U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 1-14478
December 31, 1998
ROOM PLUS, INC.
---------------
(Name of small business issuer in its charter)
New York 11-2622051
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
91 Michigan Avenue, Paterson, New Jersey 07503
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 523-4600
--------------
(Issuer's telephone number,
including area code)
Securities registered under Section 12 (b) of the Exchange Act:
Name of each exchange
Title of each Class on which registered
------------------- -------------------
Common Stock, par value $.00133 per share NASDAQ SmallCap
Redeemable Common Stock Purchase Warrants NASDAQ SmallCap
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, par value $.00133 per share
-----------------------------------------
(Title of Class)
Redeemable Common Stock Purchase Warrants
-----------------------------------------
(Title of Class)
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. [ X ]
<PAGE>
The issuer's revenues for the fiscal year ended December 31, 1998 were
$19,223,455
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the closing price of the stock on March 22, 1999 was $2,064,000
The Company has not issued any stock which does not possess voting rights.
The number of shares of the issuer's Common Stock, par value $.00133 per share,
outstanding as of April 2, 1999 was 4,385,000. The actual number of the
issuer's Redeemable Common Stock Purchase Warrants outstanding as of April 2,
1999 was 2,530,000.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
ROOM PLUS, INC.
---------------
TABLE OF CONTENTS
PAGE #
PART I
Item 1 Description of Business 1
Item 2 Description of Property 5
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 6
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 7
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7 Financial Statements 12
Item 8 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure 27
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act 27
Item 10 Executive Compensation 28
Item 11 Security Ownership of Certain Beneficial Owners and
Management 31
Item 12 Certain Relationships and Related Transactions 32
Item 13 Exhibits, Lists and Reports on Form 8-K 32
SIGNATURES 36
Forward-Looking Statements
--------------------------
This Report on Form 10-KSB may contain statements that are forward-looking in
nature and such statements should not be considered as guarantees of future
performance because they involve many uncertainties and risks. Actual results
may vary materially from projected results based upon a number of factors,
including, but not limited to, the Company's ability to successfully expand its
retail distribution, to further automate the manufacturing process to increase
productivity, reduce costs and to compete with its direct and indirect
competitors.
<PAGE>
Item 1. Description of Business
- -------------------------------
(a) General
-------
The Company is a New York corporation that was organized in 1982 under the
name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
mica-laminated furniture. From 1979 to 1982, the founders of the Company had
engaged in the same business under other corporate names. In March 1995,
Bunk Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the
principal manufacturer of the furniture sold by RPF Holding, was merged into
RPF Holding. The surviving entity in such merger, which was named TAM
Industries, Inc., changed its name to Room Plus, Inc. in June 1995. The
Company's principal offices are located at 91 Michigan Avenue, Paterson, New
Jersey 07503, and its telephone number at that address is (973) 523-4600.
The Company is a fully-integrated manufacturer and retailer of
mica-laminated furniture for residential uses, primarily bedroom furniture
for children ages three to 16 years old. The Company's products are of a
modular design and are intended to be multi-functional, interchangeable and
space-saving.
The Company distributes its products through its own distribution network of
16 retail showrooms located in the greater New York City and Philadelphia
metropolitan areas. Management believes that stores located in strip malls
and densely populated areas offer the highest visibility of the Company's
products and ease of access for the Company's targeted customers. The
Company's retail showrooms range from approximately 2,000 to 5,000 square
feet and yield average annual sales of $308 per square foot.
The Company uses standard component pieces to manufacture furniture for
children's and adult's bedrooms and home offices. The approximately 300
standard components can be finished in numerous colors and textures and
combined in various configurations to produce a finished product which is
personalized to the customer's taste, space and budget. The use of standard
components also permits the Company's furniture to be reconfigured as the
customer's needs or tastes change. For example, a loft bed can be converted
into separate beds, a desk, a dresser and a bookcase, and a baby's changing
table can be converted into a child's play table and a dresser.
Unlike many of its direct competitors, the Company uses high quality raw
materials in the manufacture of its products, including high-pressure,
mica-laminate that is more resistant to impact and engineered wood that has
been laminated on both sides to provide greater stability and protection
against warping. The quality of materials and manufacturing processes used
by the Company enable it to offer a limited lifetime warranty against
structural defects.
Because the Company's finished products are manufactured from standard
components and personalized to the customer's needs, the Company does not
maintain a large inventory of finished products (other than showroom display
models). Finished products are manufactured to meet a specified desired
delivery date, which is generally fixed at the time of the order and is
generally within two to six weeks thereafter.
The Company's manufacturing operations are conducted in a 78,000 square foot
facility located in Paterson, New Jersey. In the past three years, the
Company has implemented numerous changes to its manufacturing facility and
processes in order to produce more contemporary styles of high quality,
mica-laminated furniture.
The Company's existing manufacturing facility currently operates on one and
one-half shifts and has sufficient capacity to increase its manufacturing
volume by approximately 20% without substantially increasing indirect costs
of manufacturing. During 1997, the Company established five additional
retail showrooms, three in the Philadelphia metropolitan area and two in New
York City. During 1998, the Company closed one of its New York City
locations. The Company continues to upgrade and automate its manufacturing
process.
The residential furniture industry is cyclical, fluctuating with the general
economy. While the Company believes that furniture sales are influenced by a
number of macroeconomic factors including existing home sales, housing
starts, consumer confidence, interest rates and demographic trends, the
Company believes that it is less affected by industry economic trends
because of its focus on furniture for children. The Company believes that
regardless of economic trends, parents will place a high priority on
furnishing their children's rooms with affordable, high-quality furniture.
- 1 -
<PAGE>
(b) Manufacturing Process
---------------------
The Company manufactures its products in a 78,000 square foot plant located
in Paterson, New Jersey. The plant currently operates on one and one-half
shifts, five days per week, utilizing a "Just In Time" manufacturing process
that allows the Company to reduce expenses associated with the maintenance
of inventory. The plant has sufficient capacity to enable the Company to
increase its manufacturing volume by approximately 20% without substantially
increasing indirect manufacturing costs. Many of the current production
processes used by the Company in the manufacture of its products are highly
labor intensive as is traditional in the furniture manufacturing industry.
(c) Raw Materials and Suppliers
---------------------------
The raw materials used by the Company in manufacturing its products include
laminate, lumber, plywood, fiber-board, engineered wood, hardware,
adhesives, finishing materials and mirrored glass. Management believes that
such raw materials are readily available.
The Company has no long-term supply contracts for its raw materials and
generally purchases its raw materials from a small number of suppliers.
Although the Company has strategic reasons such as price, quality and
delivery for using a limited number of suppliers, the Company believes that
sufficient other sources of raw materials are available should its current
supply sources be disrupted. Raw materials prices fluctuate over time
depending on factors such as supply and demand and increases in prices may
have a short-term negative impact on the Company's financial condition.
(d) Products
--------
The Company manufactures and sells multi-functional high quality
mica-laminated furniture designed both to make small spaces larger and to be
convertible into other uses. The furniture offered by the Company is
primarily made of engineered wood covered on the interior with low-pressure
mica-laminate and on the exterior with high-pressure mica-laminate. The
Company has begun producing a thinner, low-pressure laminated furniture line
that sells at lower prices, and management believes that there is strong
demand for this product line. The Company manufactures contemporary modular
furniture that has rounded (post-formed) edges on tops and drawers. The
benefits of rounded edges to the consumer include enhanced visual appeal and
elimination of hard edges, which is an important safety consideration since
the Company principally targets the children's furniture market. The Company
also produces traditional square edge products.
The Company manufactures approximately 300 standard components that can be
combined in various configurations to meet a customer's space limitations or
storage needs, and such components can be finished in hundreds of colors and
textures. In addition, the Company offers numerous options and features to
personalize its products for each customer. For example, telephone jacks can
be added to bedroom headboards, dividers can be included in drawers and
night tables can be manufactured with a tray that slides away when not in
use. Such features allow customers to have the look and utility of
customized furniture at a lower cost.
The Company maintains an open stock policy, which enables customers to add
additional matching pieces over time to previously purchased furniture
products and to change the look of their furniture by replacing door and
drawer fronts and other accent pieces. The Company believes that such
flexibility enhances the value of the furniture to the customer and
encourages repeat business.
A substantial majority of the Company's sales relate to bedroom furniture
for children and young adults. The Company offers a wide range of beds for
children with matching desks and dressers, including multi-functional bunk
and storage modules. One of the most popular models for children is the loft
bed that utilizes space more efficiently than conventional bedroom
furniture. It is able to sleep one or two people and has a built-in desk and
storage drawers. Since a child's room is often the smallest room in the
house, the Company's children's furniture line is designed to save space
through modular designs and filling space vertically, leading to the
Company's motto "A LOT OF LIVING in a Little Space". See "Advertising and
Promotion".
In addition, a portion of the Company's sales relate to adult bedroom
furniture and home office furniture. The Company offers, among other items,
night tables, headboards, armoires, bookcases, computer stations and desks.
Approximately 4%
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<PAGE>
of the Company's sales are comprised of accessory furnishings such as lamps,
bed coverings, bookends, picture frames and other small items that give the
Company the ability to complete the design of the room in the showroom.
(e) Gallery/Specialty Format
------------------------
Two formats widely used by retailers of furniture to market their products
are the gallery format and the specialty format. The gallery format displays
products in complete room settings, including furnishings, wall decor,
accents and accessories and typically feature the products of one
manufacturer, such as Ethan Allen, La-Z-Boy, Thomasville and Drexel
Heritage. The specialty format specializes in a category of merchandise such
as bedding, sofas or lighting and is utilized by retailers such as Pier 1
Imports, Sleepy's and The Bombay Company.
The Company utilizes a combination gallery/specialty format as its
high-pressure, mica-laminated furniture is displayed in settings designed to
allow the consumers to envision the look of a complete room in their homes.
Each retail showroom features approximately 18-20 settings. This
presentation format encourages consumers to purchase an entire room of
furniture and accessories from the Company, instead of individual pieces
from different manufacturers and results in an average sale per customer of
approximately $2,000. The Company believes that distributing its products
through dedicated Company owned stores strengthens brand awareness, provides
well-informed and focused sales personnel and encourages the purchase of
multiple items per visit.
(f) Advertising and Promotion
-------------------------
The Company marketing effort is supported by extensive advertising and
promotion featuring the Company's slogan "Just 'Round the Corner" and "A LOT
OF LIVING in a Little Space" motto. The Company has taken all necessary
steps to register its slogan and motto. Management believes that advertising
on broadcast and cable television has made the Company a household name in
the area of children's furniture in the New York metropolitan area.
For the year ended December 31, 1998, the Company's advertising expenditures
were approximately $1,550,000 or 8.1% of revenues. This represents a
decrease from the prior year of approximately 13%. In 1998, the Company did
not incur the "start up" advertising costs associated with the Company's
1997 entry into metropolitan Philadelphia through the opening of three
showrooms. The Company also advertises to a lesser extent in newspapers and
on radio. Currently, the Company has begun to increase the level of print
advertising.
The Company's primary target market is women in the 24 to 50 age bracket,
since the Company believes they most strongly influence the buying decision
for children's furniture. Much of the Company's advertising is also shown
during programming for children because children may influence their
parents' decision on what type of furniture to have in their rooms.
Throughout all of 1997 and through November 1998, Retail Media Plus, Inc.
("Retail Media Plus"), which is owned by three affiliated persons, placed
all of the Company's advertising and bills the Company only for the actual
cost of such advertising, without any additional expenses or mark-ups.
Beginning in December 1998, the Company began placing its own advertising.
See "Certain Relationships and Related Transactions".
Pursuant to an agreement with King Features, the Company utilized the Dennis
the Menace character as part of its corporate logo. The Company did not
renew the agreement which expired on February 28, 1999.
(g) Expansion Strategy
------------------
The Company's expansion strategy is primarily focused on opening additional
retail showrooms in the existing markets of New York, New Jersey and greater
Philadelphia, PA. In 1998, the Company did not open any new showrooms and
closed one of its three showrooms in New York City. The Company does not
plan to open any new showrooms in 1999. The Company is supplementing its
management information system in 1999 with point of sale equipment to permit
on line order processing, and provide on demand sales and marketing
information. The Company is also exploring creating an E-Commerce site on
the Internet.
- 3 -
<PAGE>
(h) Customer Satisfaction
---------------------
The Company is committed to providing high-quality customer service in all
phases of its business, including offering instant store credit, a
decorating service and professional delivery. The Company offers no
interest, deferred payment plans to qualified purchasers, which the Company
believes gives customers the flexibility to structure their purchases of the
Company's furniture according to their budget.
The Company is generally able to offer delivery and in-home set-up of its
products within two to six weeks from the date of the order. Delivery is
provided by an independent professional furniture delivery company whose
delivery personnel are trained by the Company in the set-up of its products.
The Company also offers free in-home decorating service with a minimum
purchase of $1,000. A trained salesperson will travel to a customer's home
with pictures of the Company's products, floor plans and charts of available
colors and finishes, assist the customer in the selection of products and
take measurements to ensure that the furniture selected will fit properly in
the intended location. In addition to its sales personnel, skilled customer
satisfaction representatives are available to answer customer questions
during business hours. The Company believes that its commitment to customer
service has contributed to the number of repeat purchases by the Company's
customers.
(i) Government Regulation
---------------------
The Company's manufacturing operations are subject to a wide range of
federal, state and local laws and regulations relating to the protection of
the environment, workers' health and safety and the emission, discharge,
storage, treatment and disposal of hazardous materials. These laws include
the Clean Air Act of 1970, as amended, the Resource Conservation and
Recovery Act, the Federal Water Pollution Control Act and the Comprehensive
Environmental, Response, Compensation and Liability Act. Certain of the
Company's operations use glues and coating materials that contain chemicals
that are considered hazardous under various environmental laws. Accordingly,
management closely monitors the Company's environmental performance at its
manufacturing facility. The Company is also a voluntary participant in the
Occupational Safety and Health Administration ("OSHA") Consultation Program
in which OSHA periodically inspects the Company's facilities and makes
recommendations on how to eliminate unsafe conditions in the manufacturing
process before a complaint is filed. The cost to the Company to comply with
government regulation of its manufacturing process and the effect of such
compliance on the Company's operations are not material.
The Company's retail operations are not subject to material federal, state
and local laws and regulations other than consumer protection laws.
Management believes that the Company is in substantial compliance with all
laws and regulations affecting its business.
(j) Competition
-----------
The home furniture industry is a highly competitive and fragmented market
with estimated annual U.S. sales of $54.8 billion in 1997 and estimated
annual U.S. sales of $57.9 billion in 1998.
The Company is the largest retailer of mica-laminated home furniture in the
metropolitan New York and Philadelphia areas, where its 16 retail showrooms
are located. Several small retailers such as Atlantic Furniture and Kids'
Room, and large retailers, such as IKEA, also sell mica-laminated furniture
similar to that sold by the Company in the same geographic region, but
generally through only one or two retail outlets. The Company also competes
with many companies, including much larger and diverse furniture companies,
such as Huffmann Koos, Levitz, Thomasville and Drexel Heritage, that sell
primarily wood furniture that is not mica-laminated.
(k) Employees
---------
All Company personnel are employees of Employee Solutions, Inc. ("ESI") and
their services are leased to the Company pursuant to an employee leasing
agreement (the "Employee Leasing Agreement") between the Company and ESI.
All references to employees herein refer to personnel whose services are
leased by the Company from ESI under the Employee Leasing Agreement.
- 4 -
<PAGE>
Pursuant to the Employee Leasing Agreement, ESI is responsible for payment
of all federal, state and local employment taxes and providing workers'
compensation and disability coverage and other mandated employee benefits
for the employees. The Company retains the right to make all decisions
concerning the hiring and termination of employees. The Employee Leasing
Agreement provides that it shall continue in full force and effect unless
terminated by (i) either party for cause, as described in such agreement,
(ii) the Company on thirty (30) days prior notice, or (iii) ESI on ninety
(90) days prior notice.
The Company provides an intensive two-week, 100-hour training program to all
sales personnel. Topics include merchandising, room layout, product
knowledge and salesmanship and are taught by a full-time professional
trainer. The Company believes that a well-trained sales force helps increase
sales, encourages repeat customers and minimizes employee turnover. The
Company attempts to select its retail managers from the pool of sales
personnel employed by the Company. The average store manager has been with
the Company for approximately eight years.
As of December 31, 1998, the Company had approximately 198 employees, of
whom five were executive officers, 77 were engaged in sales, 94 were engaged
in manufacturing and 22 were administrative staff. Approximately 65 of the
Company's manufacturing employees are covered by a collective bargaining
agreement with a local division of the International Union of Electronic,
Electrical, Salaried, Machine and Furniture Workers, AFL-CIO (the "Union").
The Company entered into a three-year collective bargaining agreement with
the Union in September 1997. The Company has never experienced a material
work stoppage and believes that its relationship with its employees is
generally satisfactory.
Item 2. Description of Property
- ------- -----------------------
The Company distributes substantially all of its products through a network
of Company-owned retail showrooms dedicated solely to the display of the
Company's products. All of such showrooms are located in premises leased by
the Company. As of the date of this 10-KSB, the Company operates 16 retail
showrooms in New York, New Jersey and Pennsylvania, which showrooms are set
forth below:
Month and Year Square Feet
Location Opened (Approximate)
-------- ------ -------------
Manhattan (3rd Ave.), NY June 1981 3,500
Manhattan (Lexington Ave.), NY November 1995 2,700
Scarsdale, NY January 1982 3,500
Farmingdale, NY February 1995 3,700
Carle Place, NY August 1987 4,400
Forest Hills, NY October 1987 2,000
Staten Island, NY March 1998 4,000
Brooklyn, NY January 1998 2,700
Paramus, NJ (Rt. 4) March 1983 5,000
Paramus, NJ (Rt. 17) February 1988 5,000
East Hanover, NJ August 1983 4,000
East Brunswick, NJ August 1985 4,800
Union, NJ October 1995 3,900
Cherry Hill, NJ March 1998 5,000
Langhorne, PA February 1998 3,200
King of Prussia, PA June 1998 4,000
The leases for the Company's retail showrooms have terms ranging from five
to 13 years and some leases contain optional renewal provisions for
additional five-year periods. Certain leases require the Company to pay real
estate taxes and insurance.
The Company's retail showrooms are open seven days a week, generally from
10 a.m. to 9 p.m. Monday through Saturday and 12 p.m. to 5 p.m. on Sundays.
The two retail showrooms located in Paramus, New Jersey are closed on
Sundays.
- 5 -
<PAGE>
In addition to its retail showrooms, the Company currently leases a 78,000
square foot plant in Paterson, New Jersey, which houses its administrative
offices, executive staff, sales and marketing staff and its manufacturing
and shipping facilities. The Company leases the facility at a monthly rent
of approximately $25,000, subject to annual adjustment as more fully set
forth in such lease. The lease expired on May 31, 1998, and the Company now
occupies the facility on a month-to-month basis (which requires a twelve
month notice to vacate) on the same terms and conditions as the original
lease, including annual adjustments in rent. The owner of the Paterson
facility is M&S Realty Company, which is owned by the Company's former
Executive Vice President and Director of Manufacturing. See "Certain
Relationships and Related Transactions". In September 1998, the Company
entered into a one-year lease for approximately 15,000 square feet of
additional warehouse space from an unrelated third party at an annual rental
of $52,000.
Item 3. Legal Proceedings
On February 19, 1999, a complaint was filed by a landlord in the US District
Court, Eastern District for Pennsylvania, against the Company which alleges
that the Company is in default of a lease and that the landlord is entitled
to immediate payment of all rents due under the remaining term of the lease
plus certain expenses. In connection therewith, a judgement was entered
against the Company in the approximate amount of $1,200,000. Management has
tentatively negotiated a settlement with the landlord requiring prepayment
of rent in the approximate amount of $35,000.
The Company is not a party to any other material pending legal proceedings,
nor, to the Company's knowledge is any material legal proceeding threatened.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1998 Annual Meeting of Shareholders was held on October 30, 1998.
The number of common shareholders present at the Annual Meeting in
person or by proxy and voting and withholding authority to vote in the
election of Directors was 3,696,054 or 84.3% of the common shares of
Room Plus, Inc. outstanding on September 1, 1998, the record date for
the Annual Meeting.
(b) The following nominees, having received the FOR votes set opposite their
respective names, constituting a majority of the votes cast at the
Annual Meeting for the election of Directors, were elected Directors of
Room Plus, Inc. to terms expiring in 1999:
Directors For Withheld
--------- --- --------
David Belford 3,572,269 123,785
Marc Zucker 3,572,269 123,785
Allan Socher 3,572,269 123,785
Theodore Shapiro 3,572,269 123,785
Alan Hirschfeld 3,572,269 123,785
Alan Granetz 3,572,269 123,785
Frank Terzo 3,572,269 123,785
(c) Shareholders ratified the appointment of Ehrenkrantz Sterling & Co.,
LLC, as independent public accountants, to audit the financial
statements for the current year ending December 31, 1998. The vote was
3,667,319 shares FOR and 19,100 shares AGAINST such ratification, with
9,635 shares abstaining. See Item 8.
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<PAGE>
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
- ------- --------------------------------------------------------
(a) Market Information
The Company's common stock and redeemable common stock purchase warrants are
traded on the National Association of Securities Dealers Automated Quotation
System (NASDAQ) SmallCap Market under the Symbols "PLUS" and "PLUSW"
respectively. Set forth below are the range of reported high and low sales
price information for the Company's common stock and redeemable common stock
purchase warrants for 1998 and 1997 as reported by NASDAQ. All
over-the-counter market price quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent
actual transactions.
<TABLE>
<CAPTION>
Price Per
Price Per Share Redeemable
of Common Common Stock
Stock Purchase Warrant
----- ----------------
Year ended December 31, 1998
----------------------------
<S> <C> <C> <C>
First Quarter High 4 1/8 3/4
Low 1 1/2 9/32
Second Quarter High 3 1/2 13/32
Low 1 1/2 1/4
Third Quarter High 2 13/16 7/32
Low 1 1/8 5/32
Fourth Quarter High 1 11/16 3/32
Low 17/32 1/32
Year ended December 31, 1997
----------------------------
First Quarter High 5 1/2 2 7/8
Low 2 7/8 21/32
Second Quarter High 6 1/4 1 3/4
Low 3 7/8
Third Quarter High 6 3/4 1 1/2
Low 5 1/8 3/4
Fourth Quarter High 8 1/4 2 1/2
Low 2 7/16
</TABLE>
(b) Holders
As of April 2, 1999, the Company had approximately 1,070 beneficial owners
of its common stock and 370 record holders of its redeemable common stock
purchase warrants.
(c) Dividends
The Company has not paid any dividends on its Common Stock in the last two
fiscal years and does not anticipate paying dividends to its shareholders
in the foreseeable future. The Company currently intends to reinvest
earnings, if any, in the development and expansion of its business. The
declaration and payment of dividends in the future will be at the election
of the Board of Directors and will depend upon the Company's earnings,
current and anticipated capital requirements, results of operations,
financial position of the Company, plans for expansion, future prospects,
general economic conditions, and restrictions under then existing credit
and other debt instruments and arrangements, and other factors deemed
pertinent by the Board.
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<PAGE>
(d) Recent Sales of Unregistered Securities
Effective January 31, 1997, the Company issued warrants to acquire 25,000
shares of common stock to each of three then serving executive officers,
Marc Zucker, Allan Socher and Theodore Shapiro, at an exercise price of
$3.0625. Such warrants vested immediately and expire five years from the
date of grant. Such warrants were issued in lieu of cash bonus awards for
services rendered in 1996.
On July 31, 1998, the Company issued an option to David Belford, in
connection with his loan of $1,500,000 to the Company, to purchase
2,000,000 shares of the Company's common stock at $2.00. As part of the
loan agreement, Mr. Belford was elected Chairman of the Company's Board of
Directors. Such warrants vested immediately and expire five years from the
date of grant. On February 5, 1999, the warrants were canceled and
replacement warrants were issued therefor. The exercise price of the
replacement warrants is $0.75. Such exercise price was based upon the
closing market price for the underlying securities on February 4, 1999,
which was $0.50. The closing market price for the underlying securities on
the date of grant was $1.438.
In September and October 1998, the Company issued options to two
employees, Stephen Giordano and Ronald A. Kaplan, to purchase an aggregate
of 400,000 shares of the Company's common stock at $2.00. Such options vest
over a three-year period and expire five years from the date of grant. On
February 5, 1999, the options were canceled and replacement options were
issued therefor. The exercise price of the replacement options is $0.75.
Such exercise price was based upon the closing market price for the
underlying securities on February 4, 1999, which was $0.50. The closing
market price for the underlying securities on the date of grant was $1.438.
All of the securities described above were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act
of 1933 and the rules promulgated thereunder and no public offering was
involved.
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<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
The following discussion and analysis should be read in conjunction with
the Company's Financial Statements (and the related notes thereto) included
elsewhere in this Form 10-KSB.
Description of Business
-----------------------
(a) General
-------
The Company is a New York corporation that was organized in 1982 under the
name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
mica-laminated furniture. From 1979 to 1982, the founders of the Company had
engaged in the same business under other corporate names. In March 1995, Bunk
Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the principal
manufacturer of the furniture sold by RPF Holding, was merged into RPF
Holding. The surviving entity in such merger, which was named TAM Industries,
Inc., changed its name to Room Plus, Inc. in June 1995. The Company is a
fully-integrated manufacturer and retailer of mica-laminated furniture for
residential uses, primarily bedroom furniture for children ages three to 16
years old. The Company's products are of a modular design and are intended to
be multi-functional, interchangeable and space-saving.
In November 1996, the Company completed its initial public offering ("IPO")
of 1,165,000 shares of its Common Stock and 2,530,000 Redeemable Common Stock
Purchase Warrants. Net proceeds to the Company after underwriting
commissions, related underwriting expenses, and additional expenses incurred
in connection with the offering were approximately $4,600,000.
(b) Results of Operations--Ratios
-----------------------------
The following tables set forth, for the periods indicated, certain items from
the Company's Statements of Operations, presented as a percentage of
revenues. The operating results for any period are not necessarily indicative
of results that can be expected for any future period.
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1998 1997
------- --------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of goods sold 44.0% 44.0%
Gross profit 56.0% 56.0%
Selling, general & administrative expenses 62.4% 71.9%
Loss from operations (6.4)% (15.9)%
Other income (deductions) (1.9)% (1.3)%
Net loss (14.4)% (11.3)%
</TABLE>
1998 Compared with 1997
Revenues
Revenues for the year ended December 31, 1998 were $19,223,455, as compared
to $16,851,321 for the year ended December 31, 1997, an increase of
$2,372,134 or 14.1%. This increase is, in part, the result of four new
showrooms opened in 1997, having a full year of operations in 1998 and
increased volume from existing showrooms. Same store revenues increased
$1,991,000, or 12%, while the new showrooms added $381,000.
Cost of goods sold
Cost of goods sold for the year ended December 31, 1998 was $8,457,924 or
44.0% of revenues as compared to $7,418,128 or 44.0% of revenues for the
same period in 1997. Cost of goods sold increased $1,039,796, or 14.0% in
1998 compared to 1997. This increase in cost of goods sold was primarily
the result of increased sales volume.
Selling, general and administrative expenses
Selling, general and administrative expenses amounted to $11,996,492, or
62.4% of revenues in 1998 as compared to $12,110,370 or 71.9% of revenues
in 1997. The decrease of $113,878, or 0.9% is primarily due to reduced
advertising costs and professional fees.
- 9 -
<PAGE>
Other income and expenses
Other income and expenses was a net expense of $370,831 as compared to a
net expense of $219,679 in 1997. Net interest expense increased
approximately $362,000 in 1998 as a result of increased borowings and
higher interest rates and the noncash interest associated with the issuance
of detachable warrants in 1998. Other expenses, primarily acquisition costs
and a provision for store closing costs, decreased approximately $150,000
in 1998.
Loss before income taxes
The preceding factors combined to produce a loss before income taxes of
$1,601,792 as compared to a loss before income taxes of $2,896,856 in 1997.
Management's plans to improve this position in 1999 are included in Note 2
in the financial statements included in Item 7.
Income taxes
In years prior to 1998, the Company recorded net deferred tax assets of
$1,173,000. During 1998, the Company reassessed the net realizable value of
these assets and has fully reserved them, resulting in a tax provision of
$1,173,000 in 1998.
1997 Compared with 1996
Revenues
Revenues for the year ended December 31, 1997 were $16,851,321, as compared
to $14,427,108 for the year ended December 31, 1996, an increase of
$2,424,213 or 16.8%. This increase is primarily the result of five new
showrooms in 1997. The new showrooms contributed revenues of $3,078,696
while revenues of existing showrooms decreased $654,483. Management
believes that the opening of two showrooms in 1997 in the same geographic
area of existing showrooms contributed to the decrease in existing showroom
revenues, primarily as a result of the dilution of experienced sales
personnel. The remaining three new showrooms were opened in a new
geographic area for the Company and have required greater investments in
personnel and advertising than anticipated to generate revenues.
Cost of goods sold
Cost of goods sold for the year ended December 31, 1997 was $7,418,128 or
44.0% of revenues as compared to $5,814,485 or 40.3% of revenues for the
same period in 1996. The increase in cost of goods sold was primarily the
result of increased production cost (labor) in anticipation of increased
volume from new showrooms. As these new showrooms have taken longer than
anticipated to generate the expected revenues, costs as a percentage of
revenues has increased. Inventory has increased approximately $450,000
primarily due to the addition of the five aforementioned new showrooms. As
a result of the foregoing, gross profit decreased in 1997 to 56.0% of
revenues from 59.7%
Selling, general and administrative expenses
Selling, general and administrative expenses amounted to $12,110,370 or
71.9% of revenues in 1997 as compared to $8,613,398 or 59.7% of revenues in
1996. The increase of $3,496,972 is primarily due to expenses associated
with the opening of one new showroom in late-1996 and five new showrooms in
1997. Such expenses included payroll, rent and related showroom overhead
costs of $1,950,000 and an increase in advertising of $400,000.
Other income and expenses
Other income and expenses was a net expense of $219,679 in 1997 as compared
to a net expense of $21,487 in 1996. The increase is the result of costs
accrued in anticipation of closing one showroom, increased interest expense
caused by the Company's use of its line of credit and the costs associated
with a proposed acquisition which was terminated in 1997.
Liquidity and Capital Resources
Recurring losses from operations have had an adverse effect on the
Company's short-term liquidity. The ability of management to successfully
secure financing through vendor support or other alternatives is critical
to the Company's ability to continue as a going concern. The Company
incurred losses before income taxes of approximately $1,600,000 and
$2,900,000 the years ended December 31, 1998 and 1997. The Company had a
working capital deficit of $53,589 at December 31, 1998, which represented
an improvement of $261,772 from the working capital deficit of $315,361 at
December 31, 1997. The decrease in working capital deficit is primarily the
result of the Company's reduction of its current liabilities. Management's
plans to mitigate these conditions include the addition of certain new
senior management executives, a new incentive sales compensation plan and
additional engineering expertise to redesign products to minimize
- 10 -
<PAGE>
production costs and to reevaluate plant layout to maximize efficiency and
profitability. In addition, advertising expenditures will be redistributed
to increase customer traffic and more effectively reach target markets.
Management believes, that if financing can be obtained to address the
Company's severe short-term liquidity issues for which there is no
guarantee, these and other related efforts will enable the Company to
generate income in 1999 and thereafter. However, there can be no assurances
that the Company's plan will succeed. The financial statements do not
include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities
that might result should the Company be unable to continue as a going
concern.
The Company's operating activities used cash of $1,198,733 and $2,717,036
for the years ended December 31, 1998 and 1997, respectively. The principal
use of the cash in 1998 was to fund operations. The principal use of the
cash in 1997 was to finance operating expenses and inventory associated
with the opening of one showroom in late-1996 and five new retail showrooms
in 1997, a $453,919 increase in inventory, a provision for closing one
showroom and a $100,000 deposit in connection with a proposed acquisition.
In February 1998, the Company terminated its letter of intent to acquire
The Baby's Room, Inc. and Baby's Room USA, Inc. Upon such termination, the
Company's deposit of $100,000 was returned.
The Company's investing activities provided (used) cash of $110,857 and
$(508,835) for the years ended December 31, 1998 and 1997, respectively.
The primary source of cash in 1998 was the sale of property. The principal
use of cash in 1998 was the purchase of manufacturing equipment. The
principal use of cash in 1997 was the money expended on leasehold
improvements as well as the purchase of fixtures and inventory for new
showrooms and the purchase of equipment to improve manufacturing
efficiency. In management's opinion, all such assets are adequately
insured.
The Company's financing activities provided cash of $1,029,920 and $233,626
for the years ended December 31, 1998 and 1997, respectively. On June 11,
1998, the Company obtained extensions of two loans from individuals
originally due on that date. The loans were extended to August 1, 1998 and
subsequently to August 4, 1998. On August 4, 1998, those loans were repaid
in full. On July 31, 1998, the Company obtained a $1.5 million loan from
David A. Belford, an individual investor. The loan, which matures July 31,
2000, bears interest at 12% per annum, payable quarterly, and is secured by
substantially all of the Company's assets. In addition, the investor was
granted warrants to purchase 2,000,000 shares of the Company's common stock
at an exercise price of $2.00 per share (subsequently repriced on February
5, 1999, at $.75 per share). On August 4, 1998, the Company repaid its full
outstanding balance on its bank line of credit of approximately $700,000.
Utilization of the Company's line of credit was the primary source of cash
in 1997. In August 1997, the Company increased its line of credit facility
from $350,000 to $500,000. Such line bore interest at the prime rate plus
2% per annum and expired in August 1998.
Year 2000 Issues
The Company continues to evaluate and adjust all known date-sensitive
systems and equipment for Year 2000 ("Y2K") compliance. The assessment
phase of the Company's Y2K project includes both information technology as
well as non- information technology equipment. The Company is using both
internal and external resources to identify and test the systems for Y2K
compliance, and to reprogram or replace them when necessary. It is
presently anticipated that such efforts will be completed by late-1999. The
Company does not separately track the internal costs incurred for the Y2K
project, and such costs are principally the related payroll costs for its
information systems group. These costs are expensed as incurred. All such
costs are being funded through operating cash flows. The only third parties
with whom the Company has material relationships are the various suppliers
of raw materials or purchased products. The Company has begun to survey
those significant suppliers (several of which are public companies and have
disclosed their Year 2000 status) to determine the extent to which the
Company's, systems and operations are vulnerable to any failure by those
third-party suppliers to remediate their own Y2K problems. Management has
not been informed of or discovered any facts that would suggest that those
third-party suppliers will not be Y2K compliant. There can be no guarantee,
however, that those suppliers will successfully attain Y2K compliance and
that such failure to so comply would not have an adverse effect on the
Company. Moreover, should any one supplier suffer a serious Y2K problem,
the Company would be able to obtain appropriate replacement products from
alternative suppliers as the Company is not solely dependent upon any one
supplier for any of its primary raw materials or purchased products.
Further, the Company will evaluate the extent to which contingency plans
may be needed based upon communications with third-party suppliers and
assessment of other outside risks, such contingency plans shall be
finalized during 1999. Management believes, however, that ongoing
communication with and assessment of the third-party suppliers will
minimize any of the above discussed risks.
- 11 -
<PAGE>
Item 7. Financial Statements
- ------- --------------------
The following financial statements are furnished as part of this Annual
Report on Form 10-KSB:
Index to Financial Statements Page No.
----------------------------- --------
Report of Independent Public Accountants 13
Balance Sheets as of December 31, 1998 and 1997 14
Statements of Operations
Years Ended December 31, 1998 and 1997 15
Statements of Stockholders' Equity
Years Ended December 31, 1998 and 1997 16
Statements of Cash Flows
Years Ended December 31, 1998 and 1997 17
Notes to Financial Statements 18
- 12 -
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and
Stockholders of Room Plus, Inc.:
We have audited the accompanying balance sheet of ROOM PLUS, INC. (a New York
corporation) as of December 31, 1998, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Room Plus, Inc. as of December 31, 1997,
were audited by other auditors whose report dated March 30, 1998, except for
Note 19, as to which the date was August 4, 1998, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Room Plus, Inc. as of December
31, 1998, and the results of its operations and cash flows the year then ended
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a deficit in working capital that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Columbus, Ohio,
April 9, 1999.
- 13 -
<PAGE>
ROOM PLUS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................... $ 127,887 $ 185,843
Accounts receivable............................................ 151,533 67,685
Inventories, net............................................... 1,940,428 1,904,326
Notes receivable, officers..................................... 12,000 12,400
Prepaid expenses and other current assets...................... 274,387 492,555
Deferred income taxes.......................................... -- 134,500
----------- -----------
Total Current Assets......................................... 2,506,235 2,797,309
----------- -----------
Property and Equipment, at cost.................................. 3,814,273 3,745,196
Less accumulated depreciation
and amortization............................................. (2,165,260) (1,940,893)
----------- -----------
1,649,013 1,804,303
----------- -----------
Other Assets
Security deposits.............................................. 158,350 165,183
Deferred charges............................................... -- 84,291
Deferred income taxes.......................................... -- 1,038,500
Notes receivable, officers..................................... 175,880 177,965
----------- -----------
334,230 1,465,939
----------- -----------
$4,489,478 $6,067,551
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term obligations....................... $ 176,945 $ 212,791
Notes payable.................................................. -- 400,070
Due to related company......................................... -- 258,770
Accounts payable and accrued expenses.......................... 1,982,183 1,604,047
Sales taxes payable............................................ 188,267 108,475
Customer deposits and other advances........................... 212,429 528,517
----------- -----------
Total Current Liabilities.................................... 2,559,824 3,112,670
Long-term Obligations, less current portion...................... 1,184,817 447,857
----------- ------------
3,749,641 3,560,527
----------- ------------
Commitments and Contingencies
Stockholders' Equity
Capital stock
Authorized, 10,000,000 shares at $.00133 par value, 4,385,000
shares issued and outstanding................................ 5,832 5,832
Additional paid-in capital..................................... 7,525,250 6,512,645
Retained deficit............................................... (6,786,245) (4,011,453)
----------- -----------
744,837 2,507,024
----------- -----------
$4,489,478 $6,067,551
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 14 -
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997
---------------------------
<S> <C> <C>
Revenues...................................................... $19,223,455 $16,851,321
Cost of goods sold............................................ 8,457,924 7,418,128
----------- -----------
Gross Profit................................................ 10,765,531 9,433,193
----------- -----------
Expenses
Selling..................................................... 9,789,125 9,979,319
General and administrative.................................. 2,207,367 2,131,051
----------- -----------
11,996,492 12,110,370
----------- -----------
Loss from operations.......................................... (1,230,961) (2,677,177)
----------- -----------
Other Income (expenses)
Interest expense............................................ (438,850) (106,205)
Proposed acquisition costs.................................. -- (104,003)
Provision for store closing................................. -- (100,000)
Interest and other income................................... 68,019 90,529
----------- -----------
(370,831) (219,679)
----------- -----------
Loss before income tax provision (benefit).................... (1,601,792) (2,896,856)
Income tax provision (benefit)................................ 1,173,000 (996,805)
----------- -----------
Net Loss.................................................... $(2,774,792) $(1,900,051)
=========== ===========
Weighted average common shares outstanding.................... 4,385,000 4,385,000
----------- -----------
Basic and diluted net loss per share.......................... $ (0.63) $ (0.43)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 15 -
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Issued and Issued and
Authorized Outstanding Outstanding Additional
Common Common Common Paid-in Retained
Shares Shares Amount Warrants Amount Capital Deficit Total
------ ------ ------ -------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 10,000,000 4,385,000 $5,832 2,530,000 $253,000 $6,259,645 $(2,111,402) $4,407,075
Net loss -- -- -- -- -- -- (1,900,051) (1,900,051)
---------- --------- ------ --------- -------- ---------- ----------- ----------
Balance, December 31, 1997 10,000,000 4,385,000 5,832 2,530,000 253,000 6,259,645 (4,011,453) 2,507,024
Issuance of detachable
warrants -- -- -- -- -- 1,012,605 -- 1,012,605
Net loss -- -- -- -- -- -- (2,774,792) (2,774,792)
---------- --------- ------ --------- -------- ---------- ----------- ----------
Balance, December 31, 1998 10,000,000 4,385,000 $5,832 2,530,000 $253,000 $7,272,250 $(6,786,245) $ 744,837
========== ========= ====== ========= ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 16 -
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net loss..................................................... $ (2,774,792) $(1,900,051)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 269,371 250,200
Amortization of discount.................................... 103,736 --
Deferred income taxes....................................... 1,173,000 (999,623)
Gain on sale of property.................................... (42,460) --
Provision for store closing................................. -- 100,000
(Increase) decrease in operating assets:
Accounts receivable....................................... (83,848) (28,797)
Inventories................................................. (36,102) (453,919)
Prepaid expenses............................................ 218,168 (117,017)
Security deposits .......................................... 6,833 (5,634)
Deferred charges............................................ 84,291 156,489
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses....................... 378,136 119,244
Customer deposits and other advances........................ (316,088) 53,113
Due to related party........................................ (258,770) 123,256
Sales taxes payable......................................... 79,792 (14,297)
------------ -----------
Net cash used in operating activities..................... (1,198,733) (2,717,036)
------------ -----------
Cash Flows from Investing Activities
Purchases of property and equipment, net...................... (78,796) (544,162)
Proceeds from sale of property................................ 187,168 --
Repayments of notes receivable from executive officers........ 2,485 35,327
------------ -----------
Net cash provided by (used in) investing activities....... 110,857 (508,835)
------------ -----------
Cash Flows from Financing Activities
Net proceeds (repayment) of notes payable..................... (400,070) 325,070
Proceeds from long-term obligations........................... 638,889 --
Repayment of long-term obligations............................ (221,504) (91,444)
Proceeds from detachable warrants............................. 1,012,605 --
------------ -----------
Net cash provided by financing activities................. 1,029,920 233,626
------------ -----------
Net Decrease in Cash and Cash Equivalents................... (57,956) (2,992,245)
Cash and Cash Equivalents, beginning of year.................. 185,843 3,178,088
------------ -----------
Cash and Cash Equivalents, end of year........................ $ 127,887 $ 185,843
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 17 -
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Room Plus, Inc. (the "Company") is located in Paterson, New Jersey, and
manufactures high quality mica-laminated furniture. The Company
distributes substantially all of its products through a network of 16
company-owned retail showrooms dedicated primarily to the display of
the Company's products. The retail showrooms are located in New York,
New Jersey and Pennsylvania under the trade name of Room Plus
Furniture.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost determined by the first-in,
first-out method or market.
Depreciation and Amortization
Depreciation is computed by the straight-line and various accelerated
methods over the estimated useful lives of the related assets, which
range between five and ten years. Amortization of leasehold
improvements is computed by the straight-line method over the estimated
useful lives of the related assets or the lease term, if shorter.
Guaranty and Warranty Policies
The Company maintains a limited lifetime defective product warranty for
certain products that are manufactured by the Company. The Company
accrues estimated warranty costs as products are sold.
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities, which
constitute financial instruments as defined in Statement of Financial
Accounting Standards No. 107, approximate their recorded value.
Advertising
The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising expense was $1,549,608 and
$1,780,380 in 1998 and 1997, respectively.
Earnings per Common Share
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), which supersedes Accounting Principles Board Opinion No. 15.
Under SFAS 128 earnings per common share is computed by dividing net
income (loss) available to common shareholders by the weighted-average
number of common shares outstanding during the period. Diluted earnings
per share do not reflect the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or
converted into common shares or resulted in the issuance of common
shares as the impact of such would be antidilutive given the net
losses incurred.
New Accounting Pronouncements
Effective January 1, 1998, the Company adopted SFAS No. 130 "Reporting
on Comprehensive Income". SFAS No. 130 requires comprehensive income to
be reported in a financial statement that is displayed with the same
prominence as other financial statements. There were no changes to, or
additional disclosures required in the Company's financial statements
as a result of adopting this new standard.
- 18 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Effective January 1, 1998, the Company adopted SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information".
SFAS No. 131 requires disclosure of the Company's financial and
detailed information about its operating segments in a manner
consistent with internal reporting used by the Company to allocate
resources and assess financial performance. There were no changes to,
or additional disclosures required in the Company's financial
statements as a result of adopting this new standard.
Note 2: MANAGEMENT'S PLAN (Unaudited)
Recurring losses from operations have had an adverse effect on the
Company's short-term liquidity. The ability of management to
successfully secure financing through vendor support or other
alternatives is critical to the Company's ability to continue as a
going concern. The Company incurred losses before income taxes of
approximately $1,600,000 and $2,900,000 the years ended December 31,
1998 and 1997. Further, at December 31, 1998 and 1997, the Company had
a working capital deficit of approximately $54,000 and $315,000,
respectively. Management's plans to mitigate these conditions include
the addition of certain new senior management executives, a new
incentive sales compensation plan and additional engineering expertise
to redesign products to minimize production costs and to reevaluate
plant layout to maximize efficiency and profitability. In addition,
advertising expenditures will be redistributed to increase customer
traffic and more effectively reach target markets.
Management believes, that if financing can be obtained to address the
Company's severe short-term liquidity issues for which there is no
guarantee, these and other related efforts will enable the Company
to generate income in 1999 and thereafter. However, there can be no
assurances that the Company's plan will succeed. The financial
statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Note 3: RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation.
Note 4: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
------------------------
1998 1997
------------------------
<S> <C> <C>
Showrooms and warehouse.......................... $1,656,078 $1,451,814
Raw materials.................................... 415,418 427,254
Work-in-process.................................. 10,932 25,258
Allowance for slow-moving inventory.............. (142,000) --
---------- ----------
$1,940,428 $1,904,326
========== ==========
</TABLE>
Note 5: PROPERTY AND EQUIPMENT
Property and equipment consist of the following, at cost:
<TABLE>
<CAPTION>
December 31
------------------------
1998 1997
------------------------
<S> <C> <C>
Automobiles...................................... $ 115,501 $ 109,723
Office furniture, fixtures and equipment......... 500,839 460,283
Factory machinery and equipment.................. 1,622,642 1,448,194
Leasehold improvements........................... 1,575,291 1,726,996
---------- ----------
$3,814,273 $3,745,196
========== ==========
</TABLE>
Expenditures for major betterments are capitalized and repairs and
maintenance are expensed. When assets are retired or sold, the cost and
related accumulated depreciation are removed from the accounts and the
gain or loss is reflected in operations. The Company has determined
that no impairment exists related to the net book value of these
assets.
- 19 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 6: LINE OF CREDIT AND BANK LOAN
The Company had a line of credit of $700,000 from a bank bearing
interest at prime plus 2% per annum (10 1/2% at December 31, 1997)
which expired in August 1998. On August 4, 1998, the Company repaid its
full outstanding balance on this bank line of credit.
Note 7: LONG-TERM OBLIGATIONS
Long-term obligations consists of the following:
<TABLE>
<CAPTION>
December 31
-------------------------
1998 1997
---- ----
<S> <C> <C>
$1,500,000 note payable to a director/shareholder at a 12% stated interest
rate, for which proceeds of $861,111 were for detachable warrants granted
in conjunction with issuance of the note. This amount will be amortized
using the effective interest method over the life of the loan, at an
effective interest rate of 63%. The loan matures on July 31, 2000, and is
collateralized by substantially all of the Company's assets............ $742,625 --
Obligations under capital leases are payable in monthly installments of
$12,904 maturing in 2003 and bear interest at rates between 4.5% and
23.18%. The obligations are collateralized by machinery and equipment
and guaranteed by certain executive officers........................... 587,548 542,532
Notes payable in monthly installments of $1,543 maturing in 2001
and bearing interest at rates between 8.74% and 9.15%, collateralized
by transportation equipment with a net book value of $33,645........... 26,340 41,756
Unsecured obligation payable to a landlord which matured
in January 1998........................................................ -- 10,660
Note due a finance company relating to Directors and
Officers insurance requiring monthly payments of $5,289
including interest at 7.85% and maturing in January 1999............... 5,249 65,700
---------- --------
1,361,762 660,648
Less current portion, including obligations under capital
leases of $154,859 and $126,264 in 1998 and 1997....................... 176,945 212,791
---------- --------
$1,184,817 $447,857
========== ========
</TABLE>
Annual payments of long-term obligations are as follows:
<TABLE>
<CAPTION>
Years ending
December 31 Amount
----------- ------
<S> <C>
1999.............................................. $ 176,945
2000.............................................. 910,305
2001.............................................. 168,543
2002.............................................. 74,731
2003.............................................. 31,245
----------
$1,361,762
==========
</TABLE>
- 20 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 8: OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain machinery and equipment under capital leases
with a capitalized cost of $888,837 less accumulated amortization of
$129,708 at December 31, 1998 and $689,275 and $98,525, at December 31,
1997, respectively.
The following is a schedule of future minimum payments required under
the leases together with their present value as of December 31, 1998:
<TABLE>
<CAPTION>
Due During
Year Ending
December 31 Amount
----------- ------
<S> <C>
1999............................................. $220,486
2000............................................. 207,157
2001............................................. 189,602
2002............................................. 82,719
2003............................................. 36,891
--------
736,855
Less amount representing interest....................... 149,307
--------
$587,548
========
</TABLE>
Note 9: RELATED PARTY TRANSACTIONS
The aggregate balance due from certain executive officers and a former
executive officer was $187,880 and $190,365 at December 31, 1998 and
1997, respectively, which is represented by promissory notes bearing
interest at 6% per annum with no stated maturity.
During the years ended December 31, 1998 and 1997, the Company incurred
advertising costs of approximately $1,219,000 and $1,780,000,
respectively, with a related company.
See Notes 7, 11 and 20 for other related party transactions.
Note 10: INCOME AND DEFERRED TAXES
A deferred tax asset results from timing differences in the recognition
of depreciation and certain other expenses for tax and financial
reporting purposes and the recognition of net operating loss
carryforward benefits for financial statement purposes. As of December
31, 1998, the Company has net operating loss carryforwards of
approximately $4,430,000 for Federal income tax purposes. These net
operating loss carryforwards expire in 2010 to 2013. In addition, the
Company has net operating loss carryforwards of approximately
$3,544,000, $2,339,000 and $250,000 for the States of New York, New
Jersey and Pennsylvania, respectively, which expire between 2002 and
2013. The Company has provided a valuation allowance of approximately
$2,055,000 and $460,000 in 1998 and 1997, respectively, against the
future benefits of the deferred tax assets due to uncertainty of future
realization.
The deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Federal $1,675,000 $1,093,000
State 380,000 540,000
---------- ----------
2,055,000 1,633,000
Valuation allowance (2,055,000) (460,000)
---------- ----------
Total deferred tax assets $ -- $1,173,000
========== ==========
</TABLE>
- 21 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 10: INCOME AND DEFERRED TAXES (Continued)
The provision (benefit) for Federal and State income taxes is comprised
of the following:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1998 1997
---- ----
<S> <C> <C>
Current income taxes
Federal $ -- $ --
State -- 2,818
---------- ----------
-- 2,818
---------- ----------
Deferred income taxes (benefits)
Increase in deferred tax assets (422,000) (735,293)
Increase in valuation allowance 1,595,000 (264,330)
---------- ----------
1,173,000 (999,623)
---------- ----------
Total provision (benefit) $1,173,000 $ (996,805)
========== ==========
</TABLE>
Note 11: COMMITMENTS AND CONTINGENCIES
Leasing Activities
Leases for retail showrooms in New York, Pennsylvania and New Jersey
expire at various dates through May 2009. The leases require the
Company to pay various operating expenditures including real estate
taxes, while certain leases contain provisions for rent escalations.
The Company leased its corporate office and manufacturing facility from
M & S Realty Company, a related party, under a lease which expired May
31, 1998, at an annual rental of approximately $292,000. Upon the
expiration of the lease, the Company began occupying the facility on a
month-to-month basis under the same terms of the original lease,
including rent escalations, but is required to give the landlord twelve
months notice of its intent to terminate the lease. The lease requires
the Company to pay certain operating expenses of the facility,
including real estate taxes and insurance.
In September 1998, the Company entered into a one year lease for
additional warehouse space at a monthly rental of $4,333.
Rent expense for retail showrooms, warehousing and the manufacturing
facility totaled $2,396,897 and $2,489,086 in 1998 and 1997,
respectively.
The Company has automotive and other equipment leases expiring through
November 2003 with future minimum lease payments of approximately
$98,000. Rent expense for these leases totaled approximately $37,000
and $40,000 in 1998 and 1997, respectively.
Approximate future minimum rentals under all operating lease
arrangements are due as follows:
Years Ending
December 31 Amount
----------- -----------
1999 $2,099,200
2000 1,557,900
2001 1,452,800
2002 1,156,700
2003 942,700
Thereafter 1,575,900
----------
$8,785,200
==========
- 22 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 11: COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
On February 19, 1999, a complaint was filed by a landlord in the U.S.
District Court, Eastern District for Pennsylvania, against the Company
which alleges that the Company is in default of a lease and that the
landlord is entitled to immediate payment of all rents due under the
remaining term of the lease plus certain expenses. In connection
therewith, a judgement was entered against the Company in the
approximate amount of $1,200,000. Management has tentatively negotiated
a settlement with the landlord requiring prepayment of rent in the
approximate amount of $35,000.
The Company is subject to routine litigation that is incidental to the
business. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect the
financial position or the results of operations of the Company.
Employment Contracts
Employment contracts between the Company and four executive officers
through 1999 provide for an aggregate minimum annual salary of
$618,000, adjusted for incentives based on the Company's attainment of
specified levels of revenues or gross profit. In addition, the
executive officers receive an allowance for certain expenses.
Note 12: PENSION PLANS
The Company funds a union sponsored defined contribution pension plan
which covers its leased union personnel. Contributions totaled $17,895
in 1998 and $17,792 in 1997.
Note 13: ACQUISITION TRANSACTIONS
In 1997, the Company signed a letter of intent to acquire and/or merge
with two unrelated companies in the furniture industry located in
Chicago, Illinois. In February 1998, the proposed transactions were
terminated and escrow funds were returned to the Company.
Note 14: STOCK OPTIONS / WARRANTS
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ----------------------------------
Weighted Weighted Weighted Number of Weighted Weighted
Number of Average Average Average Warrants/ Average Average
Warrants/ Exercise Market Remaining Options Exercise Market
Options Price Price Life Exercisable Price Price
------- ----- ----- ---- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding as of
December 31, 1996 4,441,250 $4.48 $4.48 5.0 4,441,250 $4.48 $4.48
Warrants/Options
Granted in 1997 135,000 4.16 4.16 4.0 135,000 4.16 4.16
Outstanding as of
December 31, 1997 4,576,250 4.47 4.47 4.0 4,576,250 4.47 4.47
Warrants/Options
Granted in 1998 2,960,000 2.02 2.19 5.0 2,587,778 2.03 2.22
Outstanding as of
December 31, 1998 7,536,250 3.51 3.58 3.6 7,164,028 3.59 3.66
</TABLE>
- 23 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 14: STOCK OPTIONS / WARRANTS (Continued)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- -------------------------
Weighted Weighted Weighted
Number of Average Average Number of Average
Warrants/ Exercise Contractual Warrants/ Exercise
Range of Exercise Prices Options Price Life Options Price
------------------------ ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C>
$1.20 750,000 $1.20 6.00 750,000 $1.20
$2.00 - $3.06 3,871,250 2.24 5.34 3,499,028 2.27
$5.50 - $8.25 2,915,000 5.79 5.00 2,915,000 5.79
</TABLE>
No warrants were exercised, canceled or expired during 1998 or 1997.
All warrants/options are immediately vested, with the exception of
certain options granted to employees in 1998, which vest over a
three-year period. At December 31, 1998 and 1997, 5,615,000 and
4,576,250 shares of common stock, respectively, were reserved for the
purpose of granting warrants/options. The Company's Board of Directors
has offered a proposal to be voted on by shareholders on April 30,
1999, to increase the authorized common stock of the Company from
10,000,000 shares to 20,000,000 shares.
In April 1998, the Company issued detachable warrants to two
individuals in connection with their loans totaling $200,000 to the
Company, to purchase 500,000 shares of the Company's common stock at
$2.125. Proceeds from the loans related to the detachable warrants
granted in conjunction with the loans in the amount of $132,774 were
credited to additional paid-in capital and amortized into interest
expense using the effective interest method over the life of the loan.
In June 1998, the Company issued options to an individual in
connection with his personal guarantee of the Company's bank line of
credit, to purchase 60,000 shares of the Company's common stock at
$2.125. The value of the options in the amount of $18,720 was recorded
as interest expense and additional paid-in capital in the accompanying
financial statements.
In July 1998, the Company issued detachable warrants to an
individual in connection with his loan of $1,500,000 to the Company,
to purchase 2,000,000 shares of the Company's common stock at $2.00,
subsequently reissued on February 5, 1999 at $.075. Proceeds from
the loan related to the detachable warrants granted in conjunction
with the loan in the amount of $861,111 were credited to additional
paid-in capital and are being amortized into interest expense using
the effective interest method over the life of the loan. As part of
the loan agreement, the individual was elected Chairman of the
Company's Board of Directors.
In September and October 1998, the Company issued options to two
employees to purchase an aggregate of 400,000 shares of the Company's
common stock at $2.00, subsequently reissued on February 5, 1999 at
$.075.
Note 15: STOCK-BASED COMPENSATION
The Company follows the requirements of APB No. 25 to account for
stock options granted to employees, and, accordingly, no compensation
cost is recognized in the statement of operations for these options.
SFAS No. 123, "Accounting for Stock- based Compensation," requires
certain disclosures about stock-based employee compensation
arrangements. The fair value of each option granted is estimated on
the date of grant using the Black-Sholes option pricing model, with
assumptions of a risk-free interest rate of 5.5%, expected lives of
four years and expected volatility of 36.7% for both 1998 and 1997.
Had compensation cost for the Company's employee stock options been
determined based on fair values at the grant date using this model,
the Company's net losses for 1998 and 1997 would have increased to
$2,795,348 and $2,001,351, respectively. Loss per share amounts would
have increased to $0.64 and $0.46 per share for 1998 and 1997,
respectively. The weighted average fair values of options granted to
employees in 1998 and 1997 were $0.74 and $1.53, respectively.
- 24 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 16: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
December 31
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash paid during the year for interest.............. $164,295 $106,205
Cash paid during the year for income taxes.......... -- 2,818
</TABLE>
Non Cash Investing Activity
During 1998 and 1997, the Company financed the acquisition of certain
equipment through capital leases. The cost of such equipment and the
related debt incurred was $179,993 and $389,765, respectively. In
addition, the Company purchased transportation equipment in 1997 at a
cost of $52,592 and incurred a like amount of debt.
Note 17: CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at a financial institutions
located in New Jersey and New York. Accounts at these institutions are
secured by the Federal Deposit Insurance Corporation up to $100,000.
Note 18: PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
December 31
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Proposed acquisition deposit........................ $ -- $ 100,000
Prepaid advertising................................. 111,225 161,115
Prepaid insurance................................... 56,034 80,168
Prepaid consulting fees............................. 99,651 140,884
Other............................................... 7,477 10,388
--------- ---------
$ 274,387 $ 492,555
========= =========
</TABLE>
Note 19: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Trade payables...................................... $1,457,923 $1,063,349
Accrued leased personnel expenses................... 257,037 108,334
Accrued professional fees........................... 52,932 178,148
Deferred rent....................................... 136,532 127,956
Accrued store closing costs......................... -- 100,000
Accrued interest.................................... 30,000 10,675
Other............................................... 47,759 15,585
--------- ---------
$1,982,183 $1,604,047
========== ==========
</TABLE>
Note 20: SUBSEQUENT EVENTS
1. On February 5, 1999, the Company's Board of Directors approved two
proposals, both subject to a shareholder vote scheduled for April
30, 1999, as follows:
i) to amend the Company's certificate of incorporation to
increase the authorized shares of common stock from 10,000,000
to 20,000,000, and
ii) to institute an employee stock option plan.
2. On February 5, 1999, the Company's Board of Directors approved the
repricing of certain warrants and options issued to certain
employees and directors from an exercise price of $2.00 per share
to $0.75 per share.
- 25 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 20: SUBSEQUENT EVENTS (Continued)
3. On July 31, 1998, the Company entered into a Conditional Agreement
and Plan of Merger with Nationwide Warehouse & Storage, Inc.
("Nationwide") whereby the companies could merge subject to the
approval of Nationwide's Board of Directors and shareholders and
the Company's shareholders. On March 2, 1999, following a change in
ownership of Nationwide, Nationwide's Board of Directors and
shareholders voted to terminate the agreement.
- 26 -
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
On January 19, 1999, the Company retained Arthur Andersen LLP, as its
new independent public accountants, to audit the Company's financial
statements for the year ended December 31, 1998, dismissing
Ehrenkrantz Sterling & Co., LLC ("Ehrenkrantz") which had served in
such capacity prior thereto. During the Company's two most recent
fiscal years and through January 19, 1999, there were no disagreements
or events between the Company and Ehrenkrantz of the types described
in Item 304(a)(iv) of Regulation S-B, other than the above.
Part III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ------- -------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The directors, executive officers and significant employees of the
Company are as follows (1):
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
David A. Belford 39 Chairman of the Board of Directors
Ronald A. Kaplan 55 Chief Executive Officer, President and Director
Marc Zucker 50 President, Merchandising and Director
Allan Socher 48 President, Advertising and Director
Stephen Giordano 39 Executive Vice President and Chief Operating Officer
Jay Goldberg 53 Secretary, Treasurer and Chief Financial Officer
</TABLE>
------------------
(1) Such list excludes Alan Granetz, Alan Hirschfeld and Theodore
Shapiro who served as directors of the Company for only a portion of
1998 having resigned effective November 23, 1998, November 30, 1998
and December 16, 1998, respectively and Frank Terzo who resigned
March 31, 1999.
David A. Belford has been Chairman of the Board of Directors since
October 31, 1998. Mr. Belford had been the chief executive officer
of Nationwide Warehouse & Storage, Inc. ("Nationwide") for more than
five years. On March 2, 1999, Mr. Belford sold his interest in
Nationwide.
Ronald A. Kaplan has been Chief Executive Officer, President and a
Director since November 1, 1998. Previously, Mr. Kaplan was a
business consultant for two years and prior to that was President
and Chief Operating Officer of Levitz Furniture, Inc. from June 1995
to September 1996.
Marc Zucker has been President, Merchandising since October 31, 1998.
Previously, he had been the Chairman of the Board and Chief Executive
Officer of the Company since March 1995. He was co-founder of RPF
Holding and was its President from 1982 until its merger with Bunk
Trunk in March 1995. In addition, he was Vice President and General
Manager of Bunk Trunk from its inception in 1984 until the merger
with RPF Holding. Prior to that, Mr. Zucker worked in other areas of
the retail furniture business for 10 years.
Allan Socher has been President, Advertising since October 31, 1998.
Previously, he had been Director of Marketing and a Director of the
Company since March 1995. Mr. Socher is also the Company's
spokesperson in its extensive television commercials. He was a
Vice-President, Secretary and co-founder of RPF Holding from 1982
until its merger with Bunk Trunk in March 1995 and was a
Vice-President and Secretary of Bunk Trunk from its inception in 1984
until the merger with RPF Holding. Prior to that, Mr. Socher worked
in other areas of the retail furniture business for 10 years.
Stephen Giordano has been Executive Vice President and Chief
Operating Officer since September 21, 1998. Previously, Mr. Giordano
was Divisional President of Roberds South and Market President of
Roberds Georgia. Roberds is a furniture retailer with operations
primarily in the Midwestern and Southeastern sections of the US.
Prior to joining Roberds, he was the General Manager of both the
Southeast and Mid-Atlantic divisions of Levitz Furniture, Inc.
Jay Goldberg, CPA, has been the Chief Financial Officer of the
Company since September 1997 and Secretary/Treasurer since March
1998. Mr. Goldberg was a director in Ehrenkrantz Sterling & Co., LLC,
certified public accountants and
- 27 -
<PAGE>
a partner in Sterling, Nappen, Chavkin & Co., LLC, its predecessor
firm, from February 1989 to September 1997. Prior to that, he was a
partner of Touche Ross & Co., a predecessor to Deloitte & Touche LLP,
from 1982 to 1989. He holds a B.S. degree in accounting from Seton
Hall University.
Mr. Zucker and Mr. Socher are brothers-in-law.
Directors are elected to serve until the next meeting of stockholders
and until their successors are elected and qualified. Meetings of
stockholders of the Company are expected to be held on an annual
basis. However, if at any time a meeting is not held for the election
of directors, the then current directors will continue to serve until
their successors are elected and qualified. Officers serve at the
discretion of the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
The Securities Exchange Act of 1934 requires that the Company's
executive officers, Directors, and any persons owning more than 10%
of a class of the Company's stock to file certain reports of
ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Copies of these reports must also be
furnished to the Company.
Based solely on a review of copies of all reports filed with the SEC
and representations of certain officers, directors and shareholders
holding more than 10% of the Company's Common Stock, the Company
believes that the directors and officers are not delinquent in their
16(a) reporting obligations.
Item 10. Executive Compensation
- -------- ----------------------
The following table sets forth the cash compensation paid by the
Company to, as well as any other compensation paid to or earned by,
the Chairman and Chief Executive Officer of the Company and those
executive officers compensated at or greater than $100,000 for
services rendered to the Company in all capacities during the years
ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Securities Underlying
Warrants/Options
Name of Individual ----------------
and Principal Position Year Salary Bonus
---------------------- ---- ------ -----
<S> <C> <C> <C> <C>
Ronald A. Kaplan, Chief Executive Officer 1998 $ 9,231 none 300,000
1997 none none none
1996 none none none
Marc Zucker, President - Merchandising 1998 $162,000 none none
Chairman, Chief Executive Officer 1997 125,000 $119,250 25,000
1996 125,000 42,500 none
Allan Socher, President - Advertising 1998 $162,000 none none
President and Director of Marketing 1997 125,000 $119,250 25,000
1996 125,000 43,159 none
Jay Goldberg, Secretary, Treasurer and 1998 $100,000 none none
Chief Financial Officer 1997 25,000 none 5,000
1996 none none none
</TABLE>
- 28 -
<PAGE>
Warrants
The following table sets forth certain information concerning
individual issues of warrants made during the years ended December
31, 1998 and 1997 to the Company's executive officers.
<TABLE>
<CAPTION>
Individual Grants as % of Total
Number of Securities Warrants Issued to Personnel Exercise or Base Expiration
Name Underlying Warrants in Fiscal Year Price per Share Date
---- ------------------- -------------- --------------- ----
<S> <C> <C> <C> <C>
1998
----
David A. Belford 2,000,000 83.3% $0.75 (1) 7/31/03
Stephen Giordano 100,000 4.2% $0.75 (2) 9/20/03
Ronald A. Kaplan 300,000 12.5% $0.75 (3) 10/31/03
1997
----
Marc Zucker 25,000 29.4% $3.0625 1/31/02
Allan Socher 25,000 29.4% $3.0625 1/31/02
Jay Goldberg 5,000 5.9% $6.0000 9/30/02
</TABLE>
(1) As originally granted on July 31, 1998, the exercise price of
the warrant was $2.00. On February 5, 1999, the warrant was
canceled and a replacement warrant was issued therefor. The
exercise price of the replacement warrant is $0.75. Such
exercise price was based upon the closing market price for the
underlying securities on February 4, 1999, which was $0.50.
The closing market price for the underlying securities on the
date of grant was $1.438.
(2) As originally granted on October 1, 1998, the exercise price
of the option was $2.00. On February 5, 1999, the option was
canceled and a replacement option was issued therefor. The
exercise price of the replacement option is $0.75. Such
exercise price was based upon the closing market price for the
underlying securities on February 4, 1999, which was $0.50.
The closing market price for the underlying securities on the
date of grant was $1.438.
(3) As originally granted on September 21, 1998, the exercise
price of the option was $2.00. On February 5, 1999, the option
was canceled and a replacement option was issued therefor. The
exercise price of the replacement option is $0.75. Such
exercise price was based upon the closing market price for the
underlying securities on February 4, 1999, which was $0.50.
The closing market price for the underlying securities on the
date of grant was $1.438.
Compensation of Directors
Outside Directors of the Company are currently entitled to receive
$500 for attendance at each Board meeting.
Employment Agreements
The Company has entered into employment agreements effective June
30, 1995, as amended on August 1, 1997, with each of Marc Zucker
and Allan Socher. pursuant to a Loan Agreement dated July 31, 1998,
by and between the Company and David A. Belford, the employment
agreements of Messrs. Zucker and Socher have been modified.
Pursuant to such modifications, Messrs Zucker and Socher will each
be entitled to an annual salary of $162,000 plus either a cost of
living increase or an increase of five percent (5%) annually,
whichever is greater. Increases will take effect each year of the
contracts as long as a minimum of $850,000 earnings before
interest, taxes, depreciation and amortization ("EBITDA") is
attained. In addition, Messrs Zucker and Socher will be entitled to
receive certain incentive compensation and stock options based on
the Company's performance if EBITDA exceeds $850,000. The
employment agreements, as modified, shall remain in effect until
December 31, 2000, at which time such agreements will be
automatically extended for one calendar year unless either party
notifies the other to the contrary by not less than six (6) months
notice.
In the event of a change of control of the Company, the successor
entity shall make payment to each of Messrs. Zucker and Socher for
all amounts due and owing under their respective employment
agreements through the expiration date thereof.
For a period of one year following the termination of each
employment agreement, neither Zucker nor Socher shall solicit or
endeavor to entice away any employee, director or agent of the
Company or any entity affiliated with the Company. In addition,
neither Zucker nor Socher may, at any time after the termination of
the employment agreement, use the names or slogans "Room Plus",
"Just >Round the Corner" or "A LOT OF LIVING in a Little Space" or
- 29 -
<PAGE>
any similar name for the purpose of a business competing with the
Company or any entity affiliated with the Company or successor
thereof.
The Company has entered into employment agreements with each of
Ronald Kaplan and Stephen Giordano, effective November 1, 1998 and
September 21, 1998, respectively. Pursuant to each employment
agreement, Messrs. Kaplan and Giordano will act as Chief Executive
Officer and Chief Operating Officer, respectively, and each will be
entitled to receive, among other things, (a) a salary of $160,000
per annum plus either a cost of living increase or an increase of
five percent (5%) annually, whichever is greater, and (b) such
further sum by way of bonus or otherwise as determined by the
Compensation Committee of the Board. The employment agreements
shall remain in effect for a period of one (1) year from the
effective date thereof, at which time such agreements will be
automatically extended for an additional two (2) years unless
either party notifies the other to the contrary by not less than
sixty (60) days written notice.
In addition, pursuant to their employment agreements, Messrs.
Kaplan and Giordano are entitled to receive options to purchase up
to 300,000 and 100,000 shares of the Company's Common Stock,
respectively. Such options are subject to a three (3) year vesting
schedule, unless otherwise accelerated upon the occurrence of
specified events. See "Stock Options."
In the event any person (excluding (i) the Company or any
subsidiary thereof; (ii) any affiliate of the Company; (iii) any
employee benefit plan sponsored or maintained by the Company or any
subsidiary thereof; or (iv) David Belford or any entity with which
he is affiliated (a "Belford Entity")) shall become the beneficial
owner of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities;
or upon the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by any such person
through the purchase of assets or by merger or otherwise, each of
Messrs. Kaplan and Giordano shall be permitted to terminate his
employment agreement within thirty (30) days of receiving notice of
such change in control from the Company in accordance with the
terms of the respective employment agreement and to receive payment
from the Company of an amount calculated in accordance with the
provisions of such employment agreement.
- 30 -
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock by each person
or group that is known by the Company to be the beneficial owner of
more than 5% of its outstanding Common Stock, each Director of the
Company, each person named in the Summary Compensation Table, and
all Directors and executive officers of the Company as a group as
of March 22, 1999. Unless otherwise indicated, the Company believes
that the persons named in the table below, based on information
furnished by such owners, have sole voting and investment power
with respect to the Common Stock beneficially owned by them,
subject to community property laws, where applicable.
Principal Stockholders
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent Ownership of
Name and Address of Beneficial Owner Beneficially Owned Common Stock Outstanding
- ------------------------------------ ------------------ ------------------------
<S> <C> <C>
Marc Zucker 692,501(1) 14.9%
91 Michigan Avenue
Paterson, NJ 07503
Allan Socher 692,500(1) 14.9%
91 Michigan Avenue
Paterson, NJ 07503
Theodore Shapiro 768,266(2) 16.4%
91 Michigan Avenue
Paterson, NJ 07503
Frank Terzo 273,000(3) 6.1%
88 Village Road
Manhasset, NY 11030
David A. Belford 2,031,900(4) 31.8%
361 N. Parkview Avenue
Columbus, OH 43209
Ronald A. Kaplan 78,800(5) 1.8%
91 Michigan Avenue
Paterson, NJ 07503
Jay H. Goldberg 5,200(6) 0.1%
91 Michigan Avenue
Paterson, NJ 07503
All Directors and Officers as a Group 3,793,500(7) 53.3%
(7 Persons)
</TABLE>
- --------------
(1) Includes currently exercisable warrants to purchase 270,000 shares of
Common Stock.
(2) Includes currently exercisable warrants to purchase 310,000 shares of
Common Stock.
(3) Includes currently exercisable warrants to purchase 115,000 shares of
Common Stock.
(4) Includes currently exercisable warrants to purchase 2,000,000 shares of
Common Stock.
(5) Includes currently exercisable options to purchase 42,000 shares of Common
Stock and options to purchase 16,800 shares of Common Stock within 60
days.
(6) Includes currently exercisable warrants to purchase 5,000 shares of Common
Stock.
(7) Includes an aggregate of 2,738,400 shares of Common Stock issuable upon
exercise of outstanding options and warrants.
- 31 -
<PAGE>
Item 12. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The Company leases its manufacturing facility, located in Paterson, New
Jersey, from M&S Realty Company, which is owned by Theodore Shapiro, a
former director and executive officer of the Company. The lease for the
facility expired May 31, 1998. Upon the expiration of the lease, the
Company began occupying the facility on a month-to-month basis under
the same terms of the original lease, including rent escalations, but
is required to give the landlord twelve months notice of its intent to
terminate the lease.
In 1997, the Company advanced $14,373 to two executive officers and one
former executive officer consisting of additional advances of $296 and
accrued interest of $14,077. The individuals made repayments of $49,700
in 1997, resulting in a balance of $190,365 at December 31, 1997.
During 1998, the individuals made repayments of $13,567 and interest of
$11,082 was accrued resulting in a balance of $187,880 at December 31,
1998. Such balance bears interest at the rate of 6% per annum and has
no scheduled maturity date.
Retail Media Plus (which is owned by two executive officers, Marc
Zucker and Allan Socher, and a former executive officer, Theodore
Shapiro, of the Company) placed all of the Company's advertising and
passed through any cost savings to the Company through November 1998.
For 1998 and 1997, the Company reimbursed Retail Media Plus
approximately $1,219,000 and $1,780,000, respectively, for advertising
costs. Commencing in December 1998, the Company began placing its own
advertising.
In July 1996, Frank Terzo became a consultant to the Company. Under his
consulting agreement, which is for a term of three years, Mr. Terzo
received a cash payment of $25,000 and 250,000 shares of Common Stock,
which shares were valued at $.80 per share (the price of the stock sold
in the 1996 Private Placement) for financial accounting purposes. Mr.
Terzo became a director of the Company in December 1996 and resigned as
a director of the Company on March 31, 1999.
All future transactions and/or loans between the Company and officers
and directors will be on terms no less favorable than could be obtained
from independent, third parties and will be approved by a majority of
the directors of the Company disinterested in such transactions and/or
loans.
Item 13. Exhibits, List and Reports on Form 8-K
- -------- --------------------------------------
(a) Exhibits to Form 10-KSB
-----------------------
Additional exhibits filed herewith are as follows:
EXHIBIT INDEX
Exhibit
No.
- -------
3.1 Certification of Incorporation of the Company, as amended (1)
3.2 Restated and Amended By-laws of the Company (1)
4.1 Form of Representative Warrant Agreement between the Company and The
Thornwater Company, L.P., with form of Warrant attached (1)
4.2 Form of Warrant Agreement between the Company and American Stock Transfer
& Trust Company, with form of Warrant attached (1)
4.3 Form of Warrant issued by Company to Allan J. Socher, Theodore Shapiro,
Marc I. Zucker and Kirlin Securities Corp.(1)
4.4 Form of Warrant issued by the Company to Mark Rubin (1)
4.5 Letter dated April 24, 1998 confirming terms and conditions to lend the
Company $200,000 (5)
4.6 Promissory Note in the amount of $100,000 due June 11, 1998, between the
Company and Finbar O'Neill (5)
4.7 Stock Purchase Option dated April 24, 1998 for 250,000 shares of common
stock issued to Finbar O'Neill (5)
4.8 Promissory Note in the amount of $100,000 due June 11, 1998, between the
Company and Mark Rubin (5)
4.9 Stock Purchase Option dated April 24, 1998 for 250,000 shares of common
stock issued to Mark Rubin (5)
4.10 Stock Purchase Option dated June 23, 1998 for 60,000 shares of common
stock issued to Mark Rubin (5)
4.11 Letter Agreement dated July 7, 1998 between the Company and Mark Rubin
extending the due date of the Promissory Note due June 11, 1998, to August
1, 1998 (5)
4.12 Letter Agreement dated July 7, 1998 between the Company and Finbar O'Neill
extending the due date of the Promissory Note due June 11, 1998, to August
1, 1998 (5)
4.13 Stock Subscription Warrant issued by the Company to David A. Belford (6)
4.14 Stock Subscription Warrant issued by the Company to David A. Belford,
dated February 5, 1999 (8)
- 32 -
<PAGE>
4.15 Stock Option Agreement by and between the Company and Ronald A. Kaplan,
dated February 5, 1999 (8)
4.16 Stock Option Agreement by and between the Company and Stephen Giordano,
dated February 5, 1999 (8)
10.1 Employment Agreement dated June 16, 1995 between the Company and Allan J.
Socher (1)
10.2 Employment Agreement dated June 16, 1995 between the Company and Theodore
Shapiro (1)
10.3 Employment Agreement dated June 16, 1995 between the Company and Marc I.
Zucker (1)
10.4 Lease dated June 1, 1984 between M&S Realty Company and Bunk Trunk
Manufacturing Company, Inc., as amended on December 1, 1988 and January 2,
1996 (1)
10.5 Lease dated June 6, 1996 between Milford Management Corp., as agent, and
the Company (1)
10.6 Lease dated November 1, 1991 between Dilstan Realty Corporation and Room
Plus Furniture of Westchester, Inc.(1)
10.7 Indenture of Lease dated October 1, 1988 between Daper Realty, Inc. and
RPF Holding Corporation (1)
10.8 Lease dated June 1, 1983 between Hannon's and the Company, as modified by
and Extension of Lease dated July 31, 1993(1)
10.9 Agreement of Lease dated August 9, 1985 between Patrician Equities Corp.
and Room Plus Furniture of East Brunswick, as modified by a Lease
Extension Agreement dated August 25, 1995 (1)
10.10 Lease dated August 26, 1987 between Country Glen Associates and Room Plus
Furniture, Inc. (1)
10.11 Agreement of Lease between Austin Mall Associates and Room Plus Furniture
of Forest Hills, Inc. (1)
10.12 Sublease Agreement dated February 5, 1988 between NYNEX Business
Information Systems Company and RPF Holding Corporation, as modified by a
letter agreement dated March 25, 1993 (1)
10.13 Shopping Center Agreement of Lease dated October 1, 1995 between Alexander
Carpet Company and the Company(1)
10.14 Lease dated November 21, 1995 between 205/215 Lexington Limited
Partnership and the Company (1)
10.15 Assignment of Lease dated June 26, 1996 between Reliable Broadway, Inc.
and the Company (1)
10.16 Lease dated January 11, 1996 between Comalgri Holding Corp. and the
Company (1)
10.17 Form of Financial Advisory and Investment Banking Agreement between the
Company and The Thornwater Company, L.P.(1)
10.18 Lease dated September 20, 1996, between Heartland Shopping Center LLC and
Room Plus, Inc. (2)
10.19 Sublease and Assumption Agreement dated October 11, 1996 between Bedding
Discount Center, Inc. and Room Plus, Inc.(2)
10.20 Lease dated December 19, 1996 between Ackrik Associates, and Room Plus,
Inc. (3)
10.21 Lease dated December 2, 1996 between Pitrock Realty Corp. and Room Plus,
Inc. (4)
10.22 Lease dated March 20, 1997 between CMW Investments, Ltd. and Room Plus,
Inc. (4)
10.23 Lease modification agreement dated July 22, 1997 between Austin Mall
Associates and Room Plus, Inc. (4)
10.24 Extension of lease dated January 26, 1998 between Hannon's and Room Plus,
Inc. (4)
10.25 Loan Agreement dated July 31, 1998, by and between the Company and David
A. Belford (6)
10.26 Security Agreement dated as of July 31, 1998, by and between the Company
and David A. Belford (6)
10.27 Stockholder Agreement dated as of July 31, 1998, by and between Nationwide
Warehouse & Storage, Inc., the Company, Room Plus Sub, Inc. and Marc
Zucker (6)
10.28 Stockholder Agreement dated as of July 31, 1998, by and between Nationwide
Warehouse & Storage, Inc., the Company, Room Plus Sub, Inc. and Allan
Socher (6)
10.29 Stockholder Agreement dated as of July 31, 1998, by and between Nationwide
Warehouse & Storage, Inc., the Company, Room Plus Sub, Inc. and Theodore
Shapiro (6)
10.30 Stockholder Agreement dated as of July 31, 1998, by and between Nationwide
Warehouse & Storage, Inc., the Company, Room Plus Sub, Inc. and Frank
Terzo (6)
10.31 Employment Agreement dated September 21, 1998 between the Company and
Stephen Giordano (*) 10.32 Employment Agreement dated November 1, 1998
between the Company and Ronald A. Kaplan (*)
11 Calculation of Net Income (Loss) per Common Share (*)
23.1 Consent of Arthur Andersen LLP (*)
27 Financial Data Schedule (*)
- ----------------
(1) Incorporated by reference to the exhibit of the same number filed as part
of the Registration Statement on Form SB-2 (File No. 333-10483).
(2) Incorporated by reference to the exhibit of the same number filed as part
of the Quarterly Report on Form 10-QSB for the period ended September 30,
1996 (File No. 1-14478).
(3) Incorporated by reference to the exhibit of the same number filed as part
of the Annual Report on Form 10-KSB for the period ended December 31, 1996
(File No. 1-14478).
(4) Incorporated by reference to the exhibit of the same number filed as part
of the Annual Report on Form 10-KSB for the period ended December 31, 1997
(File No. 1-14478).
(5) Incorporated by reference to the exhibit of the same number filed as part
of the Quarterly Report on Form 10-QSB for the period ended March 31, 1998
(File No. 1-14478).
(6) Incorporated by reference to the exhibit of the same number filed as part
of the Current Report on Form 8-K as of July 31, 1998 (File No. 1-14478).
- 33 -
<PAGE>
(7) Incorporated by reference to the exhibit of the same number filed as part
of the Registration Statement on Form S-3 as filed with the Commission on
as of July 30, 1998 (File No. 1-14478).
(8) Incorporated by reference to the exhibit of the same number filed as part
of the Current Report on Form 8-K as of February 18, 1999 (File No.
1-14478).
(*) Exhibit filed with this Form 10-KSB.
(b) Reports on Form 8-K
-------------------
The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1998.
- 34 -
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of September
21, 1998, by ROOM PLUS, INC., a New York corporation (the "Employer"), and
STEPHEN GIORDANO, an individual residing at 427 Portside Drive, Edgewater, New
Jersey 07024 (the "Executive").
RECITAL
The Employer desires to employ the Executive and the Executive
wishes to accept employment, upon the terms and conditions set forth in this
Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement"--this Employment Agreement, as amended from time to
time.
"Basic Compensation"--Salary and Benefits.
"Benefits"--as defined in Section 3.1(b).
"Board of Directors"--the board of directors of the Employer.
"Change of Control"--as defined in Section 6.5.
"Confidential Information"--any and all:
(a) trade secrets concerning the business and affairs of the
Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer or
supplier lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs (including object
code and source code), computer software and database technologies, systems,
structures, and architectures (and related formulae, compositions, processes,
improvements, devices, know-how, inventions, discoveries, concepts, ideas,
designs, methods and information) and any other information, however documented,
that is a trade secret under applicable law; and
1
<PAGE>
(b) information concerning the business and affairs of the Employer,
including, without limitation, historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, information
concerning product manufacturing, costs and sales, and personnel training
materials, however documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.
"disability"--as defined in Section 6.2.
"Effective Date"--the date stated in the first paragraph of the
Agreement.
"Employee Invention"--any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer, and any such item created
by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"Employment Period"--the term of the Executive's employment
under this Agreement.
"Fiscal Year"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"for Cause"--as defined in Section 6.3.
"for Good Reason"--as defined in Section 6.4.
"Incentive Compensation"--as defined in Section 3.
"Initial Term"--as defined in Section 2.2.
"person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Post-Employment Period"--as defined in Section 8.2.
2
<PAGE>
"Proprietary Items"--as defined in Section 7.2(a)(iv).
"Salary"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby
accepts employment by the Employer, upon the terms and conditions set forth in
this Agreement.
2.2 TERM
Subject to the provisions of Section 6, the term of the Executive's
employment under this Agreement will be one year, beginning on the Effective
Date and ending on the first anniversary of the Effective Date (the "Initial
Term"), which term shall be automatically extended for an additional period of
two years beginning on the first anniversary of the Effective Date and ending on
the third anniversary of the Effective Date unless either party gives written
notice to the other party of its intention not to so extend the term of
employment at least sixty (60) days prior to the end of the Initial Term.
2.3 DUTIES
The Executive will have such duties as are assigned or delegated to
the Executive by the Board of Directors or Chief Executive Officer, and will
initially serve as Chief Operating Officer of the Employer and report directly
to the Chief Executive Officer. The Executive will devote his entire business
time, attention, skill, and energy exclusively to the business of the Employer,
will use his best efforts to promote the success of the Employer's business, and
will cooperate fully with the Board of Directors in the advancement of the best
interests of the Employer. Nothing in this Section 2.3, however, will prevent
the Executive from engaging in additional activities in connection with personal
investments, community affairs or serving as a director of other corporations to
the extent that such activities are not inconsistent with the Executive's duties
under this Agreement. If the Executive is elected as a director of the Employer
or as a director or officer of any of its affiliates, the Executive will fulfill
his duties as such director or officer without additional compensation.
3. COMPENSATION
3.1 BASIC COMPENSATION
(A) Salary. The Executive will be paid an annual salary of $160,000,
subject to adjustment as provided below (the "Salary"), which will be payable in
equal periodic installments according to the Employer's customary payroll
practices, but no less frequently than monthly. The Salary will be increased on
each anniversary date of this Agreement by a percentage equal to the greater of
(i) the percentage increase in the New York-Northeastern New Jersey Consumer
Price Index published by the Bureau of Labor Statistics for the most
3
<PAGE>
recently completed twelve month period (or other comparable index if such index
is not published) or (ii) five percent (5%).
(B) Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, life insurance,
hospitalization, major medical, disability and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
3.2 STOCK OPTIONS
The Executive is hereby granted an option to purchase up to 100,000
shares of the Employer's Common Stock at an exercise price of $2.00 per share on
the terms subject to the conditions set forth in a separate Stock Option
Agreement between the Employer and the Executive dated the date hereof.
3.3 INCENTIVE COMPENSATION
The Executive shall be entitled to such incentive compensation or
performance bonuses, if any, during the Employment Period as the Board of
Directors, or duly authorized committee thereof, may award from time to time
based upon criteria to be established by the Board of Directors or such
committee from time to time.
4. FACILITIES AND EXPENSES
4.1 GENERAL
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will reimburse the Executive for reasonable
expenses incurred by the Executive at the request of, or on behalf of, the
Employer in the performance of the Executive's duties pursuant to this
Agreement, and in accordance with the Employer's employment policies. The
Executive must file expense reports with respect to such expenses in accordance
with the Employer's policies.
4.2 AUTOMOBILE
The Executive will receive an automobile allowance of $500 per month
during the Employment Period. The Executive will own his own automobile, and
maintain and insure it at his own expense, for his business use in connection
with his employment under this Agreement, except that the Employer shall pay for
gasoline utilized by the Employee in connection with his employment under this
Agreement and shall supply the Employee with a gasoline credit card for charging
such expenses.
4
<PAGE>
4.3 MOVING EXPENSES
In the event that Employer relocates its principal offices to a
location outside the greater New York-New Jersey metropolitan area, as a result
of which it becomes necessary for the Executive to move his residence, the
Employer shall reimburse the Executive for his reasonable moving expenses
related thereto.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to four weeks' paid vacation each
Fiscal Year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time (which entitlement to vacation
shall be pro-rated for any partial Fiscal Year). Vacation must be taken by the
Executive at such time or times as approved by the Chief Executive Officer. The
Executive will also be entitled to the paid holidays set forth in the Employer's
policies. Vacation days and holidays during any Fiscal Year that are not used by
the Executive during such Fiscal Year may not be used in any subsequent Fiscal
Year.
6. TERMINATION
6.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Basic Compensation and
Incentive Compensation, and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer will terminate (except as
otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) for Cause (as defined in Section 6.3), upon such notice from the
Employer to the Executive,as is specified in Section 6.3;
(d) for Good Reason (as defined in Section 6.4) upon such notice
from Executive to Employer as is specified in Section 6.4; or
(e) following a Change of Control (as defined in Section 6.5), upon
such notice from Executive to Employer as is specified in Section 6.5.
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of the Executive's duties under this Agreement
for 120 consecutive days, or 180 days during any twelve month period, as
determined in accordance with this Section 6.2. The disability of the Executive
will be determined by a medical doctor selected by written agreement of the
Employer and the Executive upon the request of either party by notice to the
other. If the Employer and the Executive cannot agree on the selection of a
medical doctor, each of them will select a medical
5
<PAGE>
doctor and the two medical doctors will select a third medical doctor who will
determine whether the Executive has a disability. The determination of the
medical doctor selected under this Section 6.2 will be binding on both parties.
The Executive must submit to a reasonable number of examinations by the medical
doctor making the determination of disability under this Section 6.2, and the
Executive hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records. If the Executive is not
legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section 6.2, for
the purposes of submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 6.2.
6.3 TERMINATION FOR CAUSE
The Employer may terminate the employment of the Executive at any
time for Cause (as hereinafter defined) by giving the Executive prior notice of
such termination, with reasonable specificity of the details thereof. As used
herein, the term "Cause" shall be limited to and mean (a) an action or actions
by the Executive involving willful malfeasance having a material adverse effect
on the Employer, (b) one or more failures to act by Executive involving material
nonfeasance having a material adverse effect on the Employer, or (c) the
Executive being convicted of a felony, or of any economic or business crime
involving moral turiptude; provided, however, that any action or failure to act
by Executive shall not be constitute "Cause" if, in good faith, the Executive
reasonably believed such action or failure to act to be in or not opposed to the
best interests of the Employer or was pursuant to the instructions, directions
or with the consent of either the Chief Executive Officer or the Board of
Directors, or the Executive believed in good faith that the action or failure to
act would be inconsistent with law, professional ethics, accepted or accredited
standards or business behavior. A termination pursuant to Clause (a), or (b),
(other than as a result of a conviction), shall take effect 15 days after the
giving of the notice contemplated hereby unless the Executive shall, during such
15 day period, remedy to the reasonable satisfaction of the Chief Executive
Officer and/or the Board of Directors of the Employer the breach specified in
such notice; provided, however, that such termination shall take effect
immediately upon the giving of such prior notice if the Chief Executive Officer
and/or Board of Directors of the Employer shall, in its reasonable discretion,
have determined that such breach is not remediable (which determination shall be
stated in such notice). A termination pursuant to (c) (as a result of a
conviction of a crime) shall take effect immediately upon the giving of the
notice contemplated hereby. For purposes of this Agreement, a "Notice of
Termination" shall mean delivery of notice specifying particulars thereof in
reasonable detail. For purposes of this Agreement, no such purported termination
of Executive's employment shall be effective without such Notice of Termination.
6.4 TERMINATION FOR GOOD REASON
The Executive may terminate his employment hereunder for Good Reason
at any time during the Employment Term, in which event the Executive shall
resign from all of his positions with the Employer. For purposes of this
Agreement, "Good Reason" shall mean any of the following (without the
Executive's express prior consent):
6
<PAGE>
(a) The assignment to the Executive by the Employer of duties
inconsistent with the Executive's position as Chief Operating Officer of the
Employer, or any significant reduction or change in either the position, stature
or job function, except in connection with the termination of the Executive's
employment for Cause;
(b) A reduction by the Employer in the Basic Compensation
and/or benefits as defined in Section 3;
(c) A failure by the Employer to discharge its obligations
under any incentive arrangement described in Section 3.3 hereof; or
(d) A fundamental change in the nature of the business
conducted by the Employer.
A termination pursuant to this Section 6.4 shall take effect 15 days
after the giving of the notice contemplated hereby unless the Employer shall,
during such 15 day period, remedy to the reasonable satisfaction of the
Executive the breach specified in such notice; provided, however, that such
termination shall take effect immediately upon the giving of such notice if the
Executive, in his reasonable discretion, shall have determined that such breach
is not remediable (which determination shall be stated in such notice).
6.5 CHANGE OF CONTROL
If a Change of Control (as hereinafter defined) occurs, the
Executive shall have the right to terminate this Agreement upon 60 days prior
notice to the Employer; provided, however, the Employer shall have the option to
shorten such period. At least ten (10) days prior to any such proposed Change of
Control (or if the Change of Control is not proposed by the Employer, promptly
following such Change of Control), the Employer shall notify the Executive of
its intention to effect such Change of Control (or that a Change of Control has
occurred), and the Executive shall thereupon have thirty (30) days from the
actual receipt of such notice to give notice of his intention to terminate this
Agreement. As used herein, the term "Change of Control: shall mean: when any
"person" as defined in Section 3(a)(9) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), and as used in Section 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of the Exchange Act
(but excluding (a) the Employer or any subsidiary; (b) any affiliate of the
Employer; (c) any employee benefit plan sponsored or maintained by the Employer
or any subsidiary of the Employer; or (d) David Belford or any entity with which
he is affiliated (a "Belford Entity")), becomes "beneficial owner" (as defined
in Rule 13(d)(3) under the Exchange Act) of securities of the Employer
representing 30% or more of the combined voting power of the Employer's then
outstanding securities; or the occurrence of a transaction requiring stockholder
approval for the acquisition of the Employer by an entity (other than (a) the
Employer or a subsidiary, (b) an affiliate (as defined in Rule 12b-2 under the
Exchange Act of the Employer or (c) a Belford Entity) through the purchase of
assets, or by merger, or otherwise.
7
<PAGE>
6.6 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will
be obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) only such compensation as is provided in this
Section 6.6. For purposes of this Section 6.6, the Executive's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Executive may designate by notice to the Employer from time to
time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(A) Termination by the Employer for Cause. If the Employer
terminates this Agreement for Cause, the Executive will be entitled to receive
his Salary only through the date such termination is effective, but will not be
entitled to any Incentive Compensation for the Fiscal Year during which such
termination occurs or any subsequent Fiscal Year.
(B) Termination upon Disability or Death. If this Agreement is
terminated (i) by either party as a result of the Executive's disability, as
determined under Section 6.2, or (ii) by reason of the Executive's Death, the
Executive will be entitled to receive his Salary through the later of the end of
the Initial Term or the end of the calendar month during which such termination
is effective and that part of the Executive's Incentive Compensation, if any,
for the Fiscal Year during which such termination occurs, prorated through the
effective date of such termination.
(C) Termination by the Executive for Good Reason or Following a
Change of Control. If the Executive terminates this Agreement for Good Reason or
ollowing a Change of Control, the Executive shall be entitled to receive his
Salary only through the date such termination is effective and that part of the
Executive's Incentive Compensation, if any, for the Fiscal Year in which such
termination occurs, prorated through the date of termination.
(D) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the termination
of this Agreement, and the Executive will be entitled to accrued Benefits
pursuant to such plans only as provided in such plans. The Executive will not
receive, as part of his termination pay pursuant to this Section 6, any payment
or other compensation for any vacation, holiday, sick leave, or other leave
unused on the date the notice of termination is given under this Agreement.
(E) Termination by the Employer Without Cause. Without limiting any
other remedy available to Executive, if the Employer terminates the Executive's
employment for any reason other than Cause, Disability or Death (or upon
expiration of the then-current term), the Executive shall be entitled to receive
his salary for the remaining portion of the then current term
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and that part of the Executive's Incentive Compensation, if any, for the Fiscal
Year in which such termination occurs, prorated through the date of termination.
In addition, the Executive shall be entitled to all Benefits through the
remaining portion of the then current term.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and
as a part of his employment, the Executive will be afforded access to
Confidential Information; (b) public disclosure of such Confidential Information
could have an adverse effect on the Employer and its business; (c) because the
Executive possesses substantial expertise and skill with respect to the
Employer's business, the Employer desires to obtain exclusive ownership of any
Employee Invention; and (d) the provisions of this Section 7 are reasonable and
necessary to prevent the improper use or disclosure of Confidential Information
and to provide the Employer with exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or
provided to the Executive by the Employer under this Agreement, the Executive
covenants as follows:
(A) Confidentiality.
(i) During and following the Employment Period, the Executive will
hold in confidence the Confidential Information and will not disclose it to any
person except with the specific prior written consent of the Employer or except
as otherwise expressly permitted by the terms of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to all of
the protections and benefits under applicable state trade secret laws and any
other applicable law. If any information that the Employer deems to be a trade
secret is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless, be
considered Confidential Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Employer submit proof of the
economic value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions applies to
any part of the Confidential Information that the Executive demonstrates was or
became generally available to the public other than as a result of a disclosure
by the Executive.
(iv) The Executive will not remove from the Employer's premises
(except to the extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record, notebook, plan,
model, component, device, or computer software or code, whether embodied in a
disk or in any other form (collectively, the "Proprietary Items"). The Executive
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recognizes that, as between the Employer and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement by either party, or
upon the request of the Employer during the Employment Period, the Executive
will return to the Employer all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the Executive shall not
retain any copies, abstracts, sketches, or other physical embodiment of any of
the Proprietary Items.
(B) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional compensation, all of
the Executive's right to the Employee Invention for the United States and all
foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order to apply
for and obtain patents or other registrations with respect to any Employee
Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance but without
expense to the Executive in support of the Employer's rights to any Employee
Invention.
7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy
arising from or relating to this Agreement be submitted for adjudication to any
court, arbitration panel, or other third party, the preservation of the secrecy
of Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary and
intellectual character; and the provisions of this Section 8 are reasonable and
necessary to protect the Employer's business.
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8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in
consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer, the Executive covenants that he will not, directly or
indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, engage or invest in, own, manage, operate, finance,
control, or participate in the ownership, management, operation, financing, or
control of, be employed by, associated with, or in any manner connected with,
lend the Executive's name or any similar name to, lend Executive's credit to or
render services or advice to, any business whose products or activities are
similar to, or compete in whole or in part with, the products or activities of
the Employer; provided, however, that the Executive may purchase or otherwise
acquire up to (but not more than) one percent of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934;
(b) whether for the Executive's own account or the account of any
other person at any time during the Employment Period and the Post-Employment
Period, (i) solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the Employer
at any time during the Employment Period or in any manner induce or attempt to
induce any employee of the Employer to terminate his employment with the
Employer; or (ii) interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period, disparage the
Employer or any of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period"
means the 18-month period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2
will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of the
relevant portions of this Agreement.
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9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by
the Employer as a result of a breach of the provisions of this Agreement
(including any provision of Sections 7 and 8) would be irreparable and that an
award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS
The covenants by the Executive in Sections 7 and 8 are essential elements
of this Agreement, and without the Executive's agreement to comply with such
covenants, the Employer would not have entered into this Agreement or employed
or continued the employment of the Executive. The Employer and the Executive
have independently consulted their respective counsel and have been advised in
all respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the execution
and delivery by the Executive of this Agreement do not, and the performance by
the Executive of the Executive's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
9.4 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by either party in
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this
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Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
9.5 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding upon,
the parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.6 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nation-ally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Room Plus, Inc.
91 Michigan Avenue
Paterson, NJ 07503
Attention: Marc Zucker
Facsimile No.: (973) 523-9288
If to the Executive:
Stephen Giordano
427 Portside Drive
Edgewater, NJ 07024
9.7 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, contains the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written,
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between the parties hereto with respect to the subject matter hereof. This
Agreement may not be amended orally, but only by an agreement in writing signed
by the parties hereto.
9.8 GOVERNING LAW
This Agreement will be governed by the laws of the State of New York
without regard to conflicts of laws principles.
9.9 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
9.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.11 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
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9.12 WAIVER OF JURY TRIAL
THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
ROOM PLUS, INC.
By: /s/ Marc Zucker
------------------------
Marc Zucker
Chief Executive Officer
/s/ Stephen Giordano
------------------------
Stephen Giordano
15
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of November
1, 1998, by ROOM PLUS, INC., a New York corporation (the "Employer"), and RONALD
A. KAPLAN, an individual residing at 150 West 56th Street, Apt. 5804, New York,
New York 10019 (the "Executive").
RECITAL
The Employer desires to employ the Executive and the Executive
wishes to accept employment, upon the terms and conditions set forth in this
Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement"--this Employment Agreement, as amended from time to
time.
"Basic Compensation"--Salary and Benefits.
"Benefits"--as defined in Section 3.1(b).
"Board of Directors"--the board of directors of the Employer.
"Change of Control"--as defined in Section 6.5.
"Confidential Information"--any and all:
(a) trade secrets concerning the business and affairs of the
Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer or
supplier lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs (including object
code and source code), computer software and database technologies, systems,
structures, and architectures (and related formulae, compositions, processes,
improvements, devices, know-how, inventions, discoveries, concepts, ideas,
designs, methods and information) and any other information, however documented,
that is a trade secret under applicable law; and
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(b) information concerning the business and affairs of the Employer,
including, without limitation, historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, information
concerning product manufacturing, costs and sales, and personnel training
materials, however documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.
"disability"--as defined in Section 6.2.
"Effective Date"--the date stated in the first paragraph of the
Agreement.
"Employee Invention"--any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer, and any such item created
by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"Employment Period"--the term of the Executive's employment
under this Agreement.
"Fiscal Year"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"for Cause"--as defined in Section 6.3.
"for Good Reason"--as defined in Section 6.4.
"Incentive Compensation"--as defined in Section 3.
"Initial Term"--as defined in Section 2.2.
"person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Post-Employment Period"--as defined in Section 8.2.
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"Proprietary Items"--as defined in Section 7.2(a)(iv).
"Salary"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby
accepts employment by the Employer, upon the terms and conditions set forth in
this Agreement.
2.2 TERM
Subject to the provisions of Section 6, the term of the Executive's
employment under this Agreement will be one year, beginning on the Effective
Date and ending on the first anniversary of the Effective Date (the "Initial
Term"), which term shall be automatically extended for an additional period of
two years beginning on the first anniversary of the Effective Date and ending on
the third anniversary of the Effective Date unless either party gives written
notice to the other party of its intention not to so extend the term of
employment at least sixty (60) days prior to the end of the Initial Term.
2.3 DUTIES
The Executive will have such duties as are assigned or delegated to
the Executive by the Board of Directors or Chairman of the Board, and will
initially serve as Chief Executive Officer of the Employer and report directly
to the Chairman of the Board. The Executive will devote his entire business
time, attention, skill, and energy exclusively to the business of the Employer,
will use his best efforts to promote the success of the Employer's business, and
will cooperate fully with the Board of Directors in the advancement of the best
interests of the Employer. Nothing in this Section 2.3, however, will prevent
the Executive from engaging in additional activities in connection with personal
investments, community affairs or serving as a director of other corporations to
the extent that such activities are not inconsistent with the Executive's duties
under this Agreement. The Employer shall cause the Executive to be elected as a
member of its Board of Directors and shall continue to nominate Executive to
serve as a director so long as he is Chief Executive Officer of the Employer. If
the Executive is elected as a director of the Employer or as a director or
officer of any of its affiliates, the Executive will fulfill his duties as such
director or officer without additional compensation.
3. COMPENSATION
3.1 BASIC COMPENSATION
(A) Salary. Subject to the last sentence of this subsection, the
Executive will be paid an annual salary of $160,000, subject to adjustment as
provided below (the "Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll practices, but no
less frequently than monthly. The Salary will be increased on each anniversary
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date of this Agreement by a percentage equal to the greater of (i) the
percentage increase in the New York - Northeastern New Jersey Consumer Price
Index published by the Bureau of Labor Statistics for the most recently
completed twelve month period (or other comparable index if such index is not
published) or (ii) five percent (5%). Notwithstanding the foregoing, the
Executive's Salary shall be $5,000 per month through March 1999 and $10,000 per
month thereafter through September, 1999.
(B) Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, life insurance,
hospitalization, major medical, disability and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
3.2 STOCK OPTIONS
The Executive has heretofore been granted an option to purchase up
to 300,000 shares of the Employer's Common Stock at an exercise price of $2.00
per share. The terms and conditions of such option are hereby amended and
restated in their entirety as fully set forth in a separate Amended and Restated
Stock Option Agreement between the Employer and the Executive dated the date
hereof.
3.3 INCENTIVE COMPENSATION
The Executive shall be entitled to such incentive compensation or
performance bonuses, if any, during the Employment Period as the Board of
Directors, or duly authorized committee thereof, may award from time to time
based upon criteria to be established by the Board of Directors or such
committee from time to time.
4. FACILITIES AND EXPENSES
4.1 GENERAL
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will reimburse the Executive for reasonable
expenses incurred by the Executive at the request of, or on behalf of, the
Employer in the performance of the Executive's duties pursuant to this
Agreement, and in accordance with the Employer's employment policies. The
Executive must file expense reports with respect to such expenses in accordance
with the Employer's policies.
4.2 AUTOMOBILE
The Executive will receive an automobile allowance of $500 per month
during the Employment Period. The Executive will own his own automobile, and
maintain and insure it at his own expense, for his business use in connection
with his employment under this Agreement, except that the Employer shall pay for
gasoline utilized by the Employee in connection with his
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employment under this Agreement and shall supply the Employee with a gasoline
credit card for charging such expenses.
4.3 MOVING EXPENSES
In the event that Employer relocates its principal offices to a
location outside the greater New York-New Jersey metropolitan area, as a result
of which it becomes necessary for the Executive to move his residence, the
Employer shall reimburse the Executive for his reasonable moving expenses
related thereto.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to four weeks' paid vacation each
Fiscal Year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time (which entitlement to vacation
shall be pro-rated for any partial Fiscal Year). Vacation must be taken by the
Executive at such time or times as approved by the Chief Executive Officer. The
Executive will also be entitled to the paid holidays set forth in the Employer's
policies. Vacation days and holidays during any Fiscal Year that are not used by
the Executive during such Fiscal Year may not be used in any subsequent Fiscal
Year.
6. TERMINATION
6.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Basic Compensation and
Incentive Compensation, and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer will terminate (except as
otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) for Cause (as defined in Section 6.3), upon such notice from the
Employer to the Executive,as is specified in Section 6.3;
(d) for Good Reason (as defined in Section 6.4) upon such notice
from Executive to Employer as is specified in Section 6.4; or
(e) following a Change of Control (as defined in Section 6.5), upon
such notice from Executive to Employer as is specified in Section 6.5.
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of
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the Executive's duties under this Agreement for 120 consecutive days, or 180
days during any twelve month period, as determined in accordance with this
Section 6.2. The disability of the Executive will be determined by a medical
doctor selected by written agreement of the Employer and the Executive upon the
request of either party by notice to the other. If the Employer and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive has a disability. The
determination of the medical doctor selected under this Section 6.2 will be
binding on both parties. The Executive must submit to a reasonable number of
examinations by the medical doctor making the determination of disability under
this Section 6.2, and the Executive hereby authorizes the disclosure and release
to the Employer of such determination and all supporting medical records. If the
Executive is not legally competent, the Executive's legal guardian or duly
authorized attorney-in-fact will act in the Executive's stead, under this
Section 6.2, for the purposes of submitting the Executive to the examinations,
and providing the authorization of disclosure, required under this Section 6.2.
6.3 TERMINATION FOR CAUSE
The Employer may terminate the employment of the Executive at any
time for Cause (as hereinafter defined) by giving the Executive prior notice of
such termination, with reasonable specificity of the details thereof. As used
herein, the term "Cause" shall be limited to and mean (a) an action or actions
by the Executive involving willful malfeasance having a material adverse effect
on the Employer, (b) one or more failures to act by Executive involving material
nonfeasance having a material adverse effect on the Employer, or (c) the
Executive being convicted of a felony, or of any economic or business crime
involving moral turiptude; provided, however, that any action or failure to act
by Executive shall not be constitute "Cause" if, in good faith, the Executive
reasonably believed such action or failure to act to be in or not opposed to the
best interests of the Employer or was pursuant to the instructions, directions
or with the consent of either the Chief Executive Officer or the Board of
Directors, or the Executive believed in good faith that the action or failure to
act would be inconsistent with law, professional ethics, accepted or accredited
standards or business behavior. A termination pursuant to Clause (a), or (b),
(other than as a result of a conviction), shall take effect 15 days after the
giving of the notice contemplated hereby unless the Executive shall, during such
15 day period, remedy to the reasonable satisfaction of the Chief Executive
Officer and/or the Board of Directors of the Employer the breach specified in
such notice; provided, however, that such termination shall take effect
immediately upon the giving of such prior notice if the Chief Executive Officer
and/or Board of Directors of the Employer shall, in its reasonable discretion,
have determined that such breach is not remediable (which determination shall be
stated in such notice). A termination pursuant to (c) (as a result of a
conviction of a crime) shall take effect immediately upon the giving of the
notice contemplated hereby. For purposes of this Agreement, a "Notice of
Termination" shall mean delivery of notice specifying particulars thereof in
reasonable detail. For purposes of this Agreement, no such purported termination
of Executive's employment shall be effective without such Notice of Termination.
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6.4 TERMINATION FOR GOOD REASON
The Executive may terminate his employment hereunder for Good Reason
at any time during the Employment Term, in which event the Executive shall
resign from all of his positions with the Employer. For purposes of this
Agreement, "Good Reason" shall mean any of the following (without the
Executive's express prior consent):
(a) The assignment to the Executive by the Employer of duties
inconsistent with the Executive's position as Chief Executive Officer of the
Employer, or any significant reduction or change in either the position, stature
or job function, except in connection with the termination of the Executive's
employment for Cause;
(b) A reduction by the Employer in the Basic Compensation
and/or benefits as defined in Section 3;
(c) A failure by the Employer to discharge its obligations
under any incentive arrangement described in Section 3.3 hereof; or
(d) A fundamental change in the nature of the business
conducted by the Employer.
A termination pursuant to this Section 6.4 shall take effect 15 days
after the giving of the notice contemplated hereby unless the Employer shall,
during such 15 day period, remedy to the reasonable satisfaction of the
Executive the breach specified in such notice; provided, however, that such
termination shall take effect immediately upon the giving of such notice if the
Executive, in his reasonable discretion, shall have determined that such breach
is not remediable (which determination shall be stated in such notice).
6.5 CHANGE OF CONTROL
If a Change of Control (as hereinafter defined) occurs, the
Executive shall have the right to terminate this Agreement upon 60 days prior
notice to the Employer; provided, however, the Employer shall have the option to
shorten such period. At least ten (10) days prior to any such proposed Change of
Control (or if the Change of Control is not proposed by the Employer, promptly
following such Change of Control), the Employer shall notify the Executive of
its intention to effect such Change of Control (or that a Change of Control has
occurred), and the Executive shall thereupon have thirty (30) days from the
actual receipt of such notice to give notice of his intention to terminate this
Agreement. As used herein, the term "Change of Control: shall mean: when any
"person" as defined in Section 3(a)(9) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), and as used in Section 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of the Exchange Act
(but excluding (a) the Employer or any subsidiary; (b) any affiliate of the
Employer; (c) any employee benefit plan sponsored or maintained by the Employer
or any subsidiary of the Employer; or (d) David Belford or any entity with which
he is affiliated (a "Belford Entity")), becomes "beneficial owner" (as defined
in Rule 13(d)(3) under the Exchange Act) of securities of the Employer
7
<PAGE>
representing 30% or more of the combined voting power of the Employer's then
outstanding securities; or the occurrence of a transaction requiring stockholder
approval for the acquisition of the Employer by an entity (other than (a) the
Employer or a subsidiary, (b) an affiliate (as defined in Rule 12b-2 under the
Exchange Act of the Employer or (c) a Belford Entity) through the purchase of
assets, or by merger, or otherwise.
6.6 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will
be obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) only such compensation as is provided in this
Section 6.6. For purposes of this Section 6.6, the Executive's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Executive may designate by notice to the Employer from time to
time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(A) Termination by the Employer for Cause. If the Employer
terminates this Agreement for Cause, the Executive will be entitled to receive
his Salary only through the date such termination is effective, but will not be
entitled to any Incentive Compensation for the Fiscal Year during which such
termination occurs or any subsequent Fiscal Year.
(B) Termination upon Disability or Death. If this Agreement is
terminated (i) by either party as a result of the Executive's disability, as
determined under Section 6.2, or (ii) by reason of the Executive's Death, the
Executive will be entitled to receive his Salary through the later of the end of
the Initial Term or the end of the calendar month during which such termination
is effective and that part of the Executive's Incentive Compensation, if any,
for the Fiscal Year during which such termination occurs, prorated through the
effective date of such termination.
(C) Termination by the Executive for Good Reason or Following a
Change of Control. If the Executive terminates this Agreement for Good Reason or
following a Change of Control, the Executive shall be entitled to receive his
Salary only through the date such termination is effective and that part of the
Executive's Incentive Compensation, if any, for the Fiscal Year in which such
termination occurs, prorated through the date of termination.
(D) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the termination
of this Agreement, and the Executive will be entitled to accrued Benefits
pursuant to such plans only as provided in such plans. The Executive will not
receive, as part of his termination pay pursuant to this Section 6,
8
<PAGE>
any payment or other compensation for any vacation, holiday, sick leave, or
other leave unused on the date the notice of termination is given under this
Agreement.
(E) Termination by the Employer Without Cause. Without limiting any
other remedy available to Executive, if the Employer terminates the Executive's
employment for any reason other than Cause, Disability or Death (or upon
expiration of the then-current term), the Executive shall be entitled to receive
his salary for the remaining portion of the then current term and that part of
the Executive's Incentive Compensation, if any, for the Fiscal Year in which
such termination occurs, prorated through the date of termination. In addition,
the Executive shall be entitled to all Benefits through the remaining portion of
the then current term.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and
as a part of his employment, the Executive will be afforded access to
Confidential Information; (b) public disclosure of such Confidential Information
could have an adverse effect on the Employer and its business; (c) because the
Executive possesses substantial expertise and skill with respect to the
Employer's business, the Employer desires to obtain exclusive ownership of any
Employee Invention; and (d) the provisions of this Section 7 are reasonable and
necessary to prevent the improper use or disclosure of Confidential Information
and to provide the Employer with exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or
provided to the Executive by the Employer under this Agreement, the Executive
covenants as follows:
(A) Confidentiality.
(i) During and following the Employment Period, the Executive will
hold in confidence the Confidential Information and will not disclose it to any
person except with the specific prior written consent of the Employer or except
as otherwise expressly permitted by the terms of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to all of
the protections and benefits under applicable state trade secret laws and any
other applicable law. If any information that the Employer deems to be a trade
secret is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless, be
considered Confidential Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Employer submit proof of the
economic value of any trade secret or post a bond or other security.
9
<PAGE>
(iii) None of the foregoing obligations and restrictions applies to
any part of the Confidential Information that the Executive demonstrates was or
became generally available to the public other than as a result of a disclosure
by the Executive.
(iv) The Executive will not remove from the Employer's premises
(except to the extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record, notebook, plan,
model, component, device, or computer software or code, whether embodied in a
disk or in any other form (collectively, the "Proprietary Items"). The Executive
recognizes that, as between the Employer and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement by either party, or
upon the request of the Employer during the Employment Period, the Executive
will return to the Employer all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the Executive shall not
retain any copies, abstracts, sketches, or other physical embodiment of any of
the Proprietary Items.
(B) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional compensation, all of
the Executive's right to the Employee Invention for the United States and all
foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order to apply
for and obtain patents or other registrations with respect to any Employee
Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance but without
expense to the Executive in support of the Employer's rights to any Employee
Invention.
7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy
arising from or relating to this Agreement be submitted for adjudication to any
court, arbitration panel, or other third party, the preservation of the secrecy
of Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
10
<PAGE>
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary and
intellectual character; and the provisions of this Section 8 are reasonable and
necessary to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in
consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer, the Executive covenants that he will not, directly or
indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, engage or invest in, own, manage, operate, finance,
control, or participate in the ownership, management, operation, financing, or
control of, be employed by, associated with, or in any manner connected with,
lend the Executive's name or any similar name to, lend Executive's credit to or
render services or advice to, any business whose products or activities are
similar to, or compete in whole or in part with, the products or activities of
the Employer; provided, however, that the Executive may purchase or otherwise
acquire up to (but not more than) one percent of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934;
(b) whether for the Executive's own account or the account of any
other person at any time during the Employment Period and the Post-Employment
Period, (i) solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the Employer
at any time during the Employment Period or in any manner induce or attempt to
induce any employee of the Employer to terminate his employment with the
Employer; or (ii) interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(c) at any time during or after the Employment Period, disparage the
Employer or any of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period"
means the 18-month period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
11
<PAGE>
The period of time applicable to any covenant in this Section 8.2
will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of the
relevant portions of this Agreement.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by
the Employer as a result of a breach of the provisions of this Agreement
(including any provision of Sections 7 and 8) would be irreparable and that an
award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS
The covenants by the Executive in Sections 7 and 8 are essential elements
of this Agreement, and without the Executive's agreement to comply with such
covenants, the Employer would not have entered into this Agreement or employed
or continued the employment of the Executive. The Employer and the Executive
have independently consulted their respective counsel and have been advised in
all respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the execution
and delivery by the Executive of this Agreement do not, and the performance by
the Executive of the Executive's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
12
<PAGE>
9.4 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by either party in
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement can be discharged by one party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement.
9.5 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding upon,
the parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.6 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nation-ally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Room Plus, Inc.
91 Michigan Avenue
Paterson, NJ 07503
Attention: Marc Zucker
Facsimile No.: (973) 523-9288
13
<PAGE>
If to the Executive:
Ronald A. Kaplan
150 West 56th Street
Apt. 5804
New York, New York 10019
9.7 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, contains the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
9.8 GOVERNING LAW
This Agreement will be governed by the laws of the State of New York
without regard to conflicts of laws principles.
9.9 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
9.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.11 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
14
<PAGE>
9.12 WAIVER OF JURY TRIAL
THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
ROOM PLUS, INC.
By: /s/ Marc Zucker
-----------------------
Marc Zucker
Chief Executive Officer
/s/ Ronald A. Kaplan
-----------------------
Ronald A. Kaplan
15
EXHIBIT 11
ROOM PLUS, INC.
Computation of Earnings per Common Share
(See Note 1 of Notes to Financial Statements)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1998 1997
---- ----
<S> <C> <C>
Basic/diluted loss per share
Net loss applicable to common stock $(2,774,792) $(1,900,051)
=========== ===========
Total common shares and equivalent common shares 4,385,000 4,385,000
=========== ===========
Basic/diluted loss per common share $ (.63) $ (.43)
=========== ===========
</TABLE>
Computation of dilutive loss per share would have an anti-dilutive effect.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROOM PLUS, INC.
Date: April 15, 1999 By: /s/ Ronald A. Kaplan
----------------------
Ronald A. Kaplan, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature and Title Date
------------------- ----
By: /s/ David A. Belford April 15, 1999
----------------------
Name: David A. Belford
Title: Chairman of the Board
By: /s/ Ronald A. Kaplan April 15, 1999
----------------------
Name: Ronald A. Kaplan
Title: Chief Executive Officer, Director
By: /s/ Marc Zucker April 15, 1999
----------------------
Name: Marc Zucker
Title: President-Merchandising, Director
By: /s/ Allan Socher April 15, 1999
----------------------
Name: Allan Socher
Title: President-Advertising, Director
By: /s/ Jay H. Goldberg April 15, 1999
----------------------
Name: Jay H. Goldberg
Title: Chief Financial Officer and
Chief Accounting Officer
EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10- KSB,
into the Company's previously filed Registration Statement,
File No. 333-60169.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Columbus, Ohio,
April 15, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001009773
<NAME> Room Plus, Inc.
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 127,887
<SECURITIES> 0
<RECEIVABLES> 151,533
<ALLOWANCES> 0
<INVENTORY> 1,940,428
<CURRENT-ASSETS> 2,506,235
<PP&E> 3,814,273
<DEPRECIATION> 2,165,260
<TOTAL-ASSETS> 4,489,478
<CURRENT-LIABILITIES> 2,559,824
<BONDS> 0
0
0
<COMMON> 5,832
<OTHER-SE> 7,525,250
<TOTAL-LIABILITY-AND-EQUITY> 4,489,478
<SALES> 19,223,455
<TOTAL-REVENUES> 19,223,455
<CGS> 8,457,924
<TOTAL-COSTS> 9,789,125
<OTHER-EXPENSES> 2,207,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 438,850
<INCOME-PRETAX> (1,601,792)
<INCOME-TAX> 1,173,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,774,792)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
