
2
<PAGE>
holder of the number of securities issuable upon conversion of this Note
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance and the Company shall forthwith send the Payee a statement signed
by its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
The above provisions of this Section 4(b) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
5. Miscellaneous.
--------------
Presentment, demand, protest, notice of protest, dishonor, notice of
dishonor and any and all notices of any kind, except as are required to be given
hereunder or cannot under applicable law be waived, are hereby waived.
Notwithstanding any provision contained herein, the total liability
of Company for payment of interest pursuant hereto, shall not exceed the maximum
amount of such interest permitted by law to be charge, collected, or received
from Company, and if any payments by Company include interest in excess of such
a maximum amount, Payee shall apply such excess to the reduction of the unpaid
principal amount due pursuant hereto, or if none is due, such excess shall be
refunded to Company.
Payee shall not by any act of omission or commission be deemed to
waive any of his rights or remedies hereunder unless such waiver be in writing
an signed by Payee, and then only to the extent specifically set forth therein;
a waiver on one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event.
Company shall pay the cost of any revenue, tax or other stamps now
or hereafter required by law at any time to be affixed to this Note; and if any
taxes be imposed with respect to debts secured by mortgages or deeds of trust,
or with respect to notes evidencing debts so secured, Company agrees to pay to
the holder hereof upon demand the amount of such taxes, and hereby waives any
contrary provisions of any laws or rules of court now or hereafter in effect.
This Note cannot be modified orally. This Note shall be governed and
construed in accordance with the internal law of the State on New Jersey without
reference to the doctrine of conflict of laws.
ROOM PLUS, INC.
Attest:
/s/ Jay Goldberg By: /s/Marc Zucker
- ---------------- --------------
Secretary Marc Zucker
Chief Executive Officer
2
Dated: April 24, 1997 Option to purchase 250,000 shares
of Common Stock
STOCK PURCHASE OPTION
THIS CERTIFIES THAT Mark Rubin (the "Holder") is entitled to purchase from
ROOM PLUS, INC. a Delaware corporation (the "Company"), up to 250,000 shares
(the "Option Shares" or "Shares") of the Company's common stock, $.00133 par
value ("Common Stock"), at $2.125 per share (the "Exercise Price"), subject to
adjustment as provided herein, at any time during the period commencing on the
date hereof (the "Effective Date") and ending on April 23, 2003 ("Exercise
Term").
1. The rights represented by this Option may be exercised at the
Exercise Price, subject to adjustment in accordance with paragraph 8 hereof, at
any time, or from time to time, during the Exercise Term.
2. (a) The rights represented by this Option may be exercised at any
time within the Exercise Term, in whole or in part, by (i) the surrender of the
Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Shares specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any and statement as to the number of Shares and Exercise Price as to which such
exercise is made; and (iii) delivery to the Company of a duly executed agreement
signed by the person(s) designated in the purchase form to the effect that such
person(s) agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. The Option shall be deemed
to have been exercised, in whole or in part, to the extent specified,
immediately prior to the close of business on the date the Option is surrendered
and payment is made in accordance with the foregoing provisions of this
paragraph 2, and the person or persons in whose name or names the certificates
for Shares shall be issuable upon such exercise shall become the holder or
holders of record of such Shares at that time.
(b) Notwithstanding anything to the contrary contained in subparagraph
2(a), the Holder may elect to exercise this Option, in whole or in part, by
exchanging Option Shares otherwise issuable upon the exercise of this Option
computed using the following formula:
<PAGE>
X = Y(A-B)
A
Where: X = the number of shares of Common Stock to be issued to the Holder;
Y = the number of shares of Common Stock issuable upon exercise of
this Option;
A = the current fair market value of one share of Common Stock
(calculated as described below); and
B = the Exercise Price.
The Holder may also pay the Exercise Price by delivery to the
Company of shares of the Company's Common Stock owned by the Holder having a
fair market value equal to the aggregate Exercise Price for the number of Shares
as to which this Option is being exercised.
As used herein, the current fair market value of Common Stock shall
mean the greater of (x) the average of the closing prices of the Company's
Common Stock sold on all securities exchanges on which the Common Stock may at
the time be listed and the NASDAQ National Market, or, if there have been no
sales on any such exchange or the NASDAQ National Market on such day, the
average of the highest bid and lowest asked price on such day on The Nasdaq
SmallCap Market or otherwise in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar successor
organization (the "Market Price"), on the trading day immediately preceding the
date notice of exercise of this Option is given or (y) the average of the Market
Price per share of Common Stock for the five trading days immediately preceding
the date notice of exercise of this Option is given. If on any date for which
the Market Price per share of Common Stock is to be determined the Common Stock
is not listed on any securities exchange or quoted on the NASDAQ National Market
or on The Nasdaq SmallCap Market or otherwise in the over-the-counter market,
the Market Price per share of Common Stock shall be the highest price per share
which the Company could then obtain from a willing buyer (not a current employee
or director) for shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of Directors of the
Company, unless prior to such date the Company has become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the Market Price per share of Common Stock shall
be deemed to be the value received by the holders of the Company's Common Stock
for each share thereof pursuant to the Company's acquisition.
4
<PAGE>
3. The Option shall not be transferred, sold, assigned, or hypothecated
(other than by will or pursuant to the laws of descent and distribution), except
if such transfer is exempt from registration under the Securities Act of 1933 as
amended ("Act") or except if such transfer is otherwise in compliance with the
Act. Any assignment shall be effected by the Holder by (i) executing the form of
assignment at the end hereof and (ii) surrendering the Option for cancellation
at the office or agency of the Company referred to in paragraph 2 hereof,
accompanied by a certificate (signed by an officer of the Holder if the Holder
is a corporation), stating that each transferee is a permitted transferee under
this paragraph 3; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Option or Option of like
tenor and representing in the aggregate rights to purchase the same number of
Shares as are purchasable hereunder.
4. The Company covenants and agrees that all Option Shares which may be
purchased hereunder will, upon issuance against payment of the purchase price
therefor, be duly and validly issued, fully paid and nonassessable, and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that, during the periods within which the Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the Option.
5. The Option shall not entitle the Holder to any voting rights or
other rights as stockholders of the Company.
6. (a) The Company shall advise the Holder or its transferees, whether
the Holder holds the Option or has exercised the Option and holds shares of
Common Stock, by written notice at least four weeks prior to the filing of any
registration statement or post-effective amendment thereto under the Act
covering any shares of the Company, for its own account or for the account of
others, except for any registration statement filed on Form S-4 or S-8
(including a Form S-3 related to a Form S-8) and will, for a period of five
years beginning one year after the Effective Date, upon the request of the
Holder, and subject to subparagraph 6(a)(ii), include in any such post-effective
amendment to the Registration Statement or in any new registration statement
such information as may be required to permit a public offering of the Option
Shares issuable upon the exercise of this Option (collectively, the "Registrable
Shares"). The Company shall supply prospectuses and such other document as the
Holder may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares, use its best efforts to register and
qualify any of the Registrable Shares for sale in such states as the Holder
designates and do any and all other reasonable acts and things which may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registrable Shares, all at no expense to the Holder
(other than the fees and disbursements of counsel for the Holder and the
underwriting discounts and commission, if any, payable in respect of the
Registrable Shares) of the Holder or any such holders, and furnish
indemnification in the manner provided in paragraph 7 hereof; provided, however,
the Company shall not be required to (A) qualify to do business in any state by
reason of this Section 6 in which it is not otherwise required to qualify to do
business, (B) or register or
5
<PAGE>
qualify in any state which will impose material burdens on the Company,
including without limitation, the obligation to pay any corporate taxes. The
Holder shall furnish information and indemnification as set forth in paragraph 7
hereof. (ii) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to subparagraph
6(a)(i). If the managing underwriter determines that a limitation of the number
of shares to be underwritten is required, the underwriter may exclude some or
all Registrable Shares from such registration (the "Excluded Registrable
Shares"); provided, however, that if any securities of the Company are included
in suh registration statement for the account of any person other than the
Company and the Holder or any such holder, the Option Shares included in such
registration statement for such other person shall have been reduced pro rata to
the reduction of the Holder's Option Shares which were requested to be included
in such registration.
(b) The provisions of paragraph 6(b) shall not be applicable if
the Company has registered the Option Shares for resale by the Holder pursuant
to a registration statement on Form S-3, or other applicable form, and such
registration statement remains effective when the registration statement
referred to in paragraph 6(a) is filed.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option Shares is filed under the Act, amended or supplemented,
the Company will indemnify and hold harmless each Holder of the Shares covered
by such registration statement, amendment or supplement (such Holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such Shares and each person, if
any, who controls (within the meaning of the Act) any such underwriter, against
any losses, claims, damages or liabilities, joint or several, to which the
Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or therein not
misleading and will reimburse the Distributing Holder or such controlling person
or underwriter for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished by such
Distributing Holder or any other Distributing Holder foruse in the preparation
thereof.
(b) The Distributing Holder will indemnify and hold harmless the
6
<PAGE>
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint, or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arises out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
In order to provide for just equitable contribution under the Act in
any case in which (i) any person entitled to indemnification under this Section
7 makes claim for indemnification pursuant hereto but it is judicially
determined (by entry of a final judgment or decree by a court of competent
jurisdiction an the expiration of time to appeal or the denial of the last right
of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 8 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 7, then, and in each such case, the Company and each Holder shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after
7
<PAGE>
any contribution from others) in such proportion taking into consideration the
relative benefits received by each party from the offering covered by the
Prospectus (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was assessed, the
opportunity to correct and prevent any statement or omission and other equitable
considerations appropriate under the circumstances; and provided, that, in any
such case, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "contribution party"), notify
the contributing party of the commencement thereof, but the omission so to
notify the contributing party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a contributing party or his or its representative of the commencement
thereof within the aforesaid fifteen (15) days, the contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of such contributing party. The provisions contained in this
Section 7 are in addition to any other rights or remedies which either party
hereto may have with respect to the other or hereunder.
8. Adjustment of Exercise Price
----------------------------
(a) Except as hereinafter provided, in the event the Company
shall, at any time or from time to time after the date hereof, sell any shares
of Common Stock for a consideration per share less than the Market Price or
issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter
immediately before the date of such sale or the record date for each Change of
Shares, the Exercise Price for the Common Stock included in this Option (whether
or not the same shall be issued and outstanding) in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent to the nearest cent) determined by dividing (1) the product
of (a) the Exercise Price in effect immediately before such Change of Shares and
(b) the sum (i) the total number of shares of Common Stock outstanding
immediately prior to such Change of Shares, and (ii) the number of shares
determined by dividing (A) the aggregate consideration, if any, received by the
Company upon such sale, issuance, subdivision or combination, by (3) the lesser
of (x) the Market Price, and (y) the Exercise Price, in effect immediately prior
to such Change of Shares; by (2) the total number of shares of Common Stock
outstanding immediately after such Change of Shares. Notwithstanding anything to
the contrary contained herein, no adjustment shall be made as a result of the
exercise of any Option or
8
<PAGE>
options previously issued by the Company and which are outstanding on the date
hereof.
(b) For the purposes of any adjustment to be made! in accordance
with this Section 8(a) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or sale
of shares of Common Stock) for a consideration part or all of which shall be
cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price (before
deducting any commissions or any expenses incurred in connection therewith), if
shares of Common Stock are offered by the Company for subscription, or (ii) the
public offering price (before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services, or any expenses incurred in
connection therewith), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or Option or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company other
than shares of Common Stock into shares including shares of Common Stock shall
be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or Option and upon the conversion or exchange of
convertible or
9
<PAGE>
exchangeable securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the exercise of
this Option shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Exercise Price.
(c) In case the Company shall at any time after the date hereof
issue options, rights or Option to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock, for a consideration per share (determined as provided in Section 8(a) and
as provided below) less than the Market Price immediately prior to the issuance
of such options, rights or Option, or such convertible or exchangeable
securities, or without consideration (including the issuance of any such
securities by way of dividend or other distribution), the Exercise Price for the
Common Stock included in this Option (whether or not the same shall be issued
and outstanding) in effect immediately prior to the issuance of such options,
rights or Option, or such convertible or exchangeable securities shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 8(a) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable or that may become issuable under such options,
rights or Option (assuming exercise in full even if not then currently
exercisable or currently exercisable in full) shall be deemed to be issued and
outstanding at the time such options, rights or Option were issued, for a
consideration equal to the minimum Exercise Price per share provided for in such
options, rights or Option at the time of issuance, plus the consideration, if
any, received by the Company for such options, rights or Option; provided,
however, that upon the expiration or other termination of such options, rights
or Option, if any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this subsection (A)
(and for the purposes of subsection (E) of Section 8(a) hereof) shall be reduced
by the number of shares as to which options, Option and/or rights shall have
expired, and such number of shares shall
no longer be deemed to be issued and
outstanding, and the Exercise Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or Option as to
which the exercise rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum
10
<PAGE>
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the expiration or other termination of the
right to convert or exchange such convertible or exchangeable securities
(whether by reason of redemption or otherwise), the number of shares of Common
Stock deemed to be issued and outstanding pursuant to this subsection (B) (and
for the purposes of subsection (E) of Section 8(a) hereof) shall be reduced by
the number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued plus the shares remaining issuable upon conversion or exchange of those
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the exercise price per
share provided for in any of the options, rights or Option referred to in
subsection (A) of this section 8(b), or in the price per share or ratio at which
the securities referred to in subsection (3) of this Section 8(b) are
convertible or exchangeable, such options, rights or Option or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new options, rights or Option or convertible or
exchangeable securities.
(d) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Option (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Option) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Option then outstanding shall have the right
thereafter to receive on exercise of such Option the kind and amount of Shares
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
issuable upon exercise of such Option immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith mail to the Holder, at the Holder's address on the records of the
Company, a statement signed by its President or a Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary
evidencing such provision. Such provisions shall include provision for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 8(a)
11
<PAGE>
and (b). The above provisions of this Section 8(c) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or convyances.
(e) Irrespective of any adjustments or changes in the Exercise
Price or the number of shares of Common Stock purchasable upon exercise of the
Option, the Option Certificates theretofore and thereafter issued shall, unless
the Company shall exercise its option to issue new Option Certificates pursuant
hereto, continue to express the Exercise Price per share and the number of
shares purchasable thereunder as the Exercise Price per share and the number of
shares purchasable thereunder were expressed in the Option Certificates when the
same were originally issued.
(f) After each adjustment of the Exercise Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Option, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly cause a brief summary thereof to be sent by ordinary first class mail
to each Holder at his last address as it shall appear on the registry books of
the Company. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of the Secretary or an Assistant Secretary
of the Company that such notice has been mailed shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
(g) No adjustment of the Exercise Price or the number of shares
issuable upon exercise of this Option shall be made as a result of or in
connection with (A) the issuance or sale of the Option or the Shares underlying
the Option, (B) the issuance or sale of shares of Common Stock pursuant to
options, Option, stock purchase agreements and convertible or exchangeable
securities outstanding or in effect on the date hereof, including options that
may be granted under the Company's existing stock option plan or Common Stock
issuable on the exercise of such options; or (C) the issuance or sale of shares
of Common Stock if the amount of said adjustment shall be less than $.10 for one
share of Common Stock, provided, however, that in such case, any adjustment that
would otherwise be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment that
shall amount, together with any adjustment so carried forward, to at least $.10
for one share of Common Stock. In addition, any Holder shall not be entitled to
cash dividends paid by the Company prior to the exercise of any Option held by
them.
(h) All notices herein required to be given to the Holder shall be
given to the Holders at their addresses on the records of the Company.
9. This Agreement shall be governed by and in accordance with the laws
of the State of New York applicable to agreements made and to be performed
solely
12
<PAGE>
within such state.s
IN WITNESS WHEREOF, ROOM PLUS, INC., has caused this Option to be signed
by its duly authorized officers, and this Option to be dated as of the date
first above written.
ROOM PLUS, INC.
By: /s/ Marc Zucker
---------------
Name: Marc Zucker
Title: Chief Executive Officer
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder, ______ Shares of ROOM PLUS, INC., par value $.00133 (or
shares of Common Stock) per share, at an exercise price of $____ per Share, and
herewith makes payment of $____ therefor (or hereby surrenders and delivers that
portion of the Option having equivalent value (as determined in accordance with
the provisions of subparagraph (d) of paragraph 2 of the Option)), and requests
that the certificates for shares of Common Stock and/or Option be issued in the
name(s) of, and delivered to whose addressees) is
(are):_________________________________________________
If the exercise price is paid in accordance with Paragraph 2(b) check here: f
Dated: ____________, 19___
Signature: _____________________________
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Option).
__________________________
(Insert Social Security or Other Identifying Number of Holder)
13
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder
if such holder desires to transfer the Option)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print
name and address of transferee) this Option, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint Attorney,
to transfer the within Option on the books ROOM PLUS, INC. with full power of
substitution.
Dated:______________________, 19____
Signature: ________________________________
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Option.
__________________________
(Insert Social Security or Other Identifying Number of Holder)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 72,640
<SECURITIES> 0
<RECEIVABLES> 106,250
<ALLOWANCES> 0
<INVENTORY> 2,381,596
<CURRENT-ASSETS> 3,076,344
<PP&E> 3,765,582
<DEPRECIATION> 2,007,417
<TOTAL-ASSETS> 6,260,013
<CURRENT-LIABILITIES> 3,315,300
<BONDS> 0
0
0
<COMMON> 5,832
<OTHER-SE> 6,512,645
<TOTAL-LIABILITY-AND-EQUITY> 6,260,013
<SALES> 4,559,934
<TOTAL-REVENUES> 4,559,934
<CGS> 1,687,474
<TOTAL-COSTS> 2,798,620
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,546
<INCOME-PRETAX> 46,151
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 32,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,151
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
