<PAGE>
As filed with the Securities and Exchange Commission on October 18, 1996
Registration No. 333-5553
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
______________
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
DECOR GROUP, INC.
(Name of small business issuer in its charter)
Delaware 2590 13-3911958
-------- --------------------------- ------------------
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)
320 Washington Street
Mt. Vernon, New York 10553
(914) 665-5400
(Address and telephone number
of principal executive offices and principal place of business)
Donald Feldman
President
320 Washington Street
Mt. Vernon, New York 10553
(914) 665-5400
(Name, address and telephone number of agent for service)
Copies to:
Hartley T. Bernstein, Esq. Steven A. Morse, Esq.
Bernstein & Wasserman, LLP Lester Morse, P.C.
950 Third Avenue 111 Great Neck Road
New York, NY 10022 Great Neck, NY 11021
(212) 826-0730 (516) 487-1446
(212) 371-4730 (Fax) (516) 487-1452 (Fax)
Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis, pursuant to Rule 415 under the
Securities Act of 1933, check the following box: |X| continued overleaf
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Title of Each Class of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Registered Registered Offering Price Per Aggregate Offering Price Fee
Security (1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.0001 per
share(2) 345,000 $10.00 $ 3,450,000 $ 1,189.56
- --------------------------------------------------------------------------------------------------------------------------------
Representative's Share Purchase Option(3) 30,000 $ .001 $ 30.00 $ 0.01
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share 30,000 $16.50 $ 495,000 $ 170.67
- --------------------------------------------------------------------------------------------------------------------------------
Selling Securityholders
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share(4) 25,000 $10.00 $ 250,000 $ 86.20
- --------------------------------------------------------------------------------------------------------------------------------
Class A Warrants(5) 1,500,000 -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying Class A Warrants(6) 1,500,000 $ 5.25 $ 7,875,000 $ 2,715.30
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per 1,031,000 $10.00 $10,310,000 $ 3,554.89
share (7)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL -- -- $22,380,030 $ 7,716.63
Previously Paid -- -- -- 10,552.93
----------
Amount Due -- -- -- $ 0
==========
================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating registration fee.
(2) Includes 30,000 shares of Common Stock subject to the Representative's
over-allotment option (the "Over-Allotment Option").
(3) The Representative's share purchase option entitles the Representative to
purchase up to 30,000 shares of Common Stock at 165% of the offering price
(the "Representative's Share Purchase Option").
(4) Represents the resale of 25,000 shares of Common Stock held by a Selling
Securityholder.
(5) Represents the resale of 1,500,000 Class A Warrants.
(6) Represents the resale of 1,500,000 shares of Common Stock upon the exercise
of 1,500,000 Class A Warrants issuable in connection with certain Bridge
Loans.
(7) Represents the resale of 1,031,000 shares of Common Stock held by certain
Selling Securityholders.
<PAGE>
DECOR GROUP, INC.
CROSS REFERENCE SHEET
(Showing Location in the Prospectus of Information
Required by Items 1 through 23, Part I, of Form SB-2)
Item in Form SB-2 Prospectus Caption
----------------- ------------------
1. Front of Registration
Statement and Outside Front
Cover of Prospectus................ Facing Page of Registration
Statement; Outside Front
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......... Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information and Risk
Factors............................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Use of Proceeds
5. Determination of Offering Price.... Outside Front Cover Page of
Prospectus; Underwriting;
Risk Factors
6. Dilution........................... Dilution; Risk Factors
7. Selling Securityholders........... Description of Securities; Selling
Securityholders
8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; Risk Factors;
Underwriting
9. Legal Proceedings.................. Business-Litigation
10. Directors, Executive Officers,
Promoters and Control Persons...... Management
11. Security Ownership of Certain
Beneficial Owners and Management... Principal Stockholders
i
<PAGE>
Item in Form SB-2 Prospectus Caption
----------------- ------------------
12. Description of Securities.......... Description of Securities;
Underwriting
13. Interest of Named Experts and
Counsel............................ Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......... Underwriting; Certain Transactions
15. Organization Within Last 5 Years... Prospectus Summary; The Company;
Business
16. Description of Business............ Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation............... Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property............ Business - Facilities
19. Certain Relationships and
Related Transactions............... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........ Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting
21. Executive Compensation............. Management - Executive
Compensation
22. Financial Statements............... Selected Financial Data;
Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosures.......... *
- ----------
* Omitted because Item is not applicable.
ii
<PAGE>
Explanatory Note
This registration statement covers (i) the primary offering
("Offering") of shares of Common Stock by Decor Group, Inc. (the "Company") and
shares of Common Stock owned and offered by a certain holder of shares (the
"Shareholder") and (ii) the concurrent offering of securities by certain selling
securityholders. The Company is registering, under the primary prospectus
("Primary Prospectus"), (i) 300,000 shares of Common Stock and (ii) 25,000
shares of Common Stock on behalf of the Shareholder. The Company is also
registering under an alternate prospectus ("Alternate Prospectus") the resale of
(i) 1,031,000 shares of Common Stock issued in March 1996 to certain
stockholders (the "Selling Stockholders"), and (ii) 1,500,000 Class A Warrants
issuable to certain bridge lenders to the Company (the "Bridge Lenders") upon
the effective date of this offering and the shares of Common Stock issuable upon
the exercise thereof. See "Bridge Financing." The Alternate Prospectus pages,
which follow the Primary Prospectus, are to be combined with all of the sections
contained in the Primary Prospectus, with the following exceptions: the front
and back cover pages and the sections entitled "Concurrent Sales," "Selling
Securityholders," and "Plan of Distribution." Such sections from the Alternate
Prospectus pages will be added to the Primary Prospectus. The "Underwriting"
section contained in the Primary Prospectus will not be included in the
Alternate Prospectus. Furthermore, all references contained in the Alternate
Prospectus to "the Offering" or "this Offering" shall refer to the Company's
Offering under the Primary Prospectus.
iii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 18, 1996
DECOR GROUP, INC.
325,000 Shares of Common Stock
Offering Price Per Share - $10.00
______________
Decor Group, Inc. ("Decor" or the "Company") is offering 300,000 shares
of Common Stock, par value $.0001 per share (the "Common Stock"), at an offering
price of $10.00 per share. This offering also includes 25,000 shares of Common
Stock owned and offered by the holder thereof (the "Shareholder"). The Company
anticipates receiving approximately $2,010,000 in net proceeds of the total
proceeds of $3,000,000 from this offering (assuming the Over-Allotment Option is
not exercised by the Underwriters). Of the net proceeds of $2,010,000,
approximately $260,000, or 12.9% of the net proceeds, will be used to repay
certain indebtedness incurred by the Company in March 1996. See "Use of
Proceeds." The Company will not receive any of the proceeds from the sale of the
shares of Common Stock by the Shareholder. See "Risk Factors" and "Description
of Securities." The Risk Factor section begins on page 14 of this Prospectus.
The Company has applied for quotation of its shares of Common Stock on
the NASD OTC Bulletin Board, although there can be no assurance that an active
trading market will develop even if the securities are accepted for quotation.
The Company's application to quote its securities on The Nasdaq SmallCap Market
was denied by the staff of Nasdaq in October 1996. The Company has filed an
appeal from the Staff's denial, requesting a hearing on its listing application.
See "Risk Factors - Lack of Prior Market for Common Stock; No Assurance of
Public Trading Market", "Nasdaq Requirements; Penny Stock; Additional
Requirements on Broker Dealer Sales for Securities" and "Penny Stock Regulations
May Impose Certain Restrictions on Marketability of Securities."
Prior to this Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be $10.00 per share. The price of the shares has been determined by negotiations
between the Company and VTR Capital, Inc., the representative (the
"Representative") of the underwriters of this Offering (the "Underwriters"), and
does not necessarily bear any relationship to the Company's assets, book value,
net worth or results of operations or any other established criteria of value.
For additional information regarding the factors considered in determining the
initial public offering price of the shares of the Common Stock. See "Risk
Factors - No Prior Public
<PAGE>
Market; Possible Volatility of Stock Price," "Description of Securities" and
"Underwriting."
The registration statement of which this Prospectus forms a part also
covers the resale of (i) 1,500,000 Class A Redeemable Common Stock Purchase
Warrants (the "Class A Warrants") issuable to certain bridge lenders (the
"Bridge Lenders") in connection with the Company's recent bridge financings (the
"Bridge Loans") and 1,500,000 shares of Common Stock issuable upon exercise of
the Class A Warrants, and (ii) 1,031,000 shares of Common Stock held by certain
stockholders (the "Selling Stockholders"). See "Description of Securities." The
Bridge Lenders and the Selling Stockholders are hereinafter collectively
referred to as the "Selling Securityholders." None of the securities offered by
the Selling Securityholders are being underwritten. The fact that Class A
Warrants may become tradeable may have a depressive effect on the market price
of the shares of Common Stock. The officers and directors of the Company as well
as certain members of their immediate families (including certain Selling
Securityholders holding an aggregate of 125,000 shares of Common Stock) and
Interiors, Inc. have agreed not to sell or transfer the securities of the
Company held thereby for a period of twenty-four (24) months following the
Effective Date, subject to earlier release by the Representative. The Company
will not receive any of the proceeds on the sale of the securities by the
Selling Securityholders. The resale of the securities of the Selling
Securityholders are subject to Prospectus delivery and other requirements of the
Securities Act of 1933, as amended (the "Act"). Sales of such securities or the
potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Selling Securityholders" and "Risk
Factors - Shares Eligible for Future Sale May Adversely Affect the Market."
______________
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
INCLUDED IN THE SHARES OF COMMON STOCK OFFERED HEREBY AND SHOULD BE CONSIDERED
ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
"DILUTION" AND "RISK FACTORS."
______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
Underwriting Proceeds to Selling
Discount and Proceeds to Securityholders
Price to Public Commissions(1) Company(2) (3)
=============================================================================================
<S> <C> <C> <C> <C>
Per Share Offered by
the Company........ $10.00 $1.00 $9.00 $----
- ---------------------------------------------------------------------------------------------
Per Share Offered by
Selling
Securityholders $10.00 $1.00 $---- $9.00
- ---------------------------------------------------------------------------------------------
Total(4).......... $3,250,000 $325,000 $2,700,000 $270,000
=============================================================================================
</TABLE>
The date of this Prospectus is October __, 1996
VTR CAPITAL, INC.
Investment Bankers
(Notes to Cover)
- -----------
(1) Does not reflect additional compensation to be received by the
Representative in the form of: (i) a non-accountable expense allowance of
$97,500, $7,500 of which is being paid on behalf of the Shareholder,
($111,000 if the Over-Allotment Option (as hereinafter defined) is
exercised in full), (ii) a two (2) year financial advisory and investment
banking agreement providing for an aggregate fee of $100,000 payable in
advance at the closing of this Offering, and (iii) an option to purchase
30,000 shares of Common Stock at $16.50 per share (the "Representative's
Share Purchase Option"), exercisable for a period of four (4) years,
commencing one (1) year from the effective date of this Offering. The
Company and the Representative have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Act"). The Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy and is therefore unenforceable. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $682,500 including the Representative's non-accountable expense
allowance ($97,500) and the financial advisory fee referred to in Footnote
(1) (not assuming exercise of the Over-Allotment Option (as hereinafter
defined), registration fees, transfer agent fees, NASD fees, Blue Sky
filing fees and expenses, legal fees and expenses, and accounting fees and
expenses. See "Use of Proceeds" and "Underwriting."
3
<PAGE>
(3) The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Shareholder. The Shareholder will not bear any expenses
of this offering. See "Selling Securityholders" and "Underwriting."
(4) Does not include 45,000 additional shares of Common Stock from the Company
to cover over-allotments which the Representative has an option to purchase
for thirty (30) days from the date of this Prospectus at the initial public
offering price, less the Representative's discount (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total
price to the public, underwriting discounts and commissions and the
estimated expenses including the Representative's non-accountable expense
allowance will be $3,450,000, $1,048,500 (including the financial advisory
fee paid to the Representative), respectively, and the net proceeds to the
Company will be $2,401,500. See "Underwriting."
The shares of Common Stock are offered by the Representative on a "firm
commitment" basis, when, as and if delivered to and accepted by the
Representative, and subject to prior sale, allotment and withdrawal,
modification of the offer with notice, receipt and acceptance by the
Representative named herein and subject to its right to reject orders in whole
or in part and to certain other conditions. It is expected that the delivery of
the certificates representing the securities and payment therefor will be made
at the offices of the Representative on or about ____ __, 1996.
AVAILABLE INFORMATION
The Company does not presently file reports and other information with the
Securities and Exchange Commission (the "Commission"). However, following
completion of this Offering, the Company intends to furnish its stockholders
with annual reports containing audited financial statements examined and
reported upon by its independent public accounting firm and such interim
reports, in each case as it may determine to furnish or as may be required by
law. After the effective date of this Offering, the Company will be subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission.
Reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained at the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a registration statement on Form SB-2
(herein together with all amendments and exhibits referred to as the
"Registration Statement") under the Act of which this Prospectus forms a part.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information
reference is made to the Registration Statement.
4
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASD OTC BULLETIN BOARD OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE SECURITIES TO BE SOLD IN THIS OFFERING MAY BE
SOLD TO CUSTOMERS OF THE UNDERWRITERS WHICH MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, OF WHICH THERE
CAN NO ASSURANCE. SALES WILL NOT BE MADE BY THE UNDERWRITERS TO DISCRETIONARY
ACCOUNTS. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE SALE OR
PURCHASE OF THE COMMON STOCK THROUGH AND/OR WITH THE UNDERWRITERS.
ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITERS MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITERS, IF THEY PARTICIPATE IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR COMMON STOCK. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITERS WILL OR WILL NOT CONTINUE TO BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREUNDER MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE UNDERWRITERS PARTICIPATION
IN SUCH MARKET. SEE "RISK FACTORS - LACK OF PRIOR MARKET FOR COMMON STOCK; NO
ASSURANCE OF PUBLIC TRADING MARKET." THE UNDERWRITERS MAY DISCONTINUE SUCH
ACTIVITIES AT ANY TIME OR FROM TIME TO TIME.
[PICTURES/ILLUSTRATIONS
NOT YET DETERMINED]
5
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. In
addition, unless otherwise indicated to the contrary, all information appearing
herein does not give effect to (a) 45,000 shares of Common Stock issuable upon
exercise of the Over-Allotment Option; (b) 30,000 shares of Common Stock
issuable upon exercise of the Representative's Share Purchase Option; (c)
1,500,000 shares of Common Stock issuable upon exercise of Class A Warrants
issuable to certain Selling Securityholders, (g) 250,000 shares of Common Stock
issuable upon the conversion of 250,000 shares of Series A Convertible Preferred
Stock and (h) 54,934 shares of Common Stock issuable to Interiors, Inc. upon
conversion of 54,934 shares of Series C Preferred Stock. The following
information has been adjusted to reflect a 1-for-2 reverse split effected by the
Company in October 1996 with respect to its shares of capital stock outstanding.
See "Description of Securities," "Certain Transactions" "Underwriting," and
"Management - Stock Option Plans and Agreements." Each prospective investor is
urged to read this Prospectus in its entirety.
The Company
Decor Group, Inc., a Delaware corporation (the "Company" or "Decor"), was
incorporated in March 1996. Artisan Acquisition Corporation, a Delaware
corporation wholly owned by the Company ("AAC"), was incorporated in March 1996
for the purpose of entering into an Asset Purchase Agreement with Artisan House,
Inc. ("Artisan House") pursuant to which AAC has agreed to purchase
substantially all of the operating assets, and assume certain liabilities, of
Artisan House (the "Artisan House Transaction") for an aggregate purchase price
of $3,526,400, subject to certain adjustments. The Company anticipates closing
the Artisan House Transaction prior to, or contemporaneously with, the closing
of this Offering. Unless otherwise indicated, references made hereinafter to the
Company include AAC and Artisan House. See "Business Acquisition of Artisan
House."
Artisan House, located in Los Angeles, California and founded in 1964, is
engaged in the design, manufacturing and marketing of metal wall, table and
freestanding sculptures. Management believes that Artisan House's products
bridge the gap between high priced gallery art and mass produced decorative
pieces. Artisan House products retail from approximately $100 to over $400. The
primary goal of the Company is to supply a broad spectrum of design driven
sculpture and decorative accessories at moderate prices.
Artisan House markets its products through a network of independent
commissioned sales representatives, both domestically and internationally, as
well as through strategically located showrooms servicing the home furnishing
and decorative accessory industries. Artisan House has
6
<PAGE>
permanent showrooms located in High Point, NC and San Francisco, CA that are
leased and controlled by the Artisan House, as well as sales representative
showrooms in Atlanta and Dallas.
Artisan House's typical customers include fine furniture stores, interior
decorators and major department stores such as Sears and JC Penny, large
furniture chains such as Levitz and Wickes, and catalogue houses. For the fiscal
year ended June 30, 1996, sales to Sears, JC Penny, Levitz and Wickes
represented 5.1%, 4.3%, 8.6%, and 2.7%, respectively of total sales. See
"Business."
The Company believes that the home furnishing and decorative accessory
supply industry will consolidate as major retailers attempt to increase their
"single-sourcing" in order to reduce distribution and related expenses. The
Company intends to capitalize on the fragmented nature of the supply side of the
home decorative accessory industry and the consolidation of such industry
through the acquisition of manufacturers and distributors of art-related
decorative accessories. Through such acquisitions, the Company intends to
increase the number and nature of products manufactured by the Company. Other
than the acquisition of Artisan House, there are no plans, arrangements, or
understandings with regard to potential acquisitions. It should be noted that
under certain circumstances acquisitions by the Company shall require the prior
written approval of the Representative.
Following this Offering, Interiors will own (i) 250,000 shares of the
Company's Series A Preferred Stock (non-voting shares), (ii) 10,000,000 shares
of Series B Non-Convertible Preferred Stock and (iii) 54,934 shares of Series C
Preferred Stock, representing 86.4% of the total voting stock outstanding (based
upon 1,612,500 shares of Common Stock outstanding and assuming conversion of
250,000 of Series A Preferred Stock). Since holders of Series B Preferred Stock
and Common Stock do not have any cumulative voting rights and directors are
elected by a majority vote of the voting shares outstanding, Interiors is in a
position to control the election of directors as well as the affairs of the
Company. In addition, Max Munn, a member of the Company's Board of Directors, is
also the President and director of Interior's Board of Directors.
Notwithstanding the foregoing, Interiors has entered into a voting agreement
with the Company's Board of Directors, pursuant to which the Board shall have
the right to vote the 10,000,000 shares of Series B Preferred Stock held by
Interiors until December 31, 1997. Further, the Company has entered into a two
year Management Services Agreement with Interiors. Interiors has, pursuant to
such agreement, agreed to advise the Company on the manufacturing, sale,
marketing and distribution of the Company's products as well as providing the
Company accounting and administrative services and strategic planning with
regard to joint ventures, acquisitions, and other long term business
initiatives. See "Risk Factors - Control by Interiors" and "Business
Relationship with Interiors, Inc."
In October 1996, the Company effected a recapitalization with respect to
its outstanding shares of capital stock (the "Recapitalization"). Pursuant to
the Recapitalization, the Company effected a 1-for-2 reverse stock split with
respect to its shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock. As a result
7
<PAGE>
of the Recapitalization and prior to the completion of this offering, the
Company has (i) 250,000 shares of Series A Preferred Stock, (ii) 10,000,000
shares of Series B Preferred Stock, (iii) 54,934 shares of Series C Preferred
Stock, and (iv) 1,312,500 shares of Common Stock.
The Company's executive offices are located at 320 Washington Street, Mt.
Vernon, New York 10553. Its telephone number is (914) 665-5400. See "Risk
Factors" for a discussion of certain factors that should be considered in
evaluation the Company and its business.
8
<PAGE>
The Offering
Securities Offered by the
Company (1).............................. 300,000 shares of Common Stock
Securities Offered by the
Shareholder.............................. 25,000 shares of Common Stock
Securities Outstanding Prior to
the Offering:
Series A Convertible
Preferred Stock..................... 250,000 Shares
Series B Non-Convertible
Preferred Stock..................... 10,000,000 Shares
Series C Convertible
Preferred Stock..................... 54,934 Shares
Common Stock............................ 1,312,500 Shares(2)
Class A Warrants........................ 12,500 Warrants(3)
Securities Outstanding Subsequent
to the Offering:
Series A Convertible
Preferred Stock..................... 250,000 Shares
Series B Non-Convertible
Preferred Stock.................... 10,000,000 Shares
- --------
(1) Concurrently with this Offering, the Company is registering (i)
1,031,000 shares of Common Stock on behalf of certain Selling
Stockholders, and (ii) 1,500,000 Class A Warrants on behalf of certain
Selling Warrantholders. See " Selling Securityholders" and "Certain
Transactions".
(2) Includes 25,000 shares of Common Stock held by the Shareholder.
(3) Includes 12,500 Class A Warrants held by the Shareholder, but does not
include 1,500,000 Class A Warrants issuable to the Bridge Lenders.
9
<PAGE>
Series C Convertible
Preferred Stock....................... 54,934 Shares
Common Stock............................ 1,612,500 Shares(1)
Class A Warrants...................... 1,512,500 Shares(2)
Use of Proceeds......................... The net proceeds to the Company
from the sale of the 300,000
shares of Common Stock offered
hereby, after deducting offering
expenses and the $100,000
financial advisory fee, are
estimated to be $2,010,000. The
net proceeds are expected to be
applied for the following
purposes: purchase of all of the
operating assets and assumptions
of certain liabilities of Artisan
House, repayment of certain
indebtedness, and working
capital. "See use of Proceeds".
Risk Factors............................. Qualified Auditor's Report of
Accountants, Limited Operating
History, No Assurance that the
Company will Successfully
Commence Business, Dependence on
Offering Proceeds; Possible Need
for Additional Financing,
Significant Industry Competition,
Dilution; Equity Securities and
Sold Previously at Below Offering
Price, Conflicts of Interest,
Governmental Regulation,
Dependence on Interiors,
Dependence on Key Personnel,
Control by Interiors, Acquisition
of Artisan House, Trademark
Protection, Broad Discretion in
Application of Proceeds, Charges
for Interest Expense Relating to
Bridge Notes, Dependence on
Skilled Craftsmen and
Salespersons, Significant
Customer, Absence of Dividends,
No Prior Public Market; Possible
Volatility of Stock Price, Lack
of Prior Market for Common Stock,
No Assurance of Public Trading
Market, Current Prospectus and
State Blue Sky Registration in
Connection with the Exercise of
the Warrants, Impact on Market of
Warrant Exercise,
Representative's Share Purchase
Option, "Penny Stock" Regulations
May Impose Certain Restrictions
on Marketability of Securities,
- --------
(1) Excludes 50,000 shares issuable to Artisan House, Inc. upon the
closing of the Artisan House Transaction.
(2) Assumes the issuance of 1,500,0000 Class A Warrants to the Bridge
Lenders.
10
<PAGE>
Redemption of Redeemable
Warrants, Limitation on Director
Liability, Limited Number of
Management Personnel, Shares
Eligible of Future Sale May
Adversely Affect the Market and
Anti-Takeover Effect of General
Corporation Law of Delaware. An
investment in the securities
offered hereby involves a high
degree of risk and immediate
substantial dilution of the book
value of the Common Stock and
should be considered only by
persons who can afford the loss
of their entire investment. See
"Dilution" and "Risk Factors."
Proposed OTC Bulletin Board
Symbols(1)................................. Common Stock-_____
- ----------
(1) Although the Company intends to apply for inclusion of the shares of Common
Stock on the NASD OTC Bulletin Board, there can be no assurance that the
Company's securities will be included for quotation, or if so included that
the Company will be able to continue to meet the requirements for continued
quotation, or that a public trading market will develop or that if such
market develops, it will be sustained. See "Risk Factors-Lack of Prior
Market for Common Stock; No Assurance of Public Trading Market."
11
<PAGE>
Summary Financial Information
The selected historical financial data for the period ended June 30, 1996
and for the period ended March 31, 1996 presented below are derived from the
unaudited pro forma combined financial statements and the historical financial
statements of the Company. The data set forth below should be read in
conjunction with and is qualified in its entirety by the Company's financial
statements, related notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations. See "Financial Statements," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The following summary financial information has been summarized
from the Company's financial statements included elsewhere in this Prospectus.
The information should be read in conjunction with the financial statements and
the related notes thereto See "Financial Statements."
Summary Statement of Operations
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
As of June As of June 30, As of March As of March
30, 1996 1996, As 31, 1996, (4) 31, 1996, As
($)(1) Adjusted(1)(2)(3) Adjusted(3)
($) (4)(5)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ---- 1,386,976 ---- 4,809,422
Gross Profit ---- 647,262 ---- 2,213,039
Operating Income (Loss) (138,851) (32,614) (100,000) 99,448
Net (Loss) (246,001) (176,765) (99,750) (20,054)
Net (Loss) per share (.09) (.06) (.04) (.01)
Weighted Average number of 2,812,500 3,162,500 2,812,500 3,162,500
Common Shares outstanding
- --------------------------------------------------------------------------------------------
</TABLE>
Summary Balance Sheet Data
- --------------------------------------------------------------------------------
At June 30, 1996 At June 30, 1996, As
($) Adjusted(2) ($)
- --------------------------------------------------------------------------------
Working Capital (deficit) (216,109) 1,740,297
Total Assets 2,574,399 7,172,572
Total Liabilities 300,850 1,837,681
Stockholder's Equity 2,273,549 5,334,891
- --------------------------------------------------------------------------------
- ----------
(1) Includes results for the three months ended June 30, 1996 for Decor Group,
Inc.
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<PAGE>
(2) Adjusted to reflect the closing of the Artisan House Transaction and
adjusted to reflect the sale of 300,000 shares of Common Stock offered
hereby and the net proceeds therefrom of $2,010,000 and preferred stock
sale for $824,000.
(3) Includes results for the three months ended June 30, 1996 for Artisan
House.
(4) Includes results for the period March 1, 1996 (Inception) through March 31,
1996 for Decor Group, Inc.
(5) Includes results for the fiscal year ended January 31, 1996 for Artisan
House.
13
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative and involves
a high degree of risk and substantial dilution and should only be purchased by
investors who can afford to lose their entire investment. Prospective
purchasers, prior to making an investment, should carefully consider the
following risks and speculative factors, as well as other information set forth
elsewhere in this Prospectus, associated with this Offering, including the
information contained in the Financial Statements herein.
1. Qualified Auditor's Report of Accountants. As a result of the Company's
current financial condition, the Company's independent auditors have qualified
their report on the Company's financial statement for the period from March 1,
1996 (inception) to March 31, 1996. The Company's ability to continue in the
normal course of business is dependent upon successful completion of its planned
public offering of securities to raise capital and the success of future
operations. These uncertainties raise substantial doubt about its ability to
continue as a going concern. As of June 30, 1996, the Company had a working
capital deficit of approximately $216,000 and a lack of cash flow from
operations. The Company's operations during the aforementioned period have
solely related to identifying and negotiating with acquisition candidates.
Substantially all of these activities related to the acquisition of Artisan
House. Because of the Company's inability to generate cash from operations, the
Company's auditors have issued a going concern opinion with respect to the
Company's audited financial statements. There can be no assurance that the
Company will not incur net losses in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business, "
"Use of Proceeds, " and "Financial Statements and Notes."
2. Limited Operating History, No Assurance that the Company will
Successfully Commence Business. The Company was organized on March 1, 1996 and
is in its early stage of development. The Company's business consists primarily
of the assets acquired from Artisan House (the "Artisan House Transaction"). For
the five months ended June 30, 1996, Artisan House generated revenues of
$2,310,976, had stockholder's equity of $754,305 and working capital of
$683,605. Like any relatively new business enterprise operating in a specialized
and intensely competitive market, the Company is subject to many business risks
which include, but are not limited to, unforeseen marketing and promotional
expenses, unforeseen negative publicity, competition, product liability and lack
of operating experience. If the Company is successful with its proposed public
offering the Company on a pro forma basis at June 30, 1996 would have working
capital of approximately $1,600,000 and stockholders equity of approximately
$4,500,000 including the finalization of the acquisitions of Artisan House and
the receipt of $706,250 resulting from the sale of Preferred Stock in August of
1996. Many of the risks may be unforeseeable or beyond the control of the
Company. There can be no assurance that the Company will successfully implement
its business plan in a timely or effective manner, or that management of the
Company will be able to market and sell enough products to generate sufficient
14
<PAGE>
revenues and continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business," "Use of
Proceeds," "Certain Transactions" and "Financial Statements."
3. Dependence on Offering Proceeds; Possible Need for Additional Financing.
The Company's cash requirements will be significant. The Company is dependent on
the proceeds from this Offering to close the Artisan House Transaction. The
Company anticipates, based on its currently proposed plans, that the proceeds of
this Offering, together with funds generated from operations, will be sufficient
to satisfy its anticipated cash requirements for approximately twelve (12)
months following the consummation of this Offering. In the event that these
plans change, or the costs of development of operations prove greater than
anticipated, the Company could be required to modify its operations, curtail its
expansion or seek additional financing sooner than currently anticipated. The
Company believes that its operations would be restricted absent expansion. Other
than with respect to obtaining the Secured Loan, the Company has no current
arrangements with respect to such additional financing and there can be no
assurance that such additional financing, if available, will be on terms
acceptable to the Company. See "Use Of Proceeds and "Business - Secured Loan
Agreement"."
4. Significant Industry Competition. The market for sculptures and
decorative art products is highly competitive. Although the Company does not
believe there is significant competition in the wall sculpture market,
management believes that the Company competes with numerous manufacturers of
picture framed art as well as manufacturers of decorative accessories. There can
be no assurance that the Company will be able to continue to be able to generate
interest in wall sculptures or to compete successfully with manufacturers of
picture framed art and decorative accessories. See "Business - Competition."
5. Dilution; Equity Securities Sold Previously at Below Offering Price.
Upon completion of this Offering assuming no exercise of the Over-Allotment
Option, and without giving effect to the exercise of the Representative's Share
Purchase Option, the net tangible book value per share of the Company's Common
Stock will be $2.61. At the initial public offering price of $10.00 per share,
investors in this Offering will experience an immediate dilution of
approximately $7.39 or 73.9% in net tangible book value per share and existing
investors will experience an increase of approximately $.93 per share. The
exercise of the Class A Warrants sold to the public by certain Selling
Securityholders will result in future dilution to the public investors. See
"Dilution." The present stockholders of the Company have acquired their
respective equity interest at costs substantially below the public offering
price. Accordingly, to the extent that the Company incurs losses, the public
investors will bear a disproportionate risk of such losses.
6. Conflicts of Interest. After this Offering, Interiors, Inc.
("Interiors") will continue to own 250,000 shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") or 15.5% of the Company's
shares of Common Stock on an as converted basis, 10,000,000
15
<PAGE>
shares of the Company's of Series B Non-Convertible Preferred Stock (the "Series
B Preferred Stock") and 54,934 shares of Series C Convertible Preferred Stock.
Since the Common Stock and the Series B Preferred Stock vote together as a
class, Interiors will own following the completion of this Offering (assuming
the Over-Allotment Option is not exercised, and the Series A Preferred Stock is
converted), 88.3% of the total number of voting shares outstanding.
Notwithstanding the foregoing, Interiors has entered into a voting agreement
with the Company's Board of Directors, pursuant to which the Board shall have
the right to vote the 10,000,000 shares of Series B Preferred Stock held by
Interiors until December 31, 1997. See "Certain Transactions". In addition,
Interiors has agreed, pursuant to the terms of that certain Management Services
Agreement between the Company and Interiors, to provide management,
administrative and marketing services to the Company. Further, Max Munn, the
Chairman of the Board of the Company, is also the President and a director of
Interiors, and Donald Feldman, the Company's President and Chief Financial
Officer, is a director of Interiors. Given that Interiors is engaged in the
business of manufacturing and marketing custom framing and decorative
accessories, a business related to the Company's business, conflicts of interest
may arise in connection with transactions that are mutually beneficial to the
Company and Interiors. No assurance can be given that such a conflict will be
resolved in favor of the Company. In addition, because of Interior's ownership
interest in the Company, the common identity of certain directors and Interior's
role under the Management Services Agreement, certain conflicts of interest may
occur between the Company and Interiors. In circumstances where a conflict of
interest exists, members of the Board of Directors who are also members of the
Interiors Board of Directors may be precluded from participating in corporate
decisions. Specifically circumstances may arise where the Company may consider
issues regarding compensation to be paid to Interiors for services rendered to
the Company, or when the Company considers strategic decisions which may
negatively impact Interiors. Accordingly, no assurance can be given that such
conflicts will be resolved in a manner favorable to the Company. Although the
Board of Directors of the Company has not adopted any written policy on this
matter, the General Corporation Law of the State of Delaware contains specific
provisions governing such conflicts.
7. Governmental Regulation. The Company's operations are subject to
numerous Federal, state and local laws and regulations relating to the
environment and health safety and other regulatory matters. Certain materials
used in the manufacturing of the Company's products such as paints, solvents and
other water-based related finishes may be classified by Federal and certain
state and local governments as "hazardous materials." Control of those
substances is regulated by the Environmental Protection Agency ("EPA") and
certain state and local environmental protection agencies which require reports
and inspect facilities to monitor compliance. In addition, under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"),
any generator of hazardous waste sent to a hazardous waste disposal site is
potentially responsible for the clean up and remediation costs required for such
site in the event that the site is not properly closed by the owner or operator,
irrespective of the amount of waste sent to the site. The Company's
manufacturing facilities have been and will continue to be inspected by the
Occupational Safety and Health Administration and by certain state and local
inspection agencies and departments. The Company has obtained all permits and
anticipates that
16
<PAGE>
its facilities and operations will be in substantial compliance with all
material applicable laws and regulations. Nevertheless, no assurance can be
given that the Company will be able to obtain such permits in the future or that
future events, such as changes in or modified interpretations of existing laws
or regulations or enforcement policies, may give rise to additional compliance
costs that could have a material adverse effect on the Company.
8. Dependence on Interiors. In May 1996, the Company entered into a two
year Management Services Agreement with Interiors, Inc. ("Interiors"). Interiors
has, pursuant to such agreement, agreed to advise the Company on the
manufacturing, sale, marketing and distribution of the Company's products as
well as providing the Company with accounting and administrative services and
strategic planning with regard to joint ventures, acquisitions, and other long
term business initiatives. In exchange for such services, the Company has agreed
to pay to Interiors an annual amount equal to the greater of (i) $75,000 or (ii)
1 1/2% of Excess Cashflow (as defined in the agreement). The Management Services
Agreement is automatically renewable for an additional one (1) year term unless
terminated by either party not less than sixty (60) days prior to the end of the
term. In the event that the Management Services Agreement is terminated for any
reason, the Company's business may be negatively effected. In such an event, the
Company may be required to hire additional personnel or engage one or more
independent contractors at an added cost to the Company. See "Business -
Management Services Agreement" and "Certain Transactions."
9. Dependence on Key Personnel. The Company is substantially dependent on
the continued services of Donald Feldman, the Company's Chief Executive Officer
and Chief Financial Officer, and Henry Goldman who will serve as the President
and Chief Executive Officer of Artisan Acquisition Corp. ("AAC") following the
acquisition of Artisan House. The Company has entered into a three (3) year
employment agreement with Mr. Feldman and AAC has entered into a three (3) year
employment agreement with Mr. Goldman. Should Mr. Feldman or Mr. Goldman not be
able to continue as officers of the Company and AAC, respectively, the Company's
prospects could be adversely affected and as a result the loss of either of
these individuals could materially adversely affect the Company's operations.
The Company currently does not maintain key personnel life insurance for any of
its employees. See "Management."
10. Control by Interiors; Voting Agreement. Following this Offering,
Interiors will own (i) 250,000 shares of the Company's Series A Preferred Stock
(non-voting shares), (ii) 10,000,000 shares of Series B Preferred Stock and
(iii) 54,934 shares of Series C Preferred Stock, representing 86.0% of the total
voting stock outstanding (based upon 1,662,500 shares of Common Stock
outstanding and assuming conversion of 250,000 of Series A Preferred Stock).
Since holders of Series B Preferred Stock and Common Stock do not have any
cumulative voting rights and directors are elected by a majority vote of the
voting shares outstanding, Interiors is in a position to control the election of
directors as well as the affairs of the Company. Notwithstanding the foregoing,
Interiors has entered into a voting agreement with the Company's Board of
Directors, pursuant to which the Board shall have the right to vote the
10,000,000 shares of Series B Preferred Stock held by Interiors until December
31, 1997. As a result, the
17
<PAGE>
Board of Directors will be in position to elect the persons nominated thereby as
directors. Such control could preclude any unsolicited acquisition of the
Company which may adversely effect the market price of the shares of Common
Stock. In addition, Max Munn, a member of the Company's Board of Directors is
also the President and director of Interior's Board of Directors. Such control
could also preclude an unsolicited acquisition of the Company and consequently,
adversely affect the market price of the Common Stock. See "Description of
Securities." Further, the Company has entered into a Management Services
Agreement with Interiors, pursuant to which Interiors has agreed to advise and
assist the Company in exchange for payments to be made by the Company. As a
result, Interiors may derive substantial revenue from the Company and may
influence the Company's day-to-day operations. See "Business - Management
Services Agreement" and "Certain Transactions."
11. Limited Number of Management Personnel. There is currently only one (1)
executive officer of the Company. Following this Offering, there can be no
assurance that, if the Company grows, that current management will be able to
continue to properly manage the Company's affairs. Further, there can be no
assurance that the Company will be able to identify additional qualified
managers on terms economically feasible to the Company.
12. Dependence on Trademarks, Copyrights and License Rights. The trademarks
"Artisan House", "C. Jere", "Sautere", and "Glendale Ironworks" have been
registered with the United States Patent and Trademark Office ("PTO"). The
Company also has copyright protection on virtually all of its designs used to
manufacture the Company's sculptures. The Company presently intends to make all
appropriate filings and registrations and take all other actions necessary to
protect all of its intellectual property rights. There can be no assurance,
however, that the Company will be able to effectively protect such property
rights. The failure by the Company to protect such rights from unlawful and
improper appropriation may have a material adverse effect on the Company.
Although to date no claims have been brought against the Company alleging that
it infringes on the intellectual property rights of others, there can be no
assurance that such claims will not be brought against the Company in the
future, or that if made, such claims will not be successful. In addition to any
potential monetary liability for damage, the Company could be required to obtain
a license in order to continue to use the trademarks in question or could be
enjoined from using such trademarks if such license were not made available on
acceptable terms. If the Company becomes involved in such litigation, it may
divert significant Company resources, which could have a material adverse effect
on the Company and its results or operations, and, if such a claim were
successful, the Company's business could be materially adversely affected. See
"Business-Products; Trademarks."
The Company manufactures several products pursuant to the terms of certain
license agreements with the owners of such rights. All of such agreements are
non-exclusive and require the Company to pay royalties to the licensors based
upon revenues from the sale by the Company of such products. In the event that
such licenses are terminated or that the Company is unable to renew such
licenses, or the Company may only renew licenses on terms and conditions
unfavorable to the Company, the Company's businesses may be materially and
adversely effected. See "Business - License Agreements."
18
<PAGE>
13. Charges for Interest Expense Relating to Bridge Notes. In March 1996
the Company issued $250,000 in principal amount of 8% Notes in connection with a
bridge financing. Management believes that based on the nature of such
borrowings, the Company's position and the current economic environment, such
interest rates may not be reflective of the effective position and the market
rate of interest. Accordingly, the Company recorded a discount on the bridge
notes of $214,300 at June 30, 1996 which will be amortized over the life of the
loans. See "Bridge Financing" and "Management's Discussion and Analysis."
14. Dependence on Skilled Craftsmen and Salespersons. The Company relies on
its skilled craftsmen with specialized skills in the design, crafting and
manufacture of its products. Although the Company attempts to hire and train
skilled craftsmen, the inability of the Company to retain craftsmen and creative
designers may adversely affect operations. The loss of such persons could have a
material adverse impact on the Company.
15. Significant Customers. For the period year ending June 1996, Artisan
House's five largest customers purchased approximately 24.5% of the net sales of
Artisan House. The top five customers Levitz/Homemaker, Sears, JC Penney, Parke
Bell, and Wicks represented 8.6%, 5.1%, 4.3%, 3.8% and 2.7% of net sales,
respectively. In light of the fact that such customers are not parties to any
on-going contract to purchase the Company's products, there can be no assurance
that these significant customers will continue to make purchases at the same
level or at all. Failure by these customers to continue to purchase products
from the Company could have an adverse effect on the Company's business.
16. Absence of Dividends. The Company has not paid and does not anticipate
paying any cash dividends on its Common and Preferred Stock in the foreseeable
future but instead intends to retain all working capital and earnings, if any,
for use in the Company's business operations and in the expansion of its
business. See "Dividend Policy" and "Description of Securities".
17. No Prior Public Market; Possible Volatility of Stock Price. Prior to
this Offering, there has been no public market for the shares of Common Stock or
Class A Warrants. The initial public offering price of the shares of Common
Stock was determined by negotiation between the Company and the representatives
of the Representative, and may not be indicative of the market price for such
securities in the future, and does not necessarily bear any relationship to the
Company's assets, book value, net worth or results of operations of the Company
or any other established criteria of value. Among the factors considered in
determining the price of the shares of Common Stock were the history of and
prospects for the industry in which the Company competes, estimates of the
business potential of the Company, the present state of the development of the
Company's business, the Company's financial condition, an assessment of the
Company's management, the general condition of the securities markets at the
time of this Offering, and the demand for similar securities of comparable
companies. There is, however, no relationship whatsoever between the offering
price of the shares of Common Stock and the Company's net worth, projected
earnings, book value, or any other objective criteria of value on the other. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering
19
<PAGE>
price. See "Underwriting - Determination of Public Offering Price," "Description
of Securities" and "Financial Statements."
18. Lack of Prior Market for shares of Common Stock; No Assurance of Public
Trading Market. Prior to this Offering, no public trading market existed for the
shares of Common Stock. There can be no assurances that a public trading market
for the shares of Common Stock will develop or that a public trading market, if
developed, will be sustained. Although the Company anticipates that upon the
Effective Date of this Offering, the shares of Common Stock will be eligible for
inclusion on the NASD OTC Bulletin Board, no assurance can be given that the
shares of Common Stock will be listed on the NASD OTC Bulletin Board as of the
Effective Date. Consequently, there can be no assurance that a regular trading
market for the shares of Common Stock, other than the pink sheets, will develop
after the completion of this Offering. If a trading market does in fact develop
for the shares of Common Stock offered hereby, there can be no assurance that it
will be maintained. If for any reason the shares of Common Stock are not listed
on the NASD OTC Bulletin Board or a public trading market does not develop,
purchasers of the shares of Common Stock may have difficulty in selling their
securities should they desire to do so. In any event, because certain
restrictions may be placed upon the sale of securities at prices under $5.00,
unless such securities qualify for an exemption from the "penny stock" rules,
such as a listing on The Nasdaq SmallCap Market, some brokerage firms will not
effect transactions in the Company's securities and it is unlikely that any bank
or financial institution will accept such securities as collateral, which could
have an adverse effect in developing or sustaining any market for the shares of
Common Stock and Warrants. See "Risk Factors - Penny Stock Regulations May
Impose Certain Restrictions on Marketability of Securities."
Although it has no legal obligation to do so, the Representative from time
to time may act as a market maker and may otherwise effect and influence
transactions in the Company's securities. However, there is no assurance that
the Representative will continue to effect and influence transactions in the
Company's securities. The prices and liquidity of the Company's securities may
be significantly affected by the degree, if any, of the Representative's
participation in the market. The Representative may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the
Company's securities may be adversely affected by the fact that a significant
amount of the shares of Common Stock may be sold to customers of the
Representative.
19. Nasdaq Requirements; Penny Stock; Additional Requirements on Broker-
Dealer Sales of Securities. The Company's Common Stock is not presently included
for trading on the Nasdaq system, and there can be no assurances that the
Company will ultimately qualify for inclusion within that system. In order for
an issuer to be included in the Nasdaq system, it is required to have total
assets of at least $4,000,000, capital and surplus of at least $2,000,000, a
minimum price per share of not less than $3.00, have publicly held shares with a
market value of at least $1,000,000 as well as certain other criteria. In
addition to quantitative standards the
20
<PAGE>
staff of Nasdaq may also consider other factors including but not limited to the
nature and scope of a company's operations in conjunction with any and all
conditions and/or circumstances surrounding an entity's operations. While the
Company believes that it met the quantitative criteria described above for
inclusion in the Nasdaq system, the Company's application for listing on The
Nasdaq SmallCap Market was denied by the Nasdaq Staff based upon the Staff's
concerns relating to the nature of the Company's assets, its bridge financing
and the beneficial interest of one of the Company investors in the Company's
securities. The Company has appealed the Staff's decision. No assurance can be
given that the Company's securities will ever qualify for inclusion on the
Nasdaq system and qualification for inclusion is not a prerequisite to
proceeding with this Offering. Until the Company's shares qualify for inclusion
in the Nasdaq system, the Company's securities will be traded in the
over-the-counter markets which are commonly referred to as the "pink sheets" or
on the NASD OTC Bulletin Board. As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of the
securities offered. The Securities and Exchange Commission has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
less than $5.00 per share, subject to certain exceptions. During such periods
when the Company's securities do not qualify for inclusion on The Nasdaq
SmallCap Market, the Company's securities may become subject to rules that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Additionally, for any transaction involving a penny stock, unless exempt,
the rules require the delivery, prior to the transaction, of a disclosure
schedule prepared by the Securities and Exchange Commission relating to the
penny stock market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities, and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. In addition, certain broker-dealers are
precluded from acting as market markers for non NASDAQ securities and these
securities may be ineligible for margin loans. Consequently, the rule may affect
the ability of broker-dealers to sell the Company's securities and may also
affect the ability of shareholders to sell the securities in the secondary
market.
20. Current Prospectus and State Blue Sky Registration in Connection with
the Exercise of the Warrants. The Company will be able to issue the securities
offered hereby, shares of its Common Stock upon the exercise of the Class A
Warrants and Representative's Share Purchase Option only if (i) there is a
current prospectus relating to the Common Stock issuable upon the exercise of
the Warrants under an effective registration statement filed with the
21
<PAGE>
Securities and Exchange Commission, and (ii) such Common Stock is then qualified
for sale or exempt therefrom under applicable state securities laws of the
jurisdictions in which the various holders of Warrants reside. There can be no
assurance, however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
amendment is required (i) anytime after nine (9) months subsequent to the
Effective Date when any information contained in the prospectus is over sixteen
(16) months old, (ii) when facts or events have occurred which represent a
fundamental change in the information contained in the registration statement,
or (iii) when any material change occurs in the information relating to the plan
or distribution of the securities registered by such registration statement. The
Company anticipates that this Registration Statement will remain effective for
at least nine (9) months following the date of this Prospectus or until _____,
1997, assuming a post-effective amendment is not filed by the Company. The
Company intends to qualify the sale of shares of Common Stock in a limited
number of states, although certain exemptions under certain state securities
("blue sky") laws may permit the Warrants to be transferred to purchasers in
states other than those in which the Warrants were initially qualified. The
Company will be prevented, however, from issuing Common Stock upon exercise of
the Warrants in those states where exemptions are unavailable and the Company
has failed to qualify the Common Stock issuable upon exercise of the Warrants.
The Company may decide not to seek, or may not be able to obtain qualification
of the issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such a case, the Warrants of those
purchasers will expire and have no value if such Warrants cannot be exercised or
sold. Accordingly, the market for the Warrants may be limited because of the
Company's obligation to fulfill both of the foregoing requirements. See
"Description of Securities."
21. Impact on Market of Warrant Exercise. As of the date of this
Prospectus, there will be 1,512,500 Class A Warrants outstanding (including
1,500,000 Class A Warrants issuable to the Bridge Lenders), and there will be
1,512,500 shares of Common Stock issuable upon the exercise thereof. In the
event of the exercise of a substantial number of Class A Warrants offered as
part of the shares of Common Stock within a reasonably short period of time
after their right to exercise commences, the resulting increase in the amount of
Common Stock of the Company in the trading market could substantially affect the
market price of the Common Stock. See "Description of Securities - Class A
Warrants."
22. Representative's Share Purchase Option. In connection with this
Offering, the Company will sell to the Representative, for nominal
consideration, an option to purchase an aggregate of 30,000 shares of Common
Stock (the "Representative's Share Purchase Option"). The Representative's Share
Purchase Option will be exercisable commencing one year from the Effective Date
of this Offering and ending four (4) years from such date, at an exercise price
of $16.50 per share (the "Representative's Shares"). The holders of the
Representative's Share Purchase Option will have the opportunity to profit from
a rise in the market price of the shares of Common Stock, if any, without
assuming the risk of ownership.
22
<PAGE>
The Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Representative's
Share Purchase Option is outstanding. At any time when the holders thereof might
be expected to exercise them, the Company would probably be able to obtain
additional capital on terms more favorable than those provided by the
Representative's Share Purchase Option. See "Dilution" and "Underwriting."
23. Shares Eligible for Immediate Sale May Adversely Affect the Market;
Lack of Restrictions on Sale of Company's Outstanding Common Stock. The
registration statement of which this Prospectus forms a part also covers the
resale of (i) 1,500,000 Class A Warrants issuable to the Bridge Lenders and
1,500,000 shares of Common Stock issuable upon exercise of the Class A Warrants,
and (ii) 1,031,000 shares of Common Stock held by the Selling Stockholders. The
securities being registered on behalf of the Selling Securityholders are not
subject to any restriction on resale by the Company or the Representative
(except for (a) 25,000 shares of Common Stock held by Matthew Harriton, a
director of the Company, and (b) 100,000 shares of Common Stock held by Laurie
Munn, the wife of Max Munn, the Company's Chairman of the Board, which may not
be sold or transferred for a period of two (2) years following the Effective
Date, without the prior written consent of the Representative). As a result,
certain securities may be sold by the Selling Securityholders immediately after
the public offering which may have a material adverse effect on the market for,
and price of, the Company's securities. See "Selling Securityholders."
24. Limitation on Director Liability. The Company's Certificate of
Incorporation limits the liability of Directors to the Company or its
stockholders to monetary damages for breach of a Director's fiduciary duty
except for liability in certain instances. Section 145 of the Delaware General
Corporation Law empowers a corporation to indemnify its directors and officers
and to purchase insurance with respect to liability arising out of the
performance of their duties as directors and officers provided that this
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) arising under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. As a result of the Company's
charter provision and Delaware law, stockholders may have a more limited right
to recover against Directors for breach of their fiduciary duty other than as
existed prior to the enactment of the law. See "Description of Securities -
Limitation on Liability of Directors."
25. Shares Eligible for Future Sale May Adversely Affect the Market. All of
the Company's currently outstanding shares of Common Stock are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act of 1933, as amended. Rule 144 provides, in
essence, that a person holding "restricted securities" for a period of two (2)
years may sell only an amount every three (3) months equal to the greater of (a)
one percent (1%) of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four (4) calendar weeks preceding the
sale. The amount of "restricted securities" which a person who is not an
affiliate of the Company may sell is not so limited, since
23
<PAGE>
non-affiliates may sell without volume limitation their shares held for three
(3) years if there is adequate current public information available concerning
the Company. It should be noted, however, that the Commission is currently
considering changing the two (2) year holding period to one (1) year and the
three (3) year holding period to two (2) years. In such an event, "restricted
securities" would be eligible for sale to the public at an earlier date.
Immediately prior to the Effective Date, the Company will have 1,312,500 shares
of its Common Stock issued and outstanding, which are "restricted securities",
and 1,031,000 shares of which are being registered under the Registration
Statement of which this Prospectus forms a part. Excluding shares of Common
Stock issuable upon the exercise of the Class A Warrants included in the
Offering, there are, as of the date of this Prospectus, a total of 1,804,934
shares of Common Stock issuable (i) upon the exercise of 1,500,000 Class A
Warrants issuable to the Bridge Lenders and (ii) upon the conversion of 250,000
shares of Series A Preferred Stock and 54,934 shares of Series C Preferred Stock
held by Interiors. The officers and directors of the Company as well as certain
members of their immediate families (including certain Selling Securityholders
holding an aggregate of 125,000 shares of Common Stock) and Interiors, Inc. have
agreed not to sell or transfer the securities of the Company held thereby for a
period of twenty-four (24) months following the Effective Date, subject to
earlier release by the Representative.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market which may develop, and therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their shares during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share. See "Description of
Securities."
26. Anti-Takeover Effect of General Corporation Law of Delaware. The
Company is governed by the provisions of Section 203 of the General Corporation
Law of Delaware, an anti-takeover law enacted in 1988. In general, the law
prohibits a Delaware public corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three (3) years
after the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions. See "Description of Securities."
27. Inexperience of Representative. This is the ___ public offering
underwritten by VTR Capital, Inc. There can be no assurance that the
Representative's limited experience as an underwriter of public offerings will
not adversely affect the proposed public offering of the Company's securities,
the subsequent development of a trading market, if any, or the market for and
liquidity of the Company's securities. Therefore, purchasers of the securities
offered hereby may suffer a lack of liquidity in their investment or a material
diminution of the value of their investment.
24
<PAGE>
USE OF PROCEEDS
This Registration Statement covers the offering of 325,000 shares of Common
Stock, 300,000 of which are being offered by the Company, and 25,000 of which
are being offered by the Shareholder. The net proceeds to the Company from the
sale of the 300,000 shares of Common Stock are estimated to be $2,010,000 (after
deducting approximately $300,000 in underwriting discounts, and other expenses
of this Offering estimated to be $690,000, which includes the Representative's
non-accountable expense allowance of $97,500, and a $100,000 financial
consulting fee payable to the Representative at the closing) (but not
considering any exercise of the Over-Allotment Option, or the Representative's
Share Purchase Option). The Company, based upon all currently available
information, intends to utilize such proceeds approximately as follows:
Approximate Approximate
Amount of Net Percentage(%) of
Proceeds Net Proceeds
-------- ------------
Acquisition of Assets of Artisan
House, Inc. (1) $1,535,000 76.3%
Repayment of Certain Indebtedness (2) 260,000 12.9%
Working Capital (3) 215,000 10.7%
---------- ------
Total $2,010,000 100.0%
(1) Represents a partial payment, of $1,535,000, which will be financed by the
public offering, of the total purchase price to be paid to close the
Artisan House Transaction. In addition, to the foregoing, the Company
intends to use approximately $700,000 from the proceeds of the sale of the
Series C Non-Voting Convertible Preferred Stock to fund the remainder of
the purchase price to close the Artisan House Transaction. See
"Business-Artisan House Transaction."
(2) Represents the repayment of Bridge Loans in the aggregate principal amount
of $250,000 plus accrued and unpaid interest. The Bridge Loans were made by
nine (9) unaffiliated parties. The Bridge Loans are due and payable upon
the earlier of March 1997 or the closing of the Company's initial public
offering and bear interest at the rate of 8% per annum. The proceeds of the
Bridge Loans were used for working capital and as a source of funds to pay
expenses associated with this Offering. See "Bridge Financing" and See
"Certain Transactions."
(3) To be used for general operating and overhead expenses and the funding of
inventory.
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's Board of Directors, at its discretion.
The Company believes that the proceeds of this Offering will enable the
Company to increase its annual revenues through the expansion of its business
and development of product lines. As a result, the Company believes that the net
proceeds of this Offering, together with increased revenues generated from
operations, will be sufficient to conduct the Company's operations for at least
twelve (12) months. The terms of the underwriting agreement between the Company
and the Representative restrict the Company from entering into any acquisition
or
25
<PAGE>
merger of the Company or obtaining additional capital financing, without the
prior approval of the Representative, for the issuance of additional equity
securities for a period of five (5) years, in either public or private
offerings. The underwriting agreement does not prevent the Company from seeking
bank financing although there can be no assurance that such financing will be
available on commercially reasonable terms. See "Risk Factors - Dependence on
Offering Proceeds; Possible Need for Additional Financing."
To the extent that the Company's expenditures are less than projected
and/or the proceeds of this Offering increase as a result of the exercise of the
Class A Warrants by certain Selling Securityholders or by the Representative of
its Over-Allotment Option, the resulting balances will be retained and used for
general working capital purposes. Conversely, to the extent that such
expenditures require the utilization of funds in excess of the amounts
anticipated, additional financing may be sought from other sources, such as debt
financing from financial institutions, although there can be no assurance that
such additional financing, if available, will be on terms acceptable to the
Company. See "Risk Factors - Dependence on Offering Proceeds; Possible Need For
Additional Financing." The net proceeds of this Offering that are not expended
immediately may be deposited in interest bearing accounts, or invested in
government obligations or certificates of deposit.
26
<PAGE>
DILUTION
At June 30, 1996, the Company had outstanding an aggregate of 1,312,500
shares of Common Stock having an aggregate net tangible book value of $2,198,891
or $1.68 per common share, based upon operating activity through June 30, 1996.
Net tangible book value per share consists of total assets less intangible
assets and liabilities, divided by the total number of shares of Common Stock
outstanding. The shares of capital stock described above do not include any
securities subject to outstanding warrants or options.
After giving effect to the sale of 300,000 shares of Common Stock by the
Company with net proceeds of $2,010,000, the pro forma net tangible book value
of the Common Stock would have been $4,208,891 or approximately $2.61 per share.
This represents an immediate increase in pro forma net tangible book value of
$.93 per share to the present stockholders and an immediate dilution of $7.39
per share (73.9%) to the public purchasers. The following table illustrates the
dilution which investors participating in this Offering will incur and the
benefit to current stockholders as a result of this Offering:
As
As Adjusted
Adjusted(5) Pro Forma(4)
----------- ------------
Public offering price of per share
offered hereby(l) $10.00 $10.00
Net tangible book value per share $ 1.68 $ .98
Increase per share attributable to
shares of Common Stock offered hereby $ .93 $ 1.03
Pro Forma net tangible book value
per share after offering(3) $ 2.61 $ 2.01
Dilution of net tangible book value per
share to purchasers in this offering(2)(3) $ 7.39 $ 7.99
- ----------
(1) Before deduction of underwriting discounts, commissions, fees and offering
expenses.
(2) Assuming no exercise of the Over-Allotment Option, the Representative's
Share Purchase Option. See "Underwriting" and "Description of Securities."
(3) Assuming no exercise of the 1,500,000 Class A Warrants issuable in
connection with Bridge Loans. See "Selling Security Holders" and "Certain
Transactions."
(4) Gives effect to both the offering and the acquisition of Artisan House,
Inc.
(5) Gives effect to the Offering but not the acquisition of Artisan House, Inc.
27
<PAGE>
The following table shows the number and percentage of shares of Common
Stock purchased and acquired and the amount and percentage of consideration and
average price per share paid by existing stockholders as of June 30, 1996 and to
be paid by purchasers pursuant to this Offering (based upon the anticipated
public offering price of $10.00 per share before deducting underwriting
discounts and commission and estimated Offering expenses).
<TABLE>
<CAPTION>
Shares of Aggregate
Common Cash Percent of
Stock Percent of Consideration Total cash Average Price
Purchased Equity Owned Paid Consideration Per Share
<S> <C> <C> <C> <C> <C>
New Stockholders 300,000 18.6% $ 3,000,000 96.7% $10.00
Existing Stockholders(1) 1,312,500 81.4% $ 103,000 3.3% $ 0.04
----------- ----- ----------- ----- ------
Total 1,612,500 100% $ 3,103,000 100%
</TABLE>
The foregoing table gives effect to the sale of the Common Stock offered
hereby but without giving effect to the exercise of the Representatives' Share
Purchase Option, or any securities issuable upon the exercise of the
Over-Allotment Option or any outstanding options or warrants, including those
held by the Bridge Lenders.
(1) Excludes 1,500,000 shares of Common Stock issuable upon exercise of Class A
Warrants by the Bridge Lenders at an exercise price of $5.25 per share.
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted gives effect to the sale of 300,000 shares of Common
Stock offered hereby and the application of net proceeds therefrom. The table is
not adjusted to give effect to the exercise of the Over-Allotment Option, the
Representative's Share Purchase Option or any other outstanding warrants or
options. This table should be read in conjunction with the Financial Statements
of the Company, including the notes thereto, appearing elsewhere in this
Prospectus.
- --------------------------------------------------------------------------------
As of June 30, 1996 As of June 30, 1996,
($) As Adjusted(1)(2)
($)(3)
- --------------------------------------------------------------------------------
Notes Payable 192,850 1,309,462
Stockholders Equity:
Common Stock 131 171
Series A Convertible Preferred 25 25
Stock, $.0001 par value per share,
5,000,000 shares authorized,
250,000 shares of Series A
Convertible Preferred Stock
issued and outstanding
Series B Non-Convertible ------ 1,000
Preferred Stock, $.0001 par value
per share, 20,000,000 shares
authorized, 10,000,000 issued
and outstanding
Series C Non-Voting Convertible ------ 5
Preferred Stock, $.0001 par value
per share, 1,000,000 shares
authorized, 54,934 shares issued
and outstanding
Additional Paid In Capital 1,919,144 5,004,441
Retained Earnings (deficit) (345,751) (370,751)
Unrealized Gain on Investment 700,000 700,000
Total Capitalization 2,466,399 6,644,353
- --------------------------------------------------------------------------------
- ----------
(1) Adjusted to reflect the closing of the Artisan House Transaction.
(2) Adjusted to reflect the sale of 300,000 shares of Common Stock offered
hereby and the net proceeds therefrom of $2,010,000.
(3) Includes equity financing for Series C Non-Voting Convertible
Preferred Stock of $824,000 received in August and September 1996. See
"Certain Transactions."
29
<PAGE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefore. Holders of the Company's Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock are not entitled to receive dividends. The
Company has not in the past and does not currently anticipate the declaration or
payment of any dividends in the foreseeable future. The Company intends to
retain earnings, if any, to finance the development and expansion of its
business. Future dividend policy will be subject to the discretion of the Board
of Directors and will be contingent upon future earnings, if any, the Company's
financial condition, capital requirements, general business conditions and other
factors. Therefore, there can be no assurance that any dividends of any kind
will ever be paid.
BRIDGE FINANCING
In March 1996, the Company borrowed an aggregate of $250,000 from nine (9)
lenders ( the "Bridge Lenders") whom were previously unaffiliated with the
Company and are presently unaffiliated with Interiors and the Representative. In
exchange for making loans to the Company, each Bridge Lender received a
promissory note (the "Bridge Notes"). Each of the Bridge Notes bears interest at
a rate of eight percent (8%) per annum. The Bridge Notes are due and payable
upon the earlier of (i) March 18, 1997 or (ii) the closing of an initial
underwritten public offering of the Company's securities. The Company's
obligations under the Bridge Notes are guaranteed by Laurie Munn, the wife of
Max Munn, the Chairman of the Board of the Company. See "Management." The
Company intends to use a portion of the proceeds of this Offering to repay the
Bridge Lenders. See "Use of Proceeds." In addition, the Bridge Lenders were
issued the right to receive commencing on the Effective Date an aggregate of
1,500,000 Class A Warrants, pro rata, based upon the principal amount of the
Bridge Loan made to the Company. The Company entered into the bridge financing
transactions because it required additional financing and no other sources of
financing were available to the Company at that time. Further, the Company
agreed to register the Class A Warrants as well as the shares of Common Stock
issuable upon exercise of the Class A Warrants in the first registration
statement filed by the Company following the date of the loan. Therefore, the
Registration Statement, of which this Prospectus forms a part, relates to the
resale of 1,500,000 Class A Warrants issuable to the Bridge Lenders and the
shares of Common Stock issuable upon the exercise thereof. Certain of the Bridge
Lenders were introduced to the Company by the Representative. No remuneration or
other consideration was paid to the Representative for such introduction. See
"Selling Securityholders", "Certain Transactions" and "Underwriting."
30
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected historical financial data for the period ended June 30, 1996
and for the period ended March 31, 1996 presented below are derived from the
unaudited pro forma combined financial statements and the historical financial
statements of the Company. The data set forth below should be read in
conjunction with and is qualified in its entirety by the Company's financial
statements, related notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations. See "Financial Statements," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The following summary financial information has been summarized
from the Company's financial statements included elsewhere in this Prospectus.
The information should be read in conjunction with the financial statements and
the related notes thereto See "Financial Statements."
Summary Statement of Operations
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
As of June As of June 30, As of March As of March
30, 1996 1996, As 31, 1996, (4) 31, 1996, As
($)(1) Adjusted(1)(2)(3) Adjusted(3)
($) (4)(5)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ---- 1,386,976 ---- 4,809,422
Gross Profit ---- 647,262 ---- 2,213,039
Operating Income (Loss) (138,851) (32,614) (100,000) 99,448
Net (Loss) (246,001) (176,765) (99,750) (20,054)
Net (Loss) per share (.09) (.06) (.04) (.01)
Weighted Average number of 2,812,500 3,162,500 2,812,500 3,162,500
Common Shares outstanding
- -----------------------------------------------------------------------------------------
</TABLE>
Summary Balance Sheet Data
- --------------------------------------------------------------------------------
At June 30, 1996 At June 30, 1996, As
($) Adjusted(2) ($)
- --------------------------------------------------------------------------------
Working Capital (deficit) (216,109) 1,740,297
Total Assets 2,574,399 7,172,572
Total Liabilities 300,850 1,837,681
Stockholder's Equity 2,273,549 5,334,891
- --------------------------------------------------------------------------------
- ----------
31
<PAGE>
(1) Includes results for the three months ended June 30, 1996 for Decor Group,
Inc.
(2) Adjusted to reflect the closing of the Artisan House Transaction and
adjusted to reflect the sale of 300,000 shares of Common Stock offered
hereby and the net proceeds therefrom of $2,010,000 and preferred stock
sale for $824,000.
(3) Includes results for the three months ended June 30, 1996 for Artisan
House.
(4) Includes results for the period March 1, 1996 (Inception) through March 31,
1996 for Decor Group, Inc.
(5) Includes results for the fiscal year ended January 31, 1996 for Artisan
House.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Decor Group, Inc. [the "Company" or "Decor"] was formed in March of 1996.
The primary activities of Decor prior to the acquisition of Artisan House, Inc.
["Artisan"] have been investing and financing activities [See "Liquidity and
Capital Resources"]. In March of 1996, the Company entered into an Asset
Purchase Agreement to acquire Artisan House, Inc. for approximately $3,526,400,
subject to certain adjustments. Artisan is engaged in the manufacture,
marketing, selling and distribution of wall hanging sculptures.
As a result of negotiations between the Company and Interiors, Inc.
("Interiors"), on March 3, 1996, the Company issued to Interiors, Inc., 250,000
shares of Series A Non-Voting Convertible Preferred Stock and an option to
purchase 10,000,000 shares of Series B NonConvertible Voting Preferred Stock at
an exercise price of $.0001 in exchange for the issuance by Interiors to the
Company of 200,000 shares of Common Stock with a market closing price of
$600,000 and 200,000 shares of Series A Convertible Preferred Stock with a
market closing price of $1,200,000. The issuance of options instead of stock was
done at the request of Interiors, Inc. The valuation of the investment in both
classes of Interiors, Inc.'s securities approximated 89% of market closing price
at the time of issuance. Accordingly, aggregate fair value on the investment
approximates carrying value. As disclosed at note 12(A) on May 28, 1996 the
Company entered into a management agreement with Interiors, Inc. whereby
Interiors, Inc. will provide to the Company certain marketing and management
services. The exchange of shares between the Company and Interiors described
above is pursuant to the Company's intentions to ensure the ongoing and
long-term availability of these services. It is the Company's intention to
maintain a long-term position in its investment in Interiors. As of June 30,
1996, the per share closing market price of Interiors's Common Stock and Series
A Convertible Preferred Stock was $4.25 and $7.25, respectively. Accordingly,
gross unrealized holding gains of $250,000 and $450,000 exist of June 30, 1996
for the Common Stock and Series A Convertible Preferred Stock, respectively.
Following the proposed public offering, Interiors will own approximately 86.0%
if the total voting stock outstanding assuming the exercise of the options to
purchase 10,000,000 shares of Class B Preferred Stock and conversion of 250,000
shares of the Series A Preferred Stock. Such ownership is consistent with the
Company's intentions stated above as well as the provision by Interiors, Inc.,
of additional equity contributions disclosed at Note 12E.
On August 9, 1996, the Company agreed to issue to Interiors, Inc. 28,334
shares of Series C Non-Voting Convertible Preferred Stock in exchange for a cash
subscription payment of $425,000. On August 24, 1996, the Company agreed to
issue an additional 18,750 shares of Series C Non-Voting Convertible Preferred
Stock in exchange for cash subscription of $281,250. In September 1996, the
Company agreed to issue 7,850 shares of Series C
33
<PAGE>
Preferred Stock to Interiors in exchange for the payment of $117,750.
Artisan House, Inc. for the fiscal year ended January 31, 1996
Results of Operations
Artisan had income before provision for pro forma income taxes for the
years ended January 31, 1996 and 1995 of $451,083 and $330,517, respectively.
The net sales for Artisan House, Inc. for the years ended January 31, 1996
and 1995 were $4,809,422 and $3,994,909, respectively, an increase of
approximately $800,000 or 20%. Sales increased because of the general acceptance
by the marketplace of new products such as "Casablanca", Norman Rockwell scenes,
and musical scenes. In addition, sales to large catalog houses increased during
the current period.
Artisan's selling, general and administrative expenses for the years ended
January 31, 1996 and 1995 were $1,684,591 and $1,464,224, respectively, an
increase of approximately $220,000 or 15%. Increases in selling, general and
administrative expenses were largely due to increased expenditures for
advertising, to support new product introductions, and increased commissions
resulting from sales increases.
Artisan's interest expense for the years ended January 31, 1996 and 1995
was approximately $84,000 and $68,000, respectively. Interest expense increased
because of the addition of an equipment lease for computer equipment and an
automobile lease for an Artisan House manager.
Liquidity and Capital Resources
Artisan House, Inc. at January 31, 1996 had working capital of
approximately $400,000. During the years ended January 31, 1996 and 1995,
Artisan generated cash of approximately $132,000 and $208,000, respectively,
from operations. During the years ended January 31, 1996 and 1995, Artisan
purchased equipment for approximately $17,000 and $67,000, respectively. During
the years ended January 31, 1996 and 1995, Artisan repaid officers' loans of
$58,313 and $19,342, respectively, and repaid notes payable of $42,359 and
$67,063, respectively. At January 31, 1996, Artisan House's cash balance was
$96,771.
Decor Group, Inc.
Results of Operations for the period March 1, 1996 (Inception) to March 31, 1996
For the month ended March 31, 1996, Decor Group, Inc. generated a loss before
income taxes of $99,750.
34
<PAGE>
Liquidity and Capital Resources
Decor had positive working capital of $69,550 at March 31, 1996. The
Company utilized $98,000 from operations for the period March 1, 1996 through
March 31, 1996. This largely was due to activities relating to the acquisition
of Artisan House, including expenditures for accounting and legal due diligence,
as well as out-of-pocket expenses relating thereto. Investing activities
required the use of $200,000 for this same period. Of this amount, $150,000 was
a partial payment for the acquisition of Artisan House. The balance of $50,000
related to a note due from an affiliate which was collected subsequent to the
March 31, 1996. The Company generated $345,000 in cash from financing activities
from the period March 1, 1996 through March 31, 1996 resulting from the sale of
stock to the founders of the Company with cash proceeds of $95,000 (balance of
$8,000 received in May 1996) and proceeds from bridge loans of $250,000.
Artisan House, Inc.
Results of Operations for the five months ended June 30, 1996
Artisan had pro forma net income for the five months ended June 30, 1996 of
$170,780.
The net sales for Artisan House, Inc. for the five months ended June 30,
1996 were $2,310,976 and $1,904,832, respectively, an increase of approximately
$400,000 or 21%. Sales increased because of the general acceptance by the
marketplace of new products such as "Casablanca", Norman Rockwell scenes, and
musical scenes. In addition, sales to large catalog houses increased during the
current period.
Artisan's selling, general and administrative expenses for the five months
ended June 30, 1996 and 1995 were $764,625 and $648,671, respectively, an
increase of approximately $116,000 or 18%. Increases in selling, general and
administrative expenses were largely due to increased expenditures for
advertising, to support new product introductions, and increased commissions
resulting from sales increases.
Artisan's interest expense for the five months ended June 30, 1996 and 1995
was approximately $28,000 and $26,000, respectively. Interest expense increased
because of the addition of an equipment lease for computer equipment and an
automobile lease for an Artisan House manager.
Liquidity and Capital Resources
Artisan House, Inc. at June 30, 1996 had working capital of approximately
$684,000. During the period, Artisan generated cash of approximately $64,000 and
$85,000, respectively, from operations. During the five months ended June 30,
1996 and 1995, Artisan
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purchased equipment for approximately $2,000 and $9,000, respectively. During
the five months ended June 30, 1996, Artisan made repayments on officers' loans
of $270,360 and $11,606, respectively, and repaid notes payable of $64,332 and
$14,429, respectively. At June 30, 1996, Artisan House's cash balance was
$37,876. See Note B to Pro Forma Financial Statements.
Decor Group, Inc.
Results of Operations for the three months ended June 30, 1996.
The Company generated a loss before income taxes of $246,001.
Liquidity and Capital Resources
At June 30, 1996, Decor had a working capital deficit of $216,109.
Unamortized bridge loan liabilities, together with expenses accrued in the
finalization of the asset Purchase Agreement (see "Business-General") exceeded
cash and related party receivables by this amount. For the three months ended
June 30, 1996, the Company used $30,601 for operating activities. The Company
incurred approximately $126,000 in fees and expenses relating to the Asset
Purchase Agreement (see "Business-General"), of which $30,851 was paid at June
30, 1996, comprising the primary cause of the operating use of cash for the
period. For the three months ended June 30, 1996, investing activities generated
additional cash of $35,000, due to proceeds of $50,000 from a note with a
related party, partially offset by the payment of $15,000 as an extension
payment to the seller of Artisan House, Inc. For the three months ended June 30,
1996, financing activities required the use of $31,158, caused by the generation
of deferred offering costs of $74,658, partially offset by proceeds of $8,000
from the sale of common stock an $35,500 from stockholder loans. The cash
balance at June 30, 1996 was $20,241.
The Company anticipates that the net proceeds from the proposed public
offering will generate approximately $2,010,000. The proceeds are primarily
intended to finance the purchase of Artisan House, and for working capital
needs.
In March 1996, the Company issued to Interiors, Inc. 250,000 shares of
Class A Convertible Preferred Stock and an option to purchase 10,000,000 shares
of Class B Non-Convertible Voting Preferred Stock in exchange for Interiors,
Inc. issuing to the Company 200,000 shares of Common Stock valued at $600,000
and 200,000 shares of Series A Convertible Preferred Stock valued at $1,000,000.
[See Note 8].
In May 1996, the Company entered into a management agreement with
Interiors, Inc. which specializes in the home furnishings and decorative
accessories industries. The agreement calls for a management fee to Interiors of
$75,000 or 1.5% of gross sales, whichever is greater, per annum. The management
fee will be accrued quarterly and paid
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quarterly to the extent that there is excess cash flow available to the Company.
Excess cash flow is defined in the agreement to mean cash flow from operations
adjusted to reflect changes in working capital, interest payments, principal
repayments and capital expenditures. No payment in any quarter will exceed 50%
of excess cash flow as defined. The agreement has a term of two years with
renewal options at the mutual consent of both parties [See Note 8].
In June 1996, the Company entered into an employment contract with the
President of the Company for which an initial base salary of approximately
$117,000 will take effect upon the close of the acquisition of Artisan House.
On May 31, 1996, the Company received a commitment letter for a revolving
credit agreement for a maximum loan amount of $1,100,000. The agreement requires
the satisfaction of a number of conditions prior to funding including the
completion of a due diligence review. The terms of the loan include an annual
interest rate of prime plus 4%, a management fee of 3% of sales, a security
interest in all of the Company's accounts receivable, inventory, and equipment,
and any proceeds therefrom, a guaranty of the Company's Chairman of the Board,
and a prepayment fee of $25,000 in the event of a prepayment. In the event that
the Company is unable to satisfy such conditions, the Company will not receive
the proceeds from such loan. Subsequent to the Offering contemplated herein, the
Company will have sufficient funding to complete the transaction without the
benefit of the proceeds from the Secured Loan.
Management believes that the proceeds of the Offering and the other
transactions contemplated herein will provide the Company with sufficient
capital to fund ongoing operations for at least 12 months from the Effective
Date. Management believes that capital requirements relating to research and
development and capital expenditures will be met by funds derived from
operations.
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BUSINESS
General
Decor Group, Inc., a Delaware corporation (the "Company" or "Decor"), was
incorporated in March 1996. Artisan Acquisition Corporation, a Delaware
corporation wholly owned by the Company ("AAC"), was incorporated in March 1996
for the purpose of entering into an Asset Purchase Agreement with Artisan House,
Inc. ("Artisan House") pursuant to which AAC has agreed to purchase
substantially all of the operating assets, and assume certain liabilities, of
Artisan House (the "Artisan House Transaction") for an aggregate purchase price
of $3,526,400, subject to certain adjustments. The Company anticipates closing
the Artisan House Transaction prior to, or contemporaneously with, the closing
of this Offering. Unless otherwise indicated, references made hereinafter to the
Company include AAC and Artisan House. See "Business Acquisition of Artisan
House."
Artisan House, located in Los Angeles, California and founded in 1964, is
engaged in the design, manufacturing and marketing of metal wall, table and
freestanding sculptures. Management believes that Artisan House's products
bridge the gap between high priced gallery art and mass produced decorative
pieces. Artisan House products retail from approximately $100 to over $400. The
primary goal of the Company is to supply a broad spectrum of design driven
sculpture and decorative accessories at moderate prices.
Artisan House markets its products through a network of independent
commissioned sales representatives, both domestically and internationally, as
well as through strategically located showrooms servicing the home furnishing
and decorative accessory industries. Artisan House has permanent showrooms
located in High Point, NC and San Francisco, CA that are leased and controlled
by the Artisan House, as well as sales representative showrooms in Atlanta and
Dallas.
Artisan House's typical customers include fine furniture stores, interior
decorators and major department stores such as Sears and JC Penny, large
furniture chains such as Levitz and Wickes, and catalogue houses. For the fiscal
year ended June 30, 1996, sales to Sears, JC Penny, Levitz and Wickes
represented 5.1%, 4.3%, 8.6%, and 2.7%, respectively of total sales.
The Company believes that the home furnishing and decorative accessory
supply industry will consolidate as major retailers attempt to increase their
"single-sourcing" in order to reduce distribution and related expenses. The
Company intends to capitalize on the fragmented nature of the supply side of the
home decorative accessory industry and the consolidation of such industry
through the acquisition of manufacturers and distributors of art-related
decorative accessories. Through such acquisitions, the Company intends to
increase the number and nature of products manufactured by the Company. Other
than the acquisition of Artisan House, there are no plans, arrangements, or
understandings with regard to potential acquisitions. It should be noted that
under certain circumstances acquisitions by the Company shall require the prior
written approval of the Representative.
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In October 1996, the Company effected a recapitalization with respect to
its outstanding shares of capital stock (the "Recapitalization"). Pursuant to
the Recapitalization, the Company effected a 1-for-2 reverse stock split with
respect to its shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock. As a result of the Recapitalization
and prior to the completion of this offering, the Company has (i) 250,000 shares
of Series A Preferred Stock, (ii) 10,000,000 shares of Series B Preferred Stock,
(iii) 54,934 shares of Series C Preferred Stock, and (iv) 1,312,500 shares of
Common Stock.
The Company's executive offices are located at 320 Washington Street, Mt.
Vernon, New York 10553. Its telephone number is (914) 665-5400. See "Risk
Factors" for a discussion of certain factors that should be considered in
evaluation the Company and its business.
Acquisition of Artisan House
On March 25, 1996, the Company's wholly-owned subsidiary, Artisan
Acquisition Co., ("AAC"), agreed to purchase substantially all of the assets
(the "Artisan House Transaction") and to assume certain of the liabilities of
Artisan House, Inc. ("AHI") pursuant to that certain Asset Purchase Agreement
(the "Agreement"), dated March 25, 1996, by and among AAC, the Company, AHI and
Henry Goldman ("Goldman"). AHI is engaged in the business of manufacturing,
marketing, selling and distributing wall hanging sculptures. The consideration
for the Artisan House assets to be purchased pursuant to the Agreement
(excluding the liabilities assumed by AAC) will be an aggregate of $3,526,400,
less the amount of cash reflected on the closing date balance sheet and retained
by AHI (presently estimated to be approximately $5,000) (the "Retained Cash
Amount") and subject to adjustment if the net assets of AHI are more then
$835,000 or less than $750,000 (the "Balance Sheet Adjustment") as set forth on
a balance sheet to be delivered to AAC within thirty days after the closing of
the purchase (the "Closing"). The assets to be purchased by AAC include (i)
trade receivables (approximately $1,100,000); (ii) inventories (approximately
$975,000); (iii) prepaid expenses (approximately $70,000), (iv) property and
equipment (approximately $105,000) and (v) intangible assets (approximately
$1,979,541) which shall include goodwill ($1,379,541), trademarks ($150,000),
copyrights and artwork ($150,000), customer lists ($200,000), and a covenant not
to compete ($100,000). It is currently anticipated that purchase price will be
increased by the Balance Sheet Adjustment of approximately $160,000 subject to
adjustment at closing.
The consideration is to be satisfied by (i) the payment of $150,000 to AHI
which was paid on the date of execution of the Agreement; (ii) the payment of
$2,250,000 at the Closing (the "Cash Amount"); (iii) the delivery of a
promissory note issued by AAC in the principal amount of $926,400 less the
Retained Cash Amount and subject to the Balance Sheet Adjustment; and (iv) the
issuance of 50,000 shares of common stock of the Company (the "Shares") which
for purposes of the Agreement is valued at $200,000 (the fair market value
utilized in the pro forma statements herein values this component of the
Purchase Price at $300,000). With respect to the Note, $100,000 is payable
ninety days after the Closing without any payment of interest; $676,400 (subject
to the Balance Sheet Adjustment) is payable over a five year period in sixty
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equal monthly installments, the first installment of which is due one hundred
twenty days after the Closing; and $150,000 is payable on the date on which the
last installment is paid as set forth above, without any payment of interest.
The Note is secured by a second security interest in the assets purchased
pursuant to the Agreement which is subordinate to a first priority security
interest, such first interest not to exceed 55% of the value of said assets from
time to time (subject to a minimum of 55% of the value of said assets on the
date of closing). In the event that the shares of the Company issuable to AHI
are worth less than $200,000 on the second anniversary of the Closing, AAC
shall, at its option, either pay the difference to AHI in cash or the Company
shall issue additional shares having a fair market value equal to such
difference to AHI. If the Company has not effected a public offering of its
common stock by said second anniversary, AHI can require that AAC or Decor
repurchase the shares for the sum of $200,000.
The Closing was originally scheduled for May 31, 1996. In exchange for the
payments of $15,000, in each of June, July and August, AHI agreed to extend the
Closing Date to August 30, 1996. These payments will reduce the Cash Amount of
the Purchase Price due by the Company at Closing. On September 10, 1996, the
Company, AAC, Goldman and AHI entered into in Amendment No. 1 to the Agreement
("Amendment No. 1"). Amendment No. 1 contemplates that the Closing shall occur
immediately prior to, or contemporaneously with, the Company's initial public
offering, but in no event later than October 30, 1996. In exchange for such
extension, the Company has agreed to pay $40,000 which will reduce the Cash
Amount of the Purchase Price and to amend Mr. Goldman's employment agreement as
described in the following paragraph. It also contemplated that prior to the
Effective Date, the Company and Artisan House will execute and deliver all
documents necessary to consummate the Transaction. Such documents will then be
held in escrow pending delivery of the Cash Amount and the Shares. It is
anticipated that the Cash Amount and the Shares will be delivered
contemporaneously with the closing of this Offering. The Closing is subject to
AAC's due diligence investigation, which permitted AAC to terminate the
Agreement without penalty prior to April 8, 1996, if such investigation
disclosed any material change in AHI's business, operations or conditions or in
its assets, liabilities, net worth or properties. If the Agreement is terminated
prior to the Closing, (other than due to the fault of AHI or Goldman), AHI may
retain any payments made by AAC. The Agreement also contains restrictions on AHI
and Goldman from competing with AAC for a five year period after the Closing.
The Agreement further contains provisions relating to the confidentially of
information and the non-solicitation of suppliers and employees by AAC should
the transaction fail to close.
Any disputes are to be submitted to binding arbitration in Los Angeles,
California. Under the terms of Amendment No. 1, prior to bringing a legal action
against Goldman, AAC agreed to deposit an amount of not less than $25,000 with
Goldman's attorney for payment of reasonable, bona fide legal expenses incurred
by Goldman in connection with such action. In the event that the funds held by
Goldman's attorney are properly disbursed and the remaining balance falls below
$10,000, AAC shall deposit with Goldman's attorney, an amount so that the
existing balance and the amount deposited equals $25,000. If AAC fails to
forward such funds in a timely manner, AAC's claim against Goldman shall be
dismissed with prejudice. If AAC prevails in the legal action against Goldman,
Goldman shall pay to AAC the amount paid by AAC for Goldman's legal expenses
plus interest at the rate of 8% per annum.
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The Agreement also provides that AAC enter into an Employment Agreement
with Goldman pursuant to which Goldman will be employed as the President and
Chief Executive Officer of AAC on a part-time basis with (i) an annual salary of
$75,000; (ii) a signing bonus of $70,000, $30,000 of which is to be paid at
Closing and $40,000 of which is to be paid in equal monthly installments of
$3,333.33 during the first year of the employment agreement, (iii) reimbursement
of expenses incurred by Mr. Goldman for lease and insurance payments with
respect to his automobile, (iv) an annual performance bonus equal to 1% of the
Company's sales in excess of those achieved by Artisan as of the Closing on an
annualized basis, and (v) 2.5% of the consideration paid by the Company in
connection with an acquisition of an unrelated third party introduced to the
Company by Goldman. The Employment Agreement also contains provisions protecting
the confidential information of AAC and restricting Goldman from competing with
AAC. The Agreement further provides for AAC to lease facilities from Goldman and
his wife for a five year term, with an initial monthly rent of approximately
$14,000. The Company believes that the rent payable to Mr. Goldman is at or
below the fair market value for such premises.
Manufacturing
Artisan House manufactures substantially all of its sculptures and
decorative pieces at its facility in Glendale, California. Virtually all of
Artisan House's products are made of assorted metals, such as brass, bronze,
steel and aluminum which are then formed and hand finished. Artisan House's
manufacturing operations include customized proprietary metal fabrication
equipment, using tools, jigs and dies especially created for the Company.
Production also includes finishing, which involves hand painting and toning. The
Company has developed and installed a finishing process which uses proprietary
techniques and management believes the results of this process substantially
improves the appearance of the product.
The Company maintains an inventory of various metal such as brass, bronze
and stainless steel and other materials for use in its manufacturing processes.
The Company's tool and die inventory allows for the manufacturing of a broad
range of designs. These tools can be used to produce over hundreds of styles of
decorative wall sculptures.
No single outside manufacturer supplies 5% or more of the Company's raw
materials, and the Company's management is not aware at this time of any product
or manufacturer which the Company cannot replace with a comparable product from
an alternative manufacturer. See "Risk Factors."
Products
Artisan House products include metal wall, table and freestanding
sculpture. The Company's product styles range from contemporary to neoclassical,
from Americana to transitional. Artisan House also manufactures products based
on popular themes such as sports, music, and nostalgia. In addition, the Company
has several licensing programs pursuant to which Artisan House produces
sculptures with designs derived from Norman Rockwell images, the popular 1940's
movie entitled, "Casablanca" and RCA's Little Nipper. In total, Artisan House
produces hundreds of different styles within its product line.
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License Agreements
The Company currently manufacturers products pursuant to license agreements
for (i) the cartoon character, "Betty Boop", (ii) the movie classic,
"Casablanca", (iii) the "Nipper Dog" (the RCA dog), and (iv) up to ten (10)
Norman Rockwell illustrations. The "Betty Boop", "Casablanca", "Nipper Dog" and
Norman Rockwell licenses terminate on December 31, 1997, December 31, 1996, May
1, 1997, and September 30, 1997, respectively. Generally, all of the license
agreements are non-exclusive, permit sales in the United States and requires the
Company to make periodic royalty payments based upon revenues from the sale of
licensed works.
On September 24, 1996, the Company entered into a license agreement with
Warner Bros., a division of Time Warner Entertainment Company, L.P., pursuant to
which the Company was granted the non-exclusive right to produce a number of
Warner Bros. "Looney Tunes" cartoon characters, including Bugs Bunny, Sylvester,
Tweety, Porky Pig, Road Runner, Daffy Duck, Tasmanian Devil and Yosemite Sam.
The license agreement requires the payment of certain amounts periodically and a
percentage of net sales received by the Company from the sale of such products.
The license agreement terminates on December 31, 1998. To date, the Company has
not received any revenue from the sales of such products.
Although sales from all licensed products represented less than five
percent (5%) of the Company's sales for the year ended June 30, 1996, the
Company anticipates pursuing additional license agreements to assist in
expanding the Company's product line.
Marketing
Artisan House markets its products through a network of independent
commissioned sales representatives. Domestically, the Company has as of October
1, 1996 thirty-nine (39) commissioned sales representatives. Internationally,
the Company has distributors in Taiwan, Australia, the Untied Kingdom, France,
Belgium, and Holland. In addition, the Company has non-exclusive representation
in the Middle East, Japan and parts of Europe. Artisan House has permanent
showrooms located in High Point, NC and San Francisco, CA that are leased and
controlled by the Company, as well as sales representative showrooms in Atlanta
and Dallas. These showrooms are strategically located in an effort to
efficiently service the home furnishing and decorative accessory industries.
Suppliers
Substantially all of the products sold by the Company are manufactured by
the Company in its facility in Los Angeles, California. The Company purchases
metal and other materials from a wide variety of sources, and has at least two,
and often more, suppliers for each item used in
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its manufacturing process, and is not dependent upon any one supplier. The
Company currently purchases from a vendor base of more than 150 suppliers. While
there are many suppliers of most materials, the Company has chosen to limit the
majority of its purchases to the one or two vendors with whom it has developed
long-term relationships. The Company generally does not need to enter into
contracts with its suppliers as most merchandise is readily available from
multiple sources.
The suppliers for those decorative accessory products which are not
manufactured by the Company include items such as marble, glass, mirror, and
wood. The Company does not currently purchase 5% or more of any of these
products from any one outside supplier. Products purchased from suppliers are
produced exclusively for the Company and therefore are not commonly available.
Management does not anticipate that significant capital expenditures will be
required in the near future.
Competition
The sculpture and decorative accessory industry in the United States is
highly fragmented and consists primarily of small, local manufactures and
assemblers. Only a few companies are basic manufacturers of metal wall hangings
and sculptures. However, there can be no assurance that the Company's position
in this industry will continue.
Management believes that the sale of decorative accessories in the
wholesale market is also highly fragmented, with thousands of small, specialized
manufacturers and distributors and management is not aware of a manufacturer of
upscale decorative accessories similar to those distributed by Artisan House.
The Company believes that its competitive advantage lies in its ownership
of a substantial number of models, tools, jigs and dies and its continuing
ability to manufacture quality products. Management also believes that the
Company is further protected by what the Company considers to be its excellent
reputation with its customer base and management's estimation that the cost to
build tools, jigs, dies and molds, make the entry of meaningful competition
extremely difficult. Management also believes that it would be difficult to
establish a trained work force of skilled crafts people. However, there can be
no assurance that such assets will continue to afford the Company any
competitive advantage. See "Business-Manufacturing."
Relationship with Interiors, Inc.
As a result of negotiations between M.D. Funding, Inc., First National
Funding, Inc., certain initial investors in the Company, and Interiors, Inc.
("Interiors"), the Company was formed and issued to Interiors, Inc., 250,000
shares of Series A Non-Voting Convertible Preferred Stock and an option to
purchase 10,000,000 shares of Series B Non-Convertible Voting Preferred Stock at
an exercise price of $.0001 (the "Series B Option") in exchange for the issuance
by Interiors to the Company of 200,000 shares of Common Stock with a market
closing
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price of $600,000 and 200,000 shares of Series A Convertible Preferred Stock
with a market closing price of $1,200,000. The issuance of options instead of
stock was done at the request of Interiors, Inc. In September 1996, Interiors
exercised the Series B Option and currently holds 10,000,000 shares of Series B
Preferred Stock.
Following this Offering, Interiors will own (i) 250,000 shares of the
Company's Series A Preferred Stock (non-voting shares), (ii) 10,000,000 shares
of Series B Preferred Stock and (iii) 54,934 shares of Series C Preferred Stock,
representing 86.0% of the total voting stock outstanding (based upon 1,612,500
shares of Common Stock outstanding and assuming conversion of 250,000 shares of
Series A Preferred Stock). Since holders of Series B Preferred Stock and Common
Stock do not have any cumulative voting rights and directors are elected by a
majority vote of the voting shares outstanding, Interiors is in a position to
control the election of directors as well as the affairs of the Company.
Notwithstanding the foregoing, Interiors has entered into a voting trust
agreement with the Company's Board of Directors, pursuant to which the Board
shall have the right to vote the 10,000,000 shares of Series B Preferred Stock
held by Interiors until December 31, 1997. In addition, Max Munn, a member of
the Company's Board of Directors is also the President and director of
Interior's Board of Directors.
In May 1996, the Company entered into a two year Management Services
Agreement with Interiors. Interiors has, pursuant to such agreement, agreed to
advise the Company on the manufacturing, sale, marketing and distribution of the
Company's products as well as providing the Company accounting and
administrative services and strategic planning with regard to joint ventures,
acquisitions, and other long term business initiatives. Interiors is engaged in
the business of manufacturing and marketing museum quality traditional and
contemporary picture and mirror frames. For the year ended June 30, 1996,
Interiors had sales of $5,606,761. As of October 1, 1996, Interiors had
approximately 82 full time employees, 7 of which were engaged in sales and
marketing and 5 of which were engaged in management and administration.
Interiors has advised the Company that all of its sales, marketing and
administrative personnel will provide services to the Company under the
Management Services Agreement. In exchange for such services, the Company has
agreed to pay to Interiors an annual amount equal to the greater of (i) $75,000
or (ii) 1 1/2% of Excess Cashflow (as defined in the agreement). The Management
Services Agreement is automatically renewable for an additional one (1) year
term unless terminated by either party not less than sixty (60) days prior to
the end of the term may be terminated by the Company or Interiors upon sixty
(60) days prior written notice. The Company believes that Interiors has the
management expertise and personnel available to perform its obligations under
the Management Services Agreement. However, in the event that the Management
Services Agreement is terminated for any reason, the Company's business may be
negatively effected. In such an event, the Company may be required to hire
additional personnel or engage one or more independent contractors at an added
cost to the Company. See "Certain Transactions."
Secured Loan Agreement
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On May 31, 1996, the Company received a commitment from United Credit
Corporation ("UCC"), pursuant to which UCC has agreed to loan to the Company up
to an aggregate amount of $1,100,000 (the "Secured Loan") under a revolving
credit arrangement (the "Secured Loan Agreement"). UCC has agreed to fund the
Loan upon completion of its due diligence review. The terms of the Secured Loan
include (i) an annual interest rate of the prime rate, plus 4%, (ii) a
collateral management fee of 3% of sales, (iii) a security interest in all of
the Company's accounts receivable, inventory and equipment, and any proceeds
therefrom, (iv) a guaranty of the Company's obligations by Max Munn, the
Company's Chairman of the Board, Laurie Munn, the wife of Max Munn, Interiors,
Inc. and Italia Collection, Inc., a wholly owned subsidiary of Interiors, (v) a
prepayment fee of $25,000 in the event of a prepayment and (vi) a borrowing base
to be agreed upon by the parties.
Trademark Protection
The trademarks "Artisan House", "C. Jere", "Sautere", and "Glendale
Ironworks" have been registered with the United States Patent and Trademark
Office ("PTO"). The Company presently intends to make all appropriate filings
and registrations and take all other actions necessary, to protect all of its
intellectual property rights. There can be no assurance, however, that the
Company will be able to effectively protect such property rights. The failure by
the Company to protect such rights from unlawful and improper appropriation may
have a material adverse effect on the Company. Although to date no claims have
been brought against the Company alleging that it infringes on the intellectual
property rights of others, there can be no assurance that such claims will not
be brought against the Company in the future, or that if made, such claims will
not be successful. In addition to any potential monetary liability for damage,
the Company could be required to obtain a license in order to continue to use
the trademarks in question or could be enjoined from using such trademarks if
such license were not made available on acceptable terms. If the Company becomes
involved in such litigation, it may divert significant Company resources, which
could have a material adverse effect on the Company and its results or
operations, and, if such a claim were successful, the Company's business could
be materially adversely affected.
Research and Development
The Company continually seeks to develop additional designs and related
tooling. The Company estimates that it expends approximately $100,000 per annum
on such activities. So long as the Company generates sufficient cash flow, the
Company expects to continue to increase its expenditures for product development
as it expands its in-house manufacturing to expand its finishing and fabrication
capabilities. However, there can be no assurance that such product development
will yield profitable growth.
Government Regulation
The Company's operations are subject to numerous Federal, state and local
laws and
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regulations relating to the environment and health safety and other regulatory
matters. Certain materials used in the manufacturing of the Company's products
such as paints, solvents and other water-based related finishes may be
classified by Federal and certain state and local governments as "hazardous
materials." Control of those substances is regulated by the Environmental
Protection Agency ("EPA") and certain state and local environmental protection
agencies which require reports and inspect facilities to monitor compliance. In
addition, under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), any generator of hazardous waste sent to a hazardous
waste disposal site is potentially responsible for the clean up and remediation
costs required for such site in the event that the site is not properly closed
by the owner or operator, irrespective of the amount of waste sent to the site.
The Company's manufacturing facilities have been and will continue to be
inspected by the Occupational Safety and Health Administration and by certain
state and local inspection agencies and departments. The Company has obtained
all permits and anticipates that its facilities and operations will be in
substantial compliance with all material applicable laws and regulations.
Nevertheless, no assurance can be given that the Company will be able to obtain
such permits in the future or that future events, such as changes in or modified
interpretations of existing laws or regulations or enforcement policies, may
give rise to additional compliance costs that could have a material adverse
effect on the Company.
Employees
As of October 1, 1996, the Company (including the employees of Artisan
House) had a total of approximately 79 full-time employees, 15 of whom are
engaged in performing administrative functions, and 64 of whom are engaged in
manufacturing and shipping. The Company and its employees are not parties to any
collective bargaining agreements. The Company believes its relationship with all
of its personnel is satisfactory.
Legal Proceedings
There are no legal proceedings pending, or to the Company's knowledge
threatened, against the Company.
Properties
The Company has its principal offices at 320 Washington Street, Mt. Vernon,
New York, where it has sub-leased approximately 500 square feet of
administrative offices from Interiors, Inc., a stockholder of the Company. The
Company's manufacturing and warehousing facilities and factory showroom are
located at 1755 Glendale Boulevard, Los Angeles, California in a 38,000 square
foot leased facility. The Company's lease with Henry Goldman on the Los Angeles
facility expires five years following the date of closing of the Artisan House
Transaction. The Company has determined that there is substantial manufacturing
and warehousing space available in the vicinity if the Company were required to
expand or relocate some or all of its current facilities. However, there can be
no assurances that when the current sublease for the Company's
46
<PAGE>
principal facility expires that the Company will be able to negotiate a renewal
thereof on acceptable terms or obtain alternative manufacturing and warehousing
space on terms acceptable to the Company.
The Company also operates two (2) leased showrooms, which are in San
Francisco, CA and High Point, NC.
The Company believes all of such facilities are adequate for its current
needs; however, there can be no assurance that the Company will be able to
obtain appropriate facilities on terms acceptable to the Company in the future.
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<PAGE>
MANAGEMENT
The names and ages of the Directors, executive officers and key personnel of the
Company are as follows:
Name Age Position(s) Held with the Company
- ---- --- ---------------------------------
Donald Feldman 58 President and Chief Financial Officer
Max Munn 51 Chairman of the Board
Matthew L. Harriton 32 Director
Michael Lulkin 41 Director and Secretary
Henry Goldman 60 President and Chief Executive Officer of
Artisan Acquisition Corp.
Brief biographies of the Directors, executive officers, and key personnel
of the Company are set forth below. All Directors hold office until their
resignation, retirement, removal, disqualification, death or until their
successors have been elected and qualified. Vacancies in the existing Board of
Directors are filled by majority vote of the remaining Directors. Officers of
the Company serve at the will of the board of Directors.
Max Munn, has been the Chairman of the Board of Directors since the
Company's inception and was the President of the Company from inception until
May 9, 1996. Mr. Munn is currently President and Chief Executive Officer of
Interiors, and has been since September 1995. Mr. Munn has also been the
Executive Vice President-Operations and Secretary of Interiors, Inc., a
principal stockholder of, and consultant to, the Company, since February 1994
and a Director thereof since March 1994. He served as Vice President of
Interiors from May 1993 until September, 1995. From November 1990 to May 11,
1993, Mr. Munn served as a consultant to Interiors, Inc., as well as a
consultant directly and indirectly to Imperial Enterprises, Inc., a catalog
company in Japan, and the IEI Corporation, a direct marketer, in Princeton, NJ.
From 1981 to February 1990 he was Chairman, President and Chief Executive
Officer and from February 1990 to June 1990 he served as a consultant to
Collector's Guild International, Inc.. In June 1990 Collector's Guild filed a
petition for relief under the U.S. Bankruptcy Code and was subsequently
liquidated. Mr Munn is subject to a Consent Order entered by the FTC in
September 1991. See "Management - Consent Order." Mr. Munn holds a Bachelor of
Architecture from Massachusetts Institute of Technology and subsequently did
graduate level study in Art History at Columbia University.
Donald Feldman, has served as President and Chief Financial Officer of the
Company since May 31, 1996. From June 1, 1995 until the Effective Date of this
Offering he served as
48
<PAGE>
Vice President of Sales and Marketing for Interiors, Inc., was a consultant to
the Company from December 1995. Mr. Feldman served as a director of Interiors.
Commencing on the Effective Date, Mr. Feldman will work for the Company on a
full time basis. From April 1990 to May 1995, he served as Vice President of
Sales and Marketing of Toyo Trading Co. in Los Angeles, CA, a major importer and
marketer of decorative accessories. Previously, Mr. Feldman also served as
Corporate Merchandise Manager for Decorative Accessories for Sears Roebuck & Co.
Matthew L. Harriton, has served on the Company's Board of Directors since
March 1996 and as interim President of the Company from May 9, 1996 to May 31,
1996. Mr. Harriton has been the Chief Financial Officer of Embryo Development
Corporation since January 1996. Embryo Development Corporation is a public
company which trades on The Nasdaq SmallCap Market and which specializes in
developing and distributing medical devices. Prior to joining Embryo Development
Corporation, Mr. Harriton's professional experience included positions at CIBC
Wood Gundy Securities Corporation as an associate (from June 1994 to December
1995), Coopers & Lybrand as a senior associate (from December 1990 to May 1994),
and The First Boston Corporation as a senior accountant (from June 1986 to May
1988). Mr. Harriton has also served as a director of Perry's Majestic Beer, Inc.
since January 1996, a company involved in the microbrewery industry. He is a
graduate of Lehigh University and received his M.B.A. from Duke University's
Fuqua School of Business.
Michael Lulkin, has served on the Company's Board of Directors and as
Secretary of the Company since March 1996. Since May 1995, Mr. Lulkin has served
as the general counsel for PDK Labs, Inc., a manufacture of over-the-counter
pharmaceuticals which trades on The Nasdaq SmallCap Market. Prior to joining PDK
Labs, Mr. Lulkin was engaged in the private practice of law as a sole
practitioner for over 13 years. Mr. Lulkin also serves as a director and
Chairman of the Board of Directors of Embryo Development Corporation. Embryo
Development corporation is a public company which trades on The Nasdaq SmallCap
Market and which specializes in developing and distributing medical devices. He
graduated from State University of New York at Buffalo and received his J.D.
from Emory University School of Law.
Henry Goldman will serve, upon consummation of the acquisition Artisan
House, on a part-time basis as the President and Chief Executive Officer of
Artisan Acquisition Corp., a wholly owned subsidiary of the Company. Mr. Goldman
has been the President and Chief Executive Officer of Artisan House since 1982.
There are no family relationships between the officers and directors of the
Company.
Consent Order
In September 1991, Max Munn, the Company's Chairman of the Board, without
admitting or denying the allegations, agreed with the FTC to the entry of a
Consent Order for Permanent Injunction for Defendant Max Munn (previously
defined as the "Consent Order") in
49
<PAGE>
an action brought in the U.S. District Court for the Southern District of New
York (90 CIV. 2554 (LMM)) against Collectors' Guild Ltd, Inc., Collectors'
Guild, Mr. Munn and J. Robert Leshufy which action arose out of the sale of
certain lithographs of original works of art. The Consent Order arose out of a
complaint alleging that Collectors Guild, and its officer, Mr. Munn, had made
advertising representations implying that the artist had played a substantial
role in the creation and production of the lithographs. Collectors Guild and Mr.
Munn denied the allegations. The case was settled before trial or discovery,
solely with entry of the above Consent Order. The Consent Order permanently
enjoins Mr. Munn from making certain false representations in connection with
the promotion, sale or offering for sale of any art works, from removing certain
mandated disclosures on certain art, and, for a period of five years, from
destroying, mutilating, altering, or disposing of any books, records, tapes,
checks, and other business records enumerated in the Consent Order in his
possession or the possession of any business entities directly or indirectly
under Mr. Munn's control for a period of three years after creation or receipt
of such documents. Mr. Munn is also required for a period of five years to
notify the FTC of any change in his residence or employment within 30 days of
any change and must permit FTC officials access to his office upon five days
notice for inspection purposes. The Consent Order extends to Mr. Munn, his
successors, assigns, agents, servants and employees, and all persons or entities
in active concert or participation with him who receive actual notice of the
Consent Order and, in part, to any business entities directly or indirectly
under his control or in which he owns a controlling interest, directly or
indirectly.
Executive Compensation
No cash or other compensation was paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer or any of the other executive
officers of the Company since its formation. Each director of the Company is
entitled to receive reasonable out-of-pocket expenses incurred in attending
meetings of the Board of Directors of the Company. The members of the Board of
Directors intend to meet at least quarterly during the Company's fiscal year,
and at such other times duly called.
Employment Agreement
The Company intends to enter into a three (3) year employment agreement
with Donald Feldman to be effective as of the Effective Date of this offering.
Mr. Feldman is the President and will continue to serve as the President of the
Company. The agreement will provide for Mr. Feldman to receive a salary of
$117,500 per annum and an annual bonus equal to two percent (2%) of the amount
by which the Company's net sales exceed the sales recorded by the Company for
the year ending June 30, 1997. In addition, Mr. Feldman will be granted options
to purchase 5,000 shares of Common Stock of the Company at an exercise price of
$5.00 per share for each full year of employment under the agreement. The
Company also agreed to reimburse Mr. Feldman for bona fide business expenses
including up to $400 a month for the use of an automobile and $200 a month for
insurance.
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<PAGE>
AAC, a wholly owned subsidiary of the Company, intends to enter into a
three (3) year employment agreement with Henry Goldman to be effective as of the
closing of the acquisition of Artisan House. Mr. Goldman will be employed as the
President and Chief Executive Officer of AAC on a part time basis with (i) an
annual salary of $75,000; (ii) a signing bonus of $70,000, $30,000 of which is
to be paid at Closing and $40,000 of which is to be paid in equal monthly
installments of $3,333.33 during the first year of the employment agreement,
(iii) reimbursement of expenses incurred by Mr. Goldman for lease and insurance
payments with respect to his automobile, (iv) an annual performance bonus equal
to 1% of the Company's sales in excess of those achieved by AHI for the twelve
months ended June 30, 1996, payable within 60 days after the end of AAC's fiscal
year, with the first and last payments being calculated pro rated basis, and (v)
2.5% of the consideration paid by the Company in connection with an acquisition
of an unrelated third party introduced to the Purchaser, the Company, Interiors,
or any affiliate of them by Goldman. The Employment Agreement also contains
provisions protecting the confidential information of AAC and restricting
Goldman from competing with AAC. The Agreement further provides for AAC to lease
facilities from Goldman and his wife for a five year term, with an initial
monthly rent of approximately $14,000.
1996 Stock Plan
In March 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1996 Stock Plan
(hereinafter called the "1996 Plan"). The purpose of the 1996 Plan is to provide
an incentive and reward for those executive officers and other key employees in
a position to contribute substantially to the progress and success of the
Company, to closely align employees with the interests of stockholders of the
Company by linking benefits to stock performance and to retain the services of
such employees, as well as to attract new key employees. In furtherance of that
purpose, the 1996 Plan authorizes the grant to executives and other key
employees of the Company stock options, restricted stock, deferred stock, bonus
shares, performance awards, dividend equivalent rights, limited stock
appreciation rights and other stock-based awards, or any combination thereof.
The 1996 Plan is expected to provide flexibility to the Company's compensation
methods, after giving due consideration to competitive conditions and the impact
of federal tax laws. The Company anticipates that the stockholders will be
requested to approve the adoption of the 1996 Plan in the near future.
The maximum number of shares of Common Stock with respect to which awards
may be granted pursuant to the 1996 Plan is initially 250,000 shares. Shares
issuable under the 1996 Plan may be either treasury shares or authorized but
unissued shares. The number of shares available for issuance will be subject to
adjustment to prevent dilution in the event of stock splits, stock dividends or
other changes in the capitalization of the Company.
The 1996 Plan will be administered by a committee consisting of not less
than two (2) members of the Board of Directors who are "disinterested" within
the meaning of Rule 16b-3 promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code (including persons
who may be deemed outside directors by virtue of any
51
<PAGE>
transitional rule which may be adopted by the Internal Revenue Service
implementing such Section). The Board will determine the persons to whom awards
will be granted, the type of award and, if applicable, the number of shares to
be covered by the award. During any calendar year no person may be granted under
the 1996 Plan awards aggregating more than 100,000 shares (which number shall be
subject to adjustment to prevent dilution in the event of stock splits, stock
dividends or capitalization of the Company).
Types of Awards
Stock Options. Options granted under the 1996 Plan may be "incentive stock
options" ("Incentive Options") within the meaning of Section 422 of the Code or
stock options which are not incentive stock options ("Non-Incentive Options"
and, collectively with Incentive Options, hereinafter referred to as "options").
The persons to whom Options will be granted, the number of shares subject to
each Option grant, the prices at which Options may be exercised (which shall not
be less than the fair market value of shares of common Stock on the date of
grant), whether an Option will be an Incentive Option or a Non-Incentive Option,
time or times and the extent to which Options may be exercised and all other
terms and conditions of options will be determined by the Committee.
Each Incentive Option shall terminate no later than ten (10) years from the
date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined No Incentive Option may be
granted at any time after October 2005. Each Non-Incentive Option shall
terminate no later than ten (10) years from the date of grant. The exercise
price at which the shares may be purchased may not be less than the Fair Market
Value of shares of Common Stock at the time the Option is granted, except as
provided below with respect to Incentive Options granted to 10% Stockholders.
Options granted to executive officers may not be exercised at any time prior to
six (6) months after the date of grant.
The exercise price of an Incentive Option granted to a person possessing
more than 10% of the total combined voting power of all shares of stock of the
Company or a parent or subsidiary of the Company ("10% Stockholder") shall in no
event be less than 110% of the Fair Market Value of the shares of the Common
Stock at the time the Incentive Option is granted. The term of an Incentive
Option granted to a 10% Stockholder shall not exceed five (5) years from the
date of grant.
The exercise price of the shares to be purchased pursuant to each Option
shall be paid (i) in full in cash, (ii) by delivery (i.e., surrender) of shares
of the Company's Common Stock owned by the option at the time of the exercise of
the Option (iii) in installments, payable in cash, if permitted by the Committee
or for any combination of the foregoing. The stock-for-stock payment method
permits an optionee to deliver one (1) or more shares of previously owned Common
Stock of the Company in satisfaction of the exercise price of subsequent
Options. The optionee may use the shares obtained on each exercise to purchase a
larger number of shares on the next exercise. (The foregoing assumes an
appreciation in value of previously acquired shares).
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<PAGE>
The result of the stock-for-stock payment method is that the optionee can
generally avoid immediate tax liability with respect to any appreciation in the
value of the stock utilized to exercise the Option.
Shares received by an optionee upon exercise of a Non-Incentive Option may
not be sold or otherwise disposed of for a period determined by the Board upon
grant of the Option, which period shall be not less than six (6) months nor more
than three (3) years from the date of acquisition of the shares (the "Restricted
Period"), except that, during the Restricted Period (i) the optionee may offer
the shares to the Company and the Company may, in its discretion, purchase up to
all the shares offered at the exercise price and (ii) if the optionee's
employment terminates during the Restricted Period (except in limited
instances), the optionee upon written request of the Company, must offer to sell
the shares to the Company at the exercise price within seven (7) business days.
The Restricted Period shall terminate in the event of a Change in Control of the
Company (as defined), or at the discretion of the Board. After the Restricted
Period, an optionee wishing to sell must first offer such shares to the Company
at the Fair Market Value.
Limited Stock Appreciation Rights. The Committee is authorized, in
connection with any Option granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the Common Stock on the effective date of the Change in Control. The
LSAR may be granted in tandem with an Option or subsequent to grant of the
Option. The LSAR will only be exercisable to the extent the related Option is
exercisable and will terminate if and when the Option is exercised.
Restricted and Deferred Stock. An award of restricted stock or deferred
stock may be granted under the 1996 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions by the Committee at the
time of grant. In the event that the holder of restricted stock cease to be
employed by the Company during the applicable restrictive period, restricted
stock that is at the time subject to restrictions shall be forfeited and
reacquired by the Company. Except as otherwise provided by the Committee at the
time of the grant, a holder of restricted stock shall have all the rights of a
stockholder including, without limitation, the right to vote restricted stock
and the right to recover dividends thereon. An award of deferred stock is an
award that provides for the issuance of stock upon expiration of a deferral
period established by the Committee. Except as otherwise determined by the
Committee, upon termination of employment of the recipient of the award during
the applicable deferral period, all stock that is at the time subject to
deferral shall be forfeited until such time as the stock which is the subject of
the award is issued, the recipient of the award has no rights as a stockholder.
Dividend Equivalent Awards. A dividend equivalent gives the recipient the
right to receive cash or other property equal in value to the dividends that
would be paid if the recipient held a specified number of shares of Common
Stock. A dividend equivalent right may be granted as a component of another
award or as a freestanding award.
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<PAGE>
Bonus Shares and other Share Based Awards. The 1996 Plan authorizes the
Committee to grant shares as a bonus, or to grant shares or other awards in lieu
of obligations of the Company to pay cash under other plans or compensatory
arrangements, upon such terms as shall be determined by the Committee. The 1996
Plan also authorizes the Committee to grant other forms of awards based upon,
payable in, or otherwise related in whole or in part to, Common Stock,
including, without limitation, convertible or exchangeable debentures, or other
debt securities, other rights convertible or exchangeable into shares, purchase
rights for shares, awards contingent upon performance of the Company, and awards
valued by reference to the book value of shares of Common Stock or awards
determined by reference to the value of securities of, or the performance of,
specified subsidiaries.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the outstanding shares of
the Company's voting securities by (i) any holder of more than five percent (5%)
of the outstanding shares; (ii) the Company's officers and directors; and (iii)
the directors and officers of the Company as a group:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Percentage (%) of Percentage (%) of Shares of Series
Shares of Common Stock Common Stock B Preferred Stock Percentage (%) of
Name and Address of Common Owned Before Owned After Beneficially Series B Preferred
Beneficial Owner Stock Owned Offering Offering Owned Stock Owned
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M.D. Funding, Inc.(7) 913,750 69.6% 11.3%(1) ---- ----
5 Old Woods
Harrison, NY 10528
- ---------------------------------------------------------------------------------------------------------------------------
Laurie Munn 100,000 7.6% 1.3%(2) ---- ----
c/o Interiors, Inc.
320 Washington Street
Mt. Vernon, NY 10553
- ---------------------------------------------------------------------------------------------------------------------------
First National 125,000 9.5% 1.6%(3) ---- ----
Funding(8)
P.O. Box N-4755
Nassau, Bahamas
- ---------------------------------------------------------------------------------------------------------------------------
Matthew Harriton 25,000 1.9% .3%(4) 10,000,000(9) 100%
750 Lexington Avenue
27th Floor
New York, NY 10022
- ---------------------------------------------------------------------------------------------------------------------------
Donald Feldman ---- ---- ---- ---- ----
Decor Group, Inc.
320 Washington Street
Mt. Vernon, NY 10553
- ---------------------------------------------------------------------------------------------------------------------------
Max Munn 350,000(5)(6) 22.4% 14.9%(2) 10,000,000(9) 100%
Interiors, Inc.
320 Washington Street
Mt. Vernon, NY 10553
- ---------------------------------------------------------------------------------------------------------------------------
Michael Lulkin ---- ---- ---- 10,000,000(9) 100%
750 Lexington Avenue
27th Floor
New York, NY 10022
- ---------------------------------------------------------------------------------------------------------------------------
Interiors, Inc. 250,000(6) 16.0% 13.8% 10,000,000(9) 100%
320 Washington Street
Mt. Vernon, NY 10553
- ---------------------------------------------------------------------------------------------------------------------------
All officers and 375,000(5)(6) 28.6% 20.1% 10,000,000(9) 100%
directors as a group (4
persons)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
(1) Assumes the sale of 731,000 shares of Common Stock registered under the
Registration Statement of which this Prospectus form a part. See "Selling
Securityholder."
(2) Assumes the sale of 80,000 shares of Common Stock registered under the
Registration Statement of which this Prospectus form a part. See "Selling
Securityholder."
(3) Assumes the sale of 100,000 shares of Common Stock registered under the
Registration Statement of which this Prospectus forms a part. See "Selling
Securityholder."
(4) Assumes the sale of 20,000 shares of Common Stock registered under the
Registration Statement of which this Prospectus forms a part. See "Selling
Securityholder."
(5) Includes 100,000 shares of Common Stock held by Laurie Munn, Mr. Munn's
wife. Mr. Munn disclaims beneficial ownership over such shares.
(6) Includes 250,000 shares of Common Stock issuable upon conversion of 250,000
shares of the Company's Series A Convertible Preferred Stock held by
Interiors, Inc. Interiors also holds 54,934, shares of Series C Preferred
Stock which is convertible into 54,934 shares of the Company's Common Stock
commencing on September 1, 1997.
(7) M.D. Funding, Inc. is wholly owned by Donna Fields.
(8) First National Funding is wholly owned by Greg Roberts and Noel Roberts.
(9) Includes 10,000,000 shares of Series B Preferred Stock covered by that
certain Voting Agreement by Interiors, Inc., Max Munn, Matt Harriton,
Michael Lulkin and the Company pursuant to which Messrs. Munn, Harriton and
Lulkin may vote the shares of Series B Preferred Stock held by Interiors,
Inc. on all matters presented to the vote of stockholders. See "Certain
Transactions."
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<PAGE>
CERTAIN TRANSACTIONS
In March, 1996, the Company issued to certain investors (i) 913,750 shares
of Common Stock to M.D. Funding, Inc. for cash consideration of $73,100, (ii)
100,000 shares of Common Stock to Laurie Munn, the wife of Max Munn, the
Chairman of the Board of the Company, for cash consideration of $8,000, (iii)
61,250 shares of Common Stock to Judy Pace for cash consideration of $4,900,
(iv) 125,000 shares of Common Stock to First National Funding, Inc. for cash
consideration of $10,000, (v) 62,500 shares of Common Stock to Ulster
Investments, Ltd. for cash consideration of $5,000, and (vi) 25,000 shares of
Common Stock to Matthew Harriton, a director and formerly the President of the
Company, for cash consideration of $2,000. In addition, the Company also issued
in March 1996 25,000 shares of Common Stock and 12,500 Class A Warrants to
Gordon Brothers Capital Corporation ("GBCC") for services rendered valued at an
aggregate of $2,000. Neither GBCC nor any of its affiliates are affiliated with
the Company, the Representative, the Underwriters or any of their respective
affiliates. GBCC assisted the Company in identifying and negotiating with
potential acquisition candidates. Other than the acquisition of Artisan House,
there are no plans, arrangements, or understandings with regard to potential
acquisitions.
In March 1996, the Company issued to Interiors, Inc. 250,000 shares of
Class A Convertible Preferred Stock and an option to purchase 10,000,000 shares
of Class B NonConvertible Voting Preferred Stock (the "Series B Option") in
exchange for Interiors, Inc. issuing to the Company 200,000 shares of Common
Stock valued at $600,000 and 200,000 shares of Series A Convertible Preferred
Stock valued at $1,000,000. The Series B Option was exercised by Interiors in
September 1996 at an exercise price of $.0002 per share. Immediately following
the exercise of the Series B Option, Interiors entered into a Voting Agreement
with the Company and Messrs. Max Munn, Matt Harriton and Michael Lulkin
(collectively, the "Voting Trustees") each of whom is a director of the Company.
Under the terms of the Voting Agreement, the Voting Trustees have the right to
vote the shares of Series B Preferred Stock held by Interiors on all matters
presented to the stockholders prior to December 31, 1997. A majority of the
Voting Trustees shall determine the manner in which the shares of Series B
Preferred Stock are to be voted. A unanimous vote of the Voting Trustees is
required in order for the Company to enter into certain transactions, including
any mergers, consolidations, significant acquisitions, recapitalizations,
reorganizations or any transaction which would result in Interiors' ownership of
less than 51% of the outstanding voting stock of the Company (so long as
Interiors does not sell or transfer any of the Series B Preferred Stock held
thereby).
The Company intends to enter into a three (3) year employment agreement
with Donald Feldman to be effective as of the Effective Date of this offering.
Mr. Feldman is the President and will continue to serve as the President of the
Company. The agreement will provide for Mr. Feldman to receive a salary of
$117,500 per annum and an annual bonus equal to two percent (2%) of the amount
by which the Company's net sales exceed the sales recorded by the Company for
the year ending June 30, 1997. In addition, Mr. Feldman will be granted options
to purchase
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<PAGE>
5,000 shares of Common Stock of the Company at an exercise price of $5.00 per
share for each full year of employment under the agreement. The Company also
agreed to reimburse Mr. Feldman for bona fide business expenses including up to
$400 a month for the use of an automobile and $200 a month for insurance.
In May 1996, the Company entered into a two year Management Services
Agreement with Interiors, Inc. ("Interiors"). Interiors has, pursuant to such
agreement, agreed to advise the Company on the manufacturing, sale, marketing
and distribution of the Company's products as well as providing the Company
accounting and administrative services and strategic planning with regard to
joint ventures, acquisitions, and other long term business initiatives. In
exchange for such services, the Company has agreed to pay to Interiors an annual
amount equal to the greater of (i) $75,000 or (ii) 1 1/2% of Excess Cashflow (as
defined in the agreement). The Management Services Agreement is automatically
renewable for an additional one (1) year term unless terminated by either party
not less than sixty (60) days prior to the end of the term may be terminated by
the Company or Interiors upon sixty (60) days prior written notice. In the event
that the Management Services Agreement is terminated for any reason, the
Company's business may be negatively effected. In such an event, the Company may
be required to hire additional personnel or engage one or more independent
contractors at an added cost to the Company. See "Business - Management Services
Agreement."
In June 1996, the Company borrowed an aggregate of $50,000 from the
Company's stockholders, other than Gordon Brothers Capital Corporation, on a pro
rata basis based upon ownership of the Company's shares of Common Stock. Each
lender received a promissory note obligating the Company to repay the loan on
the earlier of (i) fifteen (15) months following the Effective Date or (ii) June
21, 1997. The Company utilized the proceeds from the loan for working capital
purposes.
In August 1996, the Company agreed to issue 47,084 shares of Series C
Preferred Stock to Interiors, Inc. in exchange for the payment of $706,250. In
September 1996, the Company agreed to issue 7,850 shares of Series C Preferred
Stock to Interiors in exchange for the payment of $117,750.
With respect to each of the foregoing transactions, the Company believes
that the terms of such transactions were as fair to the Company as could be
obtained from an unrelated third party. Future transactions with affiliates will
be on terms no less favorable than could be obtained from unaffiliated parties
and will be approved by a majority of the independent and/or disinterested
members of the board of directors.
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<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
of which 1,312,500 will be issued and outstanding as of the date of this
Prospectus. All of the issued and outstanding shares of Common Stock will be
fully paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, holders of shares of
Common Stock of the Company are entitled to share equally on a per share basis
in such dividends as may be declared by the Board of Directors out of funds
legally available therefor. There are presently no plans to pay dividends with
respect to the shares of Common Stock. See "Dividend Policy." Upon liquidation,
dissolution or winding up of the Company, after payment of creditors and the
holders of any senior securities of the Company, including Preferred Stock, if
any, the assets of the Company will be divided pro rata on a per share basis
among the holders of the shares of Common Stock. The Common Stock is not subject
to any liability for further assessments. There are no conversion or redemption
privileges nor any sinking fund provisions with respect to the Common Stock and
the Common Stock is not subject to call. The holders of Common Stock do not have
any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one (1) vote for
each share held at all stockholders' meetings including the annual meeting, for
all purposes, including the election of directors. The Common Stock does not
have cumulative voting rights.
Preferred Stock
The Company's Certificate of Incorporation authorizes 35,000,000 shares of
Preferred Stock, whereby the Board of Directors of the Company shall have the
authority, without further action by the holders of the outstanding shares of
Common Stock, to issue shares of Preferred Stock from time to time in one or
more classes or series, to fix the number of shares constituting any class or
series and the stated value thereof, if different from the par value, and to fix
the term of any such series or class, including dividend rights, dividend rates,
conversion or exchange rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price and the liquidation
preference of such class or series. As of the date of this Prospectus, there are
(i) 5,000,000 shares of Series A Convertible Preferred Stock authorized, of
which 250,000 shares are issued and outstanding, (ii) 20,000,000 shares of
Series B Non-Convertible Preferred Stock authorized, all of which 10,000,000 are
issued and outstanding, and (iii) 1,000,000 shares of Series C Convertible
Preferred Stock authorized, of which 54,934 shares are issued and outstanding.
The Company does not anticipate issuing dividends to the holders of its
Preferred Stock. See "Dividends."
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Series A Convertible Preferred Stock
The number of shares constituting the Series A Convertible Preferred Stock
(the "Series A Preferred Stock") is 5,000,000, $.0001 par value per share,
250,000 of which are issued and outstanding as of the Effective Date of the
Offering.
Dividends. Each issued and outstanding share of Series A Preferred Stock of
the Company shall not be entitled to receive dividends.
Voting. The holders of Series A Preferred Stock shall not have the right to
vote on matters presented to the stockholders of the Company, except as provided
by the General Corporation Law of the State of Delaware.
Rights on Liquidation, Dissolution or Winding Up. In the event of any
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, each issued and outstanding share of Series A
Preferred Stock shall entitle the holder of record thereof to payment at the
rate of $.0001 dollars per share, plus an amount equal to all accrued and unpaid
annual dividends, if any, before any payment or distribution of the net assets
of the Company (whether stated capital or surplus) shall be made to or set apart
for the holders of record of the issued and outstanding of any other shares of
preferred stock and shares of Common Stock ("Junior Securities").
Conversion. Shares of the Series A Preferred Stock of the Company shall be
convertible from time to time, subject to adjustment, at the option of the
holders of record thereof into one (1) share of the Company's Common Stock,
subject to certain anti-dilution provisions.
Series B Non-Convertible Preferred Stock
The number of shares constituting the Series B Non-Convertible Preferred
Stock (the "Series B Preferred Stock") is 20,000,000, par value $.0001 per
share, of which 10,000,000 are issued and outstanding as of the Effective Date
of the offering. Interiors, Inc., a stockholder of, and consultant to, the
Company holds all 10,000,000 shares of Series B Preferred Stock.
Dividends. Each issued and outstanding share of Series B Preferred Stock of
the Company shall not be entitled to receive dividends.
Voting. The holders of Series B Preferred Shares shall have the right to
vote on matters presented to the stockholders of the Company (including the
holders of Common Stock), each share of Series B Preferred Stock to have the
voting power of one (1) share of Common Stock.
Rights on Liquidation, Dissolution or Winding Up. In the event of any
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, each
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issued and outstanding share of Series B Preferred Stock shall entitle the
holder of record thereof to payment at the rate of $.0001 dollars per share,
plus an amount equal to all accrued and unpaid dividends, if any, before any
payment or distribution of the net assets of the Company (whether stated capital
or surplus) shall be made to or set apart for the holders of record of the
issued and outstanding of any shares of Common Stock.
Conversion. Shares of the Series B Preferred Stock of the Company shall not
be convertible into shares of Common Stock.
Series C Convertible Preferred Stock
The number of shares constituting the Series C Convertible Preferred Stock
(the "Series C Preferred Stock") is 1,000,000, $.0001 par value per share,
54,934 of which are issued and outstanding as of the Effective Date of the
Offering.
Dividends. Each issued and outstanding share of Series C Preferred Stock of
the Company shall not be entitled to receive dividends.
Voting. The holders of Series C Preferred Stock shall not have the right to
vote on matters presented to the stockholders of the Company, except as provided
by the General Corporation Law of the State of Delaware.
Rights on Liquidation, Dissolution or Winding Up. In the event of any
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, each issued and outstanding share of Series C
Preferred Stock shall entitle the holder of record thereof to payment at the
rate of $.0001 dollars per share, plus an amount equal to all accrued and unpaid
annual dividends, if any, before any payment or distribution of the net assets
of the Company (whether stated capital or surplus) shall be made to or set apart
for the holders of record of the issued and outstanding of any other shares of
preferred stock and shares of Common Stock ("Junior Securities").
Conversion. Shares of the Series C Preferred Stock of the Company shall be
convertible commencing on September 1, 1997, subject to adjustment, at the
option of the holders of record thereof into one (1) share of the Company's
Common Stock, subject to certain anti-dilution provisions.
Class A Warrants
The Company currently has 12,500 Class A Warrants outstanding and
anticipates issuing 1,500,000 Class A Warrants to the Bridge Lenders following
the Effective Date of this Offering. Each Class A Warrant entities the holder to
purchase one (1) share of Common Stock at a price of $5.25 per share for a
period of four (4) years commencing two (2) years from the Effective Date of
this Offering. Each Class A Warrant is redeemable by the Company for
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$.05 per Class A Warrant at any time after ________ upon thirty (30) days' prior
written notice, if the closing price of the Common Stock, as reported by the
principal exchange on which the Common Stock is traded, The Nasdaq SmallCap
Market or the National Quotation Bureau Incorporated, as the case may be,
exceeds $15.75 per share for twenty (20) consecutive trading days prior to the
date of the notice of redemption. Upon thirty (30) days' written notice to all
holders of Class A Warrants, the Company shall have the right, subject to
compliance with Rule 13E-4 under the Securities Exchange Act of 1934 and the
filing of Schedule 13E-4 and, if required, a post-effective amendment to this
registration statement, to reduce the exercise price and/or extend the term of
the Class A Warrants.
Unless an appropriate exemption from registration is available, the Class A
Warrants can only be exercised when there is a current effective registration
statement covering the shares of Common Stock underlying the Class A Warrants.
If the Company does not or is unable to maintain a current effective
registration statement, the holders of Class A Warrant certificates will be
unable to exercise the Class A Warrants and the Class A Warrants may become
valueless. Moreover, if the shares of Common Stock underlying the Class A
Warrants are not registered or qualified for sale in the state in which a holder
of Class A Warrant certificates resides, such holder might not be permitted to
exercise the Warrants. See "Risk Factors-Current Prospectus and State Blue Sky
Registration in Connection with the Exercise of the Warrants. Each Class A
Warrant may be exercised by surrendering the Warrant certificate, with the form
of election to purchase on the reverse side of the Class A Warrant certificate
properly completed and executed, together with payment of the exercise price, or
$5.25 per share, to the Transfer Agent. The Class A Warrants may be exercised
whole or from time to time in part. If less than all of the Class A Warrants
evidenced by a Warrant certificate are exercised, a new Class A Warrant
certificate will be issued for the remaining number of Class A Warrants.
Holders of the Class A Warrants are protected against dilution of the
equity interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Class A Warrants, the Class A Warrants may be exercised
immediately prior to such action. In the event liquidation, dissolution or
winding up of the Company, holders of the Class A Warrants are not entitled to
participate in the Company's assets.
For the life of the Class A Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the Class A Warrants will result in the dilution
of the then book value of the Common Stock of the Company held by the public
investors and would result in a dilution of their percentage ownership of the
Company.
Delaware Anti-Takeover Law
The Company is governed by the provisions of Section 203 of the General
Corporation
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Law of Delaware, an anti-takeover law enacted in 1988. In general, the law
prohibits a Delaware public corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three (3) years
after the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions.
Limitation on Liability of Directors
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section 102
of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
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Commission Policy
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and other agents of the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Transfer Agent & Registrar
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company (the "Transfer Agent").
SELLING SECURITYHOLDERS
This offering includes 25,000 shares of Common Stock owned and offered by
Gordon Brothers Capital Corporation (the "Shareholder"). In March 1996, the
Shareholder rendered management services to the Company in exchange for which
the Company issued 25,000 shares of Common Stock and 12,500 Class A Warrants
thereto. Following this offering, the Shareholder will continue to hold 12,500
Class A Warrants. The Company will not receive any of the proceeds from the sale
of such shares of Common Stock by the Shareholder. The registration statement of
which this Prospectus forms a part also covers the sale of (i) 1,500,000 Class A
Warrants issuable to the Bridge Lenders, and (ii) 1,031,000 shares of Common
Stock held by certain investors in the Company (the "Selling Stockholders"; the
Bridge Lenders and the Selling Stockholders are collectively referred to as the
"Selling Securityholders"). The officers and directors of the Company as well as
certain members of their immediate families (including certain Selling
Securityholders) and Interiors, Inc. have agreed not to sell or transfer the
securities of the Company held thereby for a period of twenty-four (24) months
following the Effective Date, subject to earlier release by the Representative.
The Company will not receive any of the proceeds on the sale of the securities
by the Selling Securityholders. The resale of the securities of the Selling
Securityholders are subject to Prospectus delivery and other requirements of the
Securities Act of 1933, as amended (the "Act"). Sales of such securities or the
potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Risk Factors - Shares Eligible for
Future Sale May Adversely Affect the Market."
The securities offered hereby may be sold from time to time directly by the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market
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prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (c) ordinary brokerage transactions
and transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling Securityholders
and intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Act with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
Offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for sales purchased from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers and the proposed selling price to the public.
Sales of securities by the Selling Securityholder or even the potential of
such sales would likely have an adverse effect on the market prices of the
securities offered hereby.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriters, as set forth below and for whom VTR
Capital, Inc. is the representative have agreed to purchase from the Company
300,000 shares of Common Stock offered hereby from the Company and 25,000 shares
of Common Stock from the Shareholder, on a "firm commitment" basis, as follows:
Underwriters Shares of Common Stock
------------ ----------------------
VTR Capital, Inc.
______________________
TOTAL 325,000
The Representative has advised the Company that it proposes to offer
the shares of Common Stock to the public at $10.00 per share as set forth on the
cover page of this
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Prospectus and that it may allow to certain dealers who are NASD members
concessions not to exceed $____ per share, of which not in excess of $____ per
share may be reallowed to other dealers who are members of the NASD. After the
initial public offering, the public offering price, concession and reallowance
may be changed by the Representative. The Underwriter does not intend to sell
any of the securities offered hereby to accounts for which it exercises
discretionary authority.
The public offering price of the shares of Common Stock was arbitrarily
determined by negotiations between the Company and the Representative and do not
necessarily relate to the assets, book value or results of operations of the
Company or any other established criteria of value.
The Company has granted an option to the Representative, exercisable during
the thirty (30) day period from the date of this Prospectus, to purchase up to a
maximum of 45,000 additional shares of Common Stock at the Offering price, less
the underwriting discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Representative against certain liabilities in connection
with the Registration Statement, including liabilities arising under the Act.
Insofar as indemnification for liabilities arising under the Act may be provided
to officers, directors or persons controlling the Company, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay to the Representative a non-accountable
expense allowance of three percent (3%) of the aggregate Offering price of the
shares of Common Stock offered hereby by the Company and the Shareholder,
including any shares of Common Stock purchased pursuant to the Over-Allotment
Option.
The Company has agreed to sell to the Representative, or its designees, for
an aggregate purchase price of $30, an option (the "Representative's Share
Purchase Option") to purchase up to an aggregate of 30,000 shares of Common
Stock. The Representative's Share Purchase Option shall be exercisable during a
four (4) year period commencing one (1) year from the Effective Date. The
Representative's Share Purchase Option may not be assigned, transferred, sold or
hypothecated by the Representative until twelve (12) months after the Effective
Date of this Prospectus, except to officers of the Representative or to selling
group members in this Offering. Any profits realized upon the sale of the shares
of Common Stock issuable upon exercise of the Representative's Share Purchase
Option may be deemed to be additional underwriting compensation. The exercise
price of the Representative's Share Purchase Option during the period of
exercisability shall be one hundred sixty five percent (165%) of the initial
public offering price of the shares of Common Stock. The exercise of the
Representative's Share Purchase Option and the number of shares covered thereby
are subject
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to adjustment in certain events to prevent dilution. For the life of the
Representative's Share Purchase Option, the holders thereof are given, at a
nominal cost, the opportunity to profit from a rise in the market price of the
Company's shares of Common Stock and Class A Warrants with a resulting dilution
in the interest of other stockholders. The Company may find it more difficult to
raise capital for its business if the need should arise while the
Representative's Share Purchase Option is outstanding. At any time when the
holders of the Representative's Share Purchase Option might be expected to
exercise it, the Company would probably be able to obtain additional capital on
more favorable terms.
If the Company enters into a transaction (including a merger, joint
venture, equity financing, debt financing, or the acquisition of another entity)
introduced to the Company by the Representative, the Company has agreed to pay
the Representative a finder's fee equal to five percent (5%) of the first
$4,000,000 of consideration involved in the transaction, ranging in $1,000,000
increments down to two percent (2%) of the excess, if any, over $6,000,000.
The Representative has the right to designate a director or a non-voting
advisor to the Board for a period of five years after the Effective Date. Said
designee, shall attend meetings of the Board and receive no more or less
compensation than is paid to other non-management directors of the Company and
shall be entitled to receive reimbursement for all reasonable costs incurred in
attending such meetings, including but not limited to, food, lodging and
transportation. Moreover, to the extent permitted by law, the Company agree to
indemnify the Representative and its designee for the actions of such designee
as director or as an advisor of the Company. In the event the Representative
designates a director, then the Company will utilize its best efforts to obtain
officer and director liability insurance of at least $1,000,000 dollars prior to
such person serving as a director and if obtained, to maintain such policy in
effect until five years from the Effective Date. To the extent permitted under
the policy, it will also include each of the Representative and its designee as
an insured under such policy. As of the date hereof, the Representative has not
designated such director or observer.
Upon the closing of the sale of the shares of Common Stock offered hereby,
the Company will enter into a two (2) year financial advisory and investment
banking agreement with the Representative, pursuant to which the Company will be
obligated to pay the Representative $100,000 in advance upon the closing of the
Offering, for financial and investment advisory services to the Company for no
more than two (2) business days per month.
The Company has agreed with the Representative that the Company will pay to
the Representative a warrant solicitation fee (the "Warrant Solicitation Fee")
equal to four percent (4%) of the exercise price of the Class A Warrants
exercised beginning one (1) year after the Effective Date and to the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission. Such Warrant Solicitation Fee will be paid to the Representative
if (a) the market price of the Common Stock on the date that any Class A
Warrants is exercised is greater than the exercise price of the Class A Warrant;
(b) the exercise of such Class A Warrant was solicited by the Representative;
(c) prior specific written approval for
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exercise is received from the customer if the Class A Warrant is held in a
discretionary account; (d) disclosure of this compensation agreement is made
prior to or upon the exercise of such Class A Warrant; (e) solicitation of the
exercise is not in violation of Rule 10b-6 of the Exchange Act; and (f)
solicitation of the exercise is in compliance with NASD Notice to Member 81-38.
In addition, unless granted an exemption by the Commission from Rule 10b-6 under
the Exchange Act, the Representative and any soliciting broker-dealers are
prohibited from engaging in any market making activities or solicited brokerage
activities with respect to the Company's securities for the period from nine (9)
business days prior to any solicitation of the exercise of any Class A Warrant
or nine (9) business days prior to the exercise of any Class A Warrant based on
a prior solicitation until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Representative and soliciting broker-dealers may have to receive a fee for the
exercise of Class A Warrants following such solicitation. As a result, the
Representative may be unable to continue to provide a market for the Company's
securities during that certain period while the Class A Warrants are
exercisable. See "Risk Factors - Lack of Prior Market for shares of Common Stock
and Class A Warrants; No Assurance of Public Trading Market."
The Company has agreed not to issue any securities for a period of five (5)
years from the Effective Date, without the prior written consent of the
Representative. The officers and directors of the Company, certain of their
immediate family members (including certain Selling Securityholders) and
Interiors, Inc. have agreed not to sell or transfer the securities of the
Company held thereby for a period of twenty-four (24) months following the
Effective Date, subject to earlier release by the Representative.
The Representative has limited experience as an Representative of public
offerings. There can be no assurance that the Representative's limited
experience as an Representative of public offerings will not adversely affect
the proposed public offering of the shares of Common Stock, the subsequent
development of a trading market, if any, or the market for and liquidity of the
Company's securities. Therefore, purchasers of the securities offered hereby may
suffer a lack of liquidity in their investment or a material diminution of the
value of their investment.
In connection with the Offering, the Representative has agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Securities Act with respect to any statement in or omission
from the registration statement or the Prospectus or any amendment or supplement
thereto if such statement or omission was made in reliance upon information
furnished in writing to the Company by the Representative specifically for or in
connection with the preparation of the registration statement, the prospectus,
or any such amendment or supplement thereto.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and Representative's Share Purchase Option which have been filed as
exhibits hereto.
Determination of Public Offering Price
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Prior to this Offering, there has been no public market for the shares of
Common Stock. The initial public offering price for the shares of Common Stock
have been determined by negotiations between the Company and the Representative.
Among the factors considered in the negotiations were the market price of the
Company's Common Stock, an analysis of the areas of activity in which the
Company is engaged, the present state of the Company's business, the Company's
financial condition, the Company's prospects, an assessment of management, the
general condition of the securities market at the time of this Offering and the
demand for similar securities of comparable companies. The public offering price
of the shares of Common Stock does not necessarily bear any relationship to
assets, earnings, book value or other criteria of value applicable to the
Company.
The Company anticipates that the shares of Common Stock will be listed for
quotation on the NASD OTC Bulletin Board under the symbol, ,but there can be no
assurances that an active trading market will develop, even if the securities
are accepted for quotation. The Representative intends to make a market in all
of the publicly-traded securities of the Company.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022.
Bernstein & Wasserman, LLP, has served, and continues to serve, as counsel to
the Representative in matters unrelated to this Offering. Certain legal matters
will be passed upon for the Representative by Lester Morse, P.C., 111 Great Neck
Road, Great Neck, NY 11021.
EXPERTS
Certain of the financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been examined by Moore Stephens,
P.C., independent certified public accountants, whose reports contain an
explanatory paragraph regarding uncertainties as to the ability of the Company
to continue as a going concern, which appear elsewhere herein and in the
Registration Statement.
ADDITIONAL INFORMATION
This Prospectus constitutes part of a Registration Statement on Form SB-2
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act and omits certain information contained
in the Registration Statement. Reference is hereby made to the Registration
Statement and to its exhibits for further information with respect to the
Company and the shares of Common Stock offered hereby. Statements contained
herein concerning provisions of documents are necessarily summaries of such
documents, and each
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<PAGE>
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
The Registration Statement, including the exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at: 450 Fifth Street, Washington, D.C. 20549; and at the offices of
the Commission located at 7 World Trade Center, New York, NY 10048; and copies
of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, Washington, D.C. 20549 at prescribed rates.
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DECOR GROUP, INC.
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INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page to Page
------------
<S> <C> <C>
Pro Forma Combined Financial Statements
Introduction...................................................................................A-1 .......
Notes to the Pro Forma Combined Financial Statements...........................................A-2 .......A-3
Pro Forma Combined Balance Sheet as of June 30, 1996...........................................A-4 .......A-6
Pro Forma Combined Statement of Operations for the three months
ended June 30, 1996............................................................................A-7 .......
Pro Forma Statement of Operations for the year ended March 31, 1996............................A-8 .......
Decor Group, Inc.
Independent Auditor's Report...................................................................B-1 .......
Balance Sheets as of June 30, 1996 [Unaudited] and March 31, 1996..............................B-2 .......B-3
Statements of Stockholders' Equity for the three months ended June 30, 1996
[Unaudited] and for the period from Inception
[March 1, 1996] through the period ended March 31, 1996........................................B-4 .......
Statements of Operations for the three months ended June 30, 1996 and 1995
[Unaudited] and for the period from Inception [March 1, 1996]
through the period ended March 31, 1996........................................................B-5 .......
Statements of Cash Flows for the three months ended June 30, 1996 and 1995
[Unaudited] and for the period from Inception [March 1, 1996]
through the period ended March 31, 1996........................................................B-6 .......B-7
Notes to Financial Statements..................................................................B-8 .......B-12
Artisan House, Inc.
Independent Auditor's Report...................................................................C-1 .......
Balance Sheets as of June 30, 1996 [Unaudited] and January 31, 1996............................C-2 .......
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Statements of Operations for the five months ended June 30, 1996 and 1995
[Unaudited] and the years ended January 31, 1996 and 1995......................................C-3 .......
Statements of Stockholders' Equity for the five months ended June 30, 1996
[Unaudited] and for the years ended January 31, 1996 and 1995..................................C-4 .......
Statements of Cash Flows for the five months ended June 30, 1996 and 1995
[Unaudited] and for the years ended January 31, 1996 and 1995 .................................C-5 .......C-6
Notes to Financial Statements..................................................................C-7 .......C-10
</TABLE>
...............
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DECOR GROUP, INC.
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PRO FORMA COMBINED FINANCIAL STATEMENTS [UNAUDITED]
- --------------------------------------------------------------------------------
The following pro forma combined balance sheet as of June 30, 1996, and the pro
forma combined statements of operations for the three months ended June 30, 1996
and the year ended March 31, 1996 give effect to Decor Group, Inc. [the
"Company"] entering into an agreement to acquire certain assets and assume
certain liabilities of Artisan House, Inc. ["Artisan"] on March 25, 1996. The
agreement calls for a purchase price of $3,626,400 subject to certain
adjustments.
The pro forma information is based on the historical financial statements of the
Company and Artisan giving effect to the transaction under the purchase method
of accounting and the assumptions and adjustments in the accompanying notes to
the pro forma combined financial statements.
The acquisition will be accounted for using the purchase method. The pro forma
combined balance sheet assumes the acquisition was consummated on June 30, 1996.
The pro forma combined statements of operations give effect to this transaction
as if it had occurred at the beginning of the earliest period presented. The
historical statements of operations will reflect the effect of this transaction
from the date on which it occurred. The pro forma combined financial statements
are based on the historical financial statements of the Company and Artisan. The
pro forma combined statement of operations for the year ended March 31, 1996
include the operations of the Company for the one month period from inception on
March 1, 1996 to March 31, 1996 and the operations of Artisan for the year ended
January 31, 1996. The pro forma combined statement of operations for the three
months ended June 30, 1996 include the operations of the Company for the three
month period and the operations of Artisan for the five month period from
January 31, 1996 to June 30, 1996 [the latter have been adjusted to a three
month period ended June 30, 1996]. These pro forma combined financial statements
may not be indicative of the results that actually would have occurred if the
acquisition had taken place on the dates indicated.
A-1
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS [UNAUDITED]
- --------------------------------------------------------------------------------
[A] Assets and liabilities not acquired:
Deferred Revenues $ 165,000
Loan Payable - Stockholder 230,733
Accrued Rent 170,733
Interest Payable 423,018
Prepaid Expenses $ 71,615
Property and Equipment - Net 5,980
Other Assets 19,335
Paid-in Capital 854,678
Cash 37,876
[B] To reflect acquisition:
Net Assets Acquired *1,608,983
Trademark 150,000
Copyrights and Artwork 150,000
Customer Lists 200,000
Covenant 100,000
Goodwill 1,379,541
Cash 2,400,000
Note Payable [$926,400 - $37,876] 888,524
Common Stock: Par 10
Additional Paid-in Capital 299,990
[* C.S. $80,000 + P.I.C. $1,054,678 + R.E. $474,305]
[C] To adjust Decor's investment in Artisan House:
Cash 165,000
Investments 165,000
[D] To adjust short-term classification of note payable:
Note Payable - Long-Term 208,192
Note Payable - Short-Term 208,192
[E] To reflect annual 8% interest expense of $20,000 on $250,000 bridge note
payable and interest expense of $66,000 on acquisition notes of $888,524
or ($926,400 - $37,876).
[F] To reflect annual employment agreement of $75,000 and minimum annual
management services agreement of $75,000 [quarterly an aggregate of
$37,500].
A-2
<PAGE>
[G] To reflect annual savings on stockholder's loan payable which has been
converted to equity and carried an annual interest cost of $43,613.
[H] To adjust pro forma income taxes.
[I] To reflect elimination of former President's annual employment contract
of approximately $113,000 and addition of annual employment contract for
new President of $117,000.
[J] To reflect annual amortization of goodwill and other intangibles of
approximately $175,000 annually [quarterly of $43,750], under the
straight-line method with a range of 10 to 15 years for the intangibles
acquired.
Goodwill and intangibles are calculated as follows:
Purchase Price: [See Adjustment "B"]
Cash $ 2,400,000
Stock 300,000
Note Payable 888,524
-------
Total Cost 3,588,524
Net Assets Acquired 1,608,983
---------
$ 1,979,541
===========
Allocated as follows:
Copyrights $ 150,000
Trademarks 150,000
Covenant 100,000
Customer Lists 200,000
Goodwill 1,379,541
---------
$ 1,979,541
===========
[K] To reflect net proceeds of public offering of approximately $2,010,000
and to reflect offset of deferred offering costs.
[L] To adjust five months operations of Artisan House, Inc. to three months
of operations.
[M] To reflect sale of Series C Non-Voting, Convertible, Preferred Stock in
August and September of 1996 with proceeds of $824,000.
[N] To reflect charge to retained earnings of $25,000 arising from grant of
options in connection with employment agreement. The charge was not
considered in the pro forma combined statements of operations and will be
included in the income of the registrant within the twelve months
succeeding the transaction.
[O] To reflect the exercise of existing option to purchase 10,000,000 shares
of Series B Non-Convertible Voting Preferred Stock at an exercise price
of $.0002 per share.
A-3
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1996.
[UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical Financial Statements
Decor Artisan
Group, Inc. House, Inc.
June 30, June 30, Pro Forma Pro Forma
1 9 9 6 1 9 9 6 Adjustments Combined
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash $ 20,241 $ 37,876 $ 165,000 [C] $
(37,876) [A]
824,000 [M]
2,010,000 [K]
(2,400,000) [B]
2,000 [O] 621,241
Accounts Receivable -- 1,102,652 -- 1,102,652
Receivable - Related Party 14,500 -- -- 14,500
Inventory -- 968,081 -- 968,081
Other -- 144,060 (71,615) [A] 72,445
---------- ---------- ---------- ----------
Total Current Assets 34,741 2,252,669 491,509 2,778,919
---------- ---------- ---------- ----------
Investments 2,465,000 -- (165,000) [C] 2,300,000
---------- ---------- ---------- ----------
Property and Equipment - Net -- 113,128 (5,980) [A] 107,148
---------- ---------- ---------- ----------
Other Assets:
Goodwill -- -- 1,379,541 [B] 1,379,541
Deferred Offering Costs 74,658 -- (74,658) [K] --
(19,335) [A]
Other Assets -- 26,299 600,000 [B] 606,964
---------- ---------- ---------- ----------
Total Other Assets 74,658 26,299 1,885,548 1,986,505
---------- ---------- ---------- ----------
Total Assets $2,574,399 $2,392,096 $2,206,077 $7,172,572
========== ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-4
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1996.
[UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical Financial Statements
Decor Artisan
Group, Inc. House, Inc.
June 30, June 30, Pro Forma Pro Forma
1 9 9 6 1 9 9 6 Adjustments Combined
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ -- $ 202,457 $ -- $ 202,457
Accrued Expenses 108,000 217,762 -- 325,762
Notes and Bridge Loan Payable 142,850 159,361 208,192 [D] 510,403
Loan Payable - Stockholder -- 230,733 (230,733) [A] --
Accrued Interest Payable - Stockholder -- 423,018 (423,018) [A] --
Accrued Rent Payable - Stockholder -- 170,733 (170,733) [A] --
Deferred Revenue -- 165,000 (165,000) [A] --
------- --------- -------- ---------
Total Current Liabilities 250,850 1,569,064 (781,292) 1,038,622
------- --------- -------- ---------
Long-Term Liabilities:
(208,192) [D]
Notes Payable 50,000 68,727 888,524 [B] 799,059
------ ------ ------- -------
Stockholders' Equity:
Preferred Stock 25 -- 15 [M]
1,000 [O] 1,030
Common Stock 131 80,000 30 [K]
(80,000) [B]
10 [B] 171
Additional Paid-in Capital 1,919,144 200,000 854,678 [A]
(1,054,678) [B]
299,990 [B]
1,935,312 [K]
823,995 [M]
25,000 [N]
1,000 [O] 5,004,441
Retained Earnings [Deficit] (345,751) 474,305 (474,305) [B]
(25,000) [N] (370,751)
Unrealized Gain on Investment
[Available for Sale] 700,000 -- -- 700,000
------- --------- -------- ---------
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Total Stockholders' Equity 2,273,549 754,305 2,307,037 5,334,891
--------- ------- --------- ---------
Total Liabilities and Stockholders'
Equity $2,574,399 $2,392,096 $2,206,077 $7,172,572
========== ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-6
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 1996.
[UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical Financial Statements
Decor Artisan
Group, Inc. House, Inc.
For the For the
Three months Five months
Ended Ended
June 30, June 30, Pro Forma Pro Forma
1 9 9 6 1 9 9 6 Adjustments Combined
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Sales - Net $ -- $2,310,976 $(924,000) [L] $1,386,976
Cost of Goods Sold -- 1,233,714 494,000 [L] 739,714
-- --------- ------- -------
Gross Profit -- 1,077,262 (430,000) 647,262
-------- ------- -------- -------
(305,850) [L]
43,750 [J]
Selling, General and Administrative 1,000 [I]
Expenses 138,851 764,625 37,500 [F] 679,876
-------- -------- ------ -------
[Loss] Income from Operations (138,851) 312,637 (206,400) (32,614)
-------- ------- -------- -------
Other [Income] Expense:
Interest Expense - Stockholder -- 13,356 (13,356) [G] --
Interest Income -- (774) -- (774)
Interest Expense 107,150 15,275 21,500 [E] 143,925
------- ------ ------ -------
Other Expense - Net 107,150 27,857 8,144 143,151
------- ------ ----- -------
[Loss] Income Before Pro Forma
Income Taxes (246,001) 284,780 (214,544) (175,765)
Provision for Pro Forma Income Taxes -- (114,000) 114,000 [H] --
-------- ------- -------- -------
Net [Loss] Income $(246,001) $170,780 $(100,544) $(176,765)
========= ======== ========= =========
Number of Shares 2,812,500 3,162,500
========= =========
Net [Loss] Per Share $ (.09) $ (.06)
========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-7
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
MARCH 31, 1996.
[UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical Financial Statements
Decor
for the Period
March 1, 1996 Artisan
[Inception] For the
Through Year ended
March 31, January 31, Pro Forma Pro Forma
1 9 9 6 1 9 9 6 Adjustments Combined
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Sales - Net $ -- $4,809,422 $ -- $4,809,422
Cost of Goods Sold -- 2,596,383 -- 2,596,383
-------- ------- -------- ------
Gross Profit -- 2,213,039 -- 2,213,039
Selling, General and Administrative
Expenses 100,000 1,684,591 175,000 [J]
4,000 [I]
150,000 [F] 2,113,591
-------- ---------
[Loss] Income from Operations (100,000) 528,448 (329,000) 99,448
-------- ------- -------- ---------
Other [Income] Expense:
Interest Expense - Stockholder -- 43,613 (43,613) [G] --
Interest Income (250) (2,218) -- (2,468)
Interest Expense -- 40,466 86,000 [E] 126,466
Other (4,496) -- (4,496)
------- -------- ------
Other Expense - Net (250) 77,365 42,387 119,502
---- ------ ------ -------
[Loss] Income Before Pro Forma
Income Taxes (99,750) 451,083 (371,387) (20,054)
Provision for Pro Forma Income Taxes -- 180,000 180,000 [H] --
-------- ------- -------- ------
Net [Loss] Income $ (99,750) $ 271,083 $(191,387) $ (20,054)
========= ========= ========= ==========
Number of Shares 2,812,500 3,162,500
========= ==========
Net [Loss] Per Share $ (.04) $ (.01)
========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of
Decor Group, Inc.
New York, New York
We have audited the accompanying balance sheet of Decor Group, Inc. as of
March 31, 1996, and the related statements of operations, stockholders' equity,
and cash flows for the period from inception [March 1, 1996] through March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 Decor Group, Inc. as of
March 31, 1996, and the results of its operations, and its cash flows for the
period from inception [March 1, 1996] to March 31, 1996, 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 7 to the
financial statements, the Company has not generated cash from operations. This
factor raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 7. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
May 24, 1996
[Except for Note 11 as
to which the date is
B-1
<PAGE>
October 16, 1996]
B-2
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, March 31,
1 9 9 6 1 9 9 6
[Unaudited] --------
-----------
<S> <C> <C>
Assets:
Current Assets:
Cash $ 20,241 $ 47,000
Stock Subscription Receivable -- 8,000
Note Receivable - Related Party -- 50,000
Accrued Interest Receivable - Related Party -- 250
Related Party Receivable 14,500 --
------ -------
Total Current Assets 34,741 105,250
------ -------
Non-Current Assets:
Investment - Related Party [8] 2,300,000 1,787,600
Investment in Artisan House, Inc. 165,000 150,000
Deferred Offering Costs 74,658 --
------ -------
Total Non-Current Assets 2,539,658 1,937,600
--------- ---------
Total Assets $2,574,399 $2,042,850
========== ==========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accrued Expenses $ 108,000 $ --
Bridge Loan Payable [Net of Discount of $107,150 and
$214,300 for June 30, 1996 and March 31, 1996, Respectively] 142,850 35,700
------- ------
Total Current Liabilities 250,850 35,700
------- ------
Long-Term:
Stockholders' Loans Payable 50,000 --
------ -------
Commitments and Contingencies -- --
------ -------
Stockholders' Equity:
Preferred Stock, $.0001 Par Value Per Share, 35,000,000 Blank Check Shares
Authorized of which 5,000,000 are Convertible Non-Voting Series A - 250,000
Shares Issued and Outstanding; 20,000,000 Non-Convertible Voting Series B -
No Shares Issued and Outstanding
[Note 8] 25 25
Additional Paid-in Capital - Preferred Stock 1,599,975 1,599,975
Common Stock - $.0001 Par Value, Authorized 20,000,000 Shares,
Issued and Outstanding, 1,312,500 Shares 131 131
Additional Paid-in Capital - Common Stock 319,169 319,169
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C> <C>
Retained Earnings [Deficit] (345,751) (99,750)
Unrealized Gain on Investment [Available for Sale][8] 700,000 187,600
------- -------
Total Stockholders' Equity 2,273,549 2,007,150
--------- ---------
Total Liabilities and Stockholders' Equity $2,574,399 $2,042,850
========== ==========
</TABLE>
See Notes to Financial Statements.
B-4
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Additional Additional Retained Unrealized Total
Paid-in Paid-in Earnings Gain on Stockholders'
Shares Amount Capital Shares Amount Capital [Deficit] Investment Equity
------ ------ ------- ------ ------ ------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock Issued to Founders -- $ -- $ -- 1,312,500 $ 131 $ 104,869 $ -- $ -- $ 105,000
Bridge Financing Warrants -- -- -- -- -- 214,300 -- -- 214,300
250,000 Shares of Class A
Convertible Preferred Stock and
and Option to Purchase 10,000,000
Shares of Class B Non-Convertible
Preferred Stock 250,000 25 1,599,975 -- -- -- -- -- 1,600,000
Unrealized Gain on Investment
[Available for Sale] -- -- -- -- -- -- -- 187,600 187,600
Net [Loss] for the period ended
March 31, 1996 -- -- -- -- -- -- (99,750) -- (99,750)
------- ----- ---------- --------- -------- ---------- ---------- ---------- -----------
Balance - March 31, 1996 250,000 25 1,599,975 1,312,500 131 319,169 (99,750) 187,600 2,007,150
Unrealized Gain on Investment
[Available for Sale] -- -- -- -- -- -- -- 512,400 512,400
Net [Loss] for the three months
ended June 30, 1996 [Unaudited] -- -- -- -- -- -- (246,001) -- (246,001)
------- ----- ---------- --------- -------- ---------- ---------- ---------- -----------
Balance - June 30, 1996
[Unaudited] 250,000 $ 25 $1,599,975 1,312,500 $ 131 $ 319,169 $ (345,751) $ 700,000 $ 2,273,549
======= ===== ========== ========= ======== ========== ========== ========== ===========
</TABLE>
See Notes to Financial Statements.
B-5
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the
For the Period From
Three Months March 1,
Ended 1996 to
June 30, March 31,
1 9 9 6 1 9 9 6
------- -------
[Unaudited]
Revenues $ -- $ --
Cost of Revenues -- --
------- -------
Gross Profit -- --
------- -------
Selling, General and Administrative Expenses:
Acquisition Fees and Expenses 52,829 98,000
Professional Fees 73,000 2,000
Administrative Expenses 13,022 --
------- -------
Total Selling, General and Administrative Expenses 138,851 100,000
------- -------
[Loss] from Operations (138,851) (100,000)
------- -------
Other Income [Expense]:
Interest Income - Related Party -- 250
Interest Expense (107,150) --
------- -------
Total Other [Expense] Income (107,150) 250
------- -------
[Loss] Before Provision for Income Taxes (246,001) (99,750)
Provision for Income Taxes -- --
------- -------
Net [Loss] $(246,001) $(99,750)
========= =========
[Loss] Per Share $ (.09) $ (.04)
========= =========
See Notes to Financial Statements.
B-6
<PAGE>
DECOR GROUP, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the
For the Period From
Three Months March 1,
Ended 1996 to
June 30, March 31,
1 9 9 6 1 9 9 6
------- -------
[Unaudited]
Operating Activities:
Net [Loss] $(246,001) $(99,750)
Adjustment to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Stock Issued for Services -- 2,000
Accrued Interest Receivable 250 (250)
Interest - Cost of Bridge Warrants 107,150 --
Accrued Expenses 108,000 --
------- -------
Net Cash - Operating Activities (30,601) (98,000)
------- -------
Investing Activities:
Collection of Note Receivable 50,000 --
Partial Payment on Acquisition of Artisan House, Inc. (15,000) (150,000)
Note Receivable -- (50,000)
------- -------
Net Cash - Investing Activities 35,000 (200,000)
------- -------
Financing Activities:
Deferred Offering Costs (74,658) --
Proceeds from Sale of Common Stock 8,000 95,000
Proceeds from Bridge Loans -- 250,000
Proceeds from Stockholder Loan 35,500 --
------- -------
Net Cash - Financing Activities (31,158) 345,000
------- -------
Net [Decrease] Increase in Cash (26,759) 47,000
Cash - Beginning of Periods 47,000 --
------- -------
Cash - End of Periods $20,241 $47,000
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ -- $ --
Income Taxes $ -- $ --
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the period ended March 31, 1996, the Company recorded a discount on
the bridge loan of $214,300 resulting from the issuance of warrants for the
$250,000 bridge loan. For the three months ended June 30, 1996, the Company
amortized $107,150 as interest expense.
On March 3, 1996, the Company issued to Interiors, Inc. 250,000 shares of
Class A Convertible Preferred Stock and an option to purchase 10,000,000 shares
of Class B Non-Convertible Preferred Stock in exchange
B-7
<PAGE>
for Interiors, Inc. issuing to the Company 200,000 shares of Common Stock valued
at $600,000 and 200,000 shares of Series A Convertible Preferred Stock valued at
$1,000,000 and a guarantee with respect to certain indebtedness.
In March 1996, the Company issued 1,312,500 shares of common stock to seven
parties for $105,000 of which $103,000 was in cash and $2,000 was for the fair
value of services. At March 31, 1996, $8,000 is reflected as a stock
subscription receivable, which was received May 21, 1996.
See Notes to Financial Statements.
B-8
<PAGE>
DECOR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
[Information Relating to June 30, 1996 is Unaudited]
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies
[A] Nature of Operations - Decor Group, Inc., a Delaware corporation [the
"Company" or "Decor"], was formed March 1, 1996.
[B] Capital Stock - In March 1996, the Company issued 1,312,500 shares of common
stock to seven parties for a total of $105,000 of which $103,000 was in cash and
$2,000 was for the fair value of services. At March 31, 1996, $8,000 is
reflected as a stock subscription receivable, which was received May 21, 1996.
[C] Earnings Per Share - The number of shares to be used for earnings per share
calculation purposes will be based on the 1,312,500 common shares issued in the
initial capitalization and on the 1,500,000 common shares assumed issued from
the warrants in connection with the bridge loan, as if they were outstanding
since inception. Convertible preferred stock is not included because the effect
would be anti-dilutive [See Note 6].
[D] Cash Equivalents - The Company's policy is to classify all highly liquid
debt instruments purchased with an initial maturity of three months or less to
be cash equivalents. There were no cash equivalents at March 31, 1996.
[E] Use of 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.
[F] Goodwill - Amounts paid in excess of the estimated value of net assets
acquired of Artisan House, Inc. will be charged to goodwill. Goodwill is related
to revenues the Company anticipates realizing in future years. The Company has
decided to amortize its goodwill over a period of up to ten years under the
straight-line method. The Company's policy is to evaluate the periods of
goodwill amortization to determine whether later events and circumstances
warrant revised estimates of useful lives. The Company also evaluates whether
the carrying value of goodwill has become impaired by comparing the carrying
value of goodwill to the value of projected undiscounted cash flows from
acquired assets or businesses. Impairment is recognized if the carrying value of
goodwill is less than the projected undiscounted cash flow from the acquired
assets or business.
[G] Stock Options and Similar Equity Instruments Issued to Employees - The
Company uses the intrinsic value method to recognize cost in accordance with APB
25 [Accounting for Stock Issued to Employees].
[H] Deferred Offering Costs - If the offering is not completed, such costs will
be expensed and not recorded as a reduction of the net proceeds of the offering.
[2] Business Combination - Artisan House
On March 25, 1996, the Company entered into an agreement to acquire certain
assets and assume certain liabilities of Artisan House, Inc. for $3,626,400,
subject to adjustment prior to closing of which $150,000 was paid in cash, and
an additional $2,250,000 will be paid in extension payments and at the closing
of the acquisition. A secured promissory note for $926,400 will be issued,
[subject to reduction by a cash balance of Artisan House at the closing date
estimated at $37,876 at June 30, 1996] of which $100,000 will be paid 90 days
after the closing and the balance will be paid in 60 equal monthly
B-9
<PAGE>
installments of $12,947 with final payment of $150,000 at maturity with interest
at 8%, and 50,000 shares of Decor common stock valued at $300,000 will be
issued. Artisan House, Inc. is engaged in the business of manufacturing,
marketing, selling and distributing wall hanging sculptures. The transaction
will be recorded under the purchase method.
Goodwill of approximately $1,400,000 will be amortized over 10 years under the
straight-line method. Operations of Artisan will be included with the Company
from the date of the close of the acquisition onward.
Simultaneously with the execution of the Artisan House Asset Purchase Agreement,
on March 25, 1996 the Company entered into a three year employment agreement
with the Seller for base annual compensation of $50,000.
The following unaudited pro forma combined results of operations accounts for
the acquisition as if it had occurred at the beginning of the periods presented.
The pro forma results give effect to amortization of goodwill and other
intangible assets, interest expense, employment contracts and consulting
agreements.
Three months Ended Year ended
June 30, March 31,
1 9 9 6 1 9 9 6
------- -------
Total Revenues $1,386,976 $4,809,422
========== ==========
Net [Loss] $ (37,765) $ (275,054)
========== ==========
Net [Loss] Per Common Share $ (.01) $ (.10)
========== ==========
Weighted Average Number of Shares Outstanding 2,862,500 2,862,500
========== ==========
These pro forma amounts may not be indicative of results that actually would
have occurred if the combination had been in effect on the date indicated or
which may be obtained in the future.
[3] Related Party Transactions
On March 5, 1996, the Company advanced $50,000 with 8% interest to a firm that
renders management services to the Company. The Company was repaid on April 16,
1996. Interest income of $250 was recorded as of March 31, 1996 [See Notes 8 and
12A].
[4] 1996 Stock Option Plan
In March 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of the 1996 Stock Option Plan.
The maximum number of shares of common stock with respect to which awards may be
granted pursuant to the 1996 Plan is initially 250,000 shares.
[5] Proposed Public Offering
The Company is filing a registration statement for a public offering of 300,000
shares of common stock at $10 per share. The anticipated net proceeds from this
offering are approximately $2,010,000.
B-10
<PAGE>
[6] Bridge Loan
On March 31, 1996, the Company borrowed an aggregate of $250,000 from nine [9]
lenders [the "Bridge Lenders"]. In exchange for making loans to the Company,
each Bridge Lender received a promissory note [the "Bridge Note"]. Each of the
Bridge Notes bears interest at the rate of eight percent [8%] per annum. The
Bridge Notes are due and payable upon the earlier of (i) March 18, 1997 or (ii)
the closing of an initial underwritten public offering of the Company's
securities. The Company intends to use a portion of the proceeds of this
offering to repay the Bridge Lenders. The Bridge Lenders have the right to
receive a total of 1,500,000 Class A Warrants for 1,500,000 shares of common
stock which will be registered in the Company's first registration statement.
The Class A Warrants are exercisable at a price of $5.25 per warrant commencing
two years from the effective date of the initial public offering and expire six
years from the effective date of the offering. The Company recorded a discount
on the bridge notes at June 30, 1996 of $214,300, which will be amortized it
over the life of the bridge loan, which is anticipated to be six months. For the
three months ended June 30, 1996, the Company amortized the discount of $107,150
as interest expense.
[7] Going Concern
As shown in the accompanying financial statements, the Company did not generate
cash from operations for the period ended March 31, 1996. This factor creates an
uncertainty about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern. The Company acquired
Artisan House, Inc. for $3,626,400 [See Note 2], and is pursuing a public
offering of common stock as a vehicle for financing future operations [See Note
5]. The continuation of the Company as a going concern is dependent upon the
success of these plans.
[8] Investment - Related Party
On March 3, 1996, the Company issued to Interiors, Inc. 250,000 shares of Series
A Non-Voting Convertible Preferred Stock and an option to purchase 10,000,000
shares of Series B Non-Convertible Voting Preferred Stock at an exercise price
of $.0002 in exchange for Interiors, Inc. issuing to the Company 200,000 shares
of Common Stock valued at $600,000 and 200,000 shares of Series A Convertible
Preferred Stock valued at $1,000,000. The valuation of the investment in both
classes of Interiors, Inc's securities approximated the market closing price at
the time of issuance with an 11% discount. Accordingly, aggregate estimated fair
value of the investment approximates carrying value. As disclosed in Note 12A,
on May 28, 1996, the Company entered into a management agreement with Interiors,
Inc. whereby Interiors, Inc. will provide the Company certain marketing and
management services. The exchange of shares between the Company and Interiors,
Inc. is pursuant to the Company's intentions to secure the ongoing and long-term
availability of these services. Accordingly, the Company's intention is to
maintain a long-term position in its investment in Interiors, Inc. As of March
31, 1996, the per share market value of Interiors, Inc.'s common stock and
Series A Convertible Preferred Stock was $3.063 and $5.875, respectively.
Accordingly, gross unrealized holding gains of $12,600 and $175,000 existed at
March 31, 1996 on the common stock and Series A Convertible Preferred Stock,
respectively. As of June 30, 1996, the per share market value of Interiors,
Inc.'s common stock and Series A Convertible Preferred Stock was 4.25 and 7.25,
respectively. Accordingly, gross unrealized holding gains of $250,000 and
$450,000 exist at June 30, 1996 of the common stock and Series A Convertible
Preferred Stock, respectively. As of June 30, 1996, Interiors, Inc. owns
approximately 16% of the Company assuming the 250,000 shares of Series A
Convertible Preferred Stock were converted into common stock. Following the
proposed public offering Interiors, Inc. will own approximately 86.0% of the
total voting stock outstanding assuming the exercise of the options to purchase
10,000,000 shares of Class B Preferred Stock. Such ownership is consistent with
the Company's intentions stated above as well as the provision by Interiors,
Inc. of additional equity
B-11
<PAGE>
contributions disclosed in Note 12E.
[9] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has not decided if it will adopt SFAS No. 123 or continue to apply APB
Opinion No. 25 for financial reporting purposes. SFAS No. 123 will have to be
adopted for financial note disclosure purposes in any event. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.
The FASB has also issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Adoption on January 1, 1997 is not
expected to have a material impact on the Company.
[10] Financial Instruments
The carrying amount of cash, notes receivable and notes payable approximates
fair value because of their short maturities.
[11] Subsequent Event
Reverse Stock Split - On October 16, 1996, the Company effected a one-for-two
reverse split of the Company's preferred and common stock. The financial
statements have been restated to give effect to the reverse stock split. The
reverse stock split did not change the number of shares authorized or the par
value of any class of capital stock.
[12] Subsequent Events [Unaudited]
[A] Management Agreements - Related Party - On May 28, 1996, the Company entered
into a management agreement with Interiors, Inc. which specializes in the home
furnishings and decorative accessories industries. The agreement calls for a
management fee of $75,000 or 1.5% of gross sales, whichever is greater, per
annum. The management fee will be accrued quarterly and paid quarterly to the
extent that there is excess cash flow available to the Company as defined in the
agreement. No payment in any quarter will exceed 50% of excess cash flow as
defined. The agreement has a term of two years with renewal options at the
mutual consent of both parties [See Note 8].
[B] Employment Agreement - President - In June 1996, the Company entered into an
employment contract with the President of the Company for which an initial base
salary of $117,000 will take effect upon the close of the acquisition of Artisan
House. In addition, the agreement calls for the granting of options to purchase
5,000 shares of common stock of the Company at an exercise price of $5.00 per
share for each full year of employment under the agreement and an annual bonus
equal to 2% of the amount by which the Company's net sales exceed the Company's
net sales for the year ended June 30, 1997.
[12] Subsequent Events [Unaudited] [Continued]
B-12
<PAGE>
[C] Commitment Letter - Secured Loan Agreement
On May 31, 1996, the Company received a commitment letter for a revolving credit
agreement for a maximum loan amount of $1,100,000. The agreement requires the
satisfaction of a number of conditions prior to funding including the completion
of a due diligence review. The terms of the loan include an annual interest rate
of prime plus 4%, a management fee of 3% of sales, a security interest in all of
the Company's accounts receivable, inventory, and equipment, and any proceeds
therefrom, a guaranty of the Company's Chairman of the Board, and a prepayment
fee of $25,000 in the event of a prepayment. In the event that the Company is
unable to satisfy such conditions, the Company will not receive the proceeds
from such loan.
Prime rate at June 30, 1996 was approximately 8%.
[D] Stockholder Loan Payable - On June 21, 1996, the Company received
commitments from its stockholders for an additional $50,000 in loan proceeds.
The Company received $35,500 as of June 30, 1996, and the balance of $14,500 was
received in July of 1996. The notes have interest of 12% per annum and a
maturity date which is the earlier of 15 months following the close of the
proposed public offering or June 21, 1998.
[E] Additional Equity Contribution - On August 9, 1996, the Company agreed to
issue to Interiors, Inc. 28,334 shares of Series C Non-Voting, Convertible,
Preferred Stock for cash of $425,000. On August 23, 1996, the Company agreed to
issue to Interiors, Inc. an additional 18,750 shares of Series C NonVoting,
Convertible, Preferred Stock for cash of $281,250. On September 6 and 13, 1996,
the Company agreed to issue to Interiors, Inc. an additional aggregate 7,850
shares of Series C Non-Voting, Convertible, Preferred Stock for cash of
$117,750.
[F] Exercise of Options - On September 3, 1996, the option to purchase
10,000,000 shares of Series B Non-Convertible Voting Preferred Stock was
exercised for $2,000.
[13] Unaudited Interim Statements
The financial statements as of June 30, 1996 and for the three months ended June
30, 1996 are unaudited; however, in the opinion of management all adjustments
[consisting solely of normal recurring adjustments] which are necessary in order
to make the interim financial statements not misleading have been made. The
results of the interim period are not necessarily indicative of the results to
be obtained for a full fiscal year.
. . . . . . . . . . .
B-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholder of
Artisan House, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of Artisan House, Inc. as of
January 31, 1996, and the related statements of operations, stockholder's
equity, and cash flows for each of the two fiscal years in the period ended
January 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Artisan House, Inc. as of
January 31, 1996, and the results of its operations and its cash flows for each
of the two fiscal years in the period ended January 31, 1996, in conformity with
generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants.
Cranford, New Jersey
May 15, 1996
C-1
<PAGE>
ARTISAN HOUSE, INC.
- --------------------------------------------------------------------------------
BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, January 31,
1 9 9 6 1 9 9 6
[Unaudited] -------
-----------
Assets:
Current Assets:
Cash $ 37,876 $ 96,771
Accounts Receivable - Net 1,102,652 838,108
Inventory 968,081 911,951
Prepaid Expenses 144,060 161,422
------- -------
Total Current Assets 2,252,669 2,008,252
Property and Equipment - Net 113,128 121,880
Other Assets 26,299 20,052
------ ------
Total Assets $2,392,096 $2,150,184
========== ==========
Liabilities and Stockholder's Equity:
Current Liabilities:
Accounts Payable $ 202,457 $ 193,646
Accrued Expenses 217,762 163,135
Loan Payable - Stockholder 230,733 501,093
Notes Payable 159,361 169,134
Accrued Interest Payable - Stockholder 423,018 409,632
Accrued Rent Payable - Stockholder 170,733 170,733
Deferred Revenue 165,000 --
------- ---------
Total Current Liabilities 1,569,064 1,607,373
--------- ---------
Long-Term Liability:
Notes Payable 68,727 73,286
------ ------
Commitments and Contingencies -- --
------- -------
Stockholder's Equity:
Common Stock - No Par Value, 75,000 Shares
Authorized, 8,000 Issued and Outstanding 80,000 80,000
Additional Paid-in Capital 200,000 200,000
Retained Earnings 474,305 189,525
------- -------
Total Stockholder's Equity 754,305 469,525
------- -------
Total Liabilities and Stockholder's Equity $2,392,096 $2,150,184
========== ==========
See Notes to Financial Statements.
C-2
<PAGE>
ARTISAN HOUSE, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five months ended Years ended
June 30, January 31,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
[Unaudited] Unaudited]
<S> <C> <C> <C> <C>
Sales - Net $2,310,976 $1,904,832 $4,809,422 $3,994,909
Total Cost of Goods Sold 1,233,714 1,024,672 2,596,383 2,134,086
--------- ------- --------- ---------
Gross Profit 1,077,262 880,160 2,213,039 1,860,823
--------- ------- --------- ---------
Selling, General and Administrative
Expenses:
Selling, Advertising and Promotion 460,954 395,179 1,011,314 856,874
General and Administrative Expenses 303,671 253,492 673,277 607,350
------- ------- ------- -------
Total Selling, General and
Administrative Expenses 764,625 648,671 1,684,591 1,464,224
------- ------- --------- ---------
Income from Operations 312,637 231,489 528,448 396,599
------- ------- ------- -------
Other [Income] Expenses:
Interest Expense - Stockholder 13,356 18,540 43,613 44,182
Interest Expense 15,275 8,104 40,466 23,460
Interest Income (774) (963) (2,218) (1,483)
Other Income -- -- (6,751) (2,601)
Loss on Asset Disposals -- -- 2,255 2,524
--------- ------- --------- ---------
Other Expenses - Net 27,857 25,681 77,365 66,082
------ ------ ------ ------
Income Before Provision for
Pro Forma Income Taxes 284,780 205,808 451,083 330,517
Provision for Pro Forma Income
Taxes 114,000 82,000 180,000 132,000
------- ------ ------- -------
Pro Forma Net Income $170,780 $123,808 $271,083 $198,517
========= ========= ========= ==========
Pro Forma Earnings Per Share $21.35 $15.48 $33.89 $24.81
========= ========= ========= ==========
</TABLE>
See Notes to Financial Statements.
C-3
<PAGE>
ARTISAN HOUSE, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDER'S EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Additional Retained Stockholder's
Common Stock Paid-in Earnings Equity
Shares Amount Capital [Deficit] [Deficit]
------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1994 8,000 $ 80,000 $ 200,000 $(592,075) $(312,075)
Net Income -- -- -- 330,517 330,517
----- --------- --------- --------- ---------
Balance at January 31, 1995 8,000 80,000 200,000 (261,558) 18,442
Net Income -- -- -- 451,083 451,083
----- --------- --------- --------- ---------
Balance at January 31, 1996 8,000 80,000 200,000 189,525 469,525
Net Income -- -- -- 284,780 284,780
----- --------- --------- --------- ---------
Balance at June 30, 1996
[Unaudited] 8,000 $ 80,000 $ 200,000 $ 474,305 $ 754,305
===== ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
C-4
<PAGE>
ARTISAN HOUSE, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five months ended Years ended
June 30, January 31,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ 284,780 $ 205,808 $451,083 $ 330,517
---------- ---------- -------- ---------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Provision for Bad Debts 22,458 18,265 19,243 12,691
Depreciation and Amortization 10,729 12,319 35,895 20,865
Interest Capitalized into Notes
Payable -- -- 7,000 --
Loss on Asset Disposals -- -- 2,255 2,524
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (287,002) (52,237) (200,224) (118,511)
Inventory (56,130) (76,721) (180,278) (43,198)
Other Assets (4,721) 797 3,828 7,289
Prepaid Expenses 17,362 (16,472) (68,841) (17,251)
Increase [Decrease] in:
Accounts Payable 8,811 2,300 (5,460) (8,505)
Accrued Expenses 54,627 (27,638) 55,725 16,459
Accrued Expenses - Stockholder 13,386 18,541 12,041 5,528
------ ------ ------ -----
Total Adjustments (220,480) (120,846) (318,816) (122,109)
-------- -------- -------- --------
Net Cash - Operating Activities 64,300 84,962 132,267 208,408
------ ------ ------- -------
Investing Activities:
Purchase of Property and Equipment (1,977) (8,661) (16,952) (67,052)
Increase in Cash Surrender Value of
Life Insurance (1,526) -- (1,803) --
Deferred Revenue 165,000 -- -- --
---------- ---------- -------- ---------
Net Cash - Investing Activities 161,497 (8,661) (18,755) (67,052)
------- ------ ------- -------
Financing Activities:
Repayment of Loan Payable --
Stockholder (270,360) (11,606) (58,313) (19,342)
Repayment of Notes Payable (64,332) (14,429) (42,359) (67,063)
Borrowings Under Notes Payable 50,000 -- -- --
---------- ---------- -------- ---------
Net Cash - Financing Activities (284,692) (26,035) (100,672) (86,405)
-------- ------- -------- -------
Net [Decrease] Increase in Cash (58,895) 50,266 12,840 54,951
</TABLE>
C-5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Cash - Beginning of Periods 96,771 83,931 83,931 28,980
------ ------ ------ ------
Cash - End of Periods $ 37,876 $ 134,197 $ 96,771 $ 83,931
======== ========= ========== ==========
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Five months ended Years ended
June 30, January 31,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ 21,435 $ 8,963 $ 44,759 $ 28,643
Income Taxes $ 1,500 $ 4,995 $ 4,995 $ 8,977
</TABLE>
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
During the year ended January 31, 1996, the Company acquired $35,033 of
equipment utilizing financing arrangements.
During the year ended January 31, 1996, $7,000 of accrued interest payable
was added into the principal amount of a new note payable.
See Notes to Financial Statements.
C-6
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS
[Information Relating to June 30, 1996 and 1995 is Unaudited]
- --------------------------------------------------------------------------------
[1] Organization and Summary of Significant Accounting Policies
Organization - Artisan House, Inc. [the "Company"] a California Corporation, was
incorporated on November 18, 1982. The Company is engaged in the business of
manufacturing, marketing, selling and distributing wall hanging sculptures. The
Company manufacturers its products at one location in southern California and
sells through sales representatives and from its showrooms in San Francisco and
North Carolina to furniture retailers and department stores throughout the
United States and internationally.
Cash and Cash Equivalents - The Company classifies all highly liquid debt
instruments purchased with an initial maturity of three months or less to be
cash equivalents. The Company had no cash equivalents at January 31, 1996.
Inventory - Inventory is stated at the lower of cost or market, is comprised of
materials, labor and factory overhead, and is determined on the first-in,
first-out ["FIFO"] basis. At June 30, 1996, inventory was calculated utilizing
the gross profit method.
Property and Equipment - Property and equipment is stated at cost and is net of
accumulated depreciation. The cost of additions and improvements are capitalized
and expenditures for repairs and maintenance are expensed in the period
incurred. Depreciation and amortization of property and equipment is provided
utilizing the straight-line method over the estimated useful lives of the
respective assets as follows:
Vehicles 3 Years
Machinery and Equipment 5 - 10 Years
Furniture and Fixtures 7 Years
Leasehold improvements are amortized utilizing the straight-line method over the
shorter of the remaining term of the lease or the useful life of the
improvement.
Income Taxes - The Company has elected to be taxed as an S corporation whereby
the stockholder is liable for federal and state income taxes on the Company's
taxable income. A California S corporation is subject to a nominal tax on
income. The pro forma effects of income tax expense as if the entity had been a
C corporation are shown based on an effective tax rate of 40% for the years
ended January 31, 1996 and 1995.
Risk Concentrations - Financial instruments that potentially subject the Company
to concentrations of credit risk include cash and accounts receivable arising
from its normal business activities. The Company places its cash with a high
credit quality financial institution and periodically has cash balances subject
to credit risk beyond insured amounts.
The Company routinely assesses the financial strength of its customers, and
based upon factors surrounding the credit risk of its customers, has established
an allowance for uncollectible accounts of $57,182 and as a consequence,
believes that its accounts receivable credit risk exposure beyond this allowance
is limited. The Company does not obtain collateral on its accounts receivable.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted
C-7
<PAGE>
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.
Advertising Costs - The Company expenses advertising costs as incurred.
Advertising expense was $49,862 and $30,426 for the years ended January 31, 1996
and 1995, respectively.
[2] Inventories
The components of inventory are as follows:
June 30, January 31,
1 9 9 6 1 9 9 6
-------- -------
[Unaudited]
Raw Materials $ 443,067 $ 297,224
Work-in Process 207,245 221,157
Finished Goods 317,769 393,570
------- -------
Totals $ 968,081 $ 911,951
------ =========== ===========
[3] Property and Equipment
Property and equipment consist of the following at January 31, 1996:
Machinery and Equipment $ 171,088
Leasehold Improvements 125,727
Furniture and Fixtures 108,149
Office and Computer Equipment 66,058
Vehicles 76,040
------
Total - At Cost 547,062
Less: Accumulated Depreciation (425,182)
-----------
Net $ 121,880
--- ===========
Depreciation and amortization was $35,895 and $20,865 for the years ended
January 31, 1996 and 1995, respectively.
[4] Related Party Transactions
The Company was indebted to its sole stockholder and president in the amounts of
$501,093 and $409,632 for principal and accrued interest, respectively at
January 31, 1996. The loan carries interest at 8% with no fixed repayment plan
or maturity date. Interest expense on the loan was $43,613 and $44,182 for the
years ended January 31, 1996 and 1995, respectively.
The Company rents its principal premises from its sole stockholder and president
under a lease expiring in October 1997. Monthly rent is $16,500 and the Company
is responsible for maintenance, utilities and real estate taxes. Accrued but
unpaid rent at January 31, 1996 was $170,733. Future minimum lease payments
included in future lease commitments are $198,000 and $148,500 for the years
ended January 31, 1997 and January 31, 1998, respectively.
C-8
<PAGE>
The Company had sales of $13,034 and $6,344 during the years ended January 31,
1996 and 1995, respectively, to a company owned by the sole stockholder and
president of the Company. The related party relationship ceased in July 1995.
[5] Notes Payable
Revolving line of credit [A] $ 136,539
Note payable with interest at bank prime plus 1.25% maturing in
April 1999, collateralized by substantially all the assets of
the Company and guaranteed by the Company's stockholder. 76,000
Note payable with interest ranging from 9.5% to 13.4% maturing
through 2001, collateralized by various equipment, and guaranteed
by the Company's stockholder. 29,881
-------
Total 242,420
Less: Current Portion 169,134
-------
Long-Term Portion $ 73,286
----------------- =========
Bank prime at January 31, 1996 was 8.25%.
[A] The Company is party to a revolving line of credit agreement. The line of
credit provides for advances based on a percentage of accounts receivable as
defined in the agreement to a maximum available balance of $350,000. At January
31, 1996, the Company can borrow up to the full $350,000. The line of credit
carries interest at bank prime plus 1%, matures November 6, 1996, is
collateralized by substantially all the assets of the Company, and is guaranteed
by the stockholder of the Company. The weighted average interest rate on
short-term borrowings for the year ended January 31, 1996 was 11.6%.
Annual maturities of long-term debt are as follows:
January 31,
1997 $ 169,134
1998 34,525
1999 28,613
2000 7,572
2001 2,576
Thereafter --
----------
Total $ 242,420
----- ==========
[6] Commitments and Contingencies
The Company leases office space under operating leases which expire through
2000. The leases provide for various terms including additional rent based on
increases in operating costs. The Company also leases equipment under operating
leases expiring through 2001.
Future minimum lease payments under noncancelable operating leases with
remaining terms of one year or more are as follows at January 31, 1996:
C-9
<PAGE>
January 31,
- -----------
1997 $ 277,661
1998 230,056
1999 69,882
2000 36,895
2001 3,008
Thereafter --
----------
Total $ 617,502
----- ==========
[6] Commitments and Contingencies [Continued]
Rent expense, including real estate taxes and escalation charges, for the years
ended January 31, 1996 and 1995 was $285,800 and $282,691, respectively.
[7] Financial Instruments
The carrying amount of cash, accounts receivable and trade payables approximates
fair value because of their short maturities. The carrying amount of notes
payable and loan payable - stockholder approximates their fair value because
they bear interest at various rates that approximates the Company's cost of
capital.
[8] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.
[9] Subsequent Event
On March 25, 1996, the Company agreed to sell substantially all of its assets
and certain liabilities for an aggregate of $3,626,400 less the amount of cash
held by the Company on the closing date [the retained cash amount] and subject
to adjustment based on certain net asset requirements. The sale price will be
paid by (i) the payment of $150,000 upon execution of the agreement, (ii) the
payment of $2,250,000 in extension payments and at the closing, (iii) the
delivery of a promissory note in the principal amount of $926,400 less the
retained cash amount and any adjustment based on net assets bearing interest at
8%, and (iv) the issuance of 50,000 shares of the parent company of the acquiror
valued at $300,000.
[10] Unaudited Interim Statements
The financial statements as of June 30, 1996 and for the five months ended June
30, 1996 and 1995 are unaudited; however, in the opinion of management all
adjustments [consisting solely of normal recurring adjustments] necessary in
order to make the interim financial statements not misleading have been made.
The results of the interim periods are not necessarily indicative of the results
to be obtained for a full fiscal year.
C-10
<PAGE>
[PICTURES/ILLUSTRATIONS
NOT YET DETERMINED]
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
TABLE OF CONTENTS
Page
----
Available Information.........
Prospectus Summary............
The Company...................
The Offering..................
Summary Financial
Information.................
Risk Factors..................
Use of Proceeds...............
Dilution......................
Capitalization................
Dividend Policy...............
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................
Business......................
Management....................
Principal Stockholders........
Certain Transactions..........
Description of
Securities...................
Selling Securityholders.......
Underwriting..................
Legal Matters.................
Experts.......................
Additional Information........
Financial Statements..........
----------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
325,000 shares of Common Stock
of
DECOR GROUP, INC.
----------
PROSPECTUS
----------
VTR CAPITAL, INC.
October , 1996
----------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 18, 1996
ALTERNATE
PROSPECTUS
DECOR GROUP, INC.
1,031,000 shares of Common Stock
and
1,500,000 Class A Warrants
This Prospectus relates to the sale of (i) 1,500,000 Class A Redeemable
Common Stock Purchase Warrants ("Class A Warrants") issuable to certain
unaffiliated bridge lenders to the Company (the "Bridge Lenders"), and (ii)
1,031,000 shares of Common Stock which are held by certain stockholders of the
Company (the "Selling Stockholders"). The Bridge Lenders and the Selling
Stockholders are hereinafter collectively referred to as the "Selling
Securityholders." The officers and directors of the Company as well as certain
members of their immediate families (including certain Selling Securityholders
holding an aggregate of 125,000 shares of Common Stock) and Interiors, Inc. have
agreed not to sell or transfer the securities of the Company held thereby for a
period of twenty-four (24) months following the Effective Date, subject to
earlier release by the Representative. The Company will not receive any of the
proceeds on the sale of the securities by the Selling Securityholders. The
resale of the securities of the Selling Securityholders are subject to
Prospectus delivery and other requirements of the Securities Act of 1933, as
amended (the "Act"). Sales of such securities or the potential of such sales at
any time may have an adverse effect on the market prices of the securities
offered hereby. See "Selling Securityholders" and "Risk Factors - Shares
Eligible for Future Sale May Adversely Affect the Market."
The Class A Warrants shall be exercisable commencing one (1) year after the
date hereof (the "Effective Date"). Each Class A Warrant entitles the holder to
purchase one (1) share of Common Stock at a price of $5.25 per share during the
four (4) year period commencing two (2) years from the Effective Date. The Class
A Warrants are redeemable by the Company for $.05 per Warrant, at any time after
, 1997, upon thirty (30) days' prior written notice, if the closing bid
price of the Common Stock, as reported by the principal exchange on which the
Common Stock is traded, The Nasdaq SmallCap Market or the National Quotation
Bureau Incorporated, as the case may be, equals or exceeds $15.75 per share, for
any twenty (20) consecutive trading days ending five (5) days prior to the date
of the notice of redemption. Upon thirty (30) days' written notice to all
holders of the Class A Warrants, the Company shall have the right to reduce
the exercise price and/or extend the term of the Class A Warrants. See
"Description of Securities."
The Company has applied for inclusion of the shares of Common Stock on the
<PAGE>
NASD OTC Bulletin Board, although there can be no assurances that an active
trading market will develop even if the securities are accepted for quotation.
See "Risk Factors--Lack of Prior Market for shares of Common Stock and Class A
Warrants; No Assurance of Public Trading Market."
The Common Stock offered by this Prospectus may be sold from time to time
by the Selling Securityholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Securityholders and such
Selling Securityholders are not obligated to sell the Company securities through
VTR Capital, Inc., the representative (the "Representative") of the underwriters
of the Company's initial public offering or any other NASD member. See "Company
Offering". The distribution of the securities by the Selling Securityholders may
be effected in one or more transactions that may take place on the
over-the-counter market including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more dealers for
resale of such shares as principals at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders in connection with sales
of such securities.
The Selling Securityholders and intermediaries through whom such securities
may be sold may be deemed "Underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Act"), with respect to the securities offered and
any profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Securityholders
against certain liabilities, including liabilities under the Act.
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders. All costs incurred in the
registration of the securities of the Selling Securityholders are being borne by
the Company. See "Selling Securityholders."
----------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
OFFERED HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. SEE "DILUTION" and "RISK FACTORS."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October , 1996
Alt - ii
<PAGE>
ALTERNATE
COMPANY OFFERING
On the date of this Prospectus, a Registration Statement under the Act with
respect to an underwritten public offering (the "Offering") of 300,000 shares of
Common Stock by the Company and 25,000 shares of Common Stock owned and offered
by Gordon Brothers Capital Corporation (the "Shareholder") was declared
effective by the Securities and Exchange Commission ("SEC"), and the Company
commenced the sale of shares of Common Stock offered thereby. Sales of
securities under this Prospectus by the Selling Securityholders or even the
potential of such sales may have an adverse effect on the market price of the
Company's securities.
SELLING SECURITYHOLDERS
This Prospectus relates to the sale of (a) 3,000,000 Class A Redeemable
Common Stock Purchase Warrants ("Class A Warrants") issuable to certain
unaffiliated bridge lenders to the Company (the "Bridge Lenders"), and (b)
1,031,000 shares of Common Stock which are held by certain stockholders of the
Company (the "Selling Stockholders"). The Bridge Lenders and the Selling
Stockholders are hereinafter collectively referred to as the "Selling
Securityholders." The officers and directors of the Company as well as certain
members of their immediate families (including certain Selling Securityholders)
holding an aggregate of 125,000 shares of Common Stock) have agreed not to sell
or transfer the securities of the Company held thereby for a period of
twenty-four (24) months following the Effective Date, subject to earlier release
by the Representative. The Company will not receive any of the proceeds on the
sale of the securities by the Selling Securityholders. The resale of the
securities of the Selling Securityholders are subject to Prospectus delivery and
other requirements of the Securities Act of 1933, as amended (the "Act"). Sales
of such securities or the potential of such sales at any time may have an
adverse effect on the market prices of the securities offered hereby. See
"Selling Securityholders" and "Risk Factors--Shares Eligible for Future Sale
May Adversely Affect the Market."
The following table sets forth the holders of the shares of Common Stock
which are being offered by the Selling Securityholders and the number of shares
owned before the Offering, the number of shares being offered and the number of
shares and the percentage of the class to be owned after the Offering is
complete.
Alt - iii
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name Shares of Class A Shares of Class A Shares of Class A Percent of Percent of
Common Warrants Common Warrants Common Warrants Common Class A
Stock Owned Owned Stock Offered Stock Owned Owned After Stock After Warrants
Before Before Offered Hereby After Offering Offering After
Offering Offering(1) Hereby Offering Offering
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M.D. Funding, Inc. 913,750 240,000 731,000 240,000 182,750 0 11.3% 0
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie Munn(2) 100,000(4) 0 80,000(4) 0 20,000(4) 0 1.3% 0
- ------------------------------------------------------------------------------------------------------------------------------------
Judy Pace(5) 61,250 0 50,000 0 11,250 0 .7% 0
- ------------------------------------------------------------------------------------------------------------------------------------
First National 125,000 60,000 100,000 60,000 25,000 0 1.6% 0
Funding, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Ulster Investments, 62,500 60,000 50,000 60,000 12,500 0 .8% 0
Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Matthew Harriton(3) 25,000(4) 0 20,000(4) 0 5,000(4) 0 .3% 0
- ------------------------------------------------------------------------------------------------------------------------------------
Clint Hill 0 500,000 0 500,000 0 0 0 0
Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Dune Holdings, 0 600,000 0 600,000 0 0 0 0
Inc.(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Yordy 0 10,000 0 10,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Harold Yordy 0 10,000 0 10,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce Ungerleider 0 10,000 0 10,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen Osman 0 10,000 0 10,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,287,500 1,500,000 1,031,000 1,500,000 256,500 0 -- 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes the issuance of Class A Warrants to the Bridge Lenders as of the
Effective Date.
(2) Ms. Munn is the wife of Max Munn, the Chairman of the Board of the Company.
(3) Mr. Harriton is a director of the Company.
(4) Such securities may not be sold or transferred for a period of twenty four
(24) months following the Effective Date, without prior written consent of
the Representative.
(5) Judy Pace is the wife of Randolph K. Pace, the sole stockholder of Dune
Holdings, Inc.
Alt - iv
<PAGE>
PLAN OF DISTRIBUTION
The securities offered hereby may be sold from time to time directly by the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through Representatives, dealers or agents.
The distribution of securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (c) ordinary brokerage transactions
and transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling Securityholders
and intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Act with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
Offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for sales purchased from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers and the proposed selling price to the public.
Sales of securities by the Selling Securityholders or even the potential of
such sales would likely have an adverse effect on the market prices of the
securities offered hereby. See "Company Offering."
Alt - v
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
----------
TABLE OF CONTENTS
Page
----
Available Information.........
Prospectus Summary............
The Company...................
The Offering..................
Summary Financial
Information.................
Risk Factors..................
Use of Proceeds...............
Dilution......................
Capitalization................
Dividend Policy...............
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................
Business......................
Management....................
Principal Stockholders........
Certain Transactions..........
Description of
Securities...................
Selling Securityholders.......
Underwriting..................
Legal Matters.................
Experts.......................
Additional Information........
Financial Statements..........
----------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
[ALTERNATE]
1,031,000 Shares of Common Stock
and
1,500,000 Class A Warrants
DECOR GROUP, INC.
----------
PROSPECTUS
----------
October , 1996
____________
Alt - vi
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In connection with the Offering, the Representative agreed to indemnify the
Company, its directors, and each person who controls it within the meaning of
Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Representative specifically for or in connection
with the preparation of the registration statement, the prospectus, or any such
amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (I) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
II-1
<PAGE>
Items 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this Offering are as follows:
SEC filing fee*.......................... $ 10,000
NASD filing fee......................... $ 2,000
Accounting fees and expenses*........... $ 125,000
Legal fees and expenses*................ $ 200,000
Blue Sky fees and expenses*............. $ 55,000
Printing and engraving*................. $ 75,000
Transfer Agent's and Registrar's fees*.... $ 4,000
Miscellaneous expenses*................... $ 21,500
---------
Total...................................... $ 492,500
=========
- ----------
* Estimated
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of the Company sold by
it since inception, which securities were not registered under the Securities
Act of 1933, as amended:
In March, 1996, the Company issued (i) 913,750 shares of Common Stock to
M.D. Funding, Inc. for cash consideration of $73,100, (ii) 100,000 shares of
Common Stock to Laurie Munn, the wife of Max Munn, the Chairman of the Board of
the Company, for cash consideration of $8,000, (iii) 61,250 shares of Common
Stock to Judy Pace for cash consideration of $4,900, (iv) 125,000 shares of
Common Stock to First National Funding, Inc. for cash consideration of $10,000,
(v) 62,500 shares of Common Stock to Ulster Investments, Ltd. for cash
consideration of $5,000, (vi) 25,000 shares of Common Stock to Matthew Harriton,
a director and formerly the President of the Company, for cash consideration of
$2,000 and (vii) 25,000 shares of Common Stock and 12,500 Class A Warrants to
Gordon Brothers Capital Corporation for management services rendered valued at
an aggregate of $2,000.
In March 1996, the Company borrowed an aggregate of $250,000 from nine (9)
unaffiliated lenders ( the "Bridge Lenders"). In exchange for making loans to
the Company, each Bridge Lender received a promissory note (the "Bridge Notes").
Each of the Bridge Notes bears interest at a rate of eight percent (8%) per
annum. The Bridge Notes are due and payable upon the earlier of (i) March 18,
1997 or (ii) the closing of an initial underwritten public offering of the
Company's securities. The Company intends to use a portion of the proceeds of
this Offering to repay the Bridge Lenders. See "Use of Proceeds." In addition,
the Bridge Lenders were issued the right to receive commencing on the Effective
Date an aggregate of 1,500,000 Class A Warrants, pro rata, based upon the
principal amount of the Bridge Loan made to the Company. The Company entered
into the bridge financing transactions because it required additional financing
and no other sources of financing were available to the Company at that
II-2
<PAGE>
time. Further, the Company agreed to register the Class A Warrants as well as
the shares of Common Stock issuable upon exercise of the Class A Warrants in the
first registration statement filed by the Company following the date of the
loan. Therefore, the Registration Statement, of which this Prospectus forms a
part, relates to the resale of 1,500,000 Class A Warrants issuable to the Bridge
Lenders and the shares of Common Stock issuable upon the exercise thereof. See
"Selling Securityholders" "Certain Transactions" and "Underwriting."
In August 1996, the Company agreed to issue 47,084 shares of Series C
Preferred Stock to Interiors, Inc. in exchange for the payment of $706,500. In
September 1996, the Company agreed to issue 7,850 shares of Series C Preferred
Stock to Interiors in exchange for the payment of $117,750.
The Company has relied on Section 4(2) of the Securities Act of 1933, as
amended, for its private placement exemption, such that the sales of the
securities were transactions by an issuer not involving any public offering.
Reference is also made hereby to "Certain Transactions," "Dilution,"
"Principal Stockholders" and "Description of Securities" in the Prospectus for
more information with respect to the previous issuance and sale of the Company's
securities.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are "restricted securities" as defined in Rule 144 of the
rules and the regulations of the Securities and Exchange Commission, Washington
D.C. 20549. All of the aforesaid securities were issued for investment purposes
only and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were issued
pursuant to the "private placement" exemptions under the Securities Act of 1933,
as amended, as transactions by an issuer not involving any public offering. The
Registrant has been informed that each person is (i) a sophisticated investor
capable of assessing the risks inherent in a private offering, (ii) able to bear
the economic risk of his investment and (iii) aware that the securities were not
registered under the Securities Act of 1933, as amended, and cannot be
re-offered or re-sold until they have been so registered or until the
availability of an exemption therefrom. The Transfer Agent and registrar of the
Registrant will be instructed to mark "stop transfer" on its ledgers to assure
that these securities will not be transferred absent registration or until the
availability of an exemption therefrom is determined.
II-3
<PAGE>
Item 27. Exhibits.
1.01 Form of Underwriting Agreement.
1.02 Form of Selected Dealers Agreement.
1.03 Agreement Among Underwriters
1.04 Warrant Exercise Fee Agreement
3.01* Certificate of Incorporation of the Company dated March 1, 1996.
3.02* By-Laws of the Company.
3.03* Certificate of Designation for the Series C Convertible Preferred
Stock.
4.01 Specimen Certificate for shares of Common Stock.
4.02+ Specimen Certificate for shares of Series A Convertible Preferred
Stock.
4.03+ Specimen Certificate for shares of Series B Non-Convertible Preferred
Stock.
4.04+ Specimen Certificate for Class A Redeemable Common Stock Purchase
Warrant.
4.05 Form of Warrant Agreement by and among the Company and American Stock
Transfer & Trust Company.
4.06 Form of Representative's Share Purchase Warrant.
4.07+ Option Agreement between the Company and Interiors, Inc.
4.08* Voting Agreement between Interiors, Inc., Max Munn, Matt Harriton,
Michael Lulkin and the Company.
4.09+ Specimen Certificate for shares of Series C Preferred Stock.
5.01+ Opinion of Bernstein & Wasserman, LLP, counsel to the Company.
10.01* Asset Purchase Agreement among the Company, Artisan Acquisition Co.,
Artisan House, Inc. and Henry Goldman dated as of March 25, 1996.
10.02* Management Services Agreement between the Company and Interiors, Inc.
10.03* Employment Agreement between the Company and Donald Feldman.
10.04* Form of Bridge Loan Agreements.
II-4
<PAGE>
10.05* Form of Subscription Agreements.
10.06* 1996 Stock Plan.
10.07+ Commitment Letter from United Credit Corporation.
10.08* Financial Advisory Agreement with the Representative.
10.09* Amendment No. 1 to Asset Purchase Agreement with Artisan House, Inc.
10.10 Trademark License Agreement between Artisan House, Inc. and General
Electric Company.
10.11 Licensing Agreement between Artisan House, Inc. and The Hearst
Corporation, King Features Syndicate Division.
10.12 Licensing Agreement between Artisan House, Inc. and The Curtis
Publishing Company, Licensing Division.
10.13 License Agreement between Artisan House, Inc. and the Family of Ingrid
Bergman.
10.14 Merchandising License Agreement between Artisan House, Inc. and Turner
Home Entertainment, Inc.
10.15 Retail License Agreement between Artisan House, Inc. and Warner Bros.,
a division of Time Warner Entertainment Company, L.P.
10.16 Employment Agreement with Henry Goldman.
23.01+ Consent of Bernstein & Wasserman, LLP (to be included in Exhibit
5.01).
23.02 Consent of Moore Stephens, P.C.
- ----------
+ To be filed by amendment.
* Previously filed.
Item 28. Undertakings.
(a) Rule 415 Offering
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(I) Include any prospectus required by Section 10(a)(3) of the Act;
II-5
<PAGE>
(ii) Reflect in the prospectus any facts or events which, individually or
in the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) Include any additional or changed material information on the plan of
distribution.
2. For determining liability under the Act, treat each such post-effective
amendment as a new registration statement of the securities offered, and the
Offering of such securities at that time shall be deemed to be the initial bona
fide offering.
3. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The undersigned Registrant will provide to the Representative at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Representative to
permit prompt delivery to each purchaser.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 22 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Rule 430A
The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the small business issuer under Rule
II-6
<PAGE>
424(b)(1) or (4) or 497(h) under the Act as part of this Registration Statement
as of the time the Commission declared it effective.
2. For any liability under the Act, treat each post-effective amendment
that contains a form of prospectus as a new registration statement for the
securities offered in the Registration Statement, and that the Offering of the
securities at that time as the initial bona fide Offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in New
York, New York on October _____, 1996.
DECOR GROUP, INC.
By: /s/Donald Feldman
--------------------------------------
Donald Feldman
President and Chief Financial Officer
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Donald Feldman President and October , 1996
- ---------------------------- Chief Financial Officer
Feldman (Chief Accounting Officer)
/s/Max Munn Chairman of the Board October , 1996
- ---------------------------- of Directors
Max Munn
/s/Matthew L. Harriton Director October , 1996
- ----------------------------
Matthew L. Harriton
/s/Michael Lulkin Director October , 1996
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Michael Lulkin
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Decor Group, Inc.
320 Washington Street
Mt. Vernon, New York 10553
UNDERWRITING AGREEMENT
VTR Capital Inc. __________, 1996
99 Wall Street
New York, NY 10005
Gentlemen:
Decor Group, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to VTR Capital Inc. ("VTR" or the "Representative") and to each
of the other underwriters named in Schedule I hereto (the "Underwriters"), for
each of whom you are acting as Representative, an aggregate of 300,000 shares of
the Company's Common Stock, $.0001 par value (the "Company Shares") of the
Company at a public offering price of $10.00 per Share. In addition, 25,000
Shares (the "Selling Security Holder Shares") will be sold to the Underwriters
named in Schedule I by Gordon Brothers Capital Corporations (the "Selling
Security Holder") also at a public offering price of $10.00 per Share.
The Company Shares and the Selling Security Holder Shares are hereinafter
sometimes referred to as the "Firm Shares." Upon the request of the
Representative, and as provided in Section 3 hereof, the Company will also issue
and sell to the Underwriters up to a maximum of an additional 45,000 Shares for
the purpose of covering over-allotments. Such additional Shares are hereinafter
sometimes referred to as the "Optional Shares." Both the Firm Shares and the
Optional Shares are sometimes collectively referred to herein as the "Shares."
All of the securities which are the subject of this Agreement are more fully
described in the Prospectus of the Company described below. In the event that
the Representative does not form an underwriting group but decides to act as the
sole Underwriter, then all references to VTR herein as Representative shall be
deemed to be to it as such sole Underwriter and Section 14 hereof shall be
deemed deleted in its entirety.
The Company and the Selling Security Holder understand that the
Underwriters propose to make a public offering of the Shares as soon as the
Representative deems advisable after the
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Registration Statement hereinafter referred to becomes effective. The Company
and the Selling Security Holder hereby confirm their agreement with the
Representative and the other Underwriters as follows:
SECTION 1. Description of Securities. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
securities will be as set forth in the Prospectus (hereinafter defined).
SECTION 2. Representations and Warranties of the Company and the Selling
Security Holder. The Company hereby represents and warrants to, and agrees with,
the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments thereto
(No. 333-5553) with respect to the Shares, including a form of prospectus
relating thereto, copies of which have been previously delivered to you, have
been prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission under the Act. The Company, subject to the provisions of Section 6(a)
hereof, may file one or more amendments to such Registration Statement and
Prospectus. The Underwriters will receive copies of each such amendment.
The date on which such Registration Statement is declared effective
under the Act and the public offering of the Shares as contemplated by this
Agreement is therefore authorized to commence, is herein called the "Effective
Date." The Registration Statement and Prospectus, as finally amended and revised
immediately prior to the Effective Date, are herein called respectively the
"Registration Statement" and the "Prospectus." If, however, a prospectus is
filed by the Company pursuant to Rule 424(b) of the Rules and Regulations which
differs from the Prospectus, the term "Prospectus" shall also include the
prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time it
becomes effective under the Act, (as thereafter amended or as supplemented if
the Company shall have filed with the Commission an amendment or supplement),
and, with respect to all such
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documents, on the Closing Date (hereinafter defined), will in all material
respects comply with the provisions of the Act and the Rules and Regulations,
and will not contain an untrue statement of a material fact and will not omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that none of the representations
and warranties contained in this subsection (b) shall extend to the Underwriters
in respect of any statements in or omissions from the Registration Statement
and/or the Prospectus, based upon information furnished in writing to the
Company by the Underwriters specifically for use in connection with the
preparation thereof.
(c) The Company has been duly incorporated and is now, and on the
Closing Date will be, validly existing as a corporation in good standing under
the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in good standing in all of the
jurisdictions in which it conducts its business or the character or location of
its properties requires such qualifications except where the failure to so
qualify would not materially adversely affect the Company's business, properties
or financial condition. The Company has no subsidiaries, except as are set forth
in the Prospectus.
(d) The financial statements of the Company (audited and unaudited)
included in the Registration Statement and Prospectus present fairly the
financial position and results of operations and changes in financial condition
of the Company at the respective dates and for the respective periods to which
they apply; and such financial statements have been prepared in conformity with
generally accepted accounting principles, consistently applied throughout the
periods involved, and are in accordance with the books and records of the
Company.
(e) To the best of the Company's knowledge, Mortenson & Associates,
P.C., independent auditors, who have given their report on certain financial
statements which are included as a part of the Registration Statement and the
Prospectus are independent public accountants as required under the Act and the
Rules and Regulations.
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(f) Subsequent to the respective dates as of which information is
given in the Prospectus and prior to the Closing Date and, except as set forth
in or contemplated in the Prospectus, (i) the Company has not incurred, nor will
it incur, any material liabilities or obligations, direct or contingent, nor has
it, nor will it have entered into any material transactions, in each case not in
the ordinary course of business; (ii) there has not been, and will not have
been, any material change in the Company's Certificate of Incorporation or in
its capital stock or funded debt; and (iii) there has not been, and will not
have been, any material adverse change in the business, net worth or properties
or condition (financial or otherwise) of the Company whether or not arising from
transactions in the ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real and
personal properties of the Company as shown in the Prospectus and Registration
Statement to be owned by the Company are owned by the Company by good and
marketable title free and clear of all liens and encumbrances, except those
specifically referred to in the Prospectus, and except those which do not
materially adversely affect the use or value of such assets and except the lien
for current taxes not now due, or are held by the Company by valid leases, none
of which is in default. Except as disclosed in the Prospectus and Registration
Statement, the Company in all material respects has full right and licenses,
permits and governmental authorizations required to maintain and operate its
business and properties as the same are now operated and, to its best knowledge,
none of the activities or business of the Company is in material violation of,
or causes the Company to violate any laws, ordinances and regulations applicable
thereto, the violation of which would have a material adverse impact on the
condition (financial or otherwise), business, properties or net worth of the
Company.
(h) The Company has no material contingent obligations, nor are its
properties or business subject to any material risks, which may be reasonably
anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
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properties or net worth of the Company, and there are no proceedings pending or,
to the knowledge of the Company, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock and Preferred
Stock are duly authorized and validly issued and outstanding, fully paid, and
non-assessable, and are free of preemptive rights. The Shares, when paid for,
issued and delivered in accordance with this Agreement, will be duly authorized,
validly issued, fully paid and non-assessable and will not be issued in
violation of any preemptive rights. The Underwriters will receive good and
marketable title to the Shares purchased by them from the Company, free and
clear of all liens, encumbrances, claims, security interests, restrictions,
stockholders' agreements and voting trusts whatsoever. Except as set forth in
the Prospectus, there are no outstanding options, warrants, or other rights,
providing for the issuance of, and no commitments, plans or arrangements to
issue, any shares of any class of capital stock of the Company, or any security
convertible into, or exchangeable for, any shares of any class of capital stock
of the Company. All of the securities of the Company to which this Agreement
relates conform to the statements relating to them that are contained in the
Registration Statement and Prospectus.
(k) The certificate or certificates required to be furnished to the
Underwriters pursuant to the provisions of Section 11 hereof will be true and
correct.
(l) The execution and delivery by the Company of this Agreement has
been duly authorized by all necessary corporate action and it is a valid and
binding obligation of the Company, enforceable against it in accordance with its
terms except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws pertaining to creditors
rights generally.
(m) No default exists, and no event has occurred which, with notice
or lapse of time, or both, would constitute a default in the due performance and
observance of any material term, covenant or condition by the Company or any
other party, of any material indenture, mortgage, deed of trust, note or any
other
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material agreement or instrument to which the Company is a party or by which it
or its business or its properties may be bound or affected, except (i) as
disclosed in the Prospectus, (ii) such defaults as have been waived by all
parties who would otherwise have a remedy or right with respect thereto or (iii)
such defaults which will not cause any material adverse change in the business,
net worth, properties or conditions (financial or otherwise), of the Company.
The Company has full power and lawful authority to authorize, issue and sell the
Shares to be sold by it hereunder on the terms and conditions set forth herein
and in the Registration Statement and in the Prospectus. No consent, approval,
authorization or other order of any regulatory authority is required for such
authorization, issue or sale, except as may be required under the Act or State
securities laws. The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated, and compliance with the terms hereof
will not conflict with, or constitute a default under any indenture, mortgage,
deed of trust, note or any other agreement or instrument to which the Company is
now a party or by which it or its business or its properties may be bound or
affected; the Certificate of Incorporation and any amendments thereto; the
by-laws of the Company, as amended; or any law, order, rule or regulation, writ,
injunction or decree of any government, governmental instrumentality, or court,
domestic or foreign, having jurisdiction over the Company or its business or
properties.
(n) No officer or director of the Company has taken, and each
officer and director has agreed that he will not take, directly or indirectly,
any action designed to stabilize or manipulate the price of the Shares in the
open market following the Closing Date or any other type of action designed to,
or that may reasonably be expected to cause or result in such stabilization or
manipulation, or that may reasonably be expected to facilitate the initial sale,
or resale, of any of the securities which are the subject of this Agreement.
(o) The Warrants to be issued to the Representative (the
"Underwriters' Warrants") hereunder will be, when issued, duly and validly
authorized and executed by the Company and will constitute valid and binding
obligations of the Company, legally enforceable in accordance with their terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws pertaining to creditors rights
generally), and the Company will have duly authorized, reserved and set aside
the shares of its Common Stock issuable upon exercise of the Underwriters'
Warrants, and such stock, when issued and paid for
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upon exercise of the Underwriters' Warrants in accordance with the provisions
thereof, will be duly authorized and validly issued, fully-paid and
non-assessable.
(p) All of the aforesaid representations, agreements, and warranties
shall survive delivery of, and payment for, the Shares.
The Selling Security Holder, represents and warrants to and agrees with
the several Underwriters that:
(i) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation before any court or
beneficiary, public body or board pending, threatened, or in prospect (or any
basis therefor known to the Selling Stockholder) with respect to the Selling
Stockholder. The Selling Stockholder is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree; nor is the
Selling Stockholder required to take any action in order to avoid such violation
or default.
(ii) The Selling Stockholder has all requisite power and authority to
execute, deliver, and perform this Agreement. This Agreement has been duly
executed and delivered by or on behalf of the Selling Stockholder, is the legal,
valid and binding obligation of the Selling Stockholder, and is enforceable as
to the Selling Stockholder in accordance with its terms. No consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local or other governmental
authority or any court or other tribunal is required by the Selling Stockholder
for the execution, delivery or performance of this Agreement (except filings
under the Act which have been made before the applicable Closing Date and such
consents consisting only of consent under "blue sky" or securities laws which
have been obtained at or prior to the date of this Agreement) by the Selling
Stockholder. No consent of any party to any contract, agreement, instrument,
lease, license, indenture, mortgage, deed of trust, note, arrangement or
understanding to which the Selling Stockholder is a party, or to which any of
the Selling Stockholder's properties or assets are subject, is required for the
execution, delivery or performance of this Agreement; and the execution,
delivery and performance of this Agreement will not violate, result in a breach
of, conflict with, or (with or without the giving of notice of the passage of
time or both) entitle any party to terminate or call a default under such
contract, agreement, instrument, lease, license, indenture, mortgage, deed of
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trust, note, arrangement or understanding, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment or decree binding on
the Selling Stockholder.
(iii) The Selling Stockholder has good title to the Selling Stockholder
Shares to be sold by the Selling Stockholder pursuant to this Agreement, free
and clear or all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts.
(iv) Neither the Selling Stockholder nor any of the Selling Stockholder's
affiliates (as defined in the Regulations) has taken or will take, directly or
indirectly, prior to the termination of the underwriting syndicate contemplated
by this Agreement, any action designed to stabilize or manipulate the price of
any security of the Company, or which has caused or resulted in, or which might
in the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Selling Stockholder Shares.
(v) All information furnished or to be furnished to the Company by or on
behalf of the Selling Stockholder for use in connection with the preparation of
the Registration Statement and the Prospectus is true in all respects and does
not and will not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(vi) Except as may be set forth in the Prospectus, the Selling Stockholder
has not incurred any liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(vii) The Selling Stockholder has no knowledge that, and does not believe
that, any representation or warranty of the Company in Section 2 is incorrect.
(viii) The Selling Stockholder has not, directly or indirectly: used any
corporate funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds;
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violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment.
(ix) The Selling Stockholder Shares to be sold by the Selling Stockholder
pursuant to this Agreement are duly and validly authorized and issued, fully
paid and non-assessable, and have not been issued and are not owned or held in
violation of any preemptive right of stockholders, optionholders, warrantholders
or other persons.
(x) No transaction has occurred between such person and the Company that
is required to be described in the Registration Statement or the Prospectus.
SECTION 3. Issuance, Sale and Delivery of the Firm Shares, the Optional
Shares and the Underwriters' Warrants.
(a) Upon the basis of the representations, warranties, covenants and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell the Company
Shares and the Selling Security Holder agrees to sell the Selling Security
Holder Shares to the several Underwriters, and the Underwriters, severally and
not jointly, agree to purchase from the Company, the number of the Firm Shares
set forth opposite the respective names of the Underwriters in Schedule I
hereto, plus any additional Shares which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 14 hereof.
The purchase price of the Shares to be paid by the several
Underwriters shall be $9.00 per Share ($10.00 per Share less a ten percent
discount equal to $1.00 per Share).
In addition, and upon the same basis, and subject to the same terms
and conditions, the Company hereby grants an option to you to purchase, but only
for the purpose of covering over-allotments, upon not less than two days' notice
from the Representative, the Optional Shares, or any portion thereof, at the
same price per Share as that set forth in the preceding sentence; and each
Underwriter agrees, severally and not jointly, to purchase Optional Shares in
the same proportion in which it has agreed to purchase Firm Shares.
Notwithstanding anything contained herein to the contrary, you individually and
not as Representative may purchase all or any part of the Optional Shares and
are not obligated to offer the Optional Shares to the
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other Underwriters. The Optional Shares may be exercised at any time, and from
time to time, thereafter within a period of 30 calendar days following the
Effective Date. The time(s) and date(s) (if any) so designated for delivery and
payment for the Optional Shares shall be set forth in the notice to the Company.
Such dates are herein defined as the Additional Closing Date(s).
(b) Payment for the Company Firm Shares shall be made by certified
or official bank checks in New York Clearing House funds, payable to the order
of the Company and the Selling Security Holder as the case may be, at the
offices of the Representative, or its clearing agent, or at such other place as
shall be agreed upon by the Representative and the Company, upon delivery of the
Firm Shares to the Representative for the respective accounts of the
Underwriters. In making payment to the Company with respect to the Company
Shares, the Representative may first deduct all sums due to it for the balance
of the non-accountable expense allowance and under the Financial Consulting
Agreement (as hereinafter defined). Such delivery and payment shall be made at
9:30 A.M., New York City Time on the third business day after the Effective Date
which may be extended by the Representative to not later than the fifth business
day, following the Effective Date (unless postponed in accordance with the
provisions of Section 14 hereof). The time and date of such delivery and payment
are hereby defined as the Closing Date. It is understood that each Underwriter
has authorized the Representative, for the account of such Underwriter, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Firm Shares which it has agreed to purchase. You, individually, and not as
Representative may (but shall not be obligated to) make payment of the purchase
price for the Firm Shares to be purchased by any Underwriter whose check shall
not have been received by the Closing Date, for the account of such Underwriter,
but any such payment shall not relieve such Underwriter from its obligations
hereunder.
(c) Payment for the Optional Shares shall be made at the offices of
the Representative, or its clearing agent or at such other place as shall be
agreed upon by the Representative and the Company, in accordance with the notice
delivered pursuant to Section 3(a) which shall be no later than seven business
days from the expiration of the 30-day option period.
(d) Certificates for the Firm Shares and for the Optional Shares
shall be registered in such name or names and in such authorized denominations
as the Representative may request in writing at least two business days prior to
the Closing Date, and
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the Additional Closing Date(s) (if any). The Company shall permit the
Representative to examine and package said certificates for delivery at least
one full business day prior to the Closing Date and prior to the Additional
Closing Date(s). The Company shall not be obligated to sell or deliver any of
the Firm Shares except upon tender of payment by the Underwriters for all of the
Firm Shares agreed to be purchased by them hereunder. The Representative,
however, shall have the sole discretion to determine the number of Optional
Shares, if any, to be purchased.
(e) At the time of making payment for the Firm Shares, the Company
also hereby agrees to sell to the Representative, Warrants to purchase 30,000
Shares for an aggregate purchase price of $30 (hereinafter referred to as the
"Underwriters' Warrants"). The Underwriters' Warrant shall entitle the owner
thereof to purchase one Share of the Company's Common Stock at an exercise price
of $16.50 per Share. Such Underwriters' Warrants are to become exercisable one
year from the Effective Date, and shall remain exercisable for a period of four
years thereafter. From the Effective Date and until one (1) year thereafter,
such warrants may be transferred only to officers or partners of the
Underwriters and selling group members and their officers or partners.
The Underwriters' Warrants shall contain customary clauses
protecting the holders thereof in the event the Company pays stock dividends,
effects stock splits, or effects a sale of assets, merger or consolidation.
(f) On and subject to the Closing Date, the Company will give
irrevocable instructions to its transfer agent and Depository Trust Company to
deliver to the Representative (at the Company's expense) for a period of five
years from the Closing Date, daily transfer sheets showing any transfers of the
Securities and in the case of the transfer agent, from time to time during the
aforesaid period a complete stockholders' list will be promptly furnished by the
Company when requested by the Representative on not more than two occasions per
year.
SECTION 4. Public Offering. The several Underwriters agree, subject to the
terms and provisions of this Agreement, to offer the Shares to the public as
soon as practicable after the Effective Date, at the initial offering price of
$10.00 per Share and upon the terms described in the Prospectus. The
Representative may, from time to time, decrease the public offering price, after
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the initial public offering, to such extent as the Representative may determine,
however, such decreases will not affect the price payable to the Company
hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will furnish
the Representative, without charge, two signed copies of the Registration
Statement and of each amendment thereto, including all exhibits thereto and such
amount of conformed copies of the Registration Statement and Amendments as may
be reasonably requested by the Representative for distribution to each of the
Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed copies of
a Preliminary Prospectus and of the Prospectus as the Representative may request
for the purposes contemplated by this Agreement. If, while the Prospectus is
required to be delivered under the Act or the Rules and Regulations, any event
known to the Company relating to or affecting the Company shall occur which
should be set forth in a supplement to or an amendment of the Prospectus in
order to comply with the Act (or other applicable law) or with the Rules and
Regulations, the Company will forthwith prepare, furnish and deliver to the
Representative and to each of the other Underwriters and to others whose names
and addresses are designated by the Representative, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company and the Selling Security Holder authorize the
Underwriters and the selected dealers, if any, in connection with the
distribution of the Shares and all dealers to whom any of the Shares may be sold
by the Underwriters, or by any Selected Dealer, to use the Prospectus, as from
time to time amended or supplemented, in connection with the offering and sale
of the Shares and in accordance with the applicable provisions of the Act and
the applicable Rules and Regulations and applicable State Securities Laws.
SECTION 6. Covenants of the Company and the Selling Security Holder. The
Company covenants and agrees with each Underwriter that:
(a) After the date hereof, the Company will not at any time, whether
before or after the Effective Date, file any amendment to the Registration
Statement or the Prospectus, or any supplement to the Prospectus, of which the
Representative shall
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not previously have been advised and furnished with a copy, or to which the
Representative or the Underwriters' counsel shall have reasonably objected in
writing on the ground that it is not in compliance with the Act or the Rules and
Regulations.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective (provided, however, the Company shall not cause
the Registration Statement to become effective without the written consent of
VTR) and will advise the Representative, (i) when the Registration Statement
shall have become effective and when any amendment thereto shall have become
effective, and when any amendment of or supplement to the Prospectus shall be
filed with the Commission, (ii) when the Commission shall make request or
suggestion for any amendment to the Registration Statement or the Prospectus or
for additional information and the nature and substance thereof, and (iii) of
the issuance by the Commission of an order suspending the effectiveness of the
Registration Statement or of the initiation of any proceedings for that purpose,
and will use its best efforts to prevent the issuance of such an order, or if
such an order shall be issued, to obtain the withdrawal thereof at the earliest
possible moment.
(c) The Company will prepare and file with the Commission, promptly
upon the request of the Representative, such amendments, or supplements to the
Registration Statement or Prospectus, in form and substance satisfactory to
counsel to the Company, as in the reasonable opinion of Lester Morse P.C., as
counsel to the Underwriters, may be necessary or advisable in connection with
the offering or distribution of the Shares, and will diligently use its best
efforts to cause the same to become effective.
(d) The Company will, at its expense, when and as requested by the
Representative, supply all necessary documents, exhibits and information, and
execute all such applications, instruments and papers as may be required, in the
opinion of the Underwriters' counsel, to qualify the Shares or such part thereof
as the Representative may determine, for sale under the so-called "Blue Sky"
Laws of such states as the Representative shall designate, and to continue such
qualification in effect so long as required for the purposes of the distribution
of the Shares, provided, however, that the Company shall not be required to
qualify as a foreign corporation or dealer in securities or to file
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a consent to service of process in any state in any action other than one
arising out of the offering or sale of the Shares.
(e) The Company will, at its own expense, file and provide, and
continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the States in which the Shares may be qualified for sale, for so long as
required by applicable law, rule or regulation and will provide the
Representative with copies of all such registrations, filings and reports on a
timely basis.
(f) During the period of five years from the Effective Date, the
Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter (i) within 50 days after the end of
each of the Company's first three quarter-yearly fiscal periods, a balance sheet
of the Company as at the end of such quarter-yearly period, together with a
statement of its income and a statement of changes in its cash flow for such
period (Form 10-Q or 10-QSB), all in reasonable detail, signed by its principal
financial or accounting officer, (ii) within 105 days after the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with a statement of its income and statement of cash flow for such
fiscal year (Form 10-K or 10-KSB), such balance sheet and statement of cash flow
for such fiscal year to be in reasonable detail and to be accompanied by a
certificate or report of independent public accountants, (who may be the regular
accountants for the Company), (iii) as soon as available a copy of every other
report (financial or other) mailed to the stockholders, and (iv) as soon as
available a copy of every non-confidential report and financial statement
furnished to or filed with the Commission or with any securities exchange
pursuant to requirements by or agreement with such exchange or the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), or
any regulations of the Commission thereunder. If and for so long as the Company
has one or more active subsidiaries, the financial statements required by (i)
and (ii) above shall be furnished on a consolidated basis in respect of the
Company and all of the Company's subsidiaries. The financial statements referred
to in (ii) shall also be furnished to all of the stockholders of the Company as
soon as practicable after the 105 days referred to therein.
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(g) The Company represents that with respect to the shares of Common
Stock, it will prepare and file a Registration Statement with the Commission
pursuant to Section 12 of the 1934 Act, prior to the Effective Date with a
request that such Registration Statement will become effective on the Effective
Date. The Company understands that, to register, it must prepare and file with
the Securities and Exchange Commission a General Form of Registration of
Securities (Form 8-A or Form 10). At such time as the Company qualifies for
listing its securities on the Small Cap or National Market System of NASDAQ, the
Company will use its best efforts to have the Company's Shares listed on NASDAQ.
For so long as the Company is a reporting company under the 1934 Act, the
Company shall comply with all periodic reporting and proxy solicitation
requirements imposed by the Commission pursuant to the 1934 Act.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail, covering a period of at least twelve months beginning
after the Effective Date, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) The Company will, on or about the Effective Date, apply for
listing in Standard and Poor's Corporation Records and Standard & Poor's Monthly
Stock Guide and shall use its best efforts to have the Company listed in such
reports for a period of not less than ten (10) years from the Closing Date. The
Company will request accelerated treatment in the Daily News Supplement of
Standard and Poor's Corporation Records.
(j) The Company shall cause the Board of Directors to meet, at least
quarterly, upon proper notice; and, the Representative shall receive notice of
any regular or special meetings of the Company's Board of Directors concurrently
with the sending of such notice to the Company's directors and shall have the
right to have a representative attend such meeting as an observer, but this
right shall be suspended (i) three years after the Effective Date or (ii) at any
time a designee of the Underwriter is a member of or advisor to the Company's
Board of Directors as more fully set forth in Section 17 below.
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(k) The Company shall employ the services of an auditing firm
acceptable to the Representative in connection with the preparation of the
financial statements required to be included in the Registration Statement and
shall continue to appoint such auditors or such other auditors as are reasonably
acceptable to the Representative for a period of five (5) years following the
Effective Date of the Registration Statement. Said financial statements shall be
prepared in accordance with Regulation S-X under the Rules and Regulations. The
Company shall appoint American Stock Transfer & Trust Co., New York, New York as
transfer agent for the Common Stock and as Warrant Agent for the Selling
Security Holders (the "Transfer Agent").
(l) Prior to the Effective Date, the Company will enter into an
employment contract with Donald Feldman satisfactory to the Representative.
(m) Within ninety (90) days subsequent to the Effective Date, the
Company will furnish "Key Man" Life Insurance in the amount of $1,000,000 on the
life of Donald Feldman with the Company as the beneficiary thereof and the
Company shall pay the annual premiums, therefore, for a period of not less than
five years from the Effective Date.
(n) The Company will for a period of five years:
(i) Furnish to the Representative and to the Company's
shareholders annual audited financial statements contained in an annual report
and unaudited financial statements contained in quarterly reports for each of
the Company's first three quarters.
(ii) Designate an Audit Committee (the members of which shall
be subject to our reasonable approval) which will generally supervise the
financial affairs of the Company.
(iii) At its expense, shall cause its regularly engaged
independent certified public accountants to examine (but not audit) the
Company's financial statements for each of the first three (3) fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's Form 10-Q or 10-QSB quarterly report and the mailing of quarterly
financial information to security holders.
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(o) Until such time as the securities of the Company are listed on
the New York Stock Exchange, the American Stock Exchange or NASDAQ/NMS, the
Company shall cause its legal counsel to provide the Representative with a
survey, to be updated at least annually, of those states in which the securities
of the Company may be traded in non-issuer transactions under the Blue Sky laws
of the states and the basis for such authority. At closing, the first such
survey shall be delivered by the Company's legal counsel, Bernstein & Wasserman,
LLP.
(p) As soon as practicable after the Closing Date, the Company will
deliver to the Representative and its counsel a total of three bound volumes of
copies of all documents relating to the public offering which is the subject of
this Agreement.
(q) The Company, for a period of at least three years following the
public offering, shall retain the services of a financial public relations
firm(s) satisfactory to the Representative, said agreement(s) to commence no
later than 30 days after the Closing of the public offering.
(r) Stock certificates shall be first submitted to the
Representative for approval prior to printing. The Company shall, as promptly as
possible, after filing the Registration Statement with the Commission, obtain a
CUSIP number for the Shares and have the Shares eligible for closing through
Depository Trust Company.
(s) The Company will not issue and sell any of its securities not
contemplated by the Registration Statement for a period of time as set forth in
the Prospectus.
The Selling Security Holder covenants and agrees with each
Underwriter that the Selling Security Holder will pay all of its costs and
expenses incident to the performance of its obligations under this Agreement and
the sale of the Selling Security Holder Shares except for those expenses payable
by the Company as set forth in Section 7 herein.
SECTION 7. Expenses of the Company.
The Company shall be responsible for and shall bear all expenses directly
and necessarily incurred in connection with the proposed financing, including:
(i) the preparation, printing and filing of the Offering Documents and
amendments thereto, including
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NASD and SEC application fees, preliminary and final Prospectus and the printing
of the Underwriting Agreement, the Agreement Among Underwriters and the Selected
Dealers' Agreement, a Blue Sky Memorandum, material to be circulated to the
Underwriters by us and other incidental material; (ii) the issuance and delivery
of certificates representing the Shares, including original issue and transfer
taxes, if any; (iii) the qualifications of the Company's Shares (covered by the
"firm commitment" offering) under State Securities or Blue Sky Laws, including
counsel fees of the Representative relating thereto in the sum of Thirty
($30,000) Dollars ($______ of which has been paid prior to the Effective Date),
together with appropriate state filing fees) plus disbursements relating to, but
not limited to, long-distance telephone calls, photocopying, messengers, excess
postage, overnight mail and courier services; and (iv) the fees and
disbursements of counsel for the Company and the accountants for the Company.
The $30,000 payment shall not include fees of special counsel if same is
required to be incurred in a merit review state which may require local counsel.
The Company shall, upon receipt of an invoice from the Representative,
reimburse the Representative for any costs of otherwise unreimbursed postage and
including mailing of preliminary and final prospectuses incurred by or on behalf
of the Representative and the Underwriters in preparation for, or in connection
with the offering and sale and distribution of the Shares on an accountable
basis. After closing of the public offering, the Company shall bear the costs of
tombstone announcements not to exceed $10,000.
SECTION 8. Payment of Underwriters' Expenses.
(a) On the Closing Date and Additional Closing Date(s) (if any) the
Company will pay to VTR an expense allowance equal to three (3%) percent of the
total gross proceeds derived by the Company and the Selling Security Holder from
the sale of the 325,000 Shares and Optional Shares, for the fees and
disbursements of counsel to the Underwriters and for costs of otherwise
unreimbursed advertising, traveling, postage, telephone and telegraph expenses
and other miscellaneous expenses incurred by or on behalf of the Representative
and the Underwriters in preparation for, or in connection with the offering and
sale and distribution of the Shares; and VTR shall not be obligated to account
to the Company for such disbursements and expenses. In the event, however, that
the Representative terminates this Agreement
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pursuant to the provisions of Section 12 hereof, the Representative shall be
obligated to account for expenditures of any advance payment to VTR and to
refund to the Company any portion of the advance not expended. In the event that
the Representative terminates this agreement pursuant to the provisions of
Section 12(b), the Representative shall be entitled to reimbursement of expenses
on an accountable basis.
(b) On the Effective Date, the Company will enter into an agreement
retaining VTR, as a management and financial consultant for a two-year period,
commencing as of the Effective Date at a fee equal to $100,000 payable in full
in advance on the Closing Date.
SECTION 9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the Act, the
Exchange Act or other Federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus, the Registration Statement or the
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged omission to
state therein such fact required to be stated therein or necessary to make such
statements therein not misleading. The Selling Stockholder agrees to indemnify
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any and all losses, claims, damages and liabilities, joint or several (including
any reasonable investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other Federal or state law or regulation, at common law
or otherwise, insofar as such losses,
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claims, damages or liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the Act, the
Exchange Act or other Federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue statement or alleged untrue statement of a material
fact with respect to the Selling Stockholder contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment
thereof or supplement thereto (which amendments or supplements are furnished to
the Selling Stockholder), or which arise out of or are based upon any omission
or alleged omission to state therein such fact required to be stated therein or
necessary to make such statements therein not misleading, but only with
reference to information relating to the Selling Stockholder furnished in
writing to the Company by or on behalf of the Selling Stockholder expressly for
use in connection with the preparation of the Registration Statement and
Prospectus or any amendment thereof or supplement thereto (which amendments or
supplements are furnished to the Selling Stockholder), or which arise out of or
are based upon any omission or alleged omission to state therein such fact
required to be stated therein or necessary to make such statements therein not
misleading, but only with reference to information relating to the Selling
Stockholder furnished in writing to the Company by or on behalf of the Selling
Stockholder expressly for use in connection with the preparation of the
Registration Statement and Prospectus or any amendment thereof
or supplement thereto. Such indemnity shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of any
losses, claims, damages or liabilities arising from the sale of the Shares to
any person by such Underwriter if such untrue statement or alleged untrue
statement or omission was made in such preliminary prospectus, the Registration
Statement or the Prospectus, or such amendment or supplement, in reliance upon
and in conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use therein. The
obligations of the Selling Stockholder, pursuant to this Section 9(a) shall be
limited to an amount not exceeding the product of the Per Share Price to Public
of the Shares as set forth on the cover page of the Prospectus and the number of
Shares being sold by each of them. In no event shall the indemnification
agreement contained in this Section 9(a) inure to the benefit of any Underwriter
on account of any losses, claims, damages, liabilities or actions arising from
the sale of the Shares upon the public offering to any person by such
Underwriter if such losses, claims, damages, liabilities
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or actions arise out of, or are based upon, a statement or omission or alleged
omission in a preliminary prospectus and if, in respect to such statement,
omission or alleged omission, the Prospectus differs in a material respect from
such preliminary prospectus and a copy of the Prospectus has not been sent or
given to such person at or prior to the confirmation of such sale to such
person. This indemnity agreement will be in addition to any liability which the
Company and the Selling Stockholder may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company, and each officer of the Company who signs the
Registration Statement and the Selling Stockholder, to the same extent as the
foregoing indemnity from the Company and the Selling Stockholder to each
Underwriter, but only insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or omission or alleged
untrue statement or omission which was made in any Preliminary Prospectus, any
Rule 430A Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, which were made in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter for specific use therein; provided,
however, that the obligation of each Underwriter to indemnify the Company
(including any controlling person, director or officer thereof) and the Selling
Stockholder shall be limited to the net proceeds received by the Company and the
Selling Stockholder, respectively, from such Underwriter. For all purposes of
this Agreement, the amounts of the selling concession and reallowance set forth
in the Prospectus constitute the only information furnished in writing by or on
behalf of any Underwriter expressly for inclusion in any Preliminary Prospectus,
any Rule 430A Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto.
(c) Any party that proposes to assert the right to be indemnified under
this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit or
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proceeding, enclosing a copy of all papers served. No indemnification provided
for in Section 9(a) or 9(b) shall be available to any party who shall fail to
give notice as provided in this Section 9(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified party
shall have reasonably concluded that there may be a conflict of interest between
the indemnifying parties and the indemnified party in the conduct of the defense
of such action (in which case the indemnifying parties shall not have the right
to direct the defense of such action on behalf of the indemnified party, or
(iii) the indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the reasonable fees and expenses of counsel
shall be at the expense of the indemnifying parties. An indemnifying party shall
not be liable for any settlement of any action, suit, proceeding or claim
effected without its written consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections 9(a) and (b)
is due in accordance with its terms but for any reason is held to be unavailable
from the Company, the Selling Stockholder
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or the Underwriters, the Company, the Selling Stockholder and the Underwriters
shall contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting any contribution received
by the Company from persons other than the Underwriters, such as the Selling
Stockholder, persons who control the company within the meaning of the Act,
officers of the Company who signed the Registration Statement and directors of
the Company, who may also be liable for contribution) to which the Company and
the Selling Stockholder and one or more of the Underwriters may be subject in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Selling Stockholder on the one hand and the Underwriters on
the other from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided herein in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company and the Selling Stockholder
on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant omissions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Selling Stockholder and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the Offering (net of underwriting discounts but before deducting
expenses) received by the Company or the Selling Stockholder from the sale of
the Shares, as set forth in the table on the cover page of the Prospectus (but
not taking into account the use of the proceeds of such sale of Shares by the
Company), bear to (y) the underwriting discount received by the Underwriters, as
set forth in the table on the cover page of the Prospectus. The relative fault
of the Company, the Selling Stockholder and the Underwriters shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact related to information supplied by the Company, the
Selling Stockholder or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Stockholder and the Underwriters
agree that it
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would not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable consideration referred to above. Notwithstanding
the provisions of this Section 9, (i) in no case shall any Underwriter (except
as may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder, (ii) in no case shall the Selling
Stockholder be liable or responsible for any amount in excess of the product of
the Per Share Price to Public of the Shares as set forth on the cover page of
the Prospectus and the number of Shares being sold by each of them subject to
the limitation expressed in Section 9(a), and (iii) the Company shall be liable
and responsible for any amount in excess of the underwriting discount and the
amount referred to in clause (ii) provided, however (i) that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
such Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i), (ii) and (iii) in the immediately
preceding sentence of this Section 9. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section, notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have hereunder or otherwise than under this Section. No party
shall be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent. The Underwriters' obligations to
contribute pursuant to this Section 9 are several in proportion to their
respective underwriting commitments and not joint.
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SECTION 10. Effectiveness of Agreement. This Agreement shall become
effective (i) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Shares, whichever shall first occur. The time of the initial
public offering by the Underwriters of the Shares for the purposes of this
Section 10, shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the Shares,
or the time, after the Registration Statement becomes effective, when the Shares
are first released by the Representative for offering by the Underwriters or
dealers by letter or telegram, whichever shall first occur. The Representative
agrees to notify the Company immediately after it shall have taken any action,
by release or otherwise, whereby this Agreement shall have become effective.
This Agreement shall, nevertheless, become effective at such time earlier than
the time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
SECTION 11. Conditions of the Underwriters' Obligations. The obligations
of the several Underwriters to purchase and pay for the Shares which the
Underwriters have agreed to purchase hereunder are subject to: the accuracy, as
of the date hereof and as of the Closing Dates, of all of the representations
and warranties of the Company and the Selling Security Holder contained in this
Agreement; the Company's compliance with, or performance of, all of its
covenants, undertakings and agreements contained in this Agreement that are
required to be complied with or performed on or prior to each of the Closing
Dates and to the following additional conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
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(b) The Representative shall not have disclosed in writing to the
Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contained, as of the date thereof, an untrue statement of a
fact which, in the opinion of counsel to the Underwriters, is material, or omits
to state a fact which, in the opinion of such counsel, is material and is
required to be stated therein, or is necessary to make the statements therein
not materially misleading.
(c) Between the date hereof and the Closing Date, the Company shall
not have sustained any loss on account of fire, explosion, flood, accident,
calamity or other cause, of such character as materially adversely affects its
business or property, whether or not such loss is covered by insurance.
(d) Between the date hereof and the Closing Date, there shall be no
litigation instituted or threatened against the Company, and there shall be no
proceeding instituted or threatened against the Company before or by any federal
or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Closing Date, (A) the Company shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the filing of the initial Registration Statement and
(B) except in the ordinary course of its business, the Company shall not have
incurred any material liabilities or obligations (direct or contingent), or
disposed of any of its assets, or entered into any material transaction, and (C)
the Company shall not have suffered or experienced any material adverse change
in its business, affairs or in its condition, financial or otherwise. On the
Closing Date, the capital stock and surplus accounts of the Company shall be
substantially as great as at its last financial report without considering the
proceeds from the sale of the Shares except to the extent that any decrease is
disclosed in or contemplated by the Prospectus.
(f) The authorization of the Shares, the Registration Statement, the
Prospectus and all corporate proceedings and other
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legal matters incident thereto and to this Agreement, shall be reasonably
satisfactory in all respects to counsel to the Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, of Bernstein & Wasserman, LLP, counsel for the Company, that:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware
with full corporate power and authority to own and operate its properties and to
carry on its business as set forth in the Registration Statement and Prospectus;
it has authorized and outstanding capital as set forth in the Registration
Statement and Prospectus; and the Company is duly licensed or qualified as a
foreign corporation in all jurisdictions in which the ownership or leasing of
its properties requires such qualification or license, except where failure to
be so qualified or licensed would have no material adverse effect on the
business of the Company.
(ii) The Company has an authorized, issued and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus.
All of the outstanding shares of Common Stock and Preferred Stock are duly
authorized, validly issued, fully paid, and non-assessable, and do not have any
preemptive rights. The Company will have duly authorized, reserved and set aside
shares of Common Stock issuable upon exercise of any outstanding options,
warrants or stock option plans and when issued in accordance with the terms
contained therein against payment therefor, will be duly and validly issued,
fully paid and non-assessable.
(iii) The Common Stock and the Underwriters' Warrant conform to
descriptions thereof under "Description of Securities" contained in the
Prospectus.
(iv) The Underwriters will receive good and marketable title to
the Shares purchased by them from the Company and the Selling Security Holder in
accordance with the terms and provisions of this Agreement, to the best of such
counsel's knowledge, free and clear of all liens, encumbrances, claims, security
interests, restrictions, stockholders' agreements and voting trusts whatsoever.
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(v) Except as set forth in the Prospectus, there are no
outstanding options, warrants, or other rights, providing for the issuance of,
and, to the best of the knowledge of such counsel, no commitments, plans or
arrangements to issue, any shares of any class of capital stock of the Company,
or any security convertible into, or exchangeable for, any shares of any class
of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no consents,
approvals, authorizations or orders of agencies, officers or other regulatory
authorities are necessary for the valid authorization, issue or sale of the
Shares hereunder, except such as may be required under the Act or state
securities or Blue Sky Laws.
(vii) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no order suspending the
effectiveness of the Registration Statement is in effect and no proceedings for
that purpose have been instituted or are pending before or threatened by, the
Commission;
(viii) To the best of such counsel's knowledge and based upon the
investigation described below, the Registration Statement and Prospectus, and
each amendment thereof and supplement thereto, comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations (except that no opinion need be expressed as to financial
statements, notes thereto, and financial data contained in the Registration
Statement or Prospectus). Such counsel has participated in conferences with
officers and representatives of the Company and with its certified public
accountants in the preparation of the Registration Statement and the Prospectus.
At such conferences counsel has made inquiries of such officers, representatives
and accountants, and discussed the contents of the Registration Statement and
the Prospectus. Such counsel has not independently verified, and, accordingly,
does not assume any responsibility for, the accuracy, completeness or fairness
of the information contained in the Registration Statement or the Prospectus,
other than as set forth the Prospectus insofar as such statements relate to the
contents of particular documents therein described. On the basis of the
foregoing, nothing has come to the attention of such counsel to cause such
counsel to believe that the Registration Statement, the Prospectus or any
amendment or supplement thereto contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make
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statements therein, in light of the circumstances under which they were made,
not misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial and statistical data and
schedules contained therein, as to which such counsel need express no opinion);
and such counsel is familiar with all contracts referred to in the Registration
Statement or in the Prospectus and such contracts are sufficiently summarized or
disclosed therein, or filed as exhibits thereto, as required, and such counsel
does not know of any other contracts required to be summarized or disclosed or
filed; and such counsel does not know of any legal or governmental proceedings
to which the Company is a party, or in which property of the Company is the
subject, of a character required to be disclosed in the Registration Statement
or the Prospectus which are not so disclosed therein.
(ix) The statements in the Registration Statement under the
caption "Business" have been reviewed by such counsel and insofar as they refer
to descriptions of agreements, statutes, licenses, certifications, rules or
regulations or legal conclusions, are correct in all material respects.
(x) This Agreement has been duly authorized and executed by the
Company and the Selling Security Holder and is a valid and binding agreement of
the Company and the Selling Security Holder enforceable in accordance with its
terms subject to bankruptcy, insolvency, reorganization, moratorium and other
laws affecting creditors rights generally and except that no opinion need be
given with regard to the enforceability of Section 9 hereof or the availability
of equitable relief.
(xi) To the best knowledge of such counsel: (a) no default
exists, and no event has occurred which, with notice or lapse of time, or both,
would constitute a default in the due performance and observance of any material
term, covenant or condition by the Company or the Selling Security Holder, of
any indenture, mortgage, deed of trust, note or any other agreement or
instrument to which the Company or the Selling Security Holder is a party or by
which it or its business or its properties may be bound or affected, except
where such default would not have a material adverse effect on the business of
the Company and except as disclosed in the Prospectus; (b) the Selling Security
Holder has full power and legal authority to sell the Selling Security Holder
Shares to the Underwriters free and clear of all liens and
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encumbrances; (c) the Company has full power and lawful authority to authorize,
issue and sell the Shares on the terms and conditions set forth herein and in
the Registration Statement and in the Prospectus; (d) no consent, approval,
authorization or other order of any regulatory authority is required for such
authorization, issue or sale, except as may be required under the Act or State
securities laws, clearance with the NASD and such other consent, approval,
authorization or order as has been obtained and is in full force and effect; and
(e) the execution and delivery of this Agreement, the consummation of the
transactions herein contemplated, and compliance with the terms hereof will not
conflict with, or constitute a default under, any material indenture, mortgage,
deed of trust, note or any other agreement or instrument to which the Company
and the Selling Security Holder is now a party or by which it or its business or
its properties may be bound or affected, the Certificate of Incorporation and
any amendments thereto, the by-laws of the Company or the Selling Security
Holder, or any order, rule or regulation, writ, injunction or decree of any
government, governmental instrumentality, or court, domestic or foreign, having
jurisdiction over the Company or the Selling Security Holder or its business or
properties.
(xi) Except as disclosed in the Registration Statement and
Prospectus, to the best knowledge of such counsel, there are no material
actions, suits or proceedings at law or in equity of a material nature pending,
or to such counsel's knowledge, threatened against the Company or the Selling
Security Holder which are not adequately covered by insurance and there are no
proceedings pending or, to the knowledge of such counsel, threatened against the
Company or the Selling Security Holder before or by any Federal or State
Commission, regulatory body, or administrative agency or other governmental
body, wherein an unfavorable ruling, decision or finding would materially and
adversely affect the business, operation or condition (financial or otherwise)
of the Company or the Selling Security Holder, which are not disclosed in the
Prospectus.
(xii) The Underwriters' Warrants to be issued to the
Representative hereunder will be, when issued, duly and validly authorized and
executed by the Company and will constitute valid and binding obligations of the
Company, legally enforceable in accordance with their terms except as
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws pertaining to creditors rights generally and the
Company will have duly authorized, reserved and set aside the shares of its
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Common Stock issuable upon exercise of the Underwriters' Warrants and such
stock, when issued and paid for upon exercise of the Underwriters' Warrants in
accordance with the provisions thereof, will be duly and validly issued,
fully-paid and non-assessable.
Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact.
(h) The Company shall have furnished to the Representative
certificates of the President and a Vice-President of the Company, dated as of
the Closing Date, and Additional Closing Date(s), to the effect that:
(i) Each of the representations and warranties of the Company
contained in Section 2 hereof is true and correct in all material respects at
and as of such Closing Date, and the Company has performed or complied with all
of its agreements, covenants and undertakings contained in this Agreement and
has performed or satisfied all the conditions contained in this Agreement on its
part to be performed or satisfied at the Closing Date;
(ii) The Registration Statement has become effective and no
order suspending the effectiveness of the Registration Statement has been
issued, and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and the Prospectus and any amendments and supplements
thereto, and to the best of their knowledge the Registration Statement and the
Prospectus and any amendments and supplements thereto and all statements
contained therein are true and correct in all material respects, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth except
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changes which the Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the Registration
Statement and Prospectus, since the respective dates as of which, or periods for
which, information is given in the Registration Statement and Prospectus and
prior to the date of such certificate (A) there has not been any material
adverse change, financial or otherwise, in the business, business prospects,
earnings, general affairs or condition (financial or otherwise), of the Company
(in each case whether or not arising in the ordinary course of business), and
(B) the Company has not incurred any material liabilities, direct or contingent,
or entered into any material transactions, otherwise than in the ordinary course
of business other than as referred to in the Registration Statement or
Prospectus and except changes which the Registration Statement and Prospectus
indicate might occur.
(i) The Company shall have furnished to the Representative on the
Closing Date, such other certificates of executive officers of the Company
additional to those specifically mentioned herein, as the Representative may
have reasonably requested, as to: the accuracy and completeness of any statement
in the Registration Statement or the Prospectus, or in any amendment or
supplement thereto; the representations and warranties of the Company herein;
the performance by the Company of its obligations hereunder; or the fulfillment
of the conditions concurrent and precedent to the obligations of the
Underwriters hereunder, which are required to be performed or fulfilled on or
prior to the Closing Date.
(j) At the time this Agreement is executed, and on each Closing Date
you shall have received a letter from Mortenson & Associates, P.C., addressed to
the Representative, as Representative of the Underwriters, and dated,
respectively, as of the date of this Agreement and as of each Closing Date in
form and substance reasonably satisfactory to the Representative, to the effect
that:
(i) They are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations of the Commission;
(ii) In their opinion, the financial statements and related
schedules of the Company included in the Registration
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Statement and Prospectus and covered by their reports comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder;
(iii) On the basis of limited procedures in accordance with
standards established by the American Institute of Certified Public Accountants,
including (1) a reading of the latest available financial statements of the
Company (a copy of which shall be attached to such letter), (2) a reading of the
latest available minutes of the meetings of the stockholders and the Board of
Directors of the Company as set forth in the minute books of the Company,
officials of the Company having advised you and them that the minutes of all
such meetings through that date were set forth therein, (3) consultations with
officials of the Company responsible for financial and accounting matters of the
Company, which procedures do not constitute an examination in accordance with
generally accepted accounting standards, and would not necessarily reveal
material adverse changes in the financial position or results of operations or
inconsistencies in the application of generally accepted accounting principles,
nothing has come to their attention which in their judgment would lead them to
believe that (a) the unaudited financial statements and related schedules of the
Company included in the Registration Statement and Prospectus do not comply as
to form in all material respects with the applicable accounting requirements of
the Act and the published Rules and Regulations of the Commission issued
thereunder, or were not prepared in accordance with generally accepted
accounting principles and practices consistent in all material respects with
those followed in the preparation of the comparable financial statements and
schedules covered by their reports included in the Registration Statement and
Prospectus, or would require any material adjustments for a fair presentation of
the information purported to be shown thereby or (b) during the period from the
date of the Capitalization table included in the Prospectus to a specified date
not more than four business days prior to the date of such letter, there has
been any material change in the capital stock or debt of the Company, or (c)
during the period from the date of the latest balance sheet and related
statements of operations, changes in stockholders' equity and changes in
financial position included in the Prospectus and covered by their reports
contained therein to the date of the letter, there has been any material adverse
change in the financial condition, or results of operations, of the Company; and
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(iv) In addition to the examination referred to in their
reports included in the Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are derived from the
general accounting records of the Company which appear in the Prospectus under
the captions "Capitalization", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Executive Compensation",
"Certain Transactions", "Selected Financial Data," "Dilution," and "Risk
Factors," as well as such other financial information as may be specified by the
Representative, and that they have compared such amounts, percentages and
financial information with the accounting records of the Company and have found
them to be in agreement.
(k) The Representative shall have received on each Closing Date from
counsel to the Selling Stockholder, an opinion addressed to the Representative
and dated such Closing Date, to the effect that:
(i) The Selling Stockholder has all requisite power and
authority to execute, deliver and perform this Agreement and to issue and sell
the Selling Security Holder Shares. This Agreement has been duly authorized,
executed and delivered by the Selling Stockholder, is the legal, valid and
binding obligation of the Selling Stockholder and (subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally) is enforceable as to the Selling Stockholder in
accordance with its terms. No consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing with, any federal
state, local or other governmental authority or any court or other tribunal is
required by the Selling Stockholder, for the execution, delivery or performance
by the Selling Stockholder of this Agreement (except filings under the Act which
have been made prior to the Closing Date and consents consisting only of
consents under "blue sky" or securities laws). To the knowledge of such counsel,
no consent of any party to any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or understanding to which
the Selling Stockholder is a party, or to which any of their respective
properties or assets are subject, is required for the execution, delivery or
performance of this Agreement; and the execution, delivery and performance of
this Agreement will not violate, result in a breach of, conflict with,
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or (with or without the giving of notice of the passage of time or both) entitle
any party to terminate or call a default under such contract, agreement,
instrument, lease, license, indenture, mortgage, deed of trust, note,
arrangement or understanding, in each case known to such counsel, or violate,
result in a breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Selling Stockholder.
(ii) Such opinion delivered at each of the Closing Dates shall
state that the Selling Security Holder Shares to be delivered on those dates are
duly and validly issued, fully paid and non-assessable with no personal
liability attaching to the ownership thereof, and are not issued in violation of
any preemptive rights of stockholders, and the Underwriters have received good
title to the Selling Security Holder Shares purchased by them, respectively,
from the Selling Stockholder, as applicable, for the consideration contemplated
herein and in good faith and without notice of any adverse claim within the
meaning of the Uniform Commercial Code, free and clear of any liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, voting
trusts and other claims.
All the opinions, letters, certificates and evidence mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel to the Underwriters, whose approval shall not be unreasonably
withheld, conditioned or delayed.
If any of the conditions specified in this Section shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the Underwriters hereunder may be terminated
and cancelled by the Representative by notifying the Company of such termination
and cancellation in writing or by telegram at any time prior to, or on, the
Closing Date and any such termination and cancellation shall be without
liability of any party hereto to any other party, except with respect to the
provisions of Sections 7 and 8 hereof. The Representative may, of course, waive,
in writing, any conditions which have not been fulfilled or extend the time for
their fulfillment.
SECTION 12. Termination.
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(a) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time before it becomes
effective pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company, at any time after it becomes
effective, in the event that the Company or the Selling Security Holder, after
notice from the Representative and an opportunity to cure, shall have failed or
been unable to comply with any of the terms, conditions or provisions of this
Agreement on the part of the Company or the Selling Security Holder to be
performed, complied with or fulfilled within the respective times herein
provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Representative in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys or the Selling Security Holder's
attorneys to the effect of either inabilities in furnishing certifications as to
material items including, without limitation, information contained within the
footnotes to the financial statements, or as affecting matters incident to the
issuance and sale of the securities contemplated or as to corporate proceedings
or other matters or (ii) there is any action, suit or proceeding, threatened or
pending, at law or equity against the Company or the Selling Security Holder, or
by any Federal, State or other commission, board or agency wherein any
unfavorable result or decision could materially adversely affect the business,
property, or financial condition of the Company or the Selling Security Holder
which was not disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company or the Selling Security Holder at
any time after it becomes effective, if the offering of, or the sale of, or the
payment for, or the delivery of, the Shares is rendered impracticable or
inadvisable because (i) additional material governmental restriction, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or trading in securities generally on
such exchange shall have been suspended or a general banking moratorium shall
have been established by Federal or New York State authorities or (ii) a war or
other national calamity shall have occurred involving the United
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States or (iii) the condition of the market for securities in general shall have
materially and adversely changed, or (iv) the condition of any matter materially
affecting the Company or the Selling Security Holder or its business or business
prospects, is such that it would be undesirable, impractical or inadvisable to
proceed with, or consummate, this Agreement or the public offering of the
Shares.
(d) Any termination of this Agreement pursuant to this Section 12
shall be without liability of any character (including, but not limited to, loss
of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided. In addition, the Underwriter shall account to the
Company for any advance and shall reimburse the Company for any portion of the
advance not expended for actual out-of-pocket expenses. In the event that the
Representative terminates this agreement pursuant to the provisions of Section
12(b), the Representative shall be entitled to reimbursement of expenses on an
accountable basis.
SECTION 13. Finder. The Company, the Selling Security Holders and the
Underwriters mutually represent that they know of no person who rendered any
service in connection with the introduction of the Company to the Underwriters
and that they know of no claim by anyone for a "finder's fee" or similar type of
fee, in connection with the public offering which is the subject of this
Agreement. Each party hereby indemnifies the other against any such claims by
any person known to it, and not known to the other party hereto, who shall claim
to have rendered services in connection with the introduction of the Company to
the Underwriters and/or to have such a claim.
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SECTION 14. Substitution of Underwriters.
(a) If one or more Underwriters default in its or their obligations
to purchase and pay for Shares hereunder and if the aggregate amount of such
Shares which all Underwriters so defaulting have agreed to purchase does not
exceed 10% of the aggregate number of Shares, the non-defaulting Underwriters
shall have the right and shall be obligated severally to purchase and pay for
(in addition to the Shares set forth opposite their names in Schedule I) the
full amount of the Shares agreed to be purchased by all such defaulting
Underwriters and not so purchased, in proportion to their respective commitments
hereunder. In such event the Representative, for the accounts of the several
non-defaulting Underwriters, may take up and pay for all or any part of such
additional Shares to be purchased by each such Underwriter under this subsection
(a), and may postpone the Closing Date to a time not exceeding seven full
business days; or
(b) If one or more Underwriters (other than the Representative)
default in its or their obligations to purchase and pay for the Shares hereunder
and if the aggregate amount of such Shares which all Underwriters so defaulting
shall have agreed to purchase shall exceed 10% of the aggregate number of
Shares, or if one or more Underwriters for any reason permitted hereunder cancel
its or their obligations to purchase and pay for Shares hereunder, the
non-canceling and non-defaulting Underwriters (hereinafter called the "Remaining
Underwriters") shall have the right, but shall not be obligated to purchase such
Shares in such proportion as may be agreed among them, at the Closing Date. If
the Remaining Underwriters do not purchase and pay for such Shares at such
Closing Date, the Closing Date shall be postponed for one business day and the
remaining Underwriters shall have the right to purchase such Shares, or to
substitute another person or persons to purchase the same or both, at such
postponed Closing Date. If purchasers shall not have been found for such Shares
by such postponed Closing Date, the Closing Date shall be postponed for a
further two business days and the Company shall have the right to substitute
another person or persons, satisfactory to you to purchase such Shares at such
second postponed Closing Date. If the Company shall not have found such
purchasers for such Shares by such second postponed Closing Date, then this
Agreement shall automatically terminate and neither the Company nor the
remaining Underwriters (including the Representative) shall be under any
obligation under this Agreement (except that the Company shall remain liable to
the extent provided in Paragraph 7 hereof).
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As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 14. Nothing in this
subparagraph (b) will relieve a defaulting Underwriter from its liability, if
any, to the other Underwriters for damages occasioned by its default hereunder
(and such damages shall be deemed to include, without limitation, all expenses
reasonably incurred by each Underwriter in connection with the proposed purchase
and sale of the Shares) or obligate any Underwriter to purchase or find
purchasers for any Shares in excess of those agreed to be purchased by such
Underwriter under the terms of Sections 3 and 14 hereof.
SECTION 15. Registration of the Warrants and/or securities
underlying the Underwriters' Warrants. The Company agrees that it will, upon
request by the Representative or the holders of a majority of the Underwriters'
Warrants and Underlying Securities within the period commencing one year after
the Effective Date, and for a period of five years from the Effective Date, on
one occasion only at the Company's sole expense, cause the Underwriters'
Warrants and/or the Underlying Securities issuable upon exercise of the
Underwriters' Warrants, to be the subject of a post-effective amendment, a new
Registration Statement, if appropriate (hereinafter referred to as the "demand
Registration Statement"), so as to enable the Representative and/or its assigns
to offer publicly the Underwriters' Warrants and/or the underlying securities.
The Company agrees to register such securities expeditiously and, where
possible, within forty-five (45) business days after receipt of such requests.
The Company agrees to use its "best efforts" to cause the post-effective
amendment, new Registration Statement to become effective and for a period of
nine (9) months thereafter to reflect in the post-effective amendment, new
Registration Statement, financial statements which are prepared in accordance
with Section 10(a)(3) of the Act and any facts or events arising which,
individually or in the aggregate, represent a fundamental and/or material change
in the information set forth in such post-effective amendment or new
Registration Statement. The holders of the Underwriters' Warrants may demand
registration without exercising such Warrants and, in fact, are never required
to exercise same.
The Company understands and will agree that if, at any time within
the period commencing one year after the Effective Date and ending seven years
after the Effective Date of the Company's Registration Statement, it should file
a Registration Statement with the Securities and Exchange Commission pursuant
to
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the Securities Act, regardless of whether some of the holders of the
Underwriters' Warrants and Underlying Securities shall have theretofore availed
themselves of the right provided above, the Company, at its own expense, will
offer to said holders the opportunity to register the Underwriters' Warrants and
Underlying Securities. This paragraph is not applicable to a Registration
Statement filed by the Company with the SEC on Form S-8 or any other
inappropriate form.
In addition to the rights above provided, the Company will cooperate
with the then holders of the Underwriters' Warrants and Underlying Securities in
preparing and signing a Registration Statement, on one occasion only in addition
to the Registration Statements discussed above, required in order to sell or
transfer the aforesaid Underwriters' Warrants and underlying securities and will
supply all information required therefor, but such additional Registration
Statement shall be at the then holders' cost and expense unless the Company
elects to register additional shares of the Company's Common Stock in which case
the cost and expense of such Registration Statement will be prorated between the
Company and the holders of the Underwriters' Warrants and underlying securities
according to the aggregate sales price of the securities being issued. The
holders of the Underwriters' Warrants may include such Warrants in any such
filing without exercising the Underwriters' Warrants, and in fact, are never
required to exercise same. The Company can, at any time for any reason, withdraw
any such registration except in connection with a Registration Statement filed
pursuant to the Company's demand Registration Statement.
SECTION 16. Warrant Exercise Fee Agreement. Upon the completion of
the offering, certain Warrants will be issued to Selling Security Holders as
described in the Prospectus. Commencing on the exercise date of the Warrants,
but no sooner than twelve months after the Effective Date, the Company will pay
VTR an amount equal to four (4%) percent of the aggregate exercise price of each
Warrant exercised, of which a portion may be allowed to the dealer who solicited
the exercise (which may also be VTR); provided: (1) the market price of the
Common Stock on the date the Warrant was exercised was greater than the Warrant
exercise price on that date; (2) exercise of the Warrant was solicited by a
member of the NASD; (3) the Warrant was not held in a discretionary account; (4)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; and (5) the solicitation of
the exercise of the Warrant
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was not in violation of Rule 10b-6 promulgated under the Securities Exchange Act
of 1934. The Warrant Exercise Fee shall be paid in accordance with the
provisions of this paragraph and the Warrant Exercise Fee Agreement filed as an
exhibit to the Registration Statement (the "Warrant Exercise Fee Agreement").
The Company also agrees to execute and deliver the Warrant Exercise Fee
Agreement to VTR on the Closing Date.
SECTION 17. Designation of a Director or Non-voting Advisor to the Board:
Unless waived by us, we shall have the right to designate a director or a
non-voting advisor to the Board for a period of five years after the Effective
Date. Said designee, shall attend meetings of the Board and receive no more or
less compensation than is paid to other non-management directors of the Company
and shall be entitled to receive reimbursement for all reasonable costs incurred
in attending such meetings, including but not limited to, food, lodging and
transportation. Moreover,to the extent permitted by law, the Company will agree
to indemnify the Representative and its designee for the actions of such
designee as director or as an advisor of the Company. In the event the
Underwriter designates a director, then the Company will utilize its best
efforts to obtain officer and director liability insurance of at least
$1,000,000 dollars prior to such person serving as a director and if obtained,
to maintain such policy in effect until five years from the Effective Date. To
the extent permitted under the policy, it will also include each of the
Representative and its designee as an insured under such policy.
SECTION 18. Finder's Fee: If the Company shall within five (5) years from
the Effective Date, enter into any agreement or understanding with any person or
entity introduced by the Representative involving (i) the sale of all or
substantially all of the assets and properties of the Company, (ii) the merger
or consolidation of the Company (other than a merger or consolidation effected
for the purpose of changing the Company's domicile) or (iii) the acquisition by
the Company of the assets or stock of another business entity, which agreement
or understanding is thereafter consummated, whether or not during such five (5)
year period, the Company, upon such consummation, shall pay to the
Representative an amount equal to the following percentages of the consideration
paid by the Company in connection with such transaction:
5% of the first $4,000,000 or portion thereof, of such
consideration;
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4% of the next $1,000,000 or portion thereof, of such
consideration;
3% of the next $1,000,000 or portion thereof of such
consideration; and
2% of such consideration in excess of the first
$6,000,000 of such consideration.
The fee payable to the Representative will be in the same form of
consideration and payable at the same time as that paid by or to the Company, as
the case may be, in any such transactions.
SECTION 19. Restriction on Securities All officers and directors, Laurie
Munn, Matt Harriton and Interiors, Inc. as of the Effective Date, have agreed
not to sell, transfer, hypothecate or convey any capital stock or derivative
securities by registration or otherwise for a "Lock-Up" period of two years from
the Effective Date without the prior written consent of the Representative
(except that, subject to compliance with applicable securities laws, any such
officer, director or stockholder may transfer his or her stock to a member of
his family or in the event of death, by will or operation of law, provided that
any such transferee shall agree, as a condition to such transfer, to be bound by
the restrictions set forth herein). An appropriate legend shall be marked on the
face of stock certificates representing all of such securities.
SECTION 20. Other Agreements The Alternate Prospectus included in the
Registration Statement covers the sale of certain securities which are not
underwritten by the Underwriters and are not covered by this Underwriting
Agreement except for lock-up letters executed by Matt Harriton and Laurie Munn
in accordance with Section 19 contained herein.
SECTION 21. Notice. Except as otherwise expressly provided in this
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt requested, addressed to the Company at 320 Washington Street, Mt.
Vernon, NY 10553, copy to Hartley T. Bernstein, Esq., Bernstein & Wasserman,
LLP, 950 Third Avenue, New York, NY 10022, telecopier (212) 371- 4730; and (B)
whenever notice is required by the provisions hereof to be given to the
Underwriters, such notice shall be in writing addressed to the Representative at
99 Wall Street, New York, NY 10005, copy to Steven Morse, Esq., Lester Morse
P.C., 111 Great Neck Road, Suite 420, Great Neck, New York 11021, telecopier
(516)
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487-1452. Any party may change the address for notices to be sent by giving
written notice to the other persons.
SECTION 22. Representations and Agreements to Survive Delivery. Except as
the context otherwise requires, all representations, warranties, covenants, and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants, and agreements as at the date hereof and as at the
Closing Date and the Additional Closing Date(s), and all representations,
warranties, covenants, and agreements of the several Underwriters, the Selling
Security Holder and the Company, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any of the
Underwriters or the Company or any of their respective controlling persons, and
shall survive any termination of this Agreement (whensoever made) and/or
delivery of the Firm Shares and the Optional Shares to the several Underwriters.
SECTION 23. Miscellaneous. This Agreement is made solely for the benefit
of the Underwriters, the Selling Security Holder and the Company and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successor" or the term
"successors and assigns" as used in this Agreement shall not include any
purchaser, as such, of any of the Shares.
This Agreement shall not be assignable by any party without the
other party's prior written consent. This Agreement shall be binding upon, and
shall inure to the benefit of, our respective successors and permitted assigns.
The foregoing represents the sole and entire agreement between us with respect
to the subject matter hereof and supersedes any prior agreements between us with
respect thereto. This Agreement may not be modified, amended or waived except by
a written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall be deemed to
be one and the same instrument.
If a party signs this Agreement and transmits an electronic facsimile of
the signature page to the other party, the party who
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receives the transmission may rely upon the electronic facsimile as a signed
original of this Agreement.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
the Company, the Selling Security Holder and the Underwriters in accordance with
its terms.
Very truly yours,
DECOR GROUP, INC.
By:___________________________________
Donald Feldman, President
GORDON BROTHERS CAPITAL CORPORATIONS
By:___________________________________
Authorized Officer
CONFIRMED AND ACCEPTED, as of the
date first above written:
VTR CAPITAL, INC.
By:_____________________________________________
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
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SCHEDULE I
Underwriters Number of Shares to be
------------ Purchased
----------------------
VTR Capital Inc.
______________________
Total 325,000
=======
46
<PAGE>
VTR Capital Inc.
99 Wall Street
New York, NY 10005
DECOR GROUP, INC.
325,000 Shares
SELECTED DEALER AGREEMENT
Dear Sirs: ____________, 1996
We, as the Underwriter named in the below referred to Prospectus (the
"Underwriter") have agreed, subject to the terms and conditions of the
Underwriting Agreement dated this date (the "Underwriting Agreement") to
purchase from Decor Group, Inc. (the "Company") and Gordon Brothers Capital
Corporation (the "Selling Security Holder"), at the price set forth on the cover
of such Prospectus, 300,000 shares of Common Stock and 25,000 shares of Common
Stock, respectively, and up to an additional 45,000 Shares from the Company
being called the "Shares"). The Shares and certain of the terms on which they
are being purchased and offered are more fully described in the enclosed
Prospectus (the "Prospectus"). Additional copies of the Prospectus will be
supplied to you, in reasonable quantities upon request.
We, as the Underwriter, are offering to certain dealers ("Selected
Dealers"), among whom we are pleased to include you, part of the Shares, at the
public offering price less a concession of $___ per Share. The offering to
Selected Dealers is made subject to the issuance and delivery of the Shares to
us and their acceptance by us, to the approval of legal matters by our counsel,
and to the terms and conditions hereof, and may be made by us on the basis of
the reservation of Shares or an allotment against subscription, or otherwise in
our discretion.
The initial public offering price of the Shares is set forth in the
Prospectus. With our consent, Selected Dealers may allow a discount of not in
excess of $___ per Share in selling the Shares to other dealers meeting the
requirements of the specifications set forth in the affirmation of dealers
contained in the attached Acceptance and Order. Upon our request, you will
notify us of the identity of any dealer to whom you allow such a
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discount and any Selected Dealer from whom you receive such a discount.
All orders will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part, to
accept or reject orders in the order of their receipt or otherwise, and to
allot. You are not authorized to give any information or make any representation
other than as set forth in the Prospectus in connection with the sale of any of
the Shares. No dealer is authorized to act as agent for the Underwriter, or for
the Company or the Selling Security Holder, when offering any of the Shares.
Nothing contained herein shall constitute the Selected Dealers partners with us
or with one another.
Upon release by us, you may offer the Shares at the public offering price,
subject to the terms and conditions hereof. We may, and the Selected Dealers
may, with our consent, purchase Shares from and sell Shares to each other at the
public offering price less a concession not in excess of the concession to
Selected Dealers.
Payment for Shares purchased by you is to be made at our office (or at
such other place as instructed) at the public offering price, on such date as we
may advise, on one day's notice to you, by certified or official bank check in
New York Clearing House funds payable to our order. Delivery to you of
certificates for Shares will be made as soon as is practicable thereafter.
Unless specifically authorized by us, payment by you may not be deferred until
delivery of certificates to you. The concession payable to you will be paid as
soon as practicable after the closing.
This Agreement shall terminate at the close of business on the 45th day
after the effective date of the Registration Statement. We may terminate this
Agreement at any time prior thereto by notice to you. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportionate
share of any transfer tax or any liability which may be asserted or assessed
against us or Selected Dealers based upon the claim that the Underwriter and the
Selected Dealers, or any of them, constitute a partnership, association,
unincorporated business or other entity, including in each case your
proportionate share of expenses incurred in defending against any such claim or
liability.
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In the event that, prior to the termination of this Agreement we purchase
in the open market or otherwise any Shares delivered to you, you agree to repay
to us for the account of the Underwriter the amount of the above concession to
Selected Dealers plus brokerage commissions and any transfer taxes paid in
connection with such purchase; which amounts can be withheld from the concession
otherwise payable to you hereunder. Certificates for Shares delivered on any
such purchase need not be the identical certificates originally issued to you.
At any time prior to the termination of this Agreement, you will, upon our
request, report to us the number of Shares purchased by you under this Agreement
which then remain unsold and will, upon our request, sell to us for the account
of the Underwriter the number of such unsold Shares that we may designate, at
the public offering price less an amount to be determined by us not in excess of
the concession allowed you.
We shall have full authority to take such action as we may deem advisable
in respect of all matters pertaining to the offering, including, without
limitation, stabilization and over-allotment. We shall be under no liability to
you except for our lack of good faith and for obligations assumed by us in this
Agreement, except that you do not waive any rights that you may have under the
Securities Act of 1933 (the "1933 Act") or the rules and regulations thereunder.
Upon application to us, we will inform you of the states and other
jurisdictions of the United States in which it is believed that the Shares are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell Shares in any jurisdiction. We have filed a Further State Notice
with respect to the Shares with the Department of State of the State of New
York.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act"), relating to the distribution of
preliminary and final prospectuses, and confirm that you have complied and will
comply therewith (whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act). We will make available to
you, to the extent made available to us by the Company such number of copies of
the Prospectus as you may reasonably request for purposes
4
<PAGE>
contemplated by the 1933 Act, the 1934 Act, and the rules and regulations
thereunder.
Your attention is directed to Rule 10b-6 under the 1934 Act, which
contains certain prohibitions against trading by a person interested in a
distribution until such person has completed its participation in the
distribution. You confirm that you will at all times comply with the provisions
of such Rule in connection with this offering.
Any notice from us shall be deemed to have been duly given if telephoned,
and subsequently mailed or transmitted by any standard form of written
tele-communication to you at the address to which this Agreement is mailed, or
if so mailed or transmitted in the first instance.
Please advise us promptly by telephone or any standard form of written
tele-communication of the principal amount of Shares ordered by you and confirm
your agreement hereto by signing the Acceptance and Order on the enclosed
duplicate hereof and returning promptly such signed duplicate copy to VTR
Capital Inc., 99 Wall Street, New York, NY 10005. Upon receipt thereof, this
instrument and such signed duplicate copy will evidence the agreement between
us.
Very truly yours,
VTR CAPITAL INC.
By:_________________________________
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<PAGE>
ACCEPTANCE AND ORDER
VTR Capital Inc.
99 Wall Street
New York, NY 10005
Dear Sirs:
We hereby enter our order for ______ Shares of Decor Group, Inc. under the
terms and conditions of the foregoing Agreement.
We agree to all the terms and conditions stated in the foregoing
Agreement. We acknowledge receipt of the Prospectus relating to the above Shares
and we further state that in entering this order we have relied upon said
Prospectus and no other statements whatsoever, written or oral. We affirm that
we are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories, or possessions
and not registered under the Securities Exchange Act of 1934 and not eligible
for membership in the NASD, who hereby agrees to make no sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein, and in making any sales, to comply with the NASD's
interpretation with respect to free-riding and withholding, as well as all other
pertinent interpretations of the NASD that may be applicable to us. We also
affirm and agree that we will promptly re-offer any Shares purchased by us in
conformity with the terms of the offering and in conformity with the Rules of
Fair Practice of the NASD, (including, without limitation, Sections 8, 24, 25
and 36 Article III thereof) and all applicable Rules and Regulations promulgated
under the Securities Exchange Act of 1934.
Date: , 1996
________________________________
(Name of Selected Dealer)
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<PAGE>
By:_____________________________
(Authorized Signature)
Address:________________________
________________________
7
<PAGE>
DECOR GROUP, INC.
325,000 Shares of Common
Stock
AGREEMENT AMONG UNDERWRITERS
____________, 1996
To each of the Underwriters named in Schedule I
to the attached Underwriting Agreement
Dear Sirs:
1. Underwriting Agreement. Decor Group, Inc., a Delaware corporation (the
"Company"), proposes to enter into an underwriting agreement in the form of the
Underwriting Agreement attached hereto as Exhibit "A" (the "Underwriting
Agreement") with the underwriters named in Schedule I to the Underwriting
Agreement (the "Underwriters"), acting severally and not jointly, with respect
to the purchase from the Company of 300,000 shares of Common Stock and from a
selling security holder an additional 25,000 shares of Common Stock for a total
of 325,000 shares of Common Stock (the "Firm Shares"). Upon our request, and as
provided in Section 3 of the Underwriting Agreement, the Company will also issue
and sell to the Underwriters up to a maximum of an additional 45,000 Shares (the
"Optional Shares"). Both the Firm Shares and the Optional Shares are sometimes
collectively referred to herein as the "Shares." All of the Shares which are the
subject of this Agreement are more fully described in the Prospectus of the
Company described below. Under the terms of the Underwriting Agreement, each of
the Underwriters will agree, in accordance with the terms thereof to purchase
the aggregate number of Firm Shares set forth opposite its name in said Schedule
I, subject to adjustment pursuant to Section 12 hereof and Section 14 of the
Underwriting Agreement.
2. Registration Statement and Prospectus. The Shares are described in a
registration statement and related prospectus which have been filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). An amendment to such registration statement has
been or
2
<PAGE>
will be filed in which you have been or will be named as one of the Underwriters
of the Shares. Copies of the registration statement as filed and as amended have
been delivered to you, and you hereby authorize us to approve on your behalf any
further amendments or supplements which may be necessary or appropriate. The
registration statement, as amended at the time it becomes effective, is called
the "Registration Statement" and the final prospectus relating to the Shares as
filed by the Company with the Commission pursuant to Rule 424(b) under the Act
is referred to as the "Prospectus."
3. Authority of Representative. You authorize us as your Representative to
execute the Underwriting Agreement with the Company in the form attached with
such insertions, deletions or other changes as we may approve (but not as to the
number of, and price of, the Shares to be purchased by you except as provided
herein and therein) and to take such action as in our discretion we may deem
advisable in respect of all matters pertaining to the Underwriting Agreement,
this Agreement, the transactions for the accounts of the several Underwriters
contemplated thereby and hereby, and the purchase, carrying, sale and
distribution of the Shares.
4. Public Offering. In connection with the public offering of the Shares,
you authorize us, in our discretion:
(a) To determine the time and manner of the initial public offering
(after the Registration Statement become effective), the initial public offering
price, and the concessions and reallowances to dealers, to change the public
offering price and such concessions and reallowances after the initial public
offering, to furnish the Company with the information to be included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) with respect to the terms of the public offering, and to determine all
matters relating to the public advertisement of the Shares and any
communications with dealers or others;
(b) To reserve all or any part of your Shares for sale to retail
purchasers (including institutions) and to dealers selected by us ("Selected
Dealers") among which may be included any Underwriter (including ourselves) and
each of which shall be a member of the National Association of Securities
Dealers, Inc., and
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<PAGE>
each of which shall agree that in making sales to purchasers in the United
States it will conform to the Rules of Fair Practice of said Association (or, in
the case of a foreign dealer not eligible for membership in such Association,
which shall agree not to reoffer, resell or deliver Shares in the United States,
its territories or its possessions, or to persons whom it has reason to believe
are citizens thereof or residents therein), such reservations for sales to
retail purchasers to be as nearly as practicable in proportion to the respective
underwriting obligations of the Underwriters and such reservations for sales to
Selected Dealers to be in such proportion as we determine, and from time to time
to add to the reserved Shares such Shares retained by you remaining unsold and
to release to you any of your Shares reserved but not sold;
(c) To sell reserved Shares as nearly as practicable in proportion
to the respective reservations to retail purchasers at the public offering
price, and to Selected Dealers at the public offering price less the Selected
Dealer's concession pursuant to the Selected Dealers Agreement in substantially
the form attached; and
(d) To buy Shares for your account from Selected Dealers at the
public offering price less such amount not in excess of the Selected Dealer's
concession as we may determine.
After advice from us that the Shares are released for public offering, you
will offer to the public in conformity with the terms of offering set forth in
the Prospectus, or any amendment or supplement, such of your Shares as we advise
you are not reserved.
You recognize the importance of a broad distribution of the Shares among
bona fide investors and you agree to use your best efforts to obtain such broad
distribution and to that end, to the extent you deem practicable, to give
priority to small orders. In offering the Shares to Selected Dealers we will
take such action as we deem appropriate to effect a broad distribution.
5. Repurchase of Shares Not Effectively Placed for Investment. You are
requested to place for investment those of your Shares which are not reserved as
aforesaid. Any Shares sold by you (otherwise than through us) which may be
delivered to us against a purchase contract made by us for the account of any
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<PAGE>
Underwriter prior to termination of the provisions referred to in Section 11 of
this Agreement, shall be purchased by you upon demand from us at the cost of
such purchase plus brokerage commissions and transfer taxes on redelivery.
Shares delivered on such repurchase need not be identical to those purchased by
you. In lieu of demand repurchase by you we may in our discretion (i) sell for
your account the Shares so purchased by us, at such price and upon such terms as
we may determine, and debit or credit your account with the loss and expense or
net profit resulting from such sale, or (ii) charge your account with an amount
not in excess of the Selected Dealer's concession with respect to such Shares
plus brokerage commissions and transfer taxes paid in connection with such
purchase.
6. Payment and Delivery. We shall give you at least 24 hours prior notice
of the Closing Date. You agree to deliver to us at or before 9:00 a.m., New York
City time, on such Closing Date and at or before 9:00 a.m. New York City time,
on the Additional Closing Date referred to in the Underwriting Agreement if the
Optional Shares are purchased, at the office of VTR Capital, Inc., 99 Wall
Street, New York, NY 10005 (or such other office as we may direct), a certified
check or bank cashier's check payable in New York Clearing House funds to the
order of VTR Capital Inc., as Representative, for the full purchase price of the
Shares which you shall have agreed to purchase from the Company less the
concession to selected dealers. If you are a member or clear through a member of
the Depository Trust Company ("DTC"), you may, in your discretion, deliver
payment and receive Shares through the facilities of DTC. The proceeds shall be
delivered in the amounts required in each case for payment of the full purchase
price by us to the Company against delivery of the Shares to us for your
account. We are authorized to accept that delivery and to give a receipt
therefor. We may in our discretion make such payment on your behalf with our own
funds, in which event you will reimburse us promptly upon request. You authorize
us, as your custodian, to take delivery of your Shares, registered as we may
direct in order to facilitate deliveries. You also authorize us to hold for your
account such of your Shares as we have reserved for sale to retail purchasers
and to Selected Dealers, and to deliver your reserved Shares against such sales.
We will deliver your unreserved Shares to you promptly and, after we receive
payment for reserved Shares sold by us for your account, we will remit to you,
as promptly as practicable, an amount equal to the price paid
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<PAGE>
by you for such Shares. As soon as practicable after termination of Sections 4,
5 and 9 and the first and penultimate sentences of Section 8 of this Agreement
(pursuant to Section 11 hereof) we will deliver to you any of your Shares
reserved but not sold. All Shares delivered to you pursuant to this Section will
be evidenced by certificates in such denominations as you shall direct by
written notice received by us not later than the second full business day
preceding the Closing Date.
7. Authority to Borrow. In connection with the purchase or carrying of any
Shares purchased hereunder for your account, you authorize us, in our
discretion, to advance funds for your account, charging current interest rates,
or to arrange loans for your account, and in connection therewith to execute and
deliver any notes or other instruments and hold or pledge as security any of
your Shares. Any lender may rely on our instructions in all matters relating to
any such loan. Any of your Shares held by us for your account may be delivered
to you for carrying purposes only, and subject to our further direction.
8. Stabilization and Over-Allotment. To facilitate the distribution of the
Shares, you authorize us during the term of this Agreement, or for such longer
period as may be necessary in our discretion, to make purchases and sales of the
Shares for your account in the open market or otherwise, for long or short
account, on such terms as we deem advisable and, in arranging sales, to
over-allot. You also authorize us to cover any short position incurred pursuant
to this Section on such terms as we deem advisable. Included in the authority
granted to us by you is the authority to exercise the over-allotment option to
purchase the Optional Shares granted by Section 3 of the Underwriting Agreement.
Except with respect to the exercise of such over-allotment option, all such
purchases and sales (other than purchases and sales of the Optional Shares)
shall be made for the accounts of the several Underwriters as nearly as
practicable in proportion to their respective underwriting obligations. Your net
commitment under this Section shall not, at the end of any business day, exceed
15% of your maximum underwriting obligation. You will on our demand take up at
cost or deliver against payment any Shares purchased or sold or over-allotted
for your account and, if any such other Underwriter defaults in its
corresponding obligation, you will assume your proportionate share of such
obligation without relieving the defaulting Underwriter from
6
<PAGE>
liability. You will be obligated in respect to purchases and sales made for your
account hereunder whether or not the proposed purchase of the Shares is
consummated. Upon request you will advise us of Shares retained by you and
unsold and will sell to us for the account of one or more of the Underwriters
such of your unsold Shares as we may designate, at the public offering price
thereof less such amount as we may determine, but not in excess of the Selected
Dealer's concession with respect thereto. Until the termination of this
Agreement pursuant to Section 11 hereof, or prior notification by us, we shall
have the sole right to effect stabilizing transactions in the Shares. You agree
that until such time you will not make any purchases or sales of any of such
Shares except as provided in Section 9 hereof. You also agree to timely provide
us with the information required by Rule 17a-2(d) under the Securities Exchange
Act of 1934, as amended (the "1934 Act").
9. Open Market Transactions. You agree not to bid for, purchase, attempt
to induce others to purchase, or sell, directly or indirectly, any Shares,
except as brokers pursuant to unsolicited orders and as otherwise provided in
this Agreement or in the Underwriting Agreement. You further agree not to offer
the Shares for sale until notified by us, as the Representative of the
Underwriters, that they are released for that purpose.
10. Expenses and Settlement. We may charge your account with Selected
Dealer's concessions and all transfer taxes on sales made by us for your account
and with your proportionate share (based upon your underwriting obligation) of
all other expenses incurred by us under the terms of this Agreement or the
Underwriting Agreement, in excess of those reimbursed by the Company pursuant to
Section 8 of the Underwriting Agreement, or in connection with the purchase,
carrying, sale or distribution of the Shares. Our determination of the amount
and allocation of expenses shall be conclusive. As soon as practicable after
termination of the provisions referred to in Section 11, the accounts hereunder
will be settled, but we may reserve from distribution such amount as we deem
advisable to cover possible additional expenses. We may at any time make partial
distribution of credit balances or call for payment of debit balances. Any of
your funds in our hands may be held with our general funds without
accountability for interest. Notwithstanding any settlement, you will pay (i)
your proportionate share (based upon your underwriting obligation) of any
liability
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<PAGE>
which may be incurred by the Underwriters, or any of them, based on the claim
that the Underwriters constitute an association, partnership, unincorporated
business or other separate entity, and of any expenses incurred by us, or by any
other Underwriter with our approval, in contesting any such liability, and (ii)
any transfer taxes which may be assessed and paid after such settlement on
account of any sale or transfer for your account.
11. Termination and Settlement. This Agreement will terminate (a) at the
close of business on the 30th day after the date of the Underwriting Agreement;
or (b) on such earlier or later date, not more than 30 days after the date
specified in (a), as we may determine; or (c) on the date of termination of the
Underwriting Agreement, if the same shall be terminated as provided by its
terms.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder will cease, except (a) the mutual obligation to settle
accounts hereunder, (b) your obligation to pay any claims referred to in the
last paragraph of this Section, (c) the obligations with respect to indemnity
set forth in Section 15 hereof (all obligations of which will continue until
fully discharged), and (d) your obligation with respect to purchases which may
be made by us from time to time thereafter to cover any short position with
respect to the offering, all of which will continue until fully discharged, and
except our authority with respect to matters to be determined by us, or by us
and the Company, pursuant to the terms of the Underwriting Agreement, which will
survive the termination of this Agreement.
The accounts arising pursuant to this Agreement will be settled and paid
as soon as practicable after termination. The determination by us of the amounts
to be paid to or by you will be final and conclusive.
Notwithstanding any settlement upon the termination of this Agreement, you
will pay your proportionate share of any amount asserted against and discharged
by the Underwriters, or any of them, based upon the claim that the Underwriters
constitute an association, unincorporated business or other separate entity, or
based upon or arising out of a claim that this Agreement or the Underwriting
Agreement is invalid or illegal for any reason, including any expense incurred
in defending against such claim, and
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will pay any transfer taxes which may be assessed thereafter on account of any
sale or transfer of Shares for our account.
12. Default by Underwriters. Default by one or more Underwriters hereunder
or under the Underwriting Agreement shall not release the other Underwriters
from their obligations or affect the liability of any defaulting Underwriter to
the other Underwriters for damages resulting from such default. In case of
default under the Underwriting Agreement by one or more Underwriters, we may
arrange for the purchase by others, including non-defaulting Underwriters, of
Shares not taken up by such defaulting Underwriter and you will, at our request,
increase pro rata with the other non-defaulting Underwriters the aggregate
principal amount of Shares which you are to purchase, or both, by an amount not
exceeding one-ninth of your original underwriting obligations. In the event any
such arrangements are made, the respective Shares to be purchased by
non-defaulting Underwriters and by such others shall be taken as the basis for
the underwriting obligations under this Agreement.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement, each non-defaulting Underwriter shall assume
its proportionate share of the obligations under this Agreement of each such
defaulting Underwriter (other than, to the extent stated in the first paragraph
of this Section, the purchase obligation of such defaulting Underwriter).
13. Position of Representative. We shall be under no liability to you for
any act or omission except for obligations expressly assumed by us in this
Agreement, but no obligation on our part shall be implied or inferred. Nothing
shall constitute the Underwriters, or any of them, an association, partnership,
unincorporated business or other separate entity and the rights and liability of
ourselves and each of the Underwriters are several and not joint.
14. Compensation to Representative. As compensation for our services as
Representative, you agree to pay us $____ per Share out of the aggregate
underwriting discount attributable to Shares which you agree to purchase from
the Company under the Underwriting Agreement. We are authorized to charge your
account with such an amount.
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15. Indemnification. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act to the extent and upon the terms by which each
Underwriter agrees to indemnify the Company in the Underwriting Agreement. Such
indemnity agreement shall survive the termination of any of the provisions of
this Agreement.
In the event that at any time any claim shall be asserted against us as or
as a result of our having acted as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Shares or any of the transactions
contemplated by this Agreement, you authorize us to make such investigation, to
retain such counsel and to take such other action as we shall deem necessary or
desirable under the circumstances, including settlement of any claim or claims
if such course of action shall be recommended by counsel retained by us. You
agree to pay to us, on request, your proportionate share (based upon your
underwriting obligation) of all expenses incurred by us (including, but not
limited to, the disbursements and fees of counsel so retained) in investigating
and defending against such claim or claims, and your proportionate share (based
upon your underwriting obligation) of any liability incurred by us in respect of
such claim or claims, whether such liability shall be the result of a judgment
against us or as a result of any such settlement.
16. Blue Sky Matters. We shall not have any responsibility with respect to
the right of any Underwriter or other person to sell Shares in any jurisdiction,
notwithstanding any information we may furnish in that connection. You hereby
authorize us to take such action as may be necessary or advisable to qualify the
Shares for offering and sale in any jurisdiction. We have caused to be filed
Further State Notices respecting the Shares to be offered to the public in New
York in the form required by, and pursuant to, the provisions of Article 23A of
the General Business Law of the State of New York.
17. Title to Shares. The Shares purchased for the respective accounts of
the several Underwriters shall remain the property of those Underwriters until
sold; and no title to such
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Shares shall in any event pass to us, as Representative, by virtue of any of the
provisions of this Agreement.
18. Capital Requirements. Unless the provisions of clause (b) of the
second sentence of the last paragraph of this Agreement are applicable to you,
you confirm that your commitment hereunder will not result in any violation of
Section 8(b) or 15(c) of the 1934 Act or in any violation of any of the rules
and regulations promulgated under the 1934 Act, including, without limitation,
Rule 15c3-1, or any provision of any applicable rules of any securities exchange
to which you are subject or of any restriction imposed upon you by such
exchange.
19. Notices and Governing Laws. Any notice from you to us shall be mailed
or transmitted by any standard form of written telecommunication to us at 99
Wall Street, New York, NY 10005. Any notice from us to you shall be mailed or
transmitted by any standard from of written telecommunication to you at your
address as set forth in your Underwriter's Questionnaire. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. You represent that you are (a) a member
in good standing of such Association or (b) a foreign dealer which is not
eligible for membership in such Association, in which event you will make sales
of any Shares only outside the United States and its territories and possessions
to persons who are not citizens or residents of the United States or its
territories or possessions, and that in making any such sales, you will comply
with such Association's Interpretation with respect to Free-Riding and
Withholding. You further represent that: (i) you will notify each of your
customers with respect to whose account you have investment discretion and to
whose account you intend to sell any Shares that you propose to sell Shares to
such account as a principal and you will obtain the customer's written consent
to such sale; and (ii) you will comply with the requirements of Rule 15c2-8
under the 1934 Act and have distributed or are distributing copies of a
Preliminary Prospectus to all persons to whom you then expected to mail
confirmations of sale, not less than 48 hours prior to the time it is expected
to mail such confirmations.
11
<PAGE>
Very truly yours,
VTR CAPITAL, INC.
By:________________________________
As Representative of the several
Underwriters
Confirmed and accepted as of
the date first above written.
_________________________________
Attorney-in-fact for the several
Underwriters named in Schedule I
to the Underwriting Agreement
12
<PAGE>
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated as of the ____ day of _________, 1996, by and among VTC
Capital, Inc. ("VTR"), Decor Group, Inc. (the "Company") and American Stock
Transfer & Trust Co. (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 300,000 shares of the
Company's Common Stock, the Company is contemporaneously registering for sale,
1,500,000 Common Stock Purchase Warrants (the "Warrants") owned by certain
selling security holders; and
WHEREAS, the Company proposes to enter into an agreement dated as of
__________, 1996 by and between the Company and the Warrant Agent (the "Warrant
Agreement"); and
WHEREAS, the parties hereto wish to provide VTR, a member of the National
Association of Securities Dealers, Inc. ("NASD") with certain rights on an
exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Description of the Warrants. The Company's Warrants may be
exercised on or after ___________, 1998 and expire at 5:00 p.m. New York time on
__________, 2001 (the "Expiration Date"), subject to (i) the Company's right to
extend the Expiration Date, at which time all rights evidenced by the Warrants
shall cease and the Warrants shall become void and (ii) certain redemption
rights commencing on or after ____________, 1998. In accordance with the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Company, and the Company shall issue and sell to such
holders of Warrants, one fully paid and non-assessable share of the Company's
Common Stock for every Warrant exercised at an Exercise Price of $5.25 per
share, subject to adjustment as provided in the Warrant Agreement.
<PAGE>
Section 2. Notification of Exercise. Within five (5) days of the last day
of each month commencing with the date that the Warrants first become
exercisable, but no sooner than __________, 1997 (one year after the effective
date), the Warrant Agent or the Company will notify VTR of each Warrant
certificate which has been properly completed and delivered for exercise by
holders of Warrants during each such month, the determination of the proper
completion to be in the sole and absolute reasonable discretion of the Company
and the Warrant Agent. The Company or the Warrant Agent will provide VTR with
such information, in connection with the exercise of each Warrant, as VTR shall
reasonably request.
Section 3. Payment to VTR. The Company hereby agrees to pay to VTR an
amount equal to four (4%) percent of the exercise price (i.e. $.21 per share
based on the initial exercise price of the Warrants which is $5.25 per share)
for each Warrant exercised (the "Exercise Fee") a portion of which may be
allowed by VTR to the dealer who solicited the exercise (which may also be VTR)
provided that:
(a) such Warrant is exercised on or after the date the Warrants first
become exercisable, but no sooner than __________, 1997, which represents one
year from the effective date of the Company's Registration Statement;
(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
(c) the holders of Warrants being exercised have indicated in writing,
either in the Form of Election contained on the specimen Warrant Certificate
attached hereto as Exhibit A, or by written documents signed and dated by the
holders and specifically stating that the exercise of such Warrants were
solicited by VTR or another member of the NASD; and
(d) VTR, and/or the member of the NASD which solicited the exercise of
Warrants delivers a certificate to the Company within five (5) business days of
receipt of information relating to such exercised Warrants from the Company or
the Warrant Agent in the form attached hereto as Exhibit B, stating that:
3
<PAGE>
(1) the Warrants exercised were not held in a discretionary account;
(2) VTR or the member of the NASD which solicited the exercise of
Warrants did not, (unless granted an exemption by the Securities and Exchange
Commission from the provisions thereof), within the applicable number of
business days under Rule 10b-6 immediately preceding the date of exercise of the
Warrant bid for or purchase the Common Stock of the Company or any securities of
the Company immediately convertible into or exchangeable for the Common Stock
(including the Warrants) or otherwise engage in any activity that would be
prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as amended,
with one engaged in a distribution of the Company's securities; and
(3) in connection with the solicitation, it disclosed the
compensation it would receive upon exercise of the Warrant.
Section 4. Payment of the Exercise Fee. The Company hereby agrees to pay
over to VTR within two (2) business days after receipt by the Company of the
certificate described in Section 3(d) above, the Exercise Fee out of the
proceeds it received from the applicable Exercise Price paid for the Warrants to
which the certificate relates.
Section 5. Inspection of Records. VTR may at any time during business
hours, at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
Section 6. Termination. VTR shall be entitled to terminate this Agreement
prior to the exercise of all Warrants at any time upon five (5) business days'
prior notice to the Company and the Warrant Agent. Notwithstanding any such
termination notice, VTR shall be entitled to receive an Exercise Fee for the
exercise of any Warrant for which it has already delivered to the Company prior
to any such termination the certificate required by Section 3(d) of this
Agreement.
Section 7. Notices. Any notice or other communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed sufficiently given if sent by first class certified mail, return
receipt requested, postage prepaid, addressed as follows: if to the Company at
320 Washington Street, Mt. Vernon, NY 10553, copy to Hartley T. Bernstein, Esq.,
4
<PAGE>
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022; if to VTR at
99 Wall Street, New York, NY 10005; and if to the Warrant Agent at American
Transfer & Trust Company, 40 Wall Street, New York, New York 10005 or such other
address as such party shall have given notice to other parties hereto in
accordance with this Section. All such notices or other communications shall be
deemed given three (3) business days after mailing, as aforesaid.
Section 8. Supplements and Amendments. The Company, the Warrant Agent and
VTR may from time-to-time supplement or amend this Agreement by a written
instrument signed by the party to be charged, without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein or to make any other provisions in regard to
matters or questions arising hereunder which the Company, the Warrant Agent and
VTR may deem necessary or desirable and which do not adversely affect the
interests of the holders of Warrants.
Section 9. Assignment. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that VTR may
assign this Agreement to its successors.
Section 10. Governing Law. This Agreement will be deemed made under the
laws of the State of New York with respect to matters of contract law and for
all purposes shall be governed by and construed in accordance with the internal
laws of said State, without regard to the conflicts of laws provisions thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company, the Warrant
Agent and VTR any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of,
and be binding upon, the Company, the Warrant Agent and VTR and their respective
successors and permitted assigns.
Section 12. Descriptive Headings. The descriptive headings of the sections
of this Agreement are inserted for convenience only and shall not control or
affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and all
prior agreements between the parties with respect to the subject matter hereof.
5
<PAGE>
Section 14. Exclusive Agreement. It is understood that this agreement is
on an exclusive basis to solicit the exercise of the Warrants and that the
Company may not engage other broker-dealers to solicit the exercise of Warrants
without the consent of VTR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
DECOR GROUP, INC.
By:_________________________________
VTR CAPITAL, INC.
By:_________________________________
AMERICAN STOCK TRANSFER & TRUST CO.
By:_________________________________
6
<PAGE>
CERTIFICATE
The undersigned, being the ________________ of VTR Capital, Inc. ("VTR")
pursuant to Section 3(d) of the Warrant Exercise Fee Agreement relating to the
exercise of Warrants dated ____________, 1996 between Decor Group, Inc. (the
"Company") and American Stock Transfer & Trust Co. (the "Warrant Agent") hereby
certifies that:
1. The Company or the Warrant Agent has notified VTR that ______________
Warrants (as defined in the Agreement) have been exercised during _____________,
199___.
2. The exercise of ______________ of such Warrants was solicited by VTR.
3. Such Warrants were not held in a discretionary account.
4. ______________ did not, within _____ business days immediately
preceding _______________ 199___, bid for or purchase the Common Stock of the
Company or any securities of the Company immediately convertible into or
exchangeable for the Common Stock (including Warrants) or otherwise engage in
any activity that would be prohibited by Rule 10b-6 under the Securities
Exchange Act of 1934, as amended, to one engaged in a distribution of the
Company's securities.
5. In connection with the solicitation of the exercise of the Warrants,
_____________ disclosed the compensation it will receive to holders of the
Warrants.
DATED: __________________, 199___
VTR CAPITAL, INC.
By:________________________
7
<PAGE>
NUMBER DECOR GROUP, INC. SERIES
CERTIFICATE OF STOCK
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN INSTRUCTIONS
CUSIP 243592102
This certifies that _______________________
is the owner of ___________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.0001
PER SHARE, OF
DECOR GROUP, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned by the Tranfer
Agent.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
SEAL OF DECOR GROUP, INC.
SECRETARY PRESIDENT
Countersigned
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
BY
AUTHORIZED SIGNATURE
<PAGE>
The Company will furnish to any shareholder upon request without charge
a full statement of the designation, relative rights, preferences and
limitations of the shares of each class to be issued and the designation,
relative rights, preferences and limitations of each series of preferred
shares which the Company is authorized to issue so far as the same have been
fixed and the authority of the Board of Directors of the Company to designate
and fix the relative rights, preferences and limitations of other series.
The following abbreviations, when used in the inscription on the
face of this certificate, shall be constituted as though they were
written out in full according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____________________ Custodian __________________
TEN ENT -- as tenants by the entireties (Cust.) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _____________________
in common (sign)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________________
_________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY FASHION AND WITHOUT
ALTERATION ON AMENDMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed
____________________________________________________
THE SIGNATURE SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM). PURSUANT TO SEC RULE [ILLEGIBLE]
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of _______ 1996, by and between DECOR
GROUP, INC., a Delaware corporation ("Company"), and American Stock Transfer &
Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with the offering of 3,000,000 Class A Redeemable
Common Stock Purchase Warrants (the "Class A Warrants") for certain selling
securityholders;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company of which
at the date hereof consists of 20,000,000 authorized shares, $.0001 par value,
and shall also include any capital stock of any class of the Company thereafter
authorized which shall not be limited to a fixed sum or percentage in respect to
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or winding up
of the Company; provided, however, that
1
<PAGE>
the shares issuable upon exercise of the Warrants shall include (i) only shares
of such class designated in the Company's Certificate of Incorporation as Common
Stock on the date of the original issue of the Warrants, or (ii) in the case of
any reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section; or (iii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean _______ __, 1997.
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $4.00 per share for the Class A Warrants, subject to adjustment
from time to time pursuant to the provisions of Section 9 hereof, and subject to
the Company's right, in its sole discretion, upon thirty (30) days' written
notice, to reduce the Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with
2
<PAGE>
the terms hereof, which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
_________ __, 2001 or the Redemption Date as defined in Section 8, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon thirty
(30) days' written notice to all warrantholders, the Company shall have the
right to extend the warrant expiration date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or a Vice President and by
its Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of 375,000 shares of Common Stock,
subject to adjustment as described herein, upon the exercise of Warrants in
3
<PAGE>
accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued to holders of the Bridge Units; (vi)
those issued pursuant to the Purchase Option; and (vii) those issued at the
option of the Company, in such form as may be approved by the its Board of
Directors, to reflect any adjustment or change in the Purchase Price, the number
of shares of Common Stock purchasable upon exercise of the Warrants or the
Redemption Price therefor made pursuant to Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, VTR may purchase up
to 30,000 Units, which include up to 30,000 Class A Warrants.
3. Form and Execution of Warrant Certificates.
(a) The Class A Warrant Certificates shall be substantially in the
forms annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage or to the requirements of Section
2(b). The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates)
4
<PAGE>
and issued in registered form. Class A Warrant Certificates shall
be numbered serially with the letters WA.
(b) Warrant Certificates shall be executed on behalf of the Company by
its President, or any Vice President and by its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
an officer of the Company or to hold the particular office referenced in the
Warrant Certificate before the date of issuance of the Warrant Certificates or
before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent shall deposit the proceeds received from the exercise of a Warrant and
shall notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five (5) business days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise (plus a
5
<PAGE>
certificate for any remaining unexercised Warrants of the Registered Holder),
unless prior to the date of issuance of such certificates the Company shall
instruct the Warrant Agent to refrain from causing such issuance of certificates
pending clearance of checks received in payment of the Purchase Price pursuant
to such Warrants. Upon the exercise of any Warrant and clearance of the funds
received, the Warrant Agent shall promptly remit the payment received for the
Warrant (the "Warrant Proceeds") to the Company or as the Company may direct in
writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval and will use its reasonable
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed
6
<PAGE>
with respect to the issuance of Warrants, or the issuance, or delivery of any
shares upon exercise of the Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the Registered
Holder of the Warrant Certificate representing any Warrant being exercised, then
no such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably authorized for such time
as it is acting as such to requisition the Company's Transfer Agent from time to
time for certificates representing shares of Common Stock issuable upon exercise
of the Warrants, and the Company will authorize the Transfer Agent to comply
with all such proper requisitions. The Company will file with the Warrant Agent
a statement setting forth the name and address of the Transfer Agent of the
Company for shares of Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or
7
<PAGE>
be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder or his attorney-in-fact duly authorized in
writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or disposed of or destroyed, at
the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered in Units with shares
of Common Stock pursuant to the Underwriting Agreement will be immediately
detachable from the Common Stock and transferable separately therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable
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charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provision of paragraph 2(e) hereof, on not less
than thirty (30) days' notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the market price, as herinafter
defined, of the Common Stock, equals or exceeds $12.00 per share (the "Class A
Target Price"), subject to adjustment as set forth in Section 8(f) below. Market
Price for the purpose of this Section 8 shall mean (i) the average closing bid
price for any twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within five (5) days prior to the date of
the notice of redemption, which notice shall be mailed no later than five (5)
days thereafter, of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automatic Quotation System or (ii) the last reported
sale price, for twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within five (5) days of the date of the
notice of redemption, which notice shall be mailed no later than five (5) days
thereafter, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption.
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The date fixed for the redemption of the Warrant shall be the Redemption Date.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Class A
Target Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
9. Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from
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time to time after the date hereof, sell any shares of Common Stock for a
consideration per share less than the Market Price of the Common Stock (as
defined in Section 8) on the date of the sale or issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such sale, issuance, subdivision or combination being herein
called a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection 9(f) below) for the
issuance of such additional shares would purchase at such current market price
per share of Common Stock, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately after the issuance of
such additional shares. Such adjustment shall be made successively whenever such
an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this Section 9,
the total number of shares of Common Stock purchasable upon the exercise of each
Warrant shall (subject to the provisions contained in Section 9(b) hereof) be
such number of shares (calculated to the nearest tenth) purchasable at the
Purchase Price in effect immediately prior to such adjustment multiplied by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the
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<PAGE>
number one by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment. Upon each
adjustment of the number of Warrants pursuant to this Section 9, the Company
shall, as promptly as practicable, cause to be distributed to each Registered
Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10 hereof, the number of additional
Warrants to which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Warrants to which such Holder
shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The Company shall not effect any
such consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Company) resulting from
such consolidation or merger or the
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corporation purchasing assets or other appropriate corporation or entity shall
assume, by written instrument executed and delivered to the Warrant Agent, the
obligation to deliver to the holder of each Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase and the other obligations under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassification, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, the number of shares purchasable and
the Redemption Price therefor were expressed in the Warrant Certificates when
the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to VTR and to each registered holder of
Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the
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Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any given
time shall include shares of Common Stock owned or held by or for the account of
the Company and the sale or issuance of such treasury shares or the distribution
of any such treasury shares shall not be considered a Change of Shares for
purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if any
(such convertible or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants, or options shall consist of
cash, whether or not such rights, warrants or options, or the right to convert
or exchange such Convertible Securities, are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the
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<PAGE>
consideration received by the Company for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible Securities, the
minimum aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights, warrants or
options) is less than the fair market value of the Common Stock on the date of
the issuance or sale of such rights, warrants or options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such Convertible
Securities (as of the date of the issuance or sale of such rights, warrants or
options) shall be deemed to be outstanding shares of Common Stock for purposes
of Sections 9(a) and 9(b) hereof and shall be deemed to have been sold for cash
in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value of
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in subsection (iii)
above or any other securities of
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<PAGE>
the Company convertible, exchangeable, or exercisable for shares of Common
Stock, for any reason other than an event that would require adjustment to
prevent dilution, so that the consideration per share received by the Company
after such modification is less than the market price on the date prior to such
modification, the Purchase Price to be in effect after such modification shall
be determined by multiplying the Purchase Price in effect immediately prior to
such event by a fraction, of which the numerator shall be the number of shares
of Common Stock outstanding multiplied by the market price on the date prior to
the modification plus the number of shares of Common Stock which the aggregate
consideration receivable by the Company for the securities affected by the
modification would purchase at the market price and of which the denominator
shall be the number of shares of Common Stock outstanding on such date plus the
number of shares of Common Stock to be issued upon conversion, exchange, or
exercise of the modified securities at the modified rate. Such adjustment shall
become effective as of the date upon which such modification shall take effect.
(vi) On the expiration of any such right, warrant or option or
the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefor shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or
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<PAGE>
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including without
limitation, the sale or exercise of any of the Warrants or Common Stock
comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock in the Company's
initial public offering, including, without limitation, shares sold upon the
exercise of any over-allotment option granted to the Underwriters in connection
with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(iv) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in an exempt transaction unless the issuance or sale price is less
than 85% of the fair market value of the Common Stock on the date of issuance,
in which case the adjustment shall only be for the difference between 85% of the
fair market value and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or Convertible
Securities to shareholders of any corporation which merges and/or consolidates
into or is acquired by the Company or from which the Company acquires assets and
some or all of the consideration consists of equity securities of the Company,
in
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proportion to their stock holdings of such corporation immediately prior to the
acquisition but only if no adjustment is required pursuant to any other
provision of this Section 9.
(vii) upon the issuance or exercise of options or upon the
issuance or grant of stock awards granted to the Company's directors, employees
or consultants under a plan or plans adopted by the Company's Board of Directors
and approved by its stockholders (but only to the extent that the aggregate
number of shares excluded hereby and issued after the date hereof shall not
exceed ten percent (10%) of the Company's Common Stock at the time of issuance).
For the purposes of determining whether the consideration received by the
Company is less than the Market Price in connection with any issuance of stock
to the Company's directors, employees or consultants under plans adopted by the
Company's Board of Directors and approved by its stockholders, the consideration
received shall be deemed to be the amount of compensation to the director,
employee or consultant reported by the Company in connection with such
issuances.
(viii) upon the issuance of Common Stock to the Company's
directors, employees or consultants under a plan or plans which are qualified
under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona fide public
offering pursuant to a firm commitment underwriting.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (i) only shares of such
class designated in the Company's Certificate of Incorporation as Common Stock
on the date of the original issue of the Units or (ii) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (iii) in the case of any reclassification or
change in the outstanding shares of Common
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Stock issuable upon exercise of the Warrants as a result of a subdivision or
combination or a change in par value, or from par value to no par value, or from
no par value to par value, such shares of Common Stock as so reclassified or
changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. In such event, the Company may at its option elect to round
up the number of shares to which the Holder is entitled to the nearest whole
share or to pay cash in respect of fractional shares in accordance with the
following: With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by
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the current market value of such fractional share, determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants shall,
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this Agreement
are vested in the respective Registered Holders of
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the Warrants, and any Registered Holder of a Warrant, without consent of the
Warrant Agent or of the holder of any other Warrant, may, in his own behalf and
for his own benefit, enforce against the Company his right to exercise his
Warrants for the purchase of shares of Common Stock in the manner provided in
the Warrant Certificate and this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their mutual discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall purchase or
acquire any Warrant or Warrants, the Warrant Certificate or Warrant Certificates
evidencing the same shall thereupon be delivered to the Warrant Agent and
canceled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split up, combination or exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization of
the
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Warrant Certificates or the Warrants represented thereby or of any securities or
other property delivered upon exercise of any Warrant or whether any stock
issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
its President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses,
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expenses and liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its duties and
powers hereunder except losses, expenses and liabilities arising as a result of
the Warrant Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving thirty
(30) days' prior written notice to the Company. At least fifteen (15) days prior
to the date such resignation is to become effective, the Warrant Agent shall
cause a copy of such notice of resignation to be mailed to the Registered Holder
of each Warrant Certificate at the Company's expense. Upon such resignation, or
any inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of fifteen (15) days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the Registered
Holder of any Warrant Certificate may apply to any court of competent
jurisdiction in the State of New York for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any
23
<PAGE>
new warrant agent shall be a party or any corporation succeeding to the trust
business of the Warrant Agent shall be a successor warrant agent under this
Agreement without any further act, provided that such corporation is eligible
for appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company if so authorized by the Company or for any other legal
entity.
16. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law.
17. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered
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Holder of a Warrant Certificate, at the address of such holder as shown on the
registry books maintained by the Warrant Agent; if to the Company, 320
Washington Street, Mt. Vernon, NY 10553, or at such other address as may have
been furnished to the Warrant Agent in writing by the Company; and if to the
Warrant Agent, at its corporate office.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Warrant Agent, and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim, in equity or at law, or to impose upon any
other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of business
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
21. Counterparts. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
DECOR GROUP, INC.
25
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By: ______________________________
Its
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: ______________________________
Its
Authorized Officer
26
<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. WA Class A Warrants
VOID AFTER ________________, 2001
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
DECOR GROUP, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.0001 par value ("Common Stock"), of DECOR GROUP, INC., a Delaware
corporation (the "Company"), at any time between the Separation Date (as herein
defined) and the Expiration Date (as hereinafter defined), upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of American Stock Transfer
and Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $4.00, times the number of warrants exercised (the
"Purchase Price"), in lawful money of the United States of America in cash or by
official bank or certified check made payable to Decor Group, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated _____________,
1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Separation Date" shall mean __________________, 1997.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
________________, 2001, or such earlier date as the Warrants shall be redeemed.
If such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and the exercise price of the Warrants is less than the
market price of the Common Stock. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a
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<PAGE>
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.05 per Warrant, at any time after one (1) year from the Effective
Date, provided the Market Price (as defined in the Warrant Agreement) for the
Common Stock issuable upon exercise of such Warrant shall equal or exceed $12.00
per share. Notice of redemption shall be given not later than the thirtieth day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to this Warrant except to receive the $.05 per Warrant upon
surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
DECOR GROUP, INC.
By: ______________________________
Its
Date: ______________________________
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
- ---------------------------------------
as Warrant Agent
By: ______________________________
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert taxpayer identification or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
--------------------------------------------
(please insert taxpayer identification or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
<PAGE>
No sale, offer to sell or transfer of the securities represented by
this certificate or any interest therein shall be made unless a
registration statement under the Federal Securities Act of 1933, as
amended, with respect to such transaction is then in effect, or the
issuer has received an opinion of counsel satisfactory to it that
such transfer does not require registration under that Act.
This Warrant will be void after 5:00 p.m. New York time on
__________, 2001 (i.e. five years from the effective date of the
Registration Statement).
REPRESENTATIVE'S STOCK WARRANT
WARRANT NO. 1
To Subscribe for and Purchase Shares of
DECOR GROUP, INC.
(Transferability Restricted as Provided in Paragraph 8 Below)
THIS CERTIFIES THAT, for value received, _______________
or registered assigns, is entitled to subscribe for and purchase
from Decor Group, Inc., incorporated under the laws of the State of
Delaware (the "Company") up to __________ fully paid and
non-assessable shares of Common Stock (the "Shares") of the
Company, as hereinafter defined, at the "Purchase Price" and during
the period hereinafter set forth, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth.
This Warrant is one of an issue of the Company's Common Stock
Purchase Warrants (herein called the "Warrants"), identical in all
respects except as to the names of the holders thereof and the
number of Shares purchasable thereunder, representing on the
original issue thereof rights to purchase up to 50,000 Shares.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially
refer to the Company's Common Stock, $.0001 par value, per share as
more fully set forth in Section 5 hereof.
(b) "Purchase Price" shall be $9.90 per share (165% of
the public offering price per share) which is subject to adjustment
pursuant to Section 4 hereof.
(c) "Underwriter" or "Representative" shall refer to VTR
CAPITAL, INC.
(d) "Underwriting Agreement" shall refer to the
Underwriting Agreement dated as of _____________, 1996 between the
Company and the Underwriter.
<PAGE>
(e) "Warrants", Underwriters' or "Representative's
Stock Warrants" shall refer to Warrants to purchase an aggregate of up
to 50,000 Shares issued to the Underwriter or its designees by
the Company pursuant to the Underwriting Agreement, as such may be
adjusted from time to time pursuant to the terms of Section 4 and
including any Warrants represented by any certificate issued from
time to time in connection with the transfer, partial exercise,
exchange of any Warrants or in connection with a lost, stolen,
mutilated or destroyed Warrant certificate, if any, or to reflect
an adjusted number of Shares.
(f) "Underlying Securities" shall refer to and include
the Common Shares issuable or issued upon exercise of the
Representative's Stock Warrants.
(g) "Holders" shall mean the registered holder of such
Representative's Stock Warrants or any issued Underlying
Securities.
(h) "Effective Date" shall refer to the effective date
of the Form SB-2 Registration Statement File No. 333-5553.
2. The purchase rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part at any time, and
from time to time, during the period commencing on the Effective Date
until _____________, 2001 (the "Expiration Date"), by the presentation
of this Warrant, with the purchase form attached duly executed, at the
Company's office (or such office or agency of the Company as it may
designate in writing to the Holder hereof by notice pursuant to
Section 14 hereof), and upon payment by the Holder to the Company in
cash, or by certified check or bank draft of the Purchase Price for
such Shares of Common Stock. The Company agrees that the Holder hereof
shall be deemed the record owner of such Underlying Securities as of
the close of business on the date on which this Warrant shall have
been presented and payment made for such Shares as aforesaid.
Certificates for the Underlying Securities so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding
five (5) days, after the rights represented by this Warrant shall have
been so exercised. If this Warrant shall be exercised in part only,
the Company shall, upon surrender of this Warrant for cancellation,
deliver a new Representative's Stock Warrant evidencing the rights of
the Holder hereof to purchase the balance of the Shares which such
Holder is entitled to purchase hereunder. Exercise in full of the
rights represented by this Warrant shall not extinguish the rights
granted under Section 9 hereof.
3. Subject to the provisions of Section 8 hereof, (i) this
Warrant is exchangeable at the option of the Holder at the aforesaid
office of the Company for other Representative's Stock Warrants of
different denominations entitling the Holder thereof to purchase in
the aggregate the same number of Shares of Common Stock as are
purchasable hereunder; and (ii) this Warrant may be divided or
combined with other Representative's Stock Warrants which carry
the same rights, in either case, upon presentation hereof at the
2
<PAGE>
aforesaid office of the Company together with a written notice, signed
by the Holder hereof, specifying the names and denominations in which
new Representative's Stock Warrants are to be issued, and the payment
of any transfer tax due in connection therewith.
4. Subject and pursuant to the provisions of this Section 4,
the Purchase Price and number of Common Shares subject to this Warrant
shall be subject to adjustment from time to time as set forth
hereinafter.
(A) If the Company shall, at any time, subdivide its
outstanding Common Shares by recapitalization, reclassification, split
up thereof, or other such issuance without additional consideration,
the appropriate Purchase Price immediately prior to such subdivision
shall be proportionately decreased, and if the Company shall at any
time combine the outstanding Common Shares by recapitalization,
reclassification or combination thereof, the Purchase Price
immediately prior to such combination shall be proportionately
increased. Any such adjustment to the Purchase Price or the
corresponding adjustment to the Purchase Price shall become effective
at the close of business on the record date for such subdivision or
combination. No adjustment to the Purchase Price and the number of
shares issuable upon exercise of this Warrant shall be required if
such adjustment provides the holders of this Warrant with
disproportionate rights, privileges and economic benefits which are
not provided to the public shareholders.
(B) In the event that prior to the Representative's
Stock Warrant's expiration date the Company adopts a resolution to
merge, consolidate, or sell percentages in all of its assets, each
Warrant holder upon the exercise of his Representative's Stock Warrant
will be entitled to receive the same treatment as a holder of any
other share of Common Stock. In the event the Company adopts a
resolution for the liquidation, dissolution, or winding up of the
Company's business, the Company will give written notice of such
adoption of a resolution to the registered holders of the
Representative's Stock Warrants. Thereupon all liquidation and
dissolution rights under this Warrant will terminate at the end of
thirty (30) days from the date of the notice to the extent not
exercised within those thirty (30) days.
(C) If any capital reorganization or
reclassification of the capital stock of the Company or consolidation
or merger of the Company with another corporation, shall be effected
in such a way that holders of Common Stock shall be entitled to
receive stock, securities, cash or assets with respect to or in
exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, the
Company or such successor or purchasing corporation, as the case may
be, shall execute with the Warrant Agent a supplemental Warrant
Agreement providing that each registered holder of a Representative's
Stock Warrant shall have the right thereafter and until the expiration
date to exercise such Warrant for the kind and amount of stock,
securities, cash or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale by a holder of the
number of shares of Common Stock for the purchase of which such
Warrant might have been exercised immediately prior to such
reorganization,
3
<PAGE>
reclassification, consolidation, merger or sale,
subject to adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4.
(D) In case at any time the Company shall declare a
dividend or make any other distribution upon any stock of the Company
payable in Common Stock, then such Common Stock issuable in payment of
such dividend or distribution shall be deemed to have been issued or
sold without consideration.
(E) Upon any adjustment of the appropriate
respective Purchase Price as hereinabove provided, the number of
Common Shares issuable upon exercise of each class of Warrant shall be
changed to the number of shares determined by dividing (i) the
aggregate Purchase Price payable for the purchase of all shares
issuable upon exercise of that class of Warrant immediately prior to
such adjustment by (ii) the appropriate Purchase Price per share in
effect immediately after such adjustment.
(F) No adjustment in the Purchase Price shall be
required under Section 4 hereof unless such adjustment would require
an increase or decrease in such price of at least 1% provided,
however, that any adjustments which by reason of the foregoing are not
required at the time to be made shall be carried forward and taken
into account and included in determining the amount of any subsequent
adjustment, and provided further, however, that in case the Company
shall at any time subdivide or combine the outstanding Common Shares
as a dividend, said amount of 1% per share shall forthwith be
proportionately increased in the case of a combination or decreased in
the case of a subdivision or stock dividend so as to appropriately
reflect the same.
(G) On the effective date of any new Purchase Price
the number of shares as to which this Warrant may be exercised shall
be increased or decreased so that the total sum payable to the Company
on the exercise of this Warrant shall remain constant.
(H) The form of Representative's Stock Warrant need
not be changed because of any change pursuant to this Article, and
Representative's Stock Warrants issued after such change may state the
Purchase Price and the same number of shares as is stated in the
Representative's Stock Warrants initially issued pursuant to this
Warrant. However, the Company may at any time in its sole discretion
(which shall be conclusive) make any change in the form of
Representative's Stock Warrant that the Company may deem appropriate
and that does not affect the substance thereof, and any
Representative's Stock Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
5. For the purposes of this Warrant, the terms "Common
Shares" or "Common Stock" shall mean (i) the class of stock
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<PAGE>
designated as the Common Stock, $.0001 par value, of the Company on the
date set forth on the first page hereof or (ii) any other class of stock
resulting from successive changes or re-classifications of such Common
Stock consisting solely of changes in par value, or from no par value
to par value, or from par value to no par value. If at any time, as a
result of an adjustment made pursuant to Section 4, the securities or
other property obtainable upon exercise of this Warrant shall include
shares or other securities of the Company other than Common Shares or
securities of another corporation or other property, thereafter, the
number of such other shares or other securities or property so
obtainable shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Shares contained in Section 4
and all other provisions of this Warrant with respect to Common Shares
shall apply on like terms to any such other shares or other securities
or property. Subject to the foregoing, and unless the context requires
otherwise, all references herein to Common Shares shall, in the event
of an adjustment pursuant to Section 4, be deemed to refer also to any
other securities or property then obtainable as a result of such
adjustments.
6. The Company covenants and agrees that:
(a) During the period within which the rights
represented by the Representative's Stock Warrant may be exercised,
the Company shall, at all times, reserve and keep available out of its
authorized capital stock, solely for the purposes of issuance upon
exercise of this Warrant, such number of its Common Shares as shall be
issuable upon the exercise of this Warrant and at its expense will
obtain the listing thereof on all national securities exchanges on
which the Common Shares are then listed; and if at any time the number
of authorized Common Shares shall not be sufficient to effect the
exercise of this Warrant, the Company will take such corporate action
as may be necessary to increase its authorized but unissued Common
Shares to such number of shares as shall be sufficient for such
purpose; the Company shall have analogous obligations with respect to
any other securities or property issuable upon exercise of this
Warrant.
(b) All Common Shares which may be issued upon
exercise of the rights represented by this Warrant will, upon issuance
be validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof.
(c) All original issue taxes payable in respect of
the issuance of Common Shares upon the exercise of the rights
represented by this Warrant shall be borne by the Company but in no
event shall the Company be responsible or liable for income taxes or
transfer taxes upon the transfer of any Representative's Stock
Warrants.
7. Until exercised, this Warrant shall not entitle the
Holder hereof to any voting rights or other rights as a shareholder
of the Company, except that the Holder of this Warrant shall be
5
<PAGE>
deemed to be a shareholder of this Company for the purpose of bringing suit
on the ground that the issuance of shares of stock of the Company is
improper under the New York Corporation Law.
8. This Warrant and the Underlying Securities shall not be
sold, transferred, assigned or hypothecated for a period of twelve
(12) months from the Effective Date, except to officers or partners of
the Representative, and/or the other underwriters and/or selected
dealers who participated in such offering, or the officers or partners
of such underwriters and/or selected dealers. In no event shall this
Warrant and the Underlying Securities be sold, transferred, assigned
or hypothecated except in conformity with the applicable provisions of
the Securities Act of 1933, as then in force (the "Act"), or any
similar Federal statute then in force, and all applicable "Blue Sky"
laws.
9. The Holder of this Warrant, by acceptance hereof, agrees
that, prior to the disposition of this Warrant or of any Underlying
Securities theretofore purchased upon the exercise hereof, under
circumstances that might require registration of such securities under
the Act, or any similar Federal statute then in force, such Holder
will give written notice to the Company expressing such Holder's
intention of effecting such disposition, and describing briefly such
Holder's intention as to the disposition to be made of this Warrant
and/or the Underlying Securities theretofore issued upon exercise
hereof. Promptly upon receiving such notice, the Company shall present
copies thereof to its counsel and the provisions of the following
subdivisions shall apply:
(a) If, in the opinion of such counsel, the proposed
disposition does not require registration under the Act, or any
similar Federal statute then in force, of this Warrant and/or the
securities issuable or issued upon the exercise of this Warrant, the
Company shall, as promptly as practicable, notify the Holder hereof of
such opinion, whereupon such holder shall be entitled to dispose of
this Warrant and/or such Underlying Securities theretofore issued upon
the exercise hereof, all in accordance with the terms of the notice
delivered by such Holder to the Company.
(b) If, in the opinion of such counsel, such
proposed disposition requires such registration or qualification under
the Act, or similar Federal statute then in effect, of this Warrant
and/or the Underlying Securities issuable or issued upon the exercise
of this Warrant, the Company shall promptly give written notice of
such opinion to the Holder hereof and to the then holders of the
securities theretofore issued upon the exercise of this Warrant at the
respective addresses thereof shown on the books of the Company.
Certain registration rights are incorporated by reference from the
Underwriting Agreement as if set forth herein in their entirety.
10. The Company agrees to indemnify and hold harmless the
holder of this Warrant, or of securities issuable or issued upon
the exercise hereof, from and against any claims and liabilities
caused by any untrue statement of a material fact, or omission to
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<PAGE>
state a material fact required to be stated, in any such registration
statement, prospectus, notification or offering circular under
Regulation A, except insofar as such claims or liabilities are caused
by any such untrue statement or omission based on information
furnished in writing to the Company by such holder, or by any other
such holder affiliated with the holder who seeks indemnification, as
to which the holder hereof, by acceptance hereof, agrees to indemnify
and hold harmless the Company.
11. If this Warrant, or any of the securities issuable
pursuant hereto, require qualification or registration with, or
approval of, any governmental official or authority (other than
registration under the Act, or any similar Federal statute at the time
in force), before such securities may be issued on the exercise
hereof, the Company, at its expense, will take all requisite action in
connection with such qualification, and will use its best efforts to
cause such securities and/or this Warrant to be duly registered or
approved, as may be required.
12. This Warrant is exchangeable, upon its surrender by the
registered holder at such office or agency of the Company as may be
designated by the Company, for new Representative's Stock Warrants of
like tenor, representing, in the aggregate, the right to subscribe for
and purchase the number of Common Shares that may be subscribed for
and purchased hereunder, each of such new Representative's Stock
Warrants to represent the right to subscribe for and purchase such
number of Common Shares as shall be designated by the registered
holder at the time of such surrender. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of any such loss, theft
or destruction, upon delivery of a bond of indemnity satisfactory to
the Company, or in the case of such mutilation, upon surrender or
cancellation of this Warrant, the Company will issue to the registered
holder a new Representative's Stock Warrant of like tenor, in lieu of
this Warrant, representing the right to subscribe for and purchase the
number of Common Shares that may be subscribed for and purchased
hereunder. Nothing herein is intended to authorize the transfer of
this Warrant except as permitted under Paragraph 8.
13. Every holder hereof, by accepting the same, agrees with
any subsequent holder hereof and with the Company that this Warrant
and all rights hereunder are issued and shall be held subject to all
of the terms, conditions, limitations and provisions set forth in this
Warrant, and further agrees that the Company and its transfer agent
may deem and treat the registered holder of this Warrant as the
absolute owner hereof for all purposes and shall not be affected by
any notice to the contrary.
14. All notices required hereunder shall be given by
first-class mail, postage prepaid; if given by the holder hereof,
addressed to the Company at 320 Washington Street, Mount Vernon, New
York 10553 or such other address as the Company may designate in
writing to the holder hereof; and if given by the Company,
7
<PAGE>
addressed to the holder at the address of the holder shown on the books of the
Company.
15. The validity, construction and enforcement of this
Warrant shall be governed by the laws of the State of New York and
jurisdiction is hereby vested in the Courts of said State in the event
of the institution of any legal action under this Warrant.
IN WITNESS WHEREOF, DECOR GROUP, INC. has caused this Warrant
to be signed by its duly authorized officers under its corporate
seal, to be dated as of ________________, 1996.
DECOR GROUP, INC.
By:_________________________
Attest:
____________________________
(Corporate Seal)
8
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _________________
Common Shares evidenced by the within Warrant, according to the terms and
conditions thereof, and herewith makes payment of the purchase price in full.
The undersigned requests that certificates for such shares shall be issued
in the name set forth below.
Dated: ,19
_________________________________
Signature
_________________________________
Print Name of Signatory
_________________________________
Name to whom certificates are to
be issued if different from above
Address:_________________________
_________________________
Social Security No.______________
or other identifying number
If said number of shares shall not be all the shares
purchasable under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the
name of :
_________________________
(Please Print)
Address:_________________________
_________________________
Social Security No.______________
or other identifying number
_________________________________
Signature
9
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED , hereby
sells assigns and transfers to , Soc. Sec. No.
[ ] the within Warrant, together with all rights, title
and interest therein, and does hereby irrevocably constitute and
appoint attorney to transfer such Warrant on
the register of the within named Company, with full power of
substitution.
______________________________
Signature
Dated: , 19
Signature Guaranteed:
________________________________
10
<PAGE>
TRADEMARK LICENSE
AGREEMENT
Between
GENERAL ELECTIC COMPANY
and
ARTISAN HOUSE
dated
May l, 1995
<PAGE>
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT, made as of May 1, 1995, between GENERAL ELECTRIC COMPANY, a
corporation organized and existing under the laws of the State of New York,
United States of America, with an office at Two Independence Way, Princeton, New
Jersey 08540 (hereinafter referred to as "GE") and ARTISAN HOUSE, a corporation
organized and existing under the laws of the State of California, with an office
at 1755 Glendale Boulevard, Los Angeles, California 90026 (hereinafter referred
to as "LICENSEE").
WITNESSETH
WHEREAS, GE is the owner in the United States, Canada and Mexico of the
valuable mark, name, character, symbol, design, likeness and visual
representation of the NIPPER DOG and PHONOGRAPH ("HIS MASTER'S VOICE") and
certain individual components thereof (sometimes hereinafter referred to,
jointly or severally, as the "Trademark"), as well as certain trademark
registrations therefor;
WHEREAS, LICENSEE desires the right to manufacture and sell a certain
product or products, as hereinafter defined and described in Appendix A hereto
which is made a part of this Agreement, (hereinafter called "Articles"), which
bear, are decorated with or reproduce the Trademark, or which otherwise make use
of the Trademark, and GE is willing to grant such right on the terms and
conditions hereinafter provided;
<PAGE>
-2-
NOW, THEREFORE, in consideration of the premises and of the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. GE hereby grants to LICENSEE a non-exclusive license under the United
States, Canadian and Mexican Trademark to manufacture and sell the Articles upon
the terms and conditions hereinafter specified. No license is granted hereunder
under any other foreign Trademark rights to manufacture or sell the Articles.
2. LICENSEE shall have the right to use the Trademark only so long as the
Articles are manufactured in accordance with standards of design, material and
workmanship acceptable to GE. LICENSEE shall use the Trademark only in such
manner as shall have been previously approved in writing by GE. Thereafter any
changes in the manner or method of use of the Trademark shall be subject to the
prior written consent of GE. LICENSEE agrees to use the legend set forth in
Appendix A hereto in conjunction with the use of the Trademark hereunder.
LICENSEE agrees that said legend will contain any additional information or
symbols requested by GE and the format, manner and location of affixing, and use
of such legend will be subject to the prior written approval of GE.
3. (a) GE, or GE's representative, shall have the right, at all reasonable
times, to inspect the Articles as well as the method of their manufacture,
in order that GE may satisfy itself that the Articles meet its standards.
LICENSEE shall provide, for GE's prior written approval, without charge,
two preproduction samples of each version of each kind of the Articles to
be manufactured under this license and two pre-
<PAGE>
-3-
production samples of any Articles incorporating any proposed change from
samples previously approved by GE whenever LICENSEE proposes to make any
changes or modifications whatsoever in the Articles. LICENSEE shall provide
GE, at GE's request, from time to time, without charge, a reasonable number
of production samples of the Articles.
(b) Upon receipt of advice from GE, or its representatives, specifying
the particular respect in which any Article and/or the manner or method of
use of the Trademark does not, in the sole opinion of GE, conform to the
required standard of quality, LICENSEE shall cease further production
and/or sale of such Articles, and, at LICENSEE's expense, shall promptly
take adequate measures to correct the deficiency. If, in the sole judgment
of GE, LICENSEE has failed to take such adequate measures, GE shall have
the right to terminate the licenses granted herein as respects such
Articles and/or use of the Trademark by giving LICENSEE written notice of
such termination, whereupon LICENSEE shall terminate forthwith all
production and sale of such Articles, destroy all inventory of such
Articles, and cease such use of the Trademark, the said right of
termination being without prejudice to GE's right to terminate the entire
Agreement, for this or any other default, in accordance with Section 17(a)
hereof.
4. LICENSEE shall provide to GE, or GE's representative, for approval prior
to the use thereof, and without charge, samples of all packaging, labels,
advertising and other material on which the Trademark appears, or which is to be
used in conjunction with the marketing of the Articles, and LICENSEE
specifically undertakes to amend to the satisfaction of GE any such packaging,
labels, advertising and other material which are not
<PAGE>
-3-
approved by GE. LICENSEE agrees to use the trademark legend set forth in
Appendix A hereto in conjunction with the use of the Trademark on packaging,
labels, advertising and other materials.
5. Samples of the Articles and packaging, labels, advertising and other
material to be furnished to GE in accordance with Sections 3 and 4, hereinabove,
shall be delivered by LICENSEE and at LICENSEE's expense to GE at GE and RCA
Licensing Management Operation, Inc., at its postal address: P.O. Box 2023,
Princeton, New Jersey 08543-2023, or its courier address: Two Independence Way,
Princeton, New Jersey 08540, or at such other latest address as GE shall have,
by notice given to LICENSEE in accordance with Section 23, designated as its
address for such purpose.
6. (a) GE reserves the right to require, prior to the selling of any
Article, and/or for the continued selling of any Article, that it be
covered by a current, valid certificate, acceptable to GE, from an
independent testing laboratory. To obtain such certificate, LICENSEE, at
its own expense, shall submit to an independent testing laboratory chosen
by LICENSEE, and acceptable to GE, such reasonable number of samples of
such Article, and of the raw and semi-finished materials used in its
manufacture, upon which LICENSEE and such laboratory may agree; and,
LICENSEE shall, at LICENSEE's own expense, obtain from such laboratory and
submit to GE a certificate that the sale and use of such Article does not
present a health or safety hazard, and further that such Article conforms
to any and all applicable standards and specifications, governmental or
industry, for products of such type or types. LICENSEE will keep such
certificates current, and, in the event of any changes in
<PAGE>
-5-
the Article or materials used, will at LICENSEE's own expense, resubmit
samples thereof to such laboratory and obtain and submit to GE a similar
certificate covering such Article as changed. All certificates must be in a
form acceptable to GE.
(b) LICENSEE shall observe all applicable Federal, State, Provincial
and local laws, regulations and ordinances in effect which relate to the
manufacture and sale of the Articles, and LICENSEE agrees that the Articles
will be manufactured, sold, labeled, advertised and distributed in
accordance with all applicable Federal, State, Provincial and local laws,
regulations and ordinances. LICENSEE shall be solely responsible for
obtaining and maintaining all product registrations and/or approvals
necessary or advisable to obtain or maintain in order to manufacture and
sell the Articles. Upon the termination of this Agreement in whole or with
respect to any one or more Articles, all such product registrations and
approvals, to the extent applicable to such Articles, shall be promptly
assigned to GE or surrendered to the issuing authority.
7. LICENSEE recognizes GE's ownership and title to the Trademark and it is
understood that LICENSEE shall not claim adversely to GE any right, title or
interest in and to the Trademark. All use of the Trademark by LICENSEE on or in
connection with Articles shall inure to the benefit of GE. It is understood and
agreed between the parties hereto that GE has extended to LICENSEE only a mere
permission to use the Trademark as herein provided, which is not coupled with
any interest.
<PAGE>
-6-
8. Nothing in this Agreement, and no approval or consent given by GE under
this Agreement, shall be construed as, or have the effect of, conferring a
license by implication, estoppel or otherwise upon LICENSEE or any third party
under any industrial, intellectual or commercial property rights of GE or of any
third party, except the licenses expressly granted to LICENSEE in Section 1 of
this Agreement.
9. Subject to the receipt by GE of the initial non-refundable minimum
payment prescribed in Article 13 of this Agreement, this Agreement shall be
effective as of the date hereof and, unless terminated as provided in Section 17
hereof, shall continue for a period of two (2) years after such effective date,
subject to the right of either party to terminate the Agreement effective at any
time after the first year on three months' prior written notice to the other
party.
10. LICENSEE agrees not to use any corporate name or any name or mark of
any kind which comprises or indicates any trademark or trade name of GE or in
the opinion of GE is confusingly similar thereto except as approved hereunder.
11. LICENSEE will promptly call to the attention of GE the use of any
trademark by any third party which LICENSEE considers might be an infringement
of, or confusingly similar to the Trademark. However, GE shall have the sole
right to decide whether or not proceedings shall be brought against such third
party and to prosecute any such proceedings. In the event that GE decides to
take any action against such third parties, LICENSEE agrees to cooperate fully
with GE to whatever extent is necessary to prosecute
<PAGE>
-7-
such action, all expenses being borne by GE and all awards and benefits being
retained by GE.
12. (a) LICENSEE shall maintain at its own expense in full force and effect
at all times during which any Articles are being sold, with a responsible
insurance carrier acceptable to GE, at least a One Million Dollar products
liability insurance policy with respect to the Articles. Such insurance
shall be for the benefit of GE and LICENSEE and shall provide for at least
ten days' prior written notice to GE and LICENSEE of the cancellation or
substantial modification thereof. Such insurance shall provide that the
insurer shall not be subrogated to any claim which any party may have
against GE. Such insurance may be obtained for GE by LICENSEE in
conjunction with a policy or product liability insurance which covers
products other than the Articles.
(b) LICENSEE shall, from time to time upon reasonable request by GE,
promptly furnish or cause to be furnished to GE evidence in form and
substance satisfactory to GE, of the maintenance of the insurance required
by subparagraph (a) above, including, but not limited to, originals or
copies of policies, certificates of insurance (with applicable riders and
endorsements) and proof of premium payments.
13. LICENSEE agrees to pay as compensation to GE:
(a) Within ten days of the date of execution hereof by the last party
to execute, a non-refundable minimum of $1,000.00 which amount shall be
creditable by LICENSEE against the first $1,000.00 of compensation accruing
to GE under paragraph (b) of this Article.
<PAGE>
-8-
(b) With respect to all Articles sold by LICENSEE under and during the
term of this Agreement a sum equal to five percent (5%) of the Net Sales
(as herein defined) of all such Articles. "Net Sales" shall, for the
purpose of this Agreement, be defined as the aggregate of the genuine
selling prices at which customers are billed in the usual course of
business for the Articles, net of any applicable sales taxes. Articles
shall be considered as sold, when billed out or, if not billed out, when
delivered, shipped, mailed, used or set aside for subsequent use by
LICENSEE, whichever shall first occur.
14. Within thirty (30) days after March 31, June 30, September 30 and
December 31 of each year during the term of this Agreement, LICENSEE shall
furnish to GE a certified statement specifying the quantities and the Net Sales
of the Articles sold by LICENSEE during the preceding calendar quarter, the
total amounts of compensation accruing to GE hereunder with respect to the Net
Sales for such calendar quarter, the credit taken under Article 13(a) against
said accrued amounts and the total amount of compensation payable to GE for such
quarter. At the time of furnishing such reports, LICENSEE shall make the
payments prescribed therefor in the preceding Section 13. Similar statements
likewise shall be rendered, and payment made, to GE within thirty (30) days
after, and as of, the date of any termination of this Agreement covering the
period from the end of that covered by the last preceding statement to the date
of such termination.
15. LICENSEE shall keep, for no less than two years, the expiration or any
earlier termination of this Agreement notwithstanding, true and accurate
records, files and books of account containing all the data reasonably
<PAGE>
-9-
required for the computation and verification of the amounts to be paid and the
information to be given in the statements herein provided for, and shall at all
reasonable times permit independent certified public accountants engaged by GE
adequately to inspect and make photocopies of the same for the sole purpose of
determining the amounts payable by LICENSEE pursuant to Section 13 of this
Agreement.
16. (a) LICENSEE agrees to indemnity and hold GE harmless from any loss,
liability, damage, cost or expense, including reasonable attorney's fees,
paid or incurred by GE, based upon or arising out of any claim for (i) any
allegedly unauthorized use of any patent, process, idea, method, copyright,
trademark or device (other than the Trademark) by LICENSEE in connection
with the Articles, or for (ii) any alleged defects in the Articles, or for
(iii) any alleged manufacture, use, sale, labeling, advertising or
distribution in violation of any applicable Federal, State or local law.
LICENSEE shall, at its own expense, defend any lawsuits or other
proceeding based on any such claim. The parties shall promptly advise each
other of any lawsuit or other proceeding brought on the basis of any such
claim and LICENSEE shall keep GE fully informed of the progress of such
proceeding, and GE and LICENSEE will consult one another regularly thereon.
(b) LICENSEE agrees that the methods of promotion and sale of Articles
shall be of high standard and shall in no manner reflect adversely upon the
good name of GE or the Trademark.
17. (a) In the event that LICENSEE shall be in default in compliance with
any of the terms and conditions of this Agreement and fails to cure
<PAGE>
-10-
such default within thirty (30) days after GE has given notice specifying
the nature of such default, GE shall have the right, without prejudice to
any other rights GE may have, to terminate this Agreement and all rights
granted hereunder by giving written notice to LICENSEE, and this Agreement
and all rights granted hereunder to LICENSEE shall terminate thirty (30)
days after the date such notice of termination was given.
(b) In the event that LICENSEE files a petition for suspension of
payment of its debts or files a petition to be discharged from its debts,
or if a petition is filed by any party to adjudicate LICENSEE insolvent or
to appoint a receiver for LICENSEE, or if LICENSEE discontinues its
business or makes an assignment for the benefit of creditors or an
arrangement pursuant to any bankruptcy, insolvency or similar law, or
becomes subject to a corporate reorganization procedure, or if LICENSEE
defaults on any obligation which is secured by a security interest, in
whole or in part, in the Articles, this Agreement and all rights granted
hereunder shall terminate automatically without prejudice to any other
rights GE may have.
(c) This Agreement and all rights and obligations hereunder are
personal to LICENSEE. Therefore, if LICENSEE shall sell or otherwise
dispose of substantially all of its relevant assets to a third party, or if
control of LICENSEE or of LICENSEE's relevant business shall be
transferred, GE shall have the right, without prejudice to any other rights
GE may have, to terminate this Agreement upon written notice to LICENSEE.
<PAGE>
-11-
18. Except to the extent expressly provided otherwise in this Section 18,
LICENSEE shall cease to use the Trademark in any manner whatsoever as of the
date of expiration or earlier termination of this Agreement. LICENSEE agrees
that upon expiration or termination of this Agreement it will not manufacture
Articles, and, except as mandated by Section 3(b), will dispose of the unsold
inventory of the Articles and all printed matter, including packaging, bearing
the Trademark and all decals, logos and items of similar nature manufactured or
printed by LICENSEE within ninety (90) days thereof, and any balance thereafter
shall be immediately destroyed. All unsold inventory and printed matter and
other items will however be immediately destroyed if LICENSEE is terminated by
GE under Section 17(a). In all cases, LICENSEE shall give GE immediate written
assurances it has ceased the manufacture of the Articles and that the Trademark
is no longer being used as of the date of expiration or termination and that
such inventory of the Articles and printed matter and other items have been
destroyed except to the extent otherwise provided herein. LICENSEE shall pay
license fees to GE in accordance with Section 13, et seq., of this Agreement on
post-termination/expiration sales permitted under this clause.
19. Any failure by GE to act in respect of any breach of any term or
condition of this Agreement, or any non-exercise by GE of any option, shall not
be considered a waiver by GE of any rights hereunder.
20. In the event of the failure of LICENSEE, for any reason, to cease the
use of the Trademark as provided in this Agreement, LICENSEE agrees and hereby
specifically consents to GE's obtaining a decree of a Court having suitable
jurisdiction ordering LICENSEE to cease such use of the Trademark
<PAGE>
-12-
forthwith. Said consent is based on the recognition by LICENSEE that such
further use would dilute the Trademark and impair GE's goodwill therein, for
which monetary payment alone would be an inadequate remedy for GE.
21. This Agreement and all rights and obligations hereunder are personal to
the LICENSEE and shall not be assigned or sublicensed or otherwise transferred,
in whole or in part, by LICENSEE without the prior written consent of GE. GE
shall have the right to assign or otherwise transfer this Agreement in its sole
discretion.
22. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed therein.
23. Any notice or other communication given under this Agreement shall be
deemed to have been sufficiently given when:
(a) mailed by the registered or certified mails with the requisite
postage affixed, addressed to the party notified, or
(b) transmitted by prepaid facsimile or telex, and confirmed in
writing sent within two (2) days by prepaid regular first class airmail,
addressed to the party notified, or
(c) delivered personally in writing to the party notified, at its address
hereinbelow set forth, or at such other latest address as said party shall have,
by notice given in accordance herewith, designated as its address for purposes
hereof:
<PAGE>
-13-
To GE at: To LICENSEE at:
GE and RCA Licensing Artisan House
Management Operation, Inc.
postal address:
P.O. Box 2023
Princeton, New Jersey 08543-2023
street address: street address:
Two Independence Way 1755 Glendale Boulevard
Princeton, New Jersey 08540 Los Angeles, California 90026
The date of such deposit, transmission or delivery, respectively, shall be
the date on which such notice or other communication shall be deemed to have
been given.
24. This Agreement sets forth the entire agreement and understanding
between the parties and merges all prior discussions, negotiations and
agreements, whether written, oral or implied, between them relating to the
subject matter hereof. Neither of the parties shall be bound by any conditions,
definitions, warranties, understandings or representations with respect to such
subject matter other than as expressly provided herein or as duly set forth on
or subsequent to the date hereof in writing and signed by a
<PAGE>
-14-
proper and duly authorized officer or representative of the party to be bound
thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers or representatives effective as of
the day and year first above written.
GENERAL ELECTRIC COMPANY ARTISAN HOUSE
By: [ILLEGIBLE] By: [ILLEGIBLE]
------------ ------------
Date: May 8, 1995 Date: 4/24/95
Witness: Witness:
/s/ Steven N. Morin ________________________________________
- -------------------
<PAGE>
APPENDIX A
[Definitions and description of products and manner of setting forth legend on
the products]
Articles: Handmade Metal Wall Sculpture
Legend: Trademark of General Electric Company.
<PAGE>
Contract No.___________
LICENSING AGREEMENT - DOMESTIC
AGREEMENT made as of December 21, 1995, between The Hearst Corporation,
King Features Syndicate Division ("King"), a Delaware corporation with offices
at 235 East 45th Street, New York, New York 10017, and Artisan House
("Licensee"), a ______________ corporation with offices at 1755 Glendale
Boulevard, Los Angeles, California 90026.
King and Licensee agree as follows:
BASIC PROVISIONS
1. Property and Trademarks:
BETTY BOOP
2. Products: Three-dimensional formed, cast, welded, brazed and finished
flat metal or copper sculptures of no less than eighteen (18) inches
in height.
3. Territory: United States, Canada and Mexico
4. Language: English
5. Term:
(a) Basic Term: The "Basic Term" of this Agreement and the license
granted hereunder shall commence on January 1, 1996, and continue
until December 31, 1997, subject to the provisions hereof.
(b) Term Extensions (if any) and Minimum Earned Royalties: If
Licensee earns the specified Minimum Earned Royalties, Licensee
shall have the following options if any, to extend the Basic Term
(such extensions herein called "Term Extension(s)"):
Licensee shall have one (1) renewal option for two (2)
consecutive years, provided that Royalties earned and paid King
for the Basic Term equal at least $5,000 ("Minimum Earned
Royalties").
"Term" means the Basic Term and all Term Extensions.
6. Advance, Royalties, Minimum Royalties Guarantee, etc:
(a) Advance:
(i) Licensee shall pay King a non-refundable advance ("Advance")
in the amount of $2,000 payable in full upon the execution of
this Agreement.
<PAGE>
(ii) Licensee shall pay King an additional non-refundable Advance
for each Term Extension period as follows:
$2,000
(iii) Advances shall be paid on or before the first day of the
applicable period of the Term.
(iv) The Advance shall be recoupable by Licensee out of Royalties
payable to King pursuant to subparagraph (b).
(b) Royalty: Licensee shall pay King a royalty ("Royalty") of 8%
based upon the Gross Wholesale Price (as defined in the Standard
Terms and Conditions) of all Products sold. A Product shall be
deemed "sold" as of the date on which such Product is shipped,
invoiced, billed or paid for, whichever first occurs. ROYALTIES
SHALL BE REPORTED SEPARATELY BY COUNTRY.
(c) Payments and Statements:
(i) All payments and statements shall be made quarterly
commencing July 15, 1996, and shall be sent to King at the
address specified in the heading of this Agreement and shall be
sent to the attention of: CONTROLLER. Notwithstanding any
provisions to the contrary in the Standard Terms and Conditions:
(A) payments and statements shall be due within fifteen (15) days
after the end of each calendar quarter and (B) statements shall
conform in all material respects to the form attached as Exhibit
D.
(ii) Notices, Submissions. Additionally, a copy of all
statements, as well as all other notices and submissions (unless
expressly directed otherwise in this Agreement), shall be sent to
the attention of King's DIRECTOR OF LICENSING at the same
address.
(d) Contract Reference: All payments and statements shall reference
the Contract No. set forth at the top of this Agreement.
(e) Currency: All payments to be made to King hereunder shall be
payable in U.S. currency.
7. Marketing Date: March 1, 1996
8. Advertising, Marketing Requirements: Not Applicable.
9. Copyright/Trademark Notice: Until such time as King otherwise notifies
Licensee, the notice shall be in the following form:
(C) (year) King Features Syndicate, Inc./Fleischer Studios, Inc.
(TM) The Hearst Corporation
<PAGE>
Licensee shall also affix to the Product or Promotional and Packaging
Material the design(s) attached hereto as Exhibit A.
Additionally, Licensee shall execute and return to King the trademark
registration document either attached hereto as Exhibit B or provided
by King hereafter.
10. Samples: Licensee shall provide King with the following quantities of
Product samples (pursuant to paragraph 6(g) of the Standard Terms and
Conditions attached hereto):
one (1) of each Product
11. Standard Terms and Conditions: This Agreement includes all the
Standard Terms and Conditions annexed hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Artisan House The Hearst Corporation,
King Features Syndicate Division
By: /s/ Henry Goldman By: /s/ Lawrence T. Olsen
------------------ -----------------------
Name: Henry Goldman Lawrence T. Olsen
Title: President Executive Vice President and
General Manager
<PAGE>
KING FEATURES LICENSING GROUP
Standard Terms and Conditions
1. LICENSE GRANTED:
King hereby grants to Licensee a non-transferable and non-assignable
license, without the right to grant sub-licenses, to use the Property and the
Trademarks solely for the manufacture, sale, advertising and promotion
(collectively "Sale") of the Products solely within the Territory and in the
Language. All rights in and to the Property and the Trademarks not expressly
granted to Licensee hereunder shall remain with King.
2. TERM EXTENSIONS:
If Licensee is granted any option(s) to extend the Term, each such option
must be exercised by notifying King in writing at least sixty (60) days prior to
the expiration of the then-current period of the Term. As a precondition to
Licensee's effective exercise of any such option. Licensee must have fully
performed all of its obligations hereunder, and specifically must have paid all
payments then due and must have earned any Minimum Earned Royalties specified in
the Basic Provisions.
3. ROYALTY PROVISION:
(a) Royalties shall be paid by Licensee to King on all Products sold by
Licensee, even if not invoiced or billed (such as introductory offers, samples,
promotions and the like in excess of commercially reasonable quantities to
prospective customers, and sales to affiliates, associates or subsidiaries of
Licensee), and shall be based upon Licensee's usual Gross Wholesale Price for
such Products during the period sold.
(b) Licensee shall pay to King on execution of this Agreement, and on the
commencement of each Term Extension period, if any, a non-refundable Advance
against Royalties ("Advance") specified in the Agreement. For the Basic Term and
each Term Extension period, if any, Licensee shall also pay to King, a
non-refundable, "Guaranteed Minimum Royalty" in the amount specified in the
Agreement. If, upon termination or expiration of the Term, the total Royalties
paid by Licensee to King during the period of the Term immediately preceding
expiration or termination, including the Advance, is less than the Guaranteed
Minimum Royalty for such period, Licensee shall immediately pay such difference
to King. Royalty payments made for any period of the Term (e.g. Basic Term or
any Term Extension period) shall be credited against the Guaranteed Minimum
Royalty for such period of the Term.
(c) "Gross Wholesale Price" shall mean Licensee's invoiced billing price to
its customers or distributors less returns for damaged goods. No other
deductions shall be made in computing the Gross Wholesale Price whether for cash
or other discounts, commissions, uncollectible accounts, taxes, fees,
assessments, impositions, payments or expenses of any kind.
4. STATEMENTS AND PAYMENTS:
(a) Licensee shall provide King within thirty (30) days after the end of
each calendar quarter (the "Royalty Period"), a complete and accurate statement
of its sales of Products for the Royalty Period. Said statement shall be
certified as accurate by the Licensee and include the number, description and
Gross Wholesale Price of each Product (including each separate type, style and
kind of Product) sold during the Royalty Period, information as to discounts
given and returns actually credited and any other information King may from time
to time request. Statements shall be furnished to King whether or not any
Products have been sold and whether or not Royalties have been earned during the
Royalty Period. Statements shall be in the form acceptable to King. The amount
due King for the Royalty Period shall be paid simultaneously with the submission
of such statement. All payments shall be in such currency as is specified in the
Agreement. If no other currency is specified in the Agreement, all payments
shall be in United States currency drawn on a United States bank. In no event
shall the amount credited for returns during any Royalty Period exceed the
Licensee's Royalty obligation for such Royalty Period or be used as a credit
against past or future Royalty obligations of the Licensee.
(b) Licensee shall send all statements and payments to King at its address
listed in the heading of this Agreement unless otherwise specified in the Basic
Provisions hereof King, reserves the right to change its designation of the
recipient of payments and statements including its designation of: (i) agent;
(ii) agent's address; or (iii) King's address by giving written notice thereof
to Licensee.
(c) The receipt or acceptance by King of any statement or payment (or its
cashing of any Royalty checks) shall not preclude King from questioning the
correctness thereof at any time and any inconsistencies or mistakes shall
immediately be rectified.
(d) Time is of the essence with respect 10 all payments to be made
hereunder by Licensee, and interest at a rate of twelve (12%) percent per year,
compounded daily, or, if less, the maximum lawful interest rate, shall accrue
from the date payment is due until the date payment is received. The preceding
provision shall also apply to any amounts found to be unpaid following an
examination of Licensee's books and records.
5. AUDIT:
(a) Licensee shall keep accurate books of account and records at its
principal place of business covering all transactions relating to the License
granted herein. King and its duly authorized representatives shall have the
right, during reasonable business hours, to examine Licensee's said books of
account and records and all other documents and material relating to the subject
matter and the terms of this Agreement and to make copies and extracts thereof.
If any underpayment is greater than $500 for any Royalty Period, the Licensee
shall reimburse King for the costs and expenses of such audit.
(b) Upon request by King, but not more than once each year, Licensee shall,
at its own cost, furnish to King within thirty (30) days after such request a
detailed statement, prepared by an independent certified public accountant
acceptable to King, setting forth the number of Products manufactured from the
later of the commencement of this Agreement or the date of any previous such
statement up to and including the date of King's request therefore and also
setting forth the pricing information for all Products (including the number and
description of the Products) shipped, distributed or sold by Licensee during the
aforementioned time period.
(c) All books of account and records of Licensee covering all transactions
relating to the License shall be retained by the Licensee until at least two (2)
years after the expiration or termination of the Term for possible inspection by
King.
6. QUALITY, NOTICES, APPROVALS, AND SAMPLES:
(a) The quality of the Products and all promotional, advertising and
packaging material which includes the Property or the Trademarks (the
"Promotional and Packaging Material") shall be at least as high as the best
quality of similar products and promotional, advertising and packaging material
presently shipped, distributed, sold or used by Licensee in the Territory and
shall be in full conformance with all applicable laws and regulations.
(b) Licensee may not manufacture, use, sell, advertise, promote. ship or
distribute any Product nor Promotional and Packaging Material until it has been
approved in writing by King. Such approval may be granted or withheld as King,
in its sole discretion, may determine. King's failure to approve in writing a
submission by the Licensee within fourteen (14) days from the date King receives
such submission shall be deemed disapproved. King agrees to act in a timely
manner to review each submission.
(c) Before commencing or authorizing third parties to commence the design
or development of Products or of Promotional and Packaging Material which have
not been previously approved in writing by King, Licensee shall submit at its
own cost to King for approval the following material in the following sequence:
(i) a description of the concept, including full information on the nature and
function of the proposed item and a general description of how the Property,
Trademarks and other material will be used thereon; (ii) complete layouts and
descriptions of the proposed Products and Promotional and Packaging Material
showing exactly how and where the Property, Trademarks and all other artwork and
wording will be used; (iii) pre-production models or prototype samples of the
proposed Products and Promotional and Packaging Material; and (iv) actual
production samples of the proposed Products and Promotional and Packaging
Material (the "Production Samples"). Licensee shall not proceed beyond any stage
where approval is required without first securing such approval. Licensee shall
use the form annexed hereto as Schedule A in connection with its submission.
Licensee's failure to adhere to the aforesaid approval requirements shall
constitute a material breach of this agreement. No such approval by King shall
act to waive, diminish or negate Licensee's indemnification to King as set forth
below. At any time during the Term and for a period of one year thereafter, upon
King's request therefor, Licensee shall provide King with a listing of the names
and addresses of Licensee's third party manufacturers, and, if additionally
requested by King, a copy of Licensee's agreement with any such manufacturer.
<PAGE>
(d) All Products and all Promotional and Packaging Material shall contain
permanently affixed, non-removable appropriate legends, markings and notices as
required from time to time by King, to give appropriate notice to the public of
King's rights therein. Unless otherwise expressly approved in writing by King or
until such time as King advises Licensee otherwise, each usage of the
Trademarks shall be followed by either the TM or the (R) Trademark Notice
symbol or the word "Trademark," as appropriate, and initially the notices and
legends as set forth in section 9 of the Basic Provisions shall appear at least
once on each Product and on each piece of Promotional and Packaging Material.
(e) Where patent protection is either pending or has been granted for any
portion of the Property, the Licensee shall further include the appropriate
patent notice on all Products and on all pieces of Promotional and Packaging
Materials.
(f) (i) Licensee shall use no markings, legends or notices on or in
association with the Products or Promotional and Packaging Material other than
the above specified legend and such other markings, legends and notices as may
from time to time be specified by King without first obtaining King's prior
written approval. Licensee hereby represents and undertakes that it will not at
any time without King's prior written consent assign, sub-license, sub-contract
or otherwise deal with all or any part of the rights hereby granted or amend,
revise, develop, or vary all or any part of the Property. (ii) If Licensee shall
with or without the prior written consent of King create or acquire derivative
designs, whether amendments, revisions, developments or variations of all or any
part of the Property (hereinafter called the "Derived Further Designs") (without
prejudice to King's rights against the Licensee in the event of the unauthorized
creation of any Derived Further Design) King or its designee shall automatically
acquire (and Licensee shall execute such assignments or other documents as King
may request) all rights of every kind, nature and description (including without
limitation the entire copyrights throughout the world and all extensions
thereof) in and to all such Derived Further Designs and the Licensee does hereby
agree and undertake:
(1) Prior to the creation or acquisition of any Derived Further Design
in accordance with section 6(f)(i) to obtain from the proposed draftsman,
artist, designer or the creator of the Derived Further Design or the person to
whom in law or in fact the rights in the Derived Further Design shall belong a
written absolute sale and assignment of all of that person's rights whether
present or future in the Derived Further Design in favor of King;
(2) The Derived Further Design shall at all times both before and
after approval by King be King's sole and exclusive property.
(g) Upon commencement of manufacture, shipment and distribution of the
Products or Promotional and Packaging Material after all required approvals have
been given by King, Licensee shall submit, at its own cost, the number of
aforementioned Production Samples of the Products and Promotional and Packaging
Material set forth in the Basic Provisions to King.
(h) King may periodically during the Term, require that Licensee submit to
King, at no cost to King, additional sets of Production Samples of the Products
and Promotional and Packaging Material as reasonably requested by King to enable
King to review continued compliance by Licensee with the requirements of this
Agreement.
(i) Licensee shall not depart from approved Production Samples in any
respect without the prior written approval of King. Licensee shall make
submissions to King and obtain approvals in the manner required above each time
new or revised concept, layouts, descriptions, artwork, models, prototype
samples or Production Samples are created or developed.
(j) To assure that the provisions of this Agreement are being observed,
Licensee shall allow King or its designees to enter Licensee's premises and, to
the extent within Licensee's power, the premises where the Products are being
manufactured during regular business hours and upon not less than five (5) days'
notice, for the purpose of inspecting the Products and Promotional and Packaging
Material and the facilities in which the Products and Promotional and Packaging
Material are being manufactured and in which the Products are being packaged.
(k) If the quality standards or trademark, patent and copyright usage and
notice requirements hereinabove referred to are not met or maintained throughout
the Term then, upon receipt of written notice from King, Licensee shall
immediately discontinue all Sales or other activity or dealing with the
non-conforming Products or Promotional and Packaging Material.
7. ARTWORK:
(a) The form and content of all artwork for use in all media shall be
submitted to King for its prior written approval. Licensee shall also submit to
King for approval, samples of the proposed use on each Packaging Material of
such artwork, even if the artwork itself has already been approved.
(b) All artwork and designs involving the Property or Trademarks shall,
notwithstanding their invention or use by Licensee, be and remain the property
of King who shall be entitled to use and license others to use such artwork and
designs, subject to the provisions of this Agreement.
8. OWNERSHIP OF RIGHTS:
(a) King owns or has the exclusive right to license the rights in the
Property and the Trademarks herein licensed to Licensee.
(b) As between King and Licensee, all right, title and interest in the
Property and the Trademarks are reserved by King for use except for the rights
specifically licensed to Licensee hereunder.
(c) No license other than for Sale of the Products in the Territory is
being granted hereunder, and King reserves for use as it may determine all other
rights of any kind. Licensee recognizes that King may already have entered into,
and may in the future enter into, license agreements with respect to the
Property or the Trademarks for products which fall into the same general product
category as one or more of the Products and which may be similar to but not the
same as one or more of the Products in terms of use, function, or otherwise, and
Licensee hereby expressly concedes that the existence of said licenses shall not
constitute a breach of this Agreement by King.
(d) Licensee shall not use King's name, the Property or the Trademarks
other than as permitted hereunder and, in particular, shall not incorporate
King's name, the Property or the Trademarks in Licensee's corporate or business
name in any manner whatsoever. Licensee will in no way represent that it has any
right, title or interest in the Property or the Trademarks other than those
expressly licensed to Licensee hereunder. Licensee will not use or authorize the
use, either during or after the Term, of any configuration, trademark, trade
name or other designation confusingly similar to King's name, the Property or
the Tademarks.
9. GOOD WILL AND PROMOTIONAL VALUE:
(a) Licensee recognizes the value of the good will associated with the
Property and the Trademarks and acknowledges that the Property, Trademarks and
all rights therein and the good will pertaining thereto belong exclusively to
King. Licensee acknowledges that the Property and the Trademarks have acquired
secondary meaning in the mind of the public. Licensee will not attack the title
or any rights of King in the Property or the Trademarks or the validity of the
License being granted herein either during or after the Term.
(b) Licensee's use of the Property and the Trademarks shall inure to the
benefit of King and Licensee shall not, at any time, acquire any rights in the
Property or the Trademarks by virtue of such use.
(c) Licensee acknowledges that: (i) King is entering into this Agreement
not only in consideration of the Royalties to be paid hereunder but also for the
promotional value to be secured by King for the Property and the Trademarks as a
result of the Sale of the Products by Licensee; and (ii) its failure to
manufacture, sell, advertise or promote Products in accordance with the
provisions of this Agreement or to fulfill any of Licensee's other obligations
hereunder will result in immediate and irreparable injury to King, and King will
have no adequate remedy at law. Therefore, King, in addition to all other
remedies it may have, shall be entitled to injunctive relief against any such
breach.
10. TRADEMARK, PATENT AND COPYRIGHT PROTECTION:
(a) The License granted hereunder is conditioned upon Licensee's compliance
with the applicable provisions of the trademark, patent and copyright laws of
the United States and each foreign country in the Territory. Licensee shall keep
records of and advise King when each of the Products is first sold in each
country in the Territory.
(b) Licensee shall cooperate with King in protecting and defending the
Property and the Trademarks including the execution of any documents as
requested by King. If any claim or problem arises with respect to the protection
of the Property or the Trademarks in the Territory. Licensee shall promptly
advise King in writing of the nature and extent of same. King shall have the
right but not the obligation to take any action whatsoever, with counsel of its
own choice, if any claim or problem arises with respect to the protection of the
Property or the Trademarks.
(c) Licensee shall not at any time apply for any copyright, trademark or
patent protection nor file any document with any governmental authority nor take
any other action which could affect King's rights in the Property or the
Trademarks.
<PAGE>
11. INFRINGEMENTS:
(a) Licensee shall assist King in the enforcement of any rights of King in
the Property or the Trademarks. King may commence or prosecute any claims or
suits in its own name or in the name of Licensee or join Licensee as a party
thereto. Licensee shall notify King in writing of any infringements or
imitations by third parties of the Property, the Trademarks, the Products or the
Promotional and Packaging Material which may come to the Licensee's attention.
King shall have sole right to determine whether or not any action shall be taken
on account of any such infringement or imitation. Licensee shall not contact the
third party, nor make any demands or claims, nor institute any suit nor take any
other action on account of such infringements or imitations without first
obtaining the prior written permission of King. All costs and expenses,
including attorneys' fees, incurred in connection with any suit instituted by
Licensee without the consent of King shall be borne solely by Licensee.
(b) With respect to all claims and suits, including suits in which Licensee
is joined as a party, King shall have the sole right to employ counsel of its
choice and to control the litigation and any settlement thereof. King shall be
entitled to receive and retain all amounts awarded as damages, profits or
otherwise in connection with such suits.
12. INDEMNIFICATION:
(a) King shall defend, indemnify and hold Licensee harmless against any
claims, liabilities, judgments, losses, costs and expenses, including reasonable
attorneys' fees, arising solely out of third party assertion of rights in the
Property or Trademarks based solely on the use of the Property or the Trademarks
by the Licensee as authorized in this Agreement, provided that Licensee shall
notify King of any such claim, demand, cause of action or judgment within ten
(10) days after Licensee acquires knowledge hereof, and further provided that
King shall have the right to undertake and conduct the defense of any cause of
action so brought and handle any such claim or demand. In no event shall King
have any liability for loss of profits or consequential damages.
(b) Licensee shall defend, indemnify and hold King and its parent,
subsidiary, related companies and agents harmless against any and all claims
(including, without limitation, claims based upon negligence and strict
liability), liabilities, judgments, losses, costs and expenses, including,
without limitation, reasonable attorneys' fees, arising out of the breach or
claimed breach by Licensee of any of the provisions hereof or out of Licensee's
design, manufacture, distribution, shipment, advertising, promotion or sale of
the Products or the Promotional and Packaging Material. King shall have the
right to defend any such action or proceeding with attorneys of its own
selection.
13. INSURANCE:
Licensee shall, throughout the Term obtain and maintain at its own cost
from a qualified insurance company licensed to do business in the State of New
York, separate policies for (i) standard Product Liability Insurance; and (ii)
Advertisers' Liability Insurance, the form of which must be acceptable to King,
naming King as an additional named insured. The Product Liability Insurance
policy shall provide protection against all claims, demands and causes of action
arising out of any defects or failure to perform, alleged or otherwise, of the
Products or any material used in connection therewith or any use thereof. The
amount of coverage under each policy shall be a minimum of One Million Dollars
($1,000,000) combined single limit, with no deductible amount, for each single
occurrence for bodily injury and/or for property damage. Each policy shall
provide for ten (10) days notice to King from the insurer by Registered or
Certified Mail, return receipt requested of any modification, cancellation or
termination. Licensee shall furnish to King a certificate of insurance
evidencing same within thirty (30) days after execution of this Agreement and,
in no event, shall the Licensee manufacture, offer for sale, sell, advertise,
promote, ship or distribute the Products prior to receipt by King of such
evidence of insurance.
14. EXPLOITATION BY LICENSEE:
(a) Licensee shall commence the Sale of the Products in commercially
reasonable quantities in each of the countries within the Territory by the
Marketing Date set forth in the Agreement.
(b) During the entire Term, Licensee will use its best efforts diligently
and continuously to distribute, ship, sell, promote and meet the demand for all
of the Products in all countries in the Territory.
(c) Products will be sold, shipped and distributed outright, at a
competitive price that does not exceed the price generally and customarily
charged the particular purchaser by the Licensee, and not on an approval,
consignment, sale or return basis. Licensee will not discriminate against the
Products by granting commissions/discounts to salesmen, dealers or distributors
in favor of Licensee's other products. Products will only be sold to retail
stores and merchants for sale, shipment and distribution direct to the public.
(d) Licensee shall sell to King, if it so requests, additional quantities
of each Product at eighty (80%) percent of Licensee's customary Gross Wholesale
Price.
15. PREMIUMS, PROMOTIONS AND SECONDS:
(a) King reserves the sole and exclusive right to utilize or license third
parties to utilize any Product in connection with any premium, giveaway, mail
order, in-theatre sales, promotional arrangement or fan club (collectively
referred to as "Promotional Products"), which retained right may be exercised by
King concurrently with the rights licensed to the Licensee hereunder.
(b) Licensee shall not sell, ship, advertise, promote, distribute or use
for any purpose whatsoever (or permit anyone else to do so) any Products or
Promotional and Packaging Materials which are damaged, defective, seconds or
otherwise fail to meet the specifications or quality standards or trademark,
patent and copyright usage and notice requirements of this Agreement.
16. ASSIGNABILITY AND SUBLICENSING:
(a) The License granted hereunder is and shall be personal to Licensee and
shall not be assigned by any act of Licensee or by operation of law. Licensee
shall not have the Products manufactured by a third party unless Licensee first
obtains King's prior written approval. Licensee shall have no right to grant any
sublicenses without King's prior written approval. Any attempt by Licensee to
arrange for manufacture by a third party or to sublicense or assign to third
parties its rights under this Agreement shall be null and void and shall
constitute a material breach of this Agreement.
(b) King shall have the right to assign its rights and obligations under
this Agreement without Licensee's approval.
17. TERMINATION:
In addition to any other rights King may have hereunder, at law or in
equity:
(a) King shall have the right to terminate this entire Agreement by giving
written notice to Licensee, if Licensee: (i) manufactures, sells, advertises,
promotes, ships, distributes or uses in any way any Product or Promotional and
Packaging Material without having the prior written approval of King as provided
for hereunder or after receipt of notice from King disapproving or withdrawing
approval of same; (ii) or any of its controlling shareholders, officers,
directors or employees take any action in connection with the manufacture, sale,
advertising, promotion, shipment or distribution of the Products or the
Promotional and Packaging Material which damages or reflects adversely upon
King, the Property or the Trademarks; (iii) breaches any of the provisions of
this Agreement relating to the unauthorized assertion of rights in the Property
or the Trademarks; (iv) fails to make timely payment of Royalties or any other
payments to King when due; (v) breaches any of the provisions of this Agreement
prohibiting Licensee from arranging for manufacture by third parties, assigning,
transferring, sublicensing or otherwise encumbering this Agreement or any of its
rights or obligations thereunder; or (vi) fails to obtain or maintain product
liability and advertising insurance as required by the provisions of this
Agreement; (vii) files a petition in bankruptcy, or a petition is filed against
Licensee which is not dismissed within 30 days, or is adjudicated a bankrupt or
insolvent, or makes an assignment for the benefit of creditors, or an
arrangement pursuant to any bankruptcy law, or if Licensee discontinues its
business, or if a receiver is appointed for the Licensee or for the Licensee's
business and such receiver is not discharged within thirty (30) days;
(b) King shall have the right to terminate upon written notice thereof to
Licensee the portion(s) of this Agreement relating to any Product(s) in which
the Licensee, for any reason, fails to commence sale, shipment and distribution
of any such Product(s) by the Marketing Date in accordance herewith, or if
Licensee, for any reason, after commencement, fails to continue to sell, ship
and distribute such Products in commercially acceptable quantities in such
country or countries for two consecutive Royalty Periods.
(c) King shall have the right to terminate this Agreement upon thirty (30)
days written notice to Licensee in the following events, provided that during
the thirty (30) day period, Licensee fails to cure the breach: (i) if Licensee
shall breach or violate any of its obligations under this Agreement other than
those covered in (a) or (b) above; or (ii) if Licensee becomes subject to any
voluntary or involuntary order of any governmental agency involving the recall
of any of the Products and/or Promotional and Packaging Material because of
safety, health or other hazards of risks to the public.
<PAGE>
18. POST-TERMINATION AND EXPIRATION RIGHTS AND OBLIGATIONS:
After the expiration or termination of the Term:
(a) Licensee shall have no right to manufacture, offer, sell, ship,
advertise, promote and distribute, use or deal with in any way Products or
Promotional and Packaging Material except as provided in subsection (c) below.
(b) If the Term is terminated prior to its normal expiration date,
notwithstanding anything to the contrary herein, all unpaid Royalties and any
Advance or Guaranteed Minimum Royalty which would be payable if the Term had
continued shall nevertheless be payable in full upon termination of the Term.
(c) Except upon expiration or termination of the Term pursuant to section
17 above, Licensee may dispose of all Products which are on hand or in the
process of manufacture at the time notice of termination is received or upon the
expiration of the then in effect Term for a period of sixty (60) days after
notice of termination or such expiration, as the case may be, provided that the
Advances and Royalties with respect to that period are paid and the appropriate
statements are furnished for that period. During such sixty (60) day period,
King may itself use or license the use of the Property and/or the Trademarks in
any manner at any time anywhere in the world as King sees fit.
(d) All rights granted to Licensee shall forthwith revert to King which
shall be free to license others to use the Property and the Trademarks in any
manner. At King's election and in its sole discretion Licensee shall either (i)
turn over to King all molds and other materials which reproduce the Products or
Promotional and related Packaging Material or (ii) cause the molds and such
other materials to be destroyed and provide King with satisfactory evidence of
their destruction. Licensee shall be responsible to King for any damages caused
by the unauthorized use by the Licensee or by others of such molds or
reproduction materials which are not so turned over to King or destroyed.
(e) Licensee acknowledges that its failure to cease the manufacture,
offering for sale, sale, advertising, promotion, shipment, distribution or use
of the Products or the Promotional and Packaging Material at the termination or
expiration of the Term will result in immediate and irreparable damage to King
and to the rights of any subsequent Licensee of King. Licensee acknowledges that
there is no adequate remedy at law for failure to cease such activities and, in
the event of such failure, King shall be entitled to injunctive or other
equitable relief in addition to all other remedies King may have.
19. FINAL INVENTORY UPON TERMINATION OR EXPIRATION:
Within thirty (30) days after the end of the Term, Licensee shall deliver
to King a statement indicating the number and description of the Products on
hand or in the process of manufacturing at the end of the Term. King shall have
the option of conducting a physical inventory at any time after the end of the
Term in order to ascertain or verify such statement. If Licensee refuses to
permit King to conduct such physical inventory, then, without limiting any of
King's other remedies, Licensee shall forfeit its rights hereunder to dispose of
such inventory
20. NOTICES:
All notices or other communications to either party shall be in writing and
sent by mail, telex, cable or personal delivery to such party's address listed
in the heading of this Agreement.
Either party may change its address by notice in writing to the other.
21. RELATIONSHIP OF THE PARTIES:
This Agreement does not create a partnership or joint venture between the
parties and Licensee shall have no power to obligate or bind King in any manner
whatsoever.
22. APPLICABLE LAW AND DISPUTES:
This Agreement shall be governed by the laws of the State of New York
applicable to agreements fully executed and performed therein. Any claims
arising hereunder or relating hereto shall be persecuted only in the appropriate
court of the State of New York or in the United States District Court for the
Southern District of New York and neither party shall make any claim or demand
in any other jurisdiction forum. The parties consent to the personal
jurisdiction of such courts and to the service of process by mail.
23. CAPTIONS:
Section captions are inserted only for convenience. Such captions shall not
be given any substantive or legal effect.
24. WAIVER:
(a) No waiver by either party of a breach or a default hereunder shall be
deemed a waiver of any other breach or default.
(b) All of King's rights and remedies hereunder or at law or in equity
shall be cumulative and resort to one shall not be construed as a waiver of any
other.
25. SURVIVAL OF RIGHTS:
Notwithstanding anything to the contrary contained herein, any obligations
which remain executory after expiration of the Term of this Agreement shall
remain in full force and effect until discharged by performance and such rights
as pertain thereto shall remain in full force until their expiration.
26. SEVERABILITY:
If any provision of this Agreement shall for any reason be held invalid,
illegal or unenforceable same shall not affect the validity of this Agreement or
any other provision hereof and this Agreement shall be interpreted and construed
as if such provision, to the extent invalid, illegal or unenforceable, had not
been contained herein.
27. INTEGRATION:
This Agreement: (i) represents the parties' entire understanding and
supersedes all previous representations, understandings or agreements, oral or
written, between them with respect to the subject matter hereof; and (ii) cannot
be modified except by a written instrument signed by the parties hereto.
<PAGE>
SCHEDULE A
King Features
- --------------------------------------------------------------------------------
Licensed Merchandise Approval Form
- --------------------------------------------------------------------------------
Licensee Name: Artisan House, Inc. Reference:
Address: 1755 Glendale Blvd.
City: Los Angeles State: CA Zip: 90026 Country: USA
- --------------------------------------------------------------------------------
Description of Product to be Approved:
Property: Betty Boop Wall Sculpture Marketing Date:
Product:
Design
Number of Designs: Hangtag/Label/Sticker:
Copyright:
Trademark:
- --------------------------------------------------------------------------------
Concept Review: Date R'cvd.:
Approved:
Rejected:
Review by:
- --------------------------------------------------------------------------------
Rough Artwork Review: Date R'cvd.:
Approved:
Rejected:
Review by:
- --------------------------------------------------------------------------------
Finish Artwork Review: Date R'cvd.:
Approved:
Rejected:
Review by:
- --------------------------------------------------------------------------------
Strike Off/Prototype Review: Date R'cvd.:
Approved:
Rejected:
Review by:
- --------------------------------------------------------------------------------
Production Sample Review: Date R'cvd.:
Approved:
Rejected:
Review by:
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
Picture of Betty Boop [Trademark]
<PAGE>
EXHIBIT D
- --------------------------------------------------------------------------------
KING FEATURES / NORTH AMERICA SYNDICATE ROYALTY STATEMENT
DOMESTIC
FOR THE PERIOD: __________________
LICENSEE: Artisan House, Inc. PROPERTY: _________
ADDRESS: 1755 Glendale Blvd.
Los Angeles, CA 90026 CONTRACT: ________
CURRENCY: _________
PHONE: 213-664-111
FAX# 213-664-5679
TERRITORY: USA
- --------------------------------------------------------------------------------
PRODUCT # OF UNITS TOTAL ROYALTY
DESCRIPTION SOLD UNIT PRICE SALE ROYALTY% EARNED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL
-------------------------
TERRITORY: CANADA
- --------------------------------------------------------------------------------
PRODUCT # OF UNITS TOTAL ROYALTY
DESCRIPTION SOLD UNIT PRICE SALE ROYALTY% EARNED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL
-------------------------
TOTAL ROYALTY EARNED:____________
LESS UNEARNED ADVANCE:____________
ADVANCE BALANCE OR (ROYALTY DUE):
============
PREPARED BY:__________________________
DATE: __________________________
**NOTE: This form must be submitted when due whether or not there were any sales
in the period.
Please use separate forms for each property trademark.
- --------------------------------------------------------------------------------
<PAGE>
LICENSING AGREEMENT
AGREEMENT dated this 25th day of August 1995 between The Curtis Publishing
Company, Licensing Division (hereinafter referred to as "Licensor"), located
1000 Waterway Boulevard, Indianapolis, IN 46202, and Artisan House, Inc.
(hereinafter referred to as "Licensee"), located at 1755 Glendale Blvd., Los
Angeles, California 90026.
WITNESSETH:
WHEREAS, Licensor was engaged in publishing the magazine The Saturday Evening
Post;
WHEREAS, Licensor is the owner of a library of distinctive and well-known
copyrighted magazine illustrations produced for The Saturday Evening Post
Company;
WHEREAS, Licensee desires to utilize certain of said illustrations for its
merchandise upon the terms and conditions set forth below.
NOW THEREFORE, in consideration of the mutual promises and undertakings herein
contained and for other good and valuable considerations, intending to be
legally bound, the parties agree as follows:
1. DEFINITION OF TERMS
(a) "Consumer Sales" shall mean sales of Goods by Licensee directly or
through its authorized wholesalers, representatives or distributors to
retail establishments for eventual resale to the consumer.
(b) "Mail Order Sales" shall mean sales of Goods by Licensee directly to
the consumer through direct mail solicitation or catalogues or
electronic or TV mail order.
(c) "Original Term" shall mean the period beginning on October 1, 1995 and
ending on September 30, 1997.
(d) "Contract Year" shall mean the period commencing on January 1st and
ending on December 31st of the same year.
(e) A "Premium" shall mean any article used for the purpose of increasing
the sale of another item, promoting or publicizing any product or
service, or used to motivate a sales force, merchant, consumer, or any
other person to perform a specific act.
(f) "Net Wholesale Selling Price" as used herein shall be defined as
meaning the price at which the Goods are sold to Licensee's customers
net of all returns actually made or allowed.
<PAGE>
2. GRANT OF LICENSE
Subject to the limitations set forth in Paragraph 2(d) below, and the other
conditions of this Agreement, for the original term of this contract the
Licensor hereby grants to Licensee the rights to use the illustrations listed
under Schedule A below, (hereinafter referred to as "the Materials") on the
following merchandise (hereinafter referred to as "Goods"):
(a) Description of Goods: Metal Wall Sculptures painted and
unpainted.
(b) Schedule A: Use of up to 10 Norman Rockwell/
Saturday Evening Post cover
illustrations.
(To be selected - See Schedule A.)
(c) Market and Territory: Licensee shall only make sales of Goods as
described in Paragraph 1 (a) and (b) above. The license hereby granted
extends worldwide.
(d) Limitations on License: No license is granted hereunder for the use of
Material for any purpose other than upon or in connection with the
Goods. No license is granted hereunder for the manufacture, sale or
distribution of Goods to be used as premiums, for publicity purposes,
in combination sales, as giveaways, or to be disposed of under similar
methods of merchandising. In the event Licensee desires to sell Goods
for such purposes, Licensee acknowledges and agrees that it must first
seek and obtain a separate license therefore from Licensor and that
the user thereof must also obtain a separate license from Licensor for
such use of the Goods.
(e) Exclusivity: For the Original Term of this Agreement, Licensor shall
not license any other person to use, in the Territory, the Materials
listed under Schedule A on the Goods listed in Paragraph 2(a) above.
3. ROYALTIES
(a) Advance against Royalties: Simultaneous with the signing of this
Agreement, the Licensee shall pay to the Licensor a payment in the
amount of five thousand dollars ($5,000) as a non-refundable advance
against royalties earned.
(b) Rate: In consideration of this license, the Licensee shall pay to the
Licensor, during the Original Term of this Agreement and any extension
thereof, a royalty in the amount of eight percent [8%] of the Net
Wholesale Selling Price of Goods sold or four percent (4%) for Direct
Mail/Retail of Goods sold. In computing Net Wholesale
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Selling Price, no costs incurred in other advertising and promoting
allowances, or distributing the Goods or any indirect expenses shall
be deducted.
4. ACCOUNTING
Not later than the thirtieth (30th) day after every quarter during the Original
Term and any extension thereof, and thereafter so long as any sales are made by
the Licensee pursuant to this Agreement, the Licensee shall furnish to the
Licensor a full, complete and accurate statement showing the number of Goods,
which have been sold by the Licensee and the selling price thereof during the
preceding quarter. For the purposes of this Agreement, an item is considered to
be sold when it is ordered and invoiced or shipped, whichever is sooner.
5. PAYMENT
Simultaneous with the rendition of the statement as aforesaid in Paragraph 4
above, the Licensee shall pay to the Licensor, subject to the provisions of
Paragraph 3, such royalties as the statement indicated are due the Licensor.
6. DURATION
Except as otherwise provided in the following paragraphs, upon completion of the
Original Term, all rights granted the Licensee shall automatically terminate.
7. QUALITY
Licensee acknowledges that if the Goods manufactured and sold by it are of
inferior quality in material and workmanship, the substantial good will which
the Licensor has built up and now possesses in the Material will be impaired.
Accordingly, Licensee warrants that the Goods will be of high standard and of
such appearance and quality as shall be reasonably adequate and suited to their
exploitation to best advantage. Licensee shall submit to Licensor finished art
work and/or a facsimile of all Goods to be manufactured, together with its
cartons and containers, including packaging and wrapping material, which shall
be approved in writing by the Licensor before the Goods are advertised,
distributed or sold. Any article submitted and not disapproved within fourteen
(14) days of the receipt of same by Licensor shall be deemed to have been
approved. After samples of the Goods have been approved pursuant to this
paragraph, Licensee shall not depart therefrom without written consent of the
Licensor. In the event there is a departure from the approved sample of the
Goods made or distributed by Licensee, or in the event there is an occurrence
connected with any such Goods or Licensee which reflects unfavorably upon
Licensor, the Licensor shall have the right in the reasonable exercise of its
sole discretion to withdraw its approval of such Goods, at which time this
Agreement shall automatically terminate with respect to such Goods.
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<PAGE>
8. SAMPLES
Licensee shall supply Licensor with 1 sample of each of the completed Goods.
9. BOOKS AND RECORDS
The Licensee shall keep full, complete and accurate books of account and records
covering all transactions relating to the subject matter of this Agreement.
Licensor, through its authorized representative shall have the right to examine
such books of account and records and other documents and material in Licensee's
possession or under its control insofar as they relate to the manufacture and
sale of Goods. The Licensor shall have free and full access therefrom at any
reasonable hour of the day during which the Licensee's offices are open and in
any reasonable manner. Licensee need only retain such books of account and
records for a two-year period following the termination of this Agreement.
10. GOODWILL
The Licensee acknowledges that the Material is unique and original and that the
Licensor is the owner thereof. The Licensee shall not, during the Original Term
of this Agreement or any time thereafter, dispute or contest, directly or
indirectly; the Licensor's ownership of the Material; The Licensor's exclusive
right (subject to this license) to use the Material; the validity of any of the
copyrights or trademarks pertaining thereto or the Licensor's ownership thereof.
Nor shall the Licensee assist or aid others in doing so. At the Licensor's
request, the Licensee shall cooperate with the Licensor in preventing or
stopping any infringement or unfair use by any third party of the Goods or the
Material. The Licensor shall bear the costs of preventing or stopping any such
infringement or unfair use, which it elects to pursue, and the Licensee's
obligation will be limited to providing fill cooperation to Licensor.
11. LICENSEE'S EFFORTS
Licensee agrees that it will exercise its best efforts to manufacture,
distribute and sell the Goods within the territory. It is also agreed that
Licensee will use its best efforts to fulfill orders for Goods in a timely and
reasonable manner. Should there be an unforeseen delay in fulfilling customers'
orders for Goods, Licensee will exercise all possible diligence in informing
those customers of the delay, and complying totally with Federal Trade
Commission regulations and all other relevant state and federal laws. In the
event of an unforeseen delay in fulfilling orders to customers, Licensee also
agrees that it will refrain from advertising or promoting Goods, or soliciting
orders from consumers until such problems are cured.
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<PAGE>
12. COPYRIGHT, ETC.
(a) The Licensor shall apply to register trademarks and claims to
copyright, and apply for design patents on the Goods and/or the
Material as may be reasonably necessary, in the Licensor's sole
discretion, to protect the Licensor's interests.
All applications for registration of claims to copyright shall
identify the Licensor as the copyright proprietor; all applications to
register trademarks shall identify the Licensor as the trademark
owner; and all applications for design patents shall correctly
identify the inventor and shall be assigned to the Licensor.
(b) If the Licensor requires any specimens of the Goods, or any
photographic reproductions of the same, for use in filing copyright,
trademark or patent applications, the Licensee shall provide the
Licensor with the same at Licensee's expense.
(c) At the Licensor's request, the Licensee shall execute assignments in
favor of the Licensor of any and all copyrights, trademarks or other
property rights of whatever kind relating to the Goods and/or the
Material without further consideration.
(d) Licensee shall ensure and warrant that it will provide a legally
sufficient copyright notice on the Goods and/or the packaging,
wrapping, advertising and promotional material bearing any
reproductions of the Goods or the Material, in the following format
designated by Licensor:
(C) 19** The Curtis Publishing Company
or such other format as Licensor shall from time to time direct. The
Licensee further warrants that it will take such precautions as are
necessary to insure that any reproductions made by its customers also
bear the Licensor's legal copyright notice.
13. ADVERTISING/STYLE GUIDELINES
All advertisements and promotional materials which Licensee intends to use to
promote Goods shall be submitted to Licensor for its written approval prior to
publication. Licensor shall have fourteen (14) days from the date of receipt of
said material in which to approve or disapprove it. Such approval shall not be
unreasonably withheld by Licensor.
To the fullest extend possible, the style guidelines of the Licensor will be
followed in advertising, labeling and promotion.
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<PAGE>
14. RIGHT OF TERMINATION
Without prejudice to any other rights, Licensor shall have the right to
terminate this Agreement upon written notice to Licensee, sent by certified
mail, return receipt requested, at any time that any of the following may occur:
(a) If Licensee shall not have begun the bona fide manufacture or
production of the Goods licensed hereunder within ninety (90) days
from the commencement of the term hereof.
(b) If Licensee shall be unable to fulfill or obtain valid purchase orders
for the Goods throughout the territory hereof for any reason for a
period of six (6) months or more.
(c) If Licensee shall fail to make any payment due hereunder or to deliver
any of the statements herein referred to, and if such default shall
continue for a period of sixty (60) days.
(d) If Licensee shall be unable to pay its liabilities when due, or shall
make any assignment for the benefit of creditors, or shall file any
petition under Chapter 10, 11 or 12 of Title 11, United States Code,
or file a voluntary petition in bankruptcy or be adjudicated as
bankrupt or insolvent, or if any receiver is appointed for its
business or property, or if any trustee in United States government or
of the several states, Licensor shall have the right to terminate this
Agreement. Notwithstanding the foregoing, the Licensor shall, at any
time during the term of this contract, have the option of demanding an
assurance from Licensee of Licensee's ongoing ability to perform the
provisions of this contract, if, in the reasonable opinion of
Licensor, Licensee is unable to adequately fulfill its requirements.
If reasonable and adequate assurance is not received by Licensor
regarding Licensee's ability to perform, Licensor shall have the right
to terminate this Agreement.
15. SALES AFTER EXPIRATION
Should this Agreement terminate for any reason or expire, Licensee may, at the
sole discretion of the Licensor, be permitted to sell its remaining inventory of
Goods for a period not to exceed one hundred and twenty (120) days following the
termination or expiration of this Agreement. Said request to sell remaining
inventory shall be sent to the Licensor within thirty (30) days before
expiration or from Licensee's receipt of any notice terminating the license
herein. However, the Licensee shall not, without prior written consent of the
Licensor, sell any such remaining Goods as distress merchandise or otherwise
than in the ordinary course of business. For the purpose of this Agreement, a
distress sale shall be defined as one in which the merchandise is sold for less
than fifty percent (50%) of the normal wholesale selling price. Licensee shall
pay royalties on all such sales in the manner provided for in this Agreement.
6
<PAGE>
16. CESSATION OF USE
Except as otherwise provided in Paragraph 15, the Licensee shall, forthwith upon
the expiration of this Agreement or any extension thereof, or upon its sooner
termination, discontinue the manufacturing, printing, promotion, advertising,
sale and distribution of Goods.
17. RIGHTS RESERVED BY LICENSOR
Any and all rights in and to said Material which are not expressly granted to
the Licensee are hereby reserved by the Licensor. Any one or more of such
reserved rights may be exercised or enjoyed by the Licensor, directly or
indirectly, at any and all times.
18. REIMBURSEMENT OF EXPENSES
Licensee agrees to reimburse Licensor for all labor, material and other expenses
incurred by Licensor at the direct request of Licensee.
Licensee further agrees to reimburse Licensor for the cost of any royalties
audit deemed necessary and proper by Licensor, provided such audit finds a
discrepancy of five percent (5%) or more.
19. LICENSOR'S CLAIM
Whatever claim Licensor may have against Licensee hereunder for royalties and/or
for damages shall become a first lien upon all of said Goods manufactured or
produced pursuant to the terms of this Agreement in the possession or under the
control of Licensee or its agents upon the expiration or termination of this
Agreement.
20. REMEDIES
All specific remedies provided for in this Agreement shall be cumulative and
shall not be exclusive of one another or of any other remedies available in law
or equity. The failure of the Licensor to insist upon the strict performance of
any of the covenants or terms hereof to be performed by the Licensee shall not
be construed as a waiver of such covenants or terms.
21. LICENSEE'S WARRANTY
Licensee hereby agrees to be solely responsible for, to defend and indemnify
Licensor and its respective officers, agents and employees, and to hold each of
them harmless from any claims, demand, causes of action or damages, including
reasonable attorney's fees arising out of the distribution or use of the Goods,
other that those based solely on Licensee's use of the Material authorized by
this Agreement. Licensee will obtain and maintain product liability insurance in
the minimum amount of five hundred thousand dollars
7
<PAGE>
providing protection for Licensor and its respective officers, agents and
employees against any attorney's fees arising out of any alleged defects in
Goods or any use thereof, in an amount and providing coverage satisfactory to
Licensor. Such insurance policy shall provide that it may not be canceled
without at least ten days written notice by Licensor. Further, Licensor will
furnished with a certificate of such insurance issued by the insuring company.
22. LICENSOR'S WARRANTY
Licensor represents and warrants to Licensee that it is the sole owner and
proprietor of Material and has the power to enter into this Agreement. Licensor
hereby agrees to indemnify Licensee, its officers, agents and employees and to
hold them harmless against claims, demands, causes of action or damages, for
trademark or copyright infringement arising out of the use of the Material as
authorized by this Agreement, provided that Licensor is given immediate notice
of and shall have the option to undertake and conduct the defense of any such
claim, demand or cause of action. Licensee may, but shall not be obligated to,
join in such defense and be represented by its own counsel. All liabilities,
expenses, losses, damages and reasonable attorney's fees in connection with any
such claim shall be paid by Licensor, except that if Licensee elects to be
represented by its own counsel, Licensee will pay its own attorney's fees.
Licensee agrees that while it may counsel Licensor concerning the disposition of
any such action, Licensor shall have the sole final decision concerning the
disposition of any action and the right to dispose of inventory and works in
progress as it sees fit.
23. NO PARTNERSHIP OR JOINT VENTURE
This Agreement does not constitute and shall not be construed as constituting a
partnership or joint venture between Licensor and Licensee. The Licensee shall
have no right to obligate or bind Licensor in any manner whatsoever and nothing
herein contained shall give or is intended to give any rights of any kind to any
third party.
24. NO ASSIGNMENT
The license hereby granted is and shall be personal to the Licensee and shall
not be assignable by any action of the Licensee or by operation of the law, and
any attempt at such assignment shall be null and void. The Licensee shall have
no right to grant any sub-licenses. Material change in ownership or corporate
firm of the Licensee shall render this Agreement null and void. This Agreement
shall inure to the benefit of and shall be binding upon the Licensor's
successors and assigns.
25. WAIVER AND MODIFICATION
No waiver or modification of any of the terms of this Agreement shall be valid
unless in writing and signed by the party against whom such modification or
waiver is sought to be enforced. No waiver by either party of a breach hereof
8
<PAGE>
of a default hereunder shall be deemed a waiver by such party of a subsequent
breach or default of like or similar nature.
26. NOTICE
Whenever notice is required to be given under this Agreement, it shall be deemed
to be good and sufficient notice if in writing, signed by an officer or an
authorized agent of the party serving such notice and sent by telegram, telex or
mailed by registered or certified mail, return receipt requested, to the other
party at the address stated above unless notification of a change of address is
given in writing.
27. CONSTRUCTION
This Agreement has been executed in the State of Indiana and shall be construed
in accordance with the laws of said State, irrespective of the forum in which
the Agreement or any part of it may come up for construction, interpretation, or
enforcement.
28. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties. There are no
representations, warranties, promises, covenants or understandings other than
those herein contained.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed
by their duly authorized officers as of the day and year first above written.
THE CURTIS PUBLISHING ARTISAN HOUSE, INC.
COMPANY
LICENSING DIVISION
BY: [Illegible] BY:__________________________
-----------------------
TITLE: President TITLE:_______________________
--------------------
DATE: Aug 28, 1993 DATE:________________________
---------------------
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SCHEDULE A
ARTISAN HOUSE, INC.
DATE ILLUSTRATION
---- ------------
04/24/26 Sunset Norman Rockwell
(Additional 9 images to be selected)
10
<PAGE>
LICENSE AGREEMENT
This license agreement dated January 23, 1995 (hereinafter referred to as
"Agreement"), is between the Family of Ingrid Bergman (hereinafter referred to
as "Licensor"), located c/o Curtis Management Group, 1000 Waterway Blvd.,
Indianapolis, Indiana 46202 and Artisan House, Inc. (hereinafter referred to as
"Licensee") located at 1755 Glendale Blvd., P.O. Box 26566, Los Angeles,
California 90026.
WITNESSETH:
WHEREAS, Licensor is the proprietor of the right of publicity associated
with the name, likeness, voice, signature and visual representation of the late
Ingrid Bergman (hereinafter referred to as "Property").
WHEREAS, Licensee desires to utilize said Property upon the terms and
conditions set forth below.
NOW THEREFORE, in consideration of the mutual promises and undertakings
herein contained and for other good and valuable consideration, intending to be
legally bound, the parties agree as follows:
1. Definition of Terms.
(a) "Consumer Sales" shall mean sales of Goods by Licensee directly or
through its authorized wholesalers, representatives or distributors to retail
establishments for eventual resale to the consumer.
(b) "Mail Order Sales" shall mean sales of Goods by Licensee directly to
the consumer through direct mail solicitation or catalogues.
(c) "Shopping Network Sales" shall mean sales of Goods by Licensee directly
or through it's authorized representatives, wholesalers and distributors through
media such as infomercials; local, cable, wireless or fiber optic television
shopping channels, on-line shopping, or otherwise.
(d) "Original Term" shall mean the period beginning on January 23, 1995 and
ending on December 31, 1995.
(e) "Contract Year" shall mean the period commencing on January 1st and
ending on December 31st of each year of this Agreement.
(f) "Premium" shall mean any article used for the purpose of: increasing
the sale of another item; promoting or publicizing any product or service;
fund-raising or as giveaways; to motivate a sales force, merchant, consumer, or
any other person to perform a specific act.
2. Grant of License.
(a) Subject to the limitations set forth in paragraph 2(c) below and the
other conditions of this Agreement Licensor hereby grants to Licensee the
non-exclusive right to use the Property on the following merchandise
(hereinafter referred to as "Goods"):
<PAGE>
Casablanca metal wall sculpture with Humphrey Bogart with an approximate
retail price of $300
(b) Market and Territory: Licensee shall only make sales of Goods as
described in paragraph 1(a, b, c & f). The license hereby granted extends only
to the United States, Canada, Mexico, Australia, Singapore, Hong Kong, Taiwan,
Thailand and Japan (hereinafter "Territory").
3. Advance, Guarantee, Royalty, Renewal.
(a) Licensee agrees to pay one thousand dollars ($1,000) as a
non-refundable advance against royalties earned through December 31, 1995
payable upon execution of this Agreement.
(b) Licensee shall recover within the first year (1995) of this Agreement
the advance royalty payment by offsetting royalties earned against said advance
until the advance is recouped and shall thereafter make the royalty payments to
Licensor as set forth herein.
(c) Licensee agrees to pay royalties to Licensor for each unit of the Goods
as follows:
$3.75 per unit of the Goods, or five percent (5%) of Licensee's "standard
wholesale price", whichever is greater, for the Goods covered by this Agreement
in United States dollars computed upon the total number of units each Good
shipped or otherwise distributed by Licensee or any of its affiliated,
associated (including reps and/or distributors) or subsidiary (hereinafter
"Related") companies, without deductions for bad debt, cost of shipping, cost of
packaging, advertising or promotional expenses, cash or volume discounts or
other costs. A deduction of not more than 5% may be taken for actual certified
returns.
The term "standard wholesale price" as used herein shall mean the highest
price customarily charged by Licensee, or by any of its Related companies, to
unaffiliated third parties for retail sale of the Goods described in paragraph
2, hereof. Royalties at the stated rate shall be due and payable on all units of
Goods shipped or otherwise distributed by Licensee to its related companies or
to a third party or to Licensee from its related companies and irrespective of
the actual price charged for such distributed Goods.
(d) Except as otherwise provided in the following paragraphs, upon
completion of the Original Term or any subsequent renewal term (as herein
provided), this Agreement will automatically be extended for additional one year
terms, subject to a $1,000 minimum annual guarantee payable prior to the 30th
day of each calendar quarter in minimum equal quarterly installments--if
unearned), unless either party shall give the other not less than ninety (90)
days notice in writing (by confirmed receipt via certified mail, telefax, or
overnight mail) of its intention to not renew this Agreement.
4. Payment and Reporting.
Not later than the thirtieth (30th) day after the close of every calendar
quarter during the Original Term and any extension thereof, and thereafter so
long as any sales are made by the Licensee pursuant to this Agreement, the
Licensee shall furnish to the Licensor a full and complete statement showing the
number of Goods which have been sold by the Licensee and the selling price
thereof during the preceding calendar quarter. An item will be considered to be
sold when it is ordered and then invoiced or shipped, whichever is
<PAGE>
sooner. The Licensee shall pay to the Licensor, c/o Curtis Management Group,
1000 Waterway Blvd., Indianapolis, IN 46202, such royalties as the statement
indicates are due the Licensor. All payments shall be made by company check
drawn on U.S. funds payable to "Curtis Management Group". All late payments
shall be subject to a two percent per month (24% annual rate) late charge on
all such outstanding amounts.
5. Ouality.
Licensee acknowledges that if the Goods manufactured and sold by it are of
inferior quality in material and workmanship, the substantial goodwill which the
Licensor has built up and now possesses in the Property will be impaired.
Accordingly, Licensee warrants that the Goods will be of high standard and of
such appearance and quality as shall be reasonably adequate and suited to their
exploitation and best advantage. Licensee shall submit to Licensor finished art
work and/or a facsimile of all Goods to be manufactured, together with its
cartons and containers, including packaging and wrapping material, which shall
be approved in writing by the Licensor before the Goods are advertised,
distributed or sold. Any article submitted and not disapproved within fourteen
(14) days of their receipt of same by Licensor shall be deemed to have been
approved. After samples of the Goods have been approved pursuant to this
paragraph, Licensee shall not depart therefrom without written consent from
Licensor. In the event there is a departure from the approved sample of the
Goods made or distributed by Licensee, or in the event there is an occurrence
connected with the Goods which reflect unfavorably upon Licensor, the Licensor
shall have the right, in the reasonable exercise of its sole discretion, to
withdraw its approval of such Goods, at which time this Agreement shall
automatically terminate with respect to such Goods. Thereupon, Licensee shall
cease the use of the Property in the sale, advertising, distribution or use of
such Goods immediately upon notice from Licensor; and within ten (10) days
thereafter shall pay all amounts due to Licensor hereunder. If there are other
Goods under this Agreement not covered or affected by the foregoing two
sentences of this paragraph, this Agreement shall remain in full force and
effect as to those other Goods.
6. Advertising.
All advertisements and promotional material which Licensee intends to use
to promote Goods shall be submitted to Licensor for its written approval prior
to publication. Licensor shall have fourteen (14) days from the date of receipt
of said material in which to approve or disapprove it, such approval not to be
unreasonably withheld.
7. Samples.
Licensee shall supply Licensor with five (5) samples of each of the
completed Goods, promptly after completion. Licensor shall have the right to
purchase additional samples for its own personal use at wholesale.
8. Books and records.
The Licensee shall keep full, complete and accurate books of account and
records covering all transactions relating to the subject matter of this
Agreement. Licensor through its authorized representative, shall have the right
to examine such books of account and records and other documents and material in
Licensee's possession or under its control insofar as they relate to the
manufacture and sale of Goods. The Licensor shall have free and full access
there to at any reasonable hour of the day during which the Licensee's offices
are open and in any reasonable manner. In the event an examination of Licensee's
books and/or records reveals a deficiency in royalties paid to Licensor of more
than three
<PAGE>
hundred dollars ($300.00), Licensee shall pay all expenses related to the
performance of the examination and shall immediately pay the deficient amount to
Licensor. Upon its discretion, Licensor may require that Licensee furnish
financial reports of Licensee's financial status.
9. Goodwill.
Licensee acknowledges that the Property is unique and original and that the
Licensor is the owner thereof. Licensee shall not, during the Original Term of
the Agreement or at any time thereafter, dispute or contest, directly or
indirectly, the Licensor's ownership of the Property; the Licensor's exclusive
right (subject to this license) to use the Property; the validity of any of the
copyrights or trademarks pertaining thereto or the Licensor's ownership thereof,
nor shall the Licensee assist or aid others in doing so. At the Licensor's
request the Licensee shall cooperate with the Licensor in preventing or stopping
any infringement or unfair use by any third party of the Goods or Property. The
Licensor shall determine what action, if any, it elects to pursue in regard to
preventing or stopping any infringement or unfair use by any third party of the
Goods or Property and shall be under no obligation whatsoever to take action at
Licensee's request.
10. Copyright, Etc.
(a) The Licensor shall apply to register trademarks and claims to copyright
for any design incorporating the Property, and apply for design patents on the
Goods and/or the Property as may be reasonably necessary, in the Licensor's sole
discretion, to protect the Licensor's interests. All applications for
registration of claims to copyright, where applicable, shall identify the
Licensor as the copyright proprietor; all applications to register trademarks
shall identify the Licensor as the trademark owner; and all applications for
design patents shall correctly identify the inventor and shall be assigned to
the Licensor at no additional cost.
(b) If Licensor requires any specimens of the Goods, or any photographic
reproductions of the same, for use in filing copyright claims, where applicable,
or trademark or design patent application, Licensee shall provide the Licensor
with the same at Licensee's expense.
(c) At Licensor's request, the Licensee shall execute assignments in favor
of Licensor of any and all copyrights, trademarks or other intellectual property
rights of whatever kind relating to the Goods and/or the Property without
further consideration and Licensee will upon the request of Licensor assign to
the Licensor any rights, if any, which Licensee may have acquired through its
use of the Property.
(d) Licensee warrants that it will provide a legally sufficient copyright
notice on the Goods and packaging, wrapping, advertising and promotional
material bearing any reproductions of the Goods or the Property, in the
following format:
TM/(C) 1994 Family of Ingrid Bergman under license authorized by
Curtis Management Group, Indianapolis, Indiana, 46202 USA
(e) Licensee warrants that it will provide a legally sufficient trademark
notice by prominently displaying the letters TM (or the sign (R) if so specified
by the Licensor) against every occurrence of Property on the Goods and against
every occurrence of the Property on packaging, wrapping,
<PAGE>
advertising and promotional material for the Goods.
(f) Licensee warrants that it will take such precautions as are necessary
to insure that any promotional materials for the Goods which utilize the
Property made by its customers bear the Licensor's copyright and/or trademark
notice as provided in paragraph 10 (d & e).
11. Right of Termination.
Without prejudice to any other rights, Licensor shall have the right to
terminate this Agreement, or a portion thereof, upon written notice to Licensee,
at any time that the following may occur:
(a) If full and regular production and aggressive marketing has not
commenced within three (3) months from the date of this Agreement. Any
individual categories of Goods granted in paragraph 2(a) not in distribution
throughout the Territory within five (5) months are subject to revocation of
production rights. If the Goods are out of production for more than three
consecutive months, Licensor may terminate the production rights for the
particular category of Goods, that particular Good in a particular territory, or
terminate the entire Agreement at Licensor's sole discretion.
(b) If Licensee shall fail to make any payment due hereunder or to deliver
any of the statements herein referred to, and if such default shall continue for
a period of five (5) days after written notice of such default is sent by
Licensor to Licensee.
(c) If Licensee is involved in any act of bankruptcy or insolvency, then
Licensor shall have the right to terminate this Agreement. Notwithstanding the
foregoing, Licensor shall, at any time during the term of this Agreement, have
the option of demanding an assurance from Licensee of Licensee's on-going
ability to perform the provisions of this Agreement. Unless reasonable and
adequate assurance is received by Licensor from Licensee concerning Licensee's
ability to perform, Licensor shall have the right to terminate this Agreement.
12. Sales after Expiration.
Upon expiration of this Agreement, Licensee shall be permitted to sell or
ship its remaining inventory of Goods for a period of ninety (90) days following
the expiration date of this Agreement. Upon termination of this Agreement,
Licensee shall not be permitted to sell or ship its remaining inventory of Goods
following the termination date of this Agreement. The Licensee shall not,
without prior written consent of the Licensor, sell or ship any such remaining
Goods as distress merchandise, or to unaffiliated third parties for eventual
resale, or otherwise than in the ordinary course of business. Licensee shall not
stockpile inventory prior to expiration or termination of this Agreement for
purposes of sale or shipment thereafter. For purposes of this Agreement, a
distress sale shall be defined as one in which the merchandise is sold for less
than fifty percent (50%) of the normal wholesale selling price.
13. Rights reserved by Licensor.
Any and all rights in and to said Property which are not expressly granted
to the Licensee are hereby reserved by the Licensor. Any one or more of such
reserved rights may be exercised or enjoyed by the Licensor, directly or
indirectly, at any and all times.
14. Licensor's Claim.
Whatever claim Licensor may have against Licensee hereunder for royalties
and/or for damages shall become a first lien upon all of said Goods manufactured
or produced pursuant to the
<PAGE>
terms of this Agreement in the possession or under the control of Licensee or
its agents upon the expiration or termination of this Agreement.
15. Remedies.
All specific remedies provided for in this Agreement shall be cumulative
and shall not be exclusive of one another or of any other remedies available in
law or equity. Failure of the Licensor to insist upon strict performance of any
of the covenants or terms hereof to be performed by the Licensee shall not be
construed to be a waiver of any such other covenants or terms. Should Licensor
be forced to initiate legal action due to Licensee's breach hereof, then all
legal costs incurred therein by Licensor shall be recoupable by Licensor.
16. Licensee's Indemnification & Product Liability Insurance.
Licensee hereby agrees to be solely responsible for, to defend and
indemnify Licensor and its respective officers, agents and employees, and to
hold each of them harmless from any claims, demands, causes of action or
damages, including reasonable attorney's fees arising out of the distribution
or use of the Goods. Licensee will obtain and maintain product liability
insurance at least in the amount of $1,000,000 with a deductible of not more
than $10,000 (certificate of which shall be furnished to Licensor) providing
adequate protection for Licensor and its respective officers, agents, and
employees against any claims, demands, arising out of any alleged defects in
Goods or any use thereof. Such insurance policy shall provide that it may not be
cancelled without at least ten (10) days written notice to Licensor.
17. Licensor's Warranty.
Licensor represents and warrants to Licensee that it has the power to enter
into this Agreement. Should any third party assert a claim, demand, or cause of
action against Licensee contesting Licensor's ownership of the Property in
relation to Licensee's use of the Property under this Agreement, Licensor shall
have the option to undertake and conduct the defense of any such claim, demand
or cause of action. Licensee may, but shall not be obligated to join in such
defense and be represented by its own counsel. If Licensee elects to be
represented by its own counsel, Licensee will pay its own attorney's fees.
Licensee agrees that while it may counsel Licensor concerning the disposition of
any such action, Licensor shall have the sole and final decision concerning the
disposition of any action which involves the Property and has the right to order
the Licensee to dispose of inventory and all works in progress as it sees fit.
Licensor shall also have the right, in its discretion, to institute and
prosecute lawsuits against third persons for infringement of the rights licensed
in this Agreement. Any lawsuit shall be prosecuted solely at the cost and
expense of the Licensor and all sums recovered in any such lawsuits, whether by
judgement, settlement or otherwise, shall be retained solely and exclusively by
the Licensor. Upon request of the Licensor, the Licensee shall execute all
papers, testify on all matters, and otherwise cooperate in every way necessary
and desirable for the prosecution of any such lawsuit. The Licensor shall
reimburse the Licensee for all reasonable expenses incurred as a result of such
cooperation.
18. No Partnership or Joint Venture.
This Agreement does not constitute and shall not be construed as
constituting a partnership, agency, or joint venture between Licensor and
Licensee. The Licensee shall have no right to obligate or bind Licensor in any
manner whatsoever and nothing herein contained shall give or is intended to give
any right of any kind to any third party.
19. No Assignment.
The license hereby granted is and shall be personal to the Licensee and shall
not be assignable
<PAGE>
by any action of the Licensee or by operation of the law, and any attempt at
such assignment shall be null and void. The Licensee shall have no right to
grant any sublicenses. This Agreement shall inure to the benefit of and shall be
binding upon Licensor's successors and assigns.
20. Notice.
Whenever notice is required to be given under this Agreement, it shall be
deemed to be good and sufficient notice if in writing, signed by an officer or
an authorized agent of the party serving such notice and sent by telegram,
telefax, or mailed by registered or certified mail, to the other party at the
address stated above unless notification of a change of address is given in
writing.
21. Entire Agreement.
This Agreement contains the entire understanding of the parties. There are
no representations, warranties, promises, covenants or understandings other than
those herein contained.
22. Confidentiality.
This Agreement and the contents hereof constitute a confidential business
relationship between the parties. Each panty acknowledges that significant
damage could be done to the other one should the terms of this Agreement become
public knowledge. Both parties agree that they will not reveal the terms of this
Agreement to any third party (excluding agents, attorneys, representatives, and
others with whom they have a legal obligation to disclose) and that they will
exercise reasonable precautions to insure that neither they nor their employees
or agents shall allow the terms of the Agreement to become public knowledge.
23. Disclaimer.
This Agreement in no manner absolves Licensee of its responsibility, if
any, to procure legally sufficient permission from the copyright owner(s) of the
photographs, illustrations, and/or artwork utilized in conjunction with the
manufacture and distribution of the Goods. Licensee agrees to indemnify and hold
harmless Licensor and its agent(s) from any and all claims made by third parties
with respect to copyrighted materials utilized in conjunction with this
Agreement.
24. Construction & Jurisdiction.
(a) This Agreement shall be construed in accordance with the laws of the
state of Indiana.
(b) Nothing in this Agreement is intended to be contrary to the laws of any
country or political subdivision thereof. In the event that any of the
paragraphs or particular terms or conditions set forth within any paragraphs are
held to be unenforceable by a court of record with competent jurisdiction, such
paragraph or particular term of condition therein shall be deemed to be stricken
from this Agreement within the jurisdiction of such court and the Agreement
shall otherwise remain in full force and effect in such jurisdiction and in its
entirety in other jurisdictions.
(c) Notwithstanding any present or future legal decisions in any
jurisdiction, regarding the necessity of Licensee to be licensed hereunder,
Licensee agrees to pay royalties as provided herein for as long as it exploits
the Property.
25. Arbitration and/or Forum Selection Clause.
Both parties acknowledge and consent that any controversy or claim arising
out of or relating to this Agreement, or the breach thereof, shall be settled
either by arbitration in Indianapolis, Indiana or in a court located in the
State of Indiana as follows:
<PAGE>
(a) Any controversy or claim arising out of or relating to the Agreement,
or breach thereof, shall be settled by arbitration in Indianapolis, Indiana, in
accordance with the Rules of the American Arbitration Association. The judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
the jurisdiction thereof; and/or
(b) Licensee agrees and consents to venue and jurisdiction within any court
located in the State of Indiana, agreeing that any such court would have
exclusive jurisdiction over any dispute, case or controversy arising under or in
connection with this Agreement, and that such any Indiana court shall be a
proper forum in which to adjudicate such dispute, case or controversy.
The prevailing party in any action above (including arbitration) shall be
allowed to recoup any and all attorney fees, interest and costs therein.
IN WITNESS WHEREOF, the parties hereto have signed by their duly authorized
officers as of the day and year first above written.
"Licensor" "Licensee"
/s/ Isabella Rossellini [Illegible]
- --------------------------------- -------------------------
Isabella Rossellini Artisan House, Inc.
_________________________________
Ingrid (Isotta) Rossellini Aborn
_________________________________
Roberto Rossellini
_________________________________
Pia Lindstrom
<PAGE>
(a) Any controversy or claim arising out of or relating to the Agreement,
or breach thereof, shall be settled by arbitration in Indianapolis, Indiana, in
accordance with the Rules of the American Arbitration Association. The judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
the jurisdiction thereof, and/or
(b)Licensee agrees and consents to venue and jurisdiction within any court
located in the State of Indiana, agreeing that any such court would have
exclusive jurisdiction over any dispute, case or controversy arising under or in
connection with this Agreement, and that such any Indiana court shall be a
proper forum in which to adjudicate such dispute, case or controversy.
The prevailing party in any action above (including arbitration) shall be
allowed to recoup any and all attorney fees, interest and costs therein.
IN WITNESS WHEREOF, the parties hereto have signed by their duly authorized
officers as of the day and year first above written.
"Licensor" "Licensee"
[Illegible]
____________________________________ ----------------------------
Isabella Rossellini Artisan House, Inc.
/s/ Ingrid (Isotta) Rossellini Aborn
- ------------------------------------
Ingrid (Isotta) Rossellini Aborn
____________________________________
Roberto Rossellini
____________________________________
Pia Lindstrom
<PAGE>
(a) Any controversy or claim arising out of or relating to the Agreement,
or breach thereof, shall be settled by arbitration in Indianapolis, Indiana, in
accordance with the Rules of the American Arbitration Association. The judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
the jurisdiction thereof; and/or
(b) Licensee agrees and consents to venue and jurisdiction within any court
located in the State of Indiana, agreeing that any such court would have
exclusive jurisdiction over any dispute, case or controversy arising under or in
connection with this Agreement, and that such any Indiana court shall be a
proper forum in which to adjudicate such dispute, case or controversy.
The prevailing party in any action above (including arbitration) shall be
allowed to recoup any and all attorney fees, interest and costs therein
IN WITNESS WHEREOF, the parties hereto have signed by their duly authorized
officers as of the day and year first above written.
"Licensor" "Licensee"
[Illegible]
_________________________________ --------------------------
Isabella Rossellini Artisan House, Inc.
_________________________________
Ingrid (Isotta) Rossellini Aborn
/s/ Roberto Rossellini
- ---------------------------------
Roberto Rossellini
_________________________________
Pia Lindstrom
<PAGE>
(a) Any controversy or claim arising out of or relating to the Agreement,
or breach thereof, shall be settled by arbitration in Indianapolis, Indiana,
in accordance with the Rules of the American Arbitration Association. The
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having the jurisdiction thereof; and/or
(b) Licensee agrees and consents to venue and jurisdiction within any court
located in the State of Indiana, agreeing that any such court would have
exclusive jurisdiction over any dispute, case or controversy arising under or in
connection with this Agreement, and that such any Indiana court shall be a
proper forum in which to adjudicate such dispute, case or controversy.
The prevailing party in any action above (including arbitration) shall be
allowed to recoup any and all attorney fees, interest and costs therein.
IN WITNESS WHEREOF, the parties hereto have signed by their duly authorized
officers as of the day and year first above written.
"Licensor" "Licensee"
[Illegible]
________________________________ --------------------------
Isabella Rossellini Artisan House, Inc.
________________________________
Ingrid (Isotta) Rossellini Aborn
________________________________
Roberto Rossellini
/s/ Pia Lindstrom
- --------------------------------
Pia Lindstrom
<PAGE>
MERCHANDISING LICENSE AGREEMENT
Date: as of February 2, 1995
Property: The 1942 motion picture CASABLANCA
License No.: D95017
TURNER LICENSEE
- ------ --------
TURNER HOME ENTERTAINMENT, INC. ARTISAN HOUSE, INC.
One CNN Center 1755 Glendale Blvd.
Post Office Box 105366 P.O. Box 26566
Atlanta, Georgia 30348-5366 Los Angeles, CA 90026
Contact: Mr. Henry Goldman
Tel: 213-664-1111
Fax: 213-664-5679
This Agreement is made as of the date specified above between Turner and
Licensee, whereby Turner grants Licensee a license to utilize certain names,
likenesses, characters, trademarks and/or copyrights in connection with the
manufacture, distribution, advertising, promotion and sale of certain articles
of merchandise on the following terms and conditions:
1. Licensed Elements: See Schedule "1" attached below.
2. Authorized Articles: Metal wall sculpture.
3. Licensed Territory: United States, its territories and possessions.
4. License Period: February 1, 1995 - December 31, 1996
5. Direct Response Marketing Permitted (check one):
X Yes __ No
---
6. Exclusivity (check one): X Non-exclusive license __ Exclusive license
7. Royalty Rate: Five percent (5%) of direct mail selling price.
8. Advance/Guarantee: Advance: $1,000.00
Balance of
Guarantee: $1,500.00
---------- ---------
Total Guarantee: $2,500.00
The Advance of $1,000.00 is payable in full concurrently with Turner's
receipt of copies of this Agreement (without amendments or modifications)
signed by Licensee, which in any event will be not later than the date
twelve (12) days after Licensee receives copies of this Agreement for
signature.
$1,500.00 due not later than December 31, 1996.
(All references to "Dollar(s)" and/or "$" anywhere in this Agreement will
refer to United States Dollars.)
9. Marketing / Shipping Dates:
(a) Marketing of each of the Authorized Articles will begin not later than
June 1, 1995.
(b) Shipment to retailers of each of the Authorized Articles will begin not
later than June 1, 1995
10. Distribution: Authorized Articles may be sold through the home furnishing
industry and direct mail. Licensee shall not knowingly sell Authorized
Articles to persons or entities whom Licensee knows, or reasonably should
know, intend to resell or are likely to resell the Authorized Articles
outside the Licensed Territory.
11. Form of Copyright and Trademark Notice: Each Authorized Article shall bear
copyright and trademark notices in the following form (or in such other
form as Turner may hereafter designate, for prospective implementation, by
notice to Licensee):
Copyright: (C) 19XX Turner Entertainment, Co. All Rights Reserved.
Trademark: CASABLANCA(TM) and [name of each related CASABLANCA
character](TM) are trademarks of Turner Entertainment Co.
12. Notices: Payments and royalty statements to Turner shall be made or given
to Turner Home Entertainment, Inc., Licensing & Merchandising, P.O. Box
930387, Atlanta, Georgia 31193, attention: Controller; with a copy of
royalty statements to Turner Home Entertainment, Inc., 420 Fifth Avenue,
7th Floor, New York, NY 10018, attention: Licensing and Merchandising. All
other notices to Turner shall be sent to Turner at the New York address
specified above, with a copy to the Atlanta address specified above,
Attention: Legal Department.
-1-
<PAGE>
13. Special Terms: Notwithstanding anything herein to the contrary, the parties
understand and agree that Licensee may use the names and static visual
likenesses of any characters in the Picture only in strict compliance with
the following, in addition to all other terms set forth in Exhibit "A":
(a) The characters are licensed elements hereunder only in the context of
exact representations of actual acts, poses, or appearances from
"Casablanca."
(b) Licensee, and not Turner, shall be responsible for ensuring that any
use of the names and static visual likenesses of the characters
conforms to Paragraph (a) above. Turner makes no warranty,
representation or grant as to any other use of the image of any of the
characters. Any commercial use of the images of any of the characters
shall constitute Licensee's undertaking to Turner that such use in
fact incorporates only actual acts, poses or appearances from
"Casablanca."
(c) Licensee understands and acknowledges that this Agreement grants
rights to the Licensed Elements only to the extent of Turner's
ownership and control and that the use of the Licensed Elements may
also require consent or licenses from parties other than Turner.
Accordingly, Licensee represents and warrants that it has entered into
an agreement with the estates of Humphrey Bogart and Ingrid Bergman,
respectively as of the date hereof and agrees to provide Turner with
copies of said agreements upon execution of this Agreement.
14. Standard Terms: The attached "Exhibit 'A' (Standard Terms and Conditions)"
are incorporated by this reference into the terms of this Merchandising
License Agreement (collectively referred to herein as "Agreement"). If any
provision set forth above in this Agreement conflicts (or is construed to
conflict) with any provision of the Standard Terms and Conditions, the
provisions hereinabove set forth will control.
IN WITNESS WHEREOF, Turner and Licensee have executed this Agreement as of
the date first above written.
TURNER HOME ENTERTAINMENT, INC. ARTISAN HOUSE, INC.
("Turner") ("Licensee")
By: [ILLEGIBLE] By: /s/ Henry Goldman
------------ ------------------
Title: VP SALES Title: President
SCHEDULE "1"
1. "Licensed Elements" means only the names and static visual likenesses of
the following specific fictional characters, only as depicted in the 1942
motion picture entitled "CASABLANCA" (the "Picture")(excluding storylines
and plot elements from the Picture, except as specifically agreed in
writing and in advance by Turner) and dialogue taken from the Picture. It
is specifically understood and agreed that the character names, likenesses
and other elements referred to above (including, if applicable, the names
of actors, voice-over artists, and/or other elements listed in this
Schedule "1") are included within the definition of "Licensed Elements" (i)
only to the extent of Turner's ownership or control thereof and (ii) only
as specifically depicted in and as part of the Picture.
PICTURE(S) LICENSED ELEMENTS
CASABLANCA Rick Blaine, as portrayed by Humphrey Bogart
Sam, as portrayed by Dooley Wilson
Ilsa Lund, as portrayed by Ingrid Bergman
-2-
<PAGE>
EXHIBIT "A"
MERCHANDISING LICENSE AGREEMENT
STANDARD TERMS AND CONDITIONS
These Standard Terms and Conditions shall be deemed fully incorporated
in the License Agreement ("Underlying Agreement") to which this Exhibit "A" is
attached, and these Standard Terms and Conditions and the Underlying Agreement
shall hereinafter be collectively referred to as the "Agreement." All terms
shall, unless expressly provided to the contrary herein, have the same
respective meanings as set forth in the Underlying Agreement. Unless expressly
provided to the contrary herein, to the extent that any provision of these
Standard Terms and Conditions conflicts with any provisions of the Underlying
Agreement, the Underlying Agreement shall control.
A-1 LICENSE
Turner hereby grants to Licensee, and Licensee hereby accepts, a
license to utilize the Licensed Elements upon or in connection with the
Authorized Articles, for the purpose of the manufacture, distribution,
advertising, promotion and sale of the Authorized Articles in the Licensed
Territory during the License Period, upon and subject to all of the terms and
conditions of this Agreement. Any and all rights not expressly granted to
Licensee hereunder are expressly reserved by Turner and may be exercised and
exploited freely by Turner at any time, and Licensee covenants and agrees that
it shall not exercise, or authorize or permit others to exercise, any rights
with respect to the Licensed Elements other than the limited and specific rights
licensed hereunder. It is understood that the license granted hereunder relates
to the sale of Authorized Articles and does not grant Licensee any rights with
respect to the use of the Licensed Elements in connection with premium
promotions or other giveaways.
A-2 PAYMENT AND ACCOUNTINGS
(a) Royalty. Licensee shall pay to Turner a royalty as specified in the
Underlying Agreement with respect to all Net Sales of Authorized Articles. "Net
Sales" shall mean gross sales by License or any of its affiliated, associated or
subsidiary companies, without any deductions whatsoever (including, without
limitation, freight, taxes, uncollectible accounts, manufacturing, distribution,
advertising, marketing or promotion costs with the exception of trade quantity
discounts only), except for actual returns. Credit against sales shall be
allowed only for actual returns and shall not be allowed on the basis of an
accrual or reserve system. Net Sales for each Authorized Article shall be
computed on no less than Licensee's regular, full, "top- of-the-line" gross
wholesale invoice price calculated at source in the Licensed Territory, based
upon the usual billing price for items sold in the normal course of business
("Royalty Base Price"). The foregoing royalty shall be payable on all Authorized
Articles distributed by Licensee, including Authorized Articles not billed,
except for a reasonable number of samples which may be given away to the trade
in the normal course of business.
(b) Advance and Guarantee. Licensee shall pay to Turner the Advance and
Guarantee in accordance with the payment schedule specified in the Underlying
Agreement. The Advance and installments of the balance of the Guarantee
constitute a non-refundable advances against royalties to be earned as provided
above. The total Guarantee shall be deemed accrued to Turner's account as of the
date of this Agreement.
(c) Quarterly Statements. Not later than thirty (30) days after the end
of each calendar quarter during the License Period, Licensee shall furnish to
Turner complete and accurate statements (certified to be accurate by Licensee)
showing the product and style number, description, unit sales, Royalty Base
Price, gross sales and Net Sales of each and every Authorized Article covered by
this Agreement. All statements shall be prepared by Licensee utilizing the form
attached as Exhibit "B" hereto and incorporated by reference, as said form may
be revised from time to time by Turner. Royalty reports shall be prepared
separately for each country within the Licensed Territory, and shall include a
product sales breakdown by style number, which indicates clearly which of the
Licensed Elements were utilized in connection with each Authorized Article,
including a breakdown for each Licensed Element, by character. Reporting will be
completed in such a manner, and in sufficient detail, to enable Turner to
separate royalties by the respective elements used; including, without
limitation, the contract number present in the upper left-hand corner of the
first page of this contract.
(d) Royalty Payments. Royalty payments due hereunder shall be paid not
later than thirty (30) days after the end of each calendar quarter and such
payments shall accompany the statements required above. Licensee shall also
include the contract number, present in the upper left-hand corner of the first
page of this contract, on the face of the royalty check. If the License Period
is extended beyond the term specified in Paragraph 4 of the Underlying
Agreement, royalty payments which exceed the total Guarantee shall not be
credited toward any similar guarantee which is payable with respect to the
extension period. All payments shall be in U.S. funds. Licensee shall pay, and
hold Turner forever harmless from, all taxes, customs, duties, levies, imports
or any other charges now or hereafter imposed or based upon the manufacture,
delivery, license, sale, possession or use hereunder to or by Licensee of the
Authorized Articles or the Licensed Elements (including but not limited to
sales, use, inventory, income and value added taxes on sales of Authorized
Articles), which charges shall not be deducted from Turner's royalties. All
monies payable to or received by Licensee from the exploitation of the rights
granted herein shall be held by Licensee in trust for Turner's account to the
extent of Turner's entitlement to such monies as set forth in this Agreement.
(e) Timeliness. All payments hereunder shall be made to Turner (or its
authorized representative) at the address set forth in the Underlying Agreement
within the time and in the manner specified herein, it being intended and agreed
that the time within which Licensee is required to make payment in accordance
with the terms hereof is of the essence of this Agreement and any failure so to
do on the part of Licensee shall constitute an event of default hereunder in
accordance with Paragraph A-13 below. In addition to any other rights Turner may
have in the event of such default, Licensee agrees to pay interest to Turner on
any sums which have not been received by Turner within thirty (30) days
following the due date. Such interest shall accrue from said date and shall be
payable at the lesser of eighteen percent (18%) per annum or the maximum rate
allowed by law.
A-3 BOOKS AND RECORDS
Licensee shall keep accurate books of account and records in a form
meeting the generally accepted standards of the profession of certified public
accountants covering all transactions relating to the license hereby granted,
and Turner and its authorized representatives shall have the right at all
reasonable business hours, and upon reasonable notice, to examine and audit said
books of account and records and all other documents and materials in the
possession or under the control of Licensee with respect to the subject matter
and terms of this Agreement, and shall have free and full access thereto for
said purposes and for the purpose of taking extracts therefrom. Upon demand of
Turner, but not more than twice per calendar year, Licensee shall at its own
expense furnish to Turner a detailed statement prepared by an independent
certified public accountant, or certified to be accurate by a duly authorized
official of Licensee, showing the product and style number, description, Net
Sales, itemized deductions from Net Sales and Royalty Base Price of the
Authorized Articles distributed and/or sold by Licensee to the date of Turner's
demand. If an audit reveals that Licensee has misrepresented or underreported
any item bearing upon the royalties or other compensation due or payable to
Turner, then, in addition to recomputing and making immediate payment of the
sums due based on the true items together with interest thereon at the rate at
which Turner is entitled to borrow from its principal lending institution (after
giving effect to compensating balance requirements and any commitment fees),
Licensee shall pay costs and expenses incurred by Turner for the audit and
checking and attorney's fees incurred by Turner in connection therewith or in
connection with enforcing the collection thereof. All books of account and
records shall be kept available for at least three (3) years after the
termination of this license.
A-4 EXCLUSIVITY
(a)(i) If, and only if, the Underlying Agreement specifies that
Licensee's license hereunder is exclusive, Turner shall not, except as otherwise
provided herein, grant any other licenses effective during the License Period
for the use of the Licensed Elements in connection with the manufacture,
distribution and
1
<PAGE>
sale, in the Licensed Territory, of the Authorized Articles as expressly
described in the Underlying Agreement. Notwithstanding the foregoing, nothing in
this Agreement shall be construed to prevent Turner from granting any licenses
for the use of the Licensed Elements other than as provided herein, or from
utilizing the Licensed Elements in any manner whatsoever other than as provided
herein, regardless of the extent to which such use or utilization may be
competitive with the license granted hereunder.
(ii) If the Underlying Agreement specified that Licensee's license
hereunder is non-exclusive, then Turner shall be free to utilize, or to grant
any licenses to third parties to utilize, the Licensed Elements in any manner
for any purposes whatsoever.
(b) In all cases, Turner expressly reserves all rights whatsoever
relating to the promotion, sale and other exploitation of Authorized Articles at
(i) the MGM Grand Hotel/Casino complex in Las Vegas, Nevada, and (ii) concert
halls, arena shows, circuses, stadiums, theaters, theme parks and all other
public performance venues at which television programs or motion pictures
containing elements included in the Licensed Elements or derivative works (e.g.,
concerts, musicals and other stage plays, motion picture sequels, audio-visual
performances, etc.) based thereon are exhibited or performed, and (iii) retail
outlets or any other facilities owned, operated or controlled by Turner (or its
parent, subsidiaries or affiliates), and (iv) catalogs or similar direct mail
sales publications featuring Turner products published by Turner (or its parent,
subsidiaries, or affiliates). The foregoing venues, retail outlets, other
facilities, and catalogs are collectively referred to herein as "Turner Venues".
Licensee acknowledges that Turner Venues are expressly excluded from the
Licensed Territory and that Licensee has not been granted any rights with
respect to the exploitation of Authorized Articles at Turner Venues, it being
understood that Turner may itself exercise such rights or grant other licenses
for the manufacture and distribution of Authorized Articles for sale or other
exploitation at Turner Venues.
(c) Turner reserves the right to permit distribution of stock on hand
or in process as of termination or expiration of prior licenses, even if the
exercise of said rights may conflict with those rights granted Licensee
hereunder.
A-5 QUALITY OF MERCHANDISE
(a) The Authorized Articles shall be of high standard and of such
style, appearance and quality as to be adequate and suited to their exploitation
to the best advantage and to the protection and enhancement of the Licensed
Elements and the good will pertaining thereto. The Authorized Articles shall be
manufactured, sold, distributed, promoted and advertised in accordance with all
applicable governmental, regulatory, professional and industry-wide codes,
statutes, rules and regulations. Licensee shall, before manufacturing any of the
Authorized Articles, furnish to Turner free of cost, for its written approval as
to quality, style, and adherence to the requirements set forth in this
Agreement, one (1) prototype, layout, or sample of each Authorized Article and
its cartons, containers, and advertising, promotional, packing and wrapping
material. After such prototype, layout or sample has been approved pursuant to
this Paragraph, Licensee shall not depart therefrom in any material respect
without first submitting to Turner a prototype, layout or sample of the modified
article carton, container, packing, advertising, promotional and/or wrapping
material and obtaining Turner's prior written consent to such modification.
After items have been approved in their final form in accordance with this
paragraph, Licensee shall submit to Turner six (6) samples of each such item
(provided, however, that if the Authorized Articles incorporate Licensed
Elements from the Hanna-Barbera Library, with its address at 3400 Cahuenga
Boulevard, Hollywood, CA 90068-1376, and twelve (12) samples of each such item
shall be submitted to Turner at its New York office for approval). From time to
time after Licensee has commenced selling the Authorized Articles and upon
Turner's written request, Licensee shall furnish without cost to Turner a
reasonable number of additional random samples of each Authorized Article being
manufactured by Licensee hereunder, together with any cartons, containers and
packing and wrapping material used in connection therewith. Turner shall have
the right to take a reasonable number of samples at random from production runs
at least twice a year, it being agreed that if quality problems are encountered
as a result of the examination of samples, Turner shall have the right to take
such samples as frequently as Turner in its sole discretion deems desirable in
an effort to assure that proper quality control has been established. Moreover,
Turner shall have the right to have its representatives visit the plant or
plants where the Authorized Articles are produced and where the containers,
packaging material and the like are printed or produced in order to determine
whether or not proper quality controls are being exercised.
(b) Any item submitted to Turner under this Agreement shall not be
deemed approved unless and until Turner has approved it in writing.
A-6 LABELING
(a) As a condition to Turner's authorization of the public distribution
of items bearing reproductions of the Licensed Elements, including, without
limitation, Authorized Articles sold under this license and advertising,
promotional and display material therefor, all such items shall bear copyright
and trademark notices as set forth in Paragraph 11 of the Underlying Agreement
as well as any other legal notices which Turner may from time to time reasonably
direct.
(b) In the event that any Authorized Article is marketed in a carton,
container and/or packing or wrapping material employing the Licensed Elements,
such notice shall also appear upon the said carton, container and/or packing or
wrapping material. Each and every tag, label, imprint or other device containing
any such notice and all advertising, promotional or display material bearing the
Licensed Elements shall be submitted by Licensee to Turner for its written
approval prior to use by Licensee in accordance with Paragraph A-5 above. Any
such approval by Turner shall not constitute waiver of Turner's rights or
Licensee's duties under any provision of this Agreement.
A-7 TECHNICAL AND PROMOTIONAL MATERIAL
Turner reserves the right to require Licensee to pay for film footage
or other technical materials for which Turner from time to time might charge.
All technical materials involving the Licensed Elements or any reproduction
thereof, notwithstanding their invention, creation or use by Licensee, shall be
and remain the property of Turner, and Turner shall be entitled to use same and
to license the use of same by others provided such use does not conflict with
the terms of this Agreement. "Technical materials" shall mean all artwork and
designs, pictures, separations, textual material, screens, films, proofs and any
and all materials used in the creation, production and/or reproduction of the
Authorized Articles.
A-8 DISTRIBUTION
(a) Commencing not later than the Marketing Date specified in the
Underlying Agreement, and thereafter during the License Period (including any
extensions thereof), Licensee shall diligently and continuously manufacture,
sell, distribute and promote Authorized Articles in interstate commerce
throughout the Licensed Territory and Licensee shall make and maintain adequate
arrangements for the distribution of the Authorized Articles. Licensee's failure
(except as otherwise provided herein) to commence in good faith to manufacture
and distribute in substantial commercial quantities any of the Authorized
Articles on or before the Marketing Date and to continue during the License
Period diligently and continuously to manufacture, sell, distribute and promote
each such Authorized Article throughout the Licensed Territory will result in
immediate damage to Turner. In such a case, in addition to all other remedies
available to it hereunder, Turner may remove from this Agreement any Licensed
Elements listed in the Underlying Agreement or any article or class or category
of articles included within the definition of Authorized Articles which is not
so diligently and continuously used by Licensee for a period of three (3)
consecutive months, by giving thirty (30) days' written notice to Licensee.
(b) Unless expressly provided herein otherwise, Licensee shall not,
without the express prior written consent of Turner, permit the distribution or
other marketing of any Authorized Articles on an F.O.B. or L.C. basis (as those
terms are commonly understood in the international merchandising business). All
Authorized Articles distributed or marketed (as subject to Turner's prior
written approval) on an F.O.B. or L.C. basis will be subject to a Royalty Rate
of ten percent (10%).
(c) Licensee shall sell to Turner such quantities of the Authorized
Articles as Turner shall request at as low a rate and on as favorable terms as
Licensee sells similar quantities of the Authorized Articles to the general
trade.
2
<PAGE>
A-9 GOOD WILL AND PUBLICITY
(a) Licensee acknowledges that particular and substantial good will
values are associated with the Licensed Elements as well as the names "Turner
Entertainment Company", "Turner Home Entertainment, Inc.", "Hanna Barbera" and
all related corporate names, and that said Licensed Elements and names and all
rights therein and good will pertaining thereto belong exclusively to Turner.
Licensee further acknowledges that said Licensed Elements and names have
secondary meanings in the mind of the public and that the value thereof cannot
readily be fixed in amounts or sums of money. Licensee shall not by any act or
omission jeopardize such good will, and any good will developed hereunder shall
accrue to the benefit of Turner. Licensee acknowledges the necessity of
protecting Turner's name, copyrights and trademarks generally and specifically
to conserve the good will and good name of Turner and the Licensed Elements, and
the right of Turner to supervise or intervene in the activities of Licensee in
connection therewith.
(b) Turner shall have the right, but shall not be under any obligation,
to use the Licensed Elements and/or the name of Licensee so as to give the
Licensed Elements, Licensee, Turner and/or Turner's television programs and/or
motion pictures full and favorable prominence and publicity. Turner shall not be
under any obligation whatsoever to broadcast or exhibit, or to continue
broadcasting or exhibiting, any television program or motion picture or use the
Licensed Elements or any person, character, symbol, design or likeness or visual
representation thereof in any medium, nor shall Turner be restricted in any way
whatsoever from producing and distributing derivative works which contain or are
derived from the Licensed Elements or any element or component part thereof.
A-10 WARRANTIES AND REPRESENTATIONS
(a) By Turner. Turner has the right and power to enter into and perform
this Agreement, and has taken all steps necessary and appropriate to authorize
the execution and performance hereof. Turner owns or controls all rights
necessary to grant Licensee the rights granted to it hereunder.
(b) By Licensee. Licensee has the right and power to enter into and
perform this Agreement, and has taken all steps necessary and appropriate to
authorize the execution and performance hereof. Licensee will not act in any
manner that is inconsistent with the provisions hereof.
A-11 INDEMNIFICATION AND INSURANCE
Subject to the full performance by Licensee of all of its obligations
hereunder, Turner hereby indemnifies Licensee and undertakes to defend Licensee
against and hold Licensee harmless from all claims, suits, liabilities, losses,
damages, penalties, costs and expenses (including reasonable attorneys fees)
which may be suffered by or obtained against Licensee arising solely out of the
use by Licensee of the Licensed Elements in strict accordance with this
Agreement. Licensee hereby indemnifies Turner and undertakes to defend Turner
against and hold Turner harmless from any and all claims, suits, liabilities,
losses, damages, penalties, costs and expenses (including reasonable attorneys
fees, which may include, without limitation, an allocation for in-house counsel)
of any nature which may be suffered by or obtained against Turner arising from
(i) any allegedly unauthorized use of any patent, design, mark, process, idea,
method or device by Licensee (none of the same being included in the Licensed
Elements) in connection with the Authorized Articles or any other alleged action
or omission by Licensee constituting a breach by Licensee of any term or
provision of, or representation, warranty, covenant or agreement made by
Licensee under, this Agreement, and (ii) alleged defects in the Authorized
Articles, any alleged inadequacy or failure to perform any agreement or render
any service, or personal damages or injury resulting from the use of the
Authorized Articles. Licensee shall obtain, at its own expense, a comprehensive
general liability insurance policy for the entire License Period (including any
extensions thereof) including coverage for contractual liability (applying to
the terms and conditions of this Agreement), product liability, personal injury
liability and advertiser's liability, and including a vendor's liability
endorsement in favor of Turner. Said policy shall be written by a recognized
insurance company which has qualified to do business in the State of California,
the State of New York and the State of Georgia, or which has an A.M. Best
Company rating of "B" or better in the latest edition of Best's Insurance Guide
and Key Ratings, and shall provide for minimum combined single limit of
liability coverage of not less than $1,000,000 for each occurrence. As proof of
such insurance, fully paid certificates of insurance naming Turner as an insured
party will be submitted by Licensee to the following address for Turner's prior
approval before any Authorized Articles are distributed, advertised or sold, and
at the latest within thirty (30) days after
the commencement of the License Period: Turner Broadcasting System, Inc., One
CNN Center, Box 105366, Atlanta, GA 30348-5366, Attn: Director of Risk
Management. Any proposed change in such certificates of insurance shall be
submitted to Turner for its prior approval, and Licensee shall furnish Turner
with a copy of the then prevailing certificate of insurance. For purposes of
Licensee's indemnity and insurance policy coverage under this Paragraph,
"Turner" shall also include the officers, directors, shareholders, agents and
employees of Turner and Turner's parent, and of its and its parent's
subsidiaries, affiliates and related entities, as well as any person(s) the use
of whose name or likeness may be licensed hereunder.
A-12 PROTECTION OF TURNER'S RIGHTS
(a) Licensee acknowledges that Turner owns or controls the copyrighted
works which underlie this license and Licensee shall not during the term hereof
or thereafter attack the rights of Turner in the Licensed Elements or any
trademarks based thereon, regardless of the basis of such attack and regardless
of whether the same relates to title or validity. Licensee shall at no time use
or authorize the use of any trademark, trade name or other designation identical
with or confusingly or colorably similarly to the Licensed Elements.
(b) Licensee shall cooperate fully and in good faith with Turner for
the purpose of securing and preserving rights of Turner (or any grantor of
Turner) in and to the Licensed Elements. Turner may commence or prosecute any
claims or suits in its own name or in the name of Licensee or join Licensee as a
party thereto. Licensee shall immediately notify Turner in writing of any
infringements or imitations by others of the Licensed Elements on articles
similar to those covered by this Agreement, and Turner shall have the sole right
to determine whether or not any action shall be taken on account of any such
infringements or imitations. Licensee shall not institute any suit or take any
actions on account of any such infringements or imitations without first
obtaining the written consent of Turner so to do.
(c) Licensee shall utilize all necessary and adequate security measures
to prevent the loss, theft, destruction or unauthorized exploitation of the
technical materials and/or Licensed Elements delivered to Licensee, and Licensee
shall immediately report to Turner any such loss, theft, destruction or
unauthorized exploitation upon its gaining knowledge thereof. Upon the
expiration of the License Period (or earlier termination of this Agreement)
Licensee shall, at Turner's election, either erase or destroy all technical and
advertising materials relating to the Authorized Articles and provide Turner
with satisfactory proof of such erasure or destruction, or deliver such material
to Turner via such method as Turner specifies, on a charges collect basis.
(d) Licensee will be deemed to have simultaneously assigned,
transferred and conveyed to Turner any trade rights, trademark, service mark or
copyright, equities, good will, titles or other rights in and to the Licensed
Elements, including any copyright in an article derived from the Licensed
Elements, which may have been obtained or created by Licensee during the term
hereof pursuant to any endeavors covered hereby. Any such assignment, transfer
or conveyance shall be made without other consideration than the mutual
covenants and considerations of this Agreement. If any materials bearing the
Licensed Elements (or any element or component part thereof) utilized by
Licensee hereunder on or in connection with the Authorized Articles were not
created or owned by Turner, it is an essential condition of this Agreement that
Licensee shall do all that is necessary to ensure that such materials achieve
copyright protection and that valid title to such copyright is, at the earliest
possible moment, transferred to Turner. To this end, Licensee shall, among other
things, enter into a contract with anyone not directly in its employ who creates
such materials bearing the Licensed Elements, or any element or component part
thereof, which states that such materials are created as works made for hire, as
such term is defined in the U.S. Copyright Act, 17 U.S.C. Section. 101 et seq.,
or otherwise contractually bind such person to execute all such documents as may
be necessary to transfer valid title in the copyright in such materials to
Turner and shall arrange for the execution of such documents and their
transmittal to Turner at the earliest possible moment.
3
<PAGE>
(e) Licensee shall fully cooperate with Turner in undertaking the
registration of any copyright, trademark, service mark or other intellectual
property registration or filing with respect to the Licensed Elements and/or
Authorized Articles as requested by Turner in writing, and all such
registrations shall be in Turner's name (or such other name as Turner
designates). Such registration shall be handled by attorneys selected or
approved by Turner. In the event of any registration relating to the Licensed
Elements by Licensee in its own name or that of any third party, such
registration shall be deemed to be for Turner's benefit, and shall be held in
trust for Turner by Licensee. Licensee shall bear all costs, expenses, damages
and loss occasioned by such registration and/or Turner's correction of same.
(f) Licensee shall execute and deliver to Turner, in such form as
Turner shall reasonably request, any and all documents which may be necessary or
desirable to assist Turner in recording Licensee as a registered user of the
Licensed Elements (as trademark and/or servicemark) in the Licensed Territory,
if appropriate. Upon or after the expiration or termination of this Agreement,
Licensee shall execute and deliver to Turner, in such form as Turner shall
reasonably request, any and all documents which may be necessary or desirable to
cancel the recordation of Licensee as a registered user of the Licensed Elements
in the Licensed Territory; provided, however, that if Turner elects first to
complete the recordation of Licensee as a registered user, Licensee shall also
provide any and all documents which may be necessary or desirable to achieve
this purpose.
(g) Licensee shall not commingle on Authorized Articles manufactured
hereunder (or in the advertising and promotion thereof) names, characters and/or
likenesses from any individual motion picture or television program which are
included in the Licensed Elements with those associated with any other motion
picture or television program (whether or not containing elements included in
the Licensed Elements) without Turner's prior written consent.
(h) Turner may, in its absolute discretion, withdraw any element of the
Licensed Elements, or any component part thereof, from the terms of this
Agreement of Turner determines that the exploitation thereof hereunder would or
might violate or infringe or reasonably tend to violate or infringe the
copyright, trademark or other rights of third parties, or subject Turner to any
liability, or violate any law, court order, government regulation or other
ruling of any governmental agency, or if, on account of the expiration or sooner
termination of an agreement between Turner and a third party from whom Turner
has obtained certain underlying rights relating to the exploitation of the
Licensed Elements hereunder or otherwise, Turner shall no longer have the right
to act in the capacity herein contemplated on behalf of any third party or
parties, or if Turner determines that it cannot adequately protect its rights in
the Licensed Elements under the copyright, trademark or other laws of the
Licensed Territory; provided, however, that in the event of any such withdrawal,
Turner shall reimburse Licensee its actual, out-of-pocket cost of any Authorized
Articles (bearing such withdrawn Licensed Element) which were produced, but not
sold, prior to Licensee's receipt of notice of such withdrawal. Any such
withdrawal shall not constitute grounds for termination of this Agreement unless
all elements and component parts of the Licensed Elements are simultaneously
withdrawn by Turner.
A-13 DEFAULT
The following shall be events of default hereunder: if Licensee (i)
becomes the subject of any bankruptcy proceeding, becomes insolvent, makes an
assignment for the benefit of its creditors, or a receiver, liquidator or
trustee is appointed for its affairs, (ii) breaches any other agreement with
Turner, (iii) fails to make payment of royalties, Guarantee(s) and/or any other
sums payable to Turner pursuant to this Agreement when due or fails to perform
any of its other material obligations hereunder or otherwise breaches any
representation, warranty, covenant or agreement referred to or contained in this
Agreement, and does not fully cure such failure or breach within ten (10)
business days after receipt of written notice thereof from Turner, in the case
of failure to make payments, or within fifteen (15) business days in the case of
other failure or breach, or (iv) discontinues its business or loses any license
or authorization required to permit Licensee to perform fully its obligations
hereunder pursuant to an action of any duly constituted governmental, judicial
or legislative authority. Upon any default, Turner may, in addition and without
prejudice to any other rights it may have, terminate this Agreement, in which
event the entire unpaid balance of all royalties and Guarantees accrued to
Turner's account hereunder shall immediately become due and payable. In the
event this Agreement is so terminated, Licensee, its receivers, representatives,
trustees, agents administrators, successors, and/or assigns shall not have the
right to sell, exploit or in any way deal with or in any Authorized Articles or
any carton, container, packing or wrapping material, advertising, promotional or
display materials pertaining thereto, except with and under the special consent
and instructions of Turner in writing, which they shall be obligated to follow.
A-14 FORCE MAJEURE
This license shall terminate in the event that any act of God, fire,
flood, public disaster, or any action, rule, regulation, requirement or order of
any governmental authority or any other cause or reason beyond the control of
the parties renders performance impossible and one party so informs the other in
writing of such causes and its desire to be so released. In such event, all
royalties on sales theretofore made shall become immediately due and payable and
neither the Guarantee nor any portion thereof shall be repayable.
A-15 EFFECT OF TERMINATION OR EXPIRATION
Upon and after the expiration or sooner termination of this license,
(a) all rights licensed to Licensee hereunder shall forthwith revert to Turner,
(b) if the Underlying Agreement specifies that the license granted hereunder is
an exclusive license, Turner shall be free to license others to use the Licensed
Elements in connection with the manufacture, sale, distribution and promotion of
the Authorized Articles in the Licensed Territory (it being acknowledged that
Turner has the full and complete right so to do during the License Period if the
license granted hereunder is a non-exclusive license), and (c) Licensee shall
refrain from further use of the Licensed Elements or any further reference,
direct or indirect, thereto or to anything deemed by Turner to be similar to the
Licensed Elements, in connection with the manufacture, sale, distribution or
promotion of Licensee's products, except as permitted in Paragraph A-17 below.
It shall not be a violation of any right of Licensee if Turner should at any
time during the License Period enter into negotiations with another to license
use of the Licensed Elements in respect of the Authorized Articles within the
Licensed Territory provided that, in the event that the license granted to
Licensee hereunder is an exclusive license, it is contemplated that such
prospective license shall commence after termination of this Agreement. In the
event of any termination hereunder, no monies or other consideration with Turner
may receive in respect of any licenses of the Licensed Elements within or
outside the Licensed Territory shall be deemed in mitigation of, or be otherwise
offset, credited or applied against, any sums payable to Turner pursuant to this
Agreement.
A-16 FINAL STATEMENT
Ninety (90) days before the expiration of the License Period, and, in
the event of its sooner termination, ten (10) business days after receipt of
notice of termination, a statement showing the number and description of
Authorized Articles on hand or in process shall be furnished by Licensee to
Turner. Turner shall have the right to take a physical inventory to ascertain or
verify such inventory and statement. Refusal by Licensee to submit to such
physical inventory by Turner and/or failure by Licensee to render the final
statement as and when required by this provision, shall result in a forfeiture
by Licensee of Licensee's right to dispose of its inventory (as provided by the
next paragraph hereof), Turner retaining all other legal and equitable rights
Turner may have in the circumstances.
A-17 DISPOSAL OF INVENTORY
(a) Licensee shall not at any time manufacture Authorized Articles in
excess of those reasonably anticipated to meet normal customer requirements.
Provided that Licensee is in compliance with the foregoing, after termination or
expiration of the license under the provisions hereof, Licensee, except as
otherwise provided in this Agreement, may dispose of Authorized Articles which
are on hand or in process at the time notice of termination is received or upon
the expiration date, whatever the case may be, for a period of ninety (90) days
thereafter, on a nonexclusive basis, provided Guarantee and royalty payments are
up-to-date for the current period and payments and statements are made and
furnished for that period in accordance with Paragraph A-2 above. Licensee shall
not be authorized to dispose of such excess inventory to the extent that it
exceeds ten percent (10%) of the total number of Authorized Articles sold during
the License Period, without Turner's prior written consent.
4
<PAGE>
Notwithstanding anything to the contrary herein, Licensee shall not manufacture,
sell or dispose of any Authorized Articles after any expiration or termination
of this license based on the failure of Licensee to affix notice of copyright,
trademark or servicemark registration or any other notice to the Authorized
Articles, cartons, containers or packing or wrapping material or advertising,
promotional or display material or because of the departure by Licensee from the
quality and style approved by Turner pursuant to Paragraph A-5 above. All
applicable royalties shall be paid on Authorized Articles sold during the
sell-off period within fifteen (15) days following the expiration of said
sell-off period. Any Authorized Articles which have not been sold as of the
expiration of the sell-off period shall, at Turner's election, be delivered to
Turner or destroyed.
(b) Licensee acknowledges that its failure (except as otherwise
provided herein) to cease the manufacture, sale, distribution or promotion of
the Authorized Articles or any class of category thereof after the termination
or expiration of this Agreement or any portion thereof will result in immediate
and irremediable damage to Turner and to the rights of any subsequent licensee,
Licensee acknowledges and admits that there is no adequate remedy at law for
such failure to cease manufacture, sale, distribution or promotion, and Licensee
agrees that in the event of such failure, Turner shall be entitled to equitable
relief by way of temporary and permanent injunctions and such other and further
relief as any court with jurisdiction may deem just and proper, other provisions
to the contrary elsewhere herein notwithstanding.
A-18 ASSIGNMENT
Turner reserves the right to assign this Agreement to any third party
and to hypothecate or pledge this Agreement as collateral for any purpose. In
the event of any such assignment, Licensee shall pay the royalties and
Guarantees due hereunder as directed by Turner. This Agreement shall be binding
upon and shall inure to the benefit of the successors and assigns of Turner. The
license herein granted is personal to Licensee and this Agreement may not be
assigned, transferred, sublicensed, pledged, mortgaged or otherwise encumbered,
in whole or in part, by Licensee either voluntarily or by operation of law or as
part of a merger, consolidation or otherwise without Turner's prior written
consent, which shall not be unreasonably withheld.
A-19 NOTICES
All notices, statements, accountings and other documents required to be
given or delivered hereunder shall be given in writing either by personal
delivery, by certified mail which delivery is evidenced by a signed receipt, or
by telex or telecopier unless otherwise specified. Licensee's and Turner's
respective addresses for notice purposes shall be as set forth in the Underlying
Agreement unless either party notifies the other as provided herein that notices
to such party should be sent to a different address. All such notices shall be
sufficiently given when the same shall be deposited, so addressed, postage
prepaid in the mail, or when the same shall have been telexed, telecopied or
personally delivered to the recipient. The date of said telexing, telecopying or
personal delivery, or the date which is three (3) business days following the
date of said mailing, shall be deemed to be the date of the giving of such
notice, except statements and payments to Turner hereunder and notice of change
of address, which shall be deemed effective only upon actual receipt thereof.
A-20 FURTHER DOCUMENTS
Licensee shall execute, verify, acknowledge, deliver and file any
formal assignments, recordations and any and all other documents which Turner
may prepare and reasonably call for to give effect to any of the provisions of
this Agreement. If Licensee fails to do so within ten (10) days after Turner
requests such execution, verification, acknowledgment, delivery or filing,
Licensee hereby irrevocably appoints Turner its attorney-in-fact (which
appointment shall be deemed a power coupled with an interest), with full powers
of substitution and delegation, to execute, verify, acknowledge and deliver any
such assignments, recordations and/or such other documents.
A-21 MISCELLANEOUS PROVISIONS
In the event any provision of this Agreement shall be found to be
contrary to any law or regulation of any federal, state or municipal
administrative agency or body, the other provisions of this Agreement shall not
be affected thereby but shall notwithstanding continue in full force and effect.
If any legal action or other proceeding is brought for the enforcement of this
Agreement or as a result of a breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in such action or proceeding, in addition to any other relief to which such
party may be entitled. No waiver by either party hereto of any breach or default
by the other party shall be construed to be a waiver of any other breach or
default by such other party. Resort to any remedies referred to herein shall not
be construed as a waiver of any other rights and remedies to which either party
is entitled under this Agreement or otherwise, nor shall an election to
terminate be deemed an election of remedies or a waiver of any claim for damages
or otherwise. This Agreement may not be altered or modified except in writing
signed by the party to be charged with such alteration or modification. This
Agreement constitutes the entire understanding between the parties with respect
to the subject matter hereof and all prior understandings, whether oral or
written, have been merged herein. Irrespective of the place of execution or
performance, this Agreement shall be governed, construed and enforced in
accordance with the laws of the State of Georgia applicable to agreements
entered into and to be wholly performed therein, the Licensee hereby consents to
the exclusive jurisdiction of the courts of the State of Georgia and United
States courts located in the State of Georgia in connection with any suit,
action or proceeding brought by Licensee arising out of or related in any manner
to this Agreement. Licensee agrees that the service of process by mail shall be
effective service of same and that such service shall have the same effect as
personal service within the State of Georgia and result in jurisdiction over
Licensee in the appropriate forum in the State of Georgia. Nothing herein
contained shall constitute a partnership between or joint venture by, the
parties hereto or constitute either party the employee or agent of the other,
and Licensee shall have no right or power to obligate or bind Turner in any
manner whatsoever. This Agreement is not for the benefit of any third party and
shall not be deemed to give any right or remedy to any third party whether
referred to herein or not. Paragraph headings as used in this Agreement are for
convenience only and are not a part hereof, and shall not be used in any manner
to interpret or otherwise modify any provision of this Agreement. As used
herein, the word "person" means any individual, firm, partnership, association,
corporation or other entity.
END OF STANDARD TERMS AND CONDITIONS
5
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EXHIBIT "B"
Date: ______
Page ___ of ____ LICENSEE ROYALTY REPORT
NOTE: THIS FORM MUST BE [LOGO]
SUBMITTED WHEN DUE WHETHER TURNER HOME ENTERTAINMENT
OR NOT THERE ARE ANY SALES Territory: ________
IN THE PERIOD. Film/Series/ ________
Licensee: ______ Contract Date: Property: ________
Address: ______ Product Description:
Address: ______
Address: ______
Phone #: ______
Fax #: ______
Contact: ______
<TABLE>
<CAPTION>
Current Period
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Contract Minimum Product Character Units Total Royalty Royalties Unit Gross
Number Guarantee Code Likeness Shipped Sales % Earned Price Sales
- ----------- ------------ ------------ -------------- ------------ --------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
Totals ________ _______ _________ ________
</TABLE>
- --------------------------------------------------------------------------------
Statement of Certification
I certify that all sales of Licensed Product(s) for the period of ____________
have been reported in the above Royalty Report, that the above report is in
accordance with the License Agreement dated _____________, and that the above
figures are an accurate statement of actual figures appearing in the relevant
invoices.
- ------------------------------- ------------------
Officer of Licensee Date
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception to Date
- ------------------------------------------------------------------------------------------------------------
Net
Total Royalty Royalties Advances Less Less Amount
Returns Sales % Earned Paid Commissions Taxes Due
- ------------ ------------- ------------- ------------ ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
</TABLE>
--------------- -----------------------------------
Period Reported Guarantee $_____
---------------
---------------
From To Unearned Guarantee $_____
_______ ______ ------------------------------------
_______ ______
----------------- Reviewed By ______________
Check # ______________
Check Amount ______________
<PAGE>
RETAIL LICENSE
WARNER BROS. CONSUMER PRODUCTS
#7635-WBLT
LICENSE AGREEMENT made Sept 24, 1996, by and between WARNER BROS., A DIVISION OF
TIME WARNER ENTERTAINMENT COMPANY, L.P., c/o Warner Bros. Consumer Products, a
Time Warner Entertainment Company, 4000 Warner Blvd. Burbank, CA 91522
(hereinafter referred to as "LICENSOR") and ARTISAN HOUSE, whose address is 1755
Glendale Blvd., Los Angeles, CA 90026 Attn: Henry Goldman (hereinafter referred
to as "LICENSEE").
WITNESSETH:
The parties hereto mutually agree as follows:
1. DEFINITIONS: As used in this Agreement, the following terms shall have the
following respective meanings:
(a) "Channels of Distribution": Licensee may sell the Licensed Products
only through the following channels of distribution: mid-tier,
furniture stores and specialty catalogs (direct mail to consumer).
(b) "Guaranteed Consideration": The sum of $25,000.00 payable as follows:
$5,000.00 payable simultaneously with the execution of this Agreement;
and
$5,000.00 payable on or before June 30, 1997; and
$5,000.00 payable on or before September 30, 1997; and
$5,000.00 payable on or before December 31, 1997; and
$5,000.00 payable on or before March 31, 1998.
(c) "Licensed Product(s)":
i) Metal Wall Sculptures
ii) Metal Tabletop Sculptures
(d) "Licensed Property": The representations, names, logos, movements,
personalities, artwork, photographs and other material in connection
with the following "LOONEY TUNES" characters: BUGS BUNNY, SYLVESTER,
TWEETY, PORK PIG, SPEEDY GONZALES, ROAD RUNNER, DAFFY DUCK, YOSEMITE
SAM, ELMER FUDD, WILE E. COYOTE, TASMANIAN DEVIL, SHE-DEVIL, PEPE LE
PEW, MARC ANTONY, FOGHORN LEGHORN, HENERY HAWK, SYLVESTER JR., GRANNY,
PETUNIA PIG, HECTOR, MARVIN THE MARTIAN, PENELOPE, PUSSYFOOT, LOLA
BUNNY and MICHIGAN J. FROG only.
(e) "Marketing Date": January 1, 1997
Licensee specifically understands and agrees that merchandise bearing
the image of licensed character "LOLA BUNNY" shall not be displayed
for sale before October 1, 1997.
(f) "Royalty Rate": Licensee shall pay to Licensor the sum equal to Twelve
Percent (12%) of all net sales by Licensee of the Licensed Product(s).
(g) "Term": August 1, 1996 through December 31, 1998
(h) "Territory": United States (fifty states)
<PAGE>
2. GRANT OF LICENSE:
(a) Subject to the restrictions, limitations, reservations and conditions
and Licensor's approval rights set forth in this Agreement, Licensor
hereby grants to Licensee and Licensee hereby accepts for the Term of
this Agreement, a license to utilize the Licensed Property solely on
or in connection with the manufacture, distribution and sale of the
Licensed Products as specified above for the ultimate retail sale to
the public throughout the Territory on a non-exclusive basis.
(b) Without limiting any other approval rights of Licensor as contained
herein, no television commercials may be utilized under this Agreement
without the specific prior written approval of Licensor.
3. RESERVATION OF RIGHTS; PREMIUMS:
(a) Licensor reserves all rights not expressly conveyed to Licensee
hereunder, and Licensor may grant licenses to others to use the
Licensed Property, artwork and textual matter in connection with other
uses, services and products without limitation.
(b) Notwithstanding anything to the contrary stated herein, Licensor
specifical1y reserves the right, without limitation throughout the
world, to itself use, or license any third Party(s) of its choice to
use the Licensed Property for the manufacture, distribution and sale
of products, subject to Licensee's proprietary rights, similar to
those licensed herein in Paragraph 1(c) above for sale through any
catalogue (s) Produced or distributed by or on behalf of Licensor or
its affiliated companies, or for sale or distribution in any theaters
or arena or for sale or distribution in any retail stores operated by
or on behalf of Licensor, its affiliated companies or franchises or
for sale or distribution in any theme/amusement parks operated by or
on behalf of Licensor and its affiliated companies, including without
limitation, the Six Flags and Movie World parks. In addition, Licensor
reserves the right to allow Six Flags Corporation and Movie World to
manufacture (or have manufactured by a third party) products similar,
subject to Licensee's proprietary rights, to those licensed herein for
distribution or sale in theme and/or amusement parks owned or operated
by both Six Flags Corporation and Movie World. Further, Licensor
reserves the right to use, or license others to use, and/or
manufacture products similar or identical to those licensed herein for
use as premiums.
(c) Licensee specifically understands and agrees that no rights are
granted herein with respect to the Warner Bros. "shield" logo or
trademark, or any other trademark(s), logo(s) or copyrights owned by
Licensor other than those specifically set forth above in the Licensed
Property, it being understood that all rights in and to said
properties are reserved exclusively to Licensor for use and/or
licensing as it deems appropriate to third party(s) of its choice.
(d) Licensee specifically understands and agrees that no rights are
granted herein with respect to the Warner Bros. "LOONEY TUNES
LOVABLES" baby property, it being understood that all rights in and
to said property are reserved exclusively to Licensor for use and/or
licensing as it deems appropriate to third parties of its choice.
#7635-WBLT - Page 2
<PAGE>
(e) Licensee further understands and agrees that the rights granted herein
are limited only to the cartoon characters set forth above and that
any and all rights in, to or associated with the theatrical motion
picture tentatively entitled "Space Jam", as well as with any sequels
thereto, are specifically excluded herefrom, it being understood that
all rights in and to said property are reserved exclusively to
Licensor for use and/or licensing as it deems appropriate to third
parties of its choice.
(f) Licensee agrees that it will not use, or knowingly permit the use of,
and will exercise due care that its customers likewise will refrain
from the use of, the Licensed Products as a premium, except with the
prior written consent of Licensor. Subject to Licensor's prior written
approval as aforesaid, Licensee shall pay to Licensor a sum equal to
TEN PERCENT (10%) of all premium sales. For purposes of this
paragraph, the term "premium" shall be defined as including, but not
necessarily limited to, combination sales, free or self-liquidating
items offered to the public in conjunction with the sale or promotion
of a product or service, including traffic building or continuity
visits by the consumer/customer, or any similar scheme or device, the
prime intent of which is to use the Licensed Products in such a way as
to promote, publicize and or sell the products, services or business
image of the user or such item.
4. CONSIDERATION:
(a) The Guaranteed Consideration paid by Licensee as set forth above shall
be applied, against such royalties as are, or have become, due to
Licensor. No part of such Guaranteed Consideration shall be repayable
to Licensee. Royalties earned in excess of the Guaranteed
Consideration applicable to the Term hereof shall not offset any
Guaranteed Consideration required in respect of the succeeding
renewal term (if any); likewise, royalties earned in excess of the
Guaranteed Consideration applicable to the renewal term (if any)
shall not offset any Guaranteed Consideration applicable to any prior
term.
(b) Royalty Payments: Licensee shall pay to Licensor a sum equal to the
Royalty Rate as set forth above of all net sales by Licensee of the
Licensed Products covered by this Agreement. The term "net sales"
herein shall mean the gross invoice price billed customers, less
actual quantity discounts and actual returns, but no deductions shall
be made for uncollectible accounts and deductions for actual returns
may not exceed 5% of total sales. No costs incurred in the
manufacture, sale, distribution, advertisement, or exploitation of the
Licensed Products shall be deducted from any royalties payable by
Licensee.
(c) Royalties shall be payable concurrently with the periodic statements
required in Paragraph 5 hereof, except to the extent offset by
Guaranteed Consideration theretofore remitted.
5. PERIODIC STATEMENTS.
(a) Within THIRTY (30) days after the initial shipment of the Licensed
Product(s) and promptly on the thirtieth (30th) day after every month
thereafter, Licensee shall furnish to Licensor complete and accurate
statements certified to be accurate by Licensee, or if a corporation,
by an officer of Licensee, showing with respect to all Licensed
Product(s) distributed and sold by Licensee during the preceding
calendar month the number of units, description
#7635-WBLT - Page 3
<PAGE>
of items sold (specifying the components of the Licensed Property
utilized and specifying the nature of the Licensed Product(s), gross
sales price and itemized deductions from gross sales price, and net
sales price together with any returns made during the preceding
calendar month. Such statements shall be furnished to Licensor whether
or not any of the Licensed Product(s) have been sold during calendar
months to which such statements refer. Receipt or acceptance by
Licensor of any of the statements furnished pursuant to this Agreement
or on any sums paid hereunder shall not preclude Licensor from
questioning the correctness thereof at any time, and in the event that
any inconsistencies or mistakes are discovered in such statements or
payments, they shall immediately be rectified and the appropriate
payments made by Licensee. Upon demand of Licensor, Licensee shall at
its own expense, but not more than once in any TWELVE (12) month
period, furnish to Licensor a detailed statement by an independent
certified public accountant showing the number, description of items
sold specifying the components of the Licensed Property utilized and
nature of Licensed Product(s), gross sales price itemized deductions
from gross sales price and net sales price of the Licensed Product(s)
covered by this Agreement distributed and/or sold by Licensee up to
and including the date upon which Licensor has made such demand.
(b) The statements and payments required hereunder shall be delivered to:
Warner Bros. Consumer Products
4000 Warner Boulevard
Bridge Building, 4th Floor
Burbank, California 91522
Attn: Asst. Controller, Domestic Accounting
(c) Licensee agrees to provide, in the event of material default in
payment, at Licensor's request: (i) a letter of credit issued in favor
of Licensor from a financial institution as approved by Licensor in an
amount up to the Guaranteed Consideration; and/or (ii) such other form
of security acceptable to Licensor. Licensee agrees to execute all
documentation as Licensor may require in connection with perfecting
such security interests.
(d) Any payments which are made to Licensor hereunder after the due date
required therefor, shall bear interest at the then current prime rate
(or the maximum rate permissible by law, if less than the current
prime rate) from the date such payments are due to the date of
payment. Licensor's right hereunder to interest on late payments shall
not preclude Licensor from exercising any of its other rights or
remedies pursuant to this Agreement or otherwise with regard to
Licensee's failure to make timely remittances.
6. BOOKS AND RECORDS.
(a) Licensee shall keep, maintain and preserve (in Licensee's principal
place of business) for at least two (2) years following termination or
expiration of the term of this Agreement or any renewal(s) hereof,
complete and accurate records of accounts including, without
limitation, purchase orders, inventory records, invoices,
correspondence, banking and financial and other records pertaining to
the various items required to be submitted by Licensee. Such records
and accounts shall be available for inspection and audit at any time
or times during or after the term of this Agreement or any
#7635-WBLT - Page 4
<PAGE>
renewal(s) hereof during reasonable business hours and upon reasonable
notice by Licensor or its nominees. Licensee agrees not to cause or
permit any interference with Licensor or nominees of Licensor in the
performance of their duties. During such inspections and audits,
Licensor shall have the right to take extracts and/or make copies of
Licensee's records as it deems necessary.
(b) The exercise by Licensor in whole or in part, at any time of the right
to audit records and accounts or of any other right herein granted, or
the acceptance by Licensor of any statement or statements or the
receipt and/or deposit by Licensor, of any payment tendered by or on
behalf of Licensee shall be without prejudice to any rights or
remedies of Licensor and such acceptance, receipt and/or deposit shall
not preclude or prevent Licensor from thereafter disputing the
accuracy of any such statement or payment.
(c) If pursuant to its rights hereunder Licensor causes an audit and
inspection to be instituted which thereafter discloses a deficiency
between the amount found to be due to Licensor and the amount actually
received or credited to Licensor, then Licensee shall be responsible
for payment of the deficiency, together with interest thereon at the
then current prime rate from the date such amount became due until
the date of payment, and, if the deficiency is more than 3%, then
Licensee shall pay the reasonable costs and expenses of such audit and
inspection.
7. INDEMNIFICATIONS.
(a) During the Term, and continuing after the expiration or termination of
this Agreement, Licensor shall indemnify Licensee and shall hold it
harmless from any loss, liability, damage, cost or expense arising out
of any claims or suits which may be brought or made against Licensee
by reason of the breach by Licensor of the warranties or
representations as set forth in Paragraph 12 hereof, provided that
Licensee shall give prompt written notice, and full cooperation and
assistance to Licensor relative to any such claim or suit and
provided, further, that Licensor shall have the option to undertake
and conduct the defense of any suit so brought. Licensee shall not,
however, be entitled to recover for lost profits. Licensee shall
cooperate fully in all respects with Licensor in the conduct and
defense of said suit and/or proceedings related thereto.
(b) During the Term, and continuing after the expiration or termination of
this Agreement, Licensee shall indemnify Licensor and shall hold it
harmless from any loss, liability, damage, cost or expense arising out
of any claims or suits which may be brought or made against Licensor
by reason of: (i) any breach of Licensee's covenants and undertakings
hereunder, including those set forth in Paragraph 13 hereof; (ii) any
unauthorized use of the Licensed Property; (iii) any use of any
trademark, copyright, design, patent, process, method or device,
except for those uses by the Licensed Property that are specifically
approved by Licensor pursuant to the terms of this Agreement; (iv)
Licensee's non-compliance with any applicable federal, state or local
laws or with any other applicable regulations; and (v) any alleged
defects and/or inherent dangers (whether obvious or hidden) in the
Licensed Product(s) or the use thereof.
(c) With regard to 7(b) above, Licensee agrees to obtain, at its own
expense, product liability insurance providing
#7635-WBLT - Page 5
<PAGE>
adequate protection for Licensor and Licensee against any such claims
or suits in amounts no less than two million dollars ($2,000,000) per
occurrence, combined single limits. Simultaneously with the execution
of this Agreement, Licensee undertakes to submit to Licensor a fully
paid policy or certificate of insurance naming Licensor as an
additional insured party and, requiring that the insurer shall not
terminate or materially modify such without written notice to Licensor
at least twenty (20) days in advance thereof.
8. ARTWORK; COPYRIGHT AND TRADEMARK NOTICES.
(a) The Licensed Property shall be displayed or used only in such form and
in such manner as has been specifically approved in writing by
Licensor in advance and Licensee undertakes to assure usage of the
Trademark(s) and the License Property solely as approved hereunder.
Licensee further agrees and acknowledges that any and all artwork
authorized for use hereunder by Licensor in connection with the
Licensed Product(s) or which otherwise features or includes the
Licensed Property shall be owned in its entirety exclusively by
Licensor. Licensor reserves for itself or its designees all rights to
use any and all artwork created, utilized without limitation and/or
approved hereunder without limitation.
(b) Licensee acknowledges that, as between Licensor and Licensee, the
Licensed Property and all copyrights, trademarks and other proprietary
rights in and to the Licensed Property are owned exclusively by
Licensor. Licensee acknowledges that Licensor shall have the right to
terminate this Agreement the event Licensee asserts any rights (other
than those granted pursuant to the Agreement) in or to the Licensed
Property. Licensee further agrees and acknowledges that Licensor shall
own the copyright and other Proprietary rights in any and all artwork
authorized for use hereunder that incorporates the Licensed Property.
At the request of Licensor, Licensee shall execute such form(s) of
assignment of copyright in any amendments or derivative works based in
whole or part on the Licensed Property as Licensor may reasonably
request. If any third party makes or has made any contribution to the
creation of artwork authorized for use hereunder, Licensee agrees to
obtain from such party a full assignment of rights so that the
foregoing assignment by Licensee shall vest full rights in Licensor.
(c) Licensee shall, within thirty (30) days of receiving an invoice, pay
Licensor for artwork executed by Licensor (or by third parties under
contract to Licensor) for use in the development of the Licensed
Product(s) and any related packaging, display and promotional
materials at Licensor's prevailing commercial art rates. The foregoing
shall include any artwork that, in Licensor's opinion, is necessary to
modify artwork initially prepared by Licensee and submitted for
approval. Estimates of artwork charges are available upon request.
(d) Licensee shall cause to be imprinted, irremovably and legibly on each
Licensed Product(s) manufactured, distributed or sold under this
Agreement, and all advertising, promotional, packaging and wrapping
material wherein the Licensed Property appears, the following as
directed by Licensor:
#7635-WBLT - Page 6
<PAGE>
(i) The appropriate Copyright Notices, as directed and in each
instance specified by Licensor, including an encircled c, the
name of Licensor, year date of first publication of the art
and/or textual material generally in the following form:
LOONEY TUNES, characters, names and all related indicia are
trademarks of Warner Bros. (C) 199_.
(The year date shall be as instructed by Licensor)
(ii) The appropriate Trademark Notices with respect to the
Trademark(s) and Character(s) (and any component thereof) as
specified in each instance by Licensor, including the initials
"TM", or the letter "R" encircled or "*" (asterisk), and/or such
legend(s) as may be required by Licensor, including but not
limited to a legend indicating that the Licensed Property (and
any component thereof) are trademarks of Licensor used under
license by Licensee.
(e) In no event shall Licensee use, in respect to the Licensed Product(s)
and/or in relation to any advertising, promotional, packaging or
wrapping material, any copyright or trademark notices which shall
conflict with, be confusing with, or negate, any notices
required hereunder by Licensor in respect to the Licensed Property.
(f) Licensee agrees to deliver to Licensor free of cost three (3) of each
of the Licensed Product(s) together with their packaging and wrapping
material for trademark registration purposes in compliance with
applicable laws, simultaneously upon distribution to the public. Any
copyrights or trademarks with respect to the Licensed Property shall
be procured by and for the benefit of Licensor and at Licensor's
expense. Licensee further agrees to provide Licensor with the date of
the first use of the Licensed Product(s) in interstate and intrastate
commerce.
(g) Licensee shall assist Licensor, at Licensor's expense, in the
procurement, protection, and maintenance of Licensor's rights to the
Licensed Property. Licensor may, in its sole discretion, commence or
prosecute and effect the disposition of any claims or suits relative
to the imitation, infringement and/or unauthorized use of the Licensed
Property either in its own name, or in the name of Licensee, or join
Licensee as a party in the prosecution of such claims or suits.
Licensee agrees to cooperate fully with Licensor in connection with
any such claims or suits and undertakes to furnish full assistance to
Licensor in the conduct of all proceedings in regard thereto. Licensee
shall promptly notify Licensor in writing of any infringements or
imitations or unauthorized uses by others of the Licensed Property, on
or in relation to products identical or similar to or related to the
Licensed Product(s). Licensor shall in its sole discretion have the
right to settle or effect compromises in respect thereof. Licensee
shall not institute any suit or take any action on account of such
infringements, imitations or unauthorized uses.
9. APPROVALS AND QUALITY CONTROLS.
(a) Licensee agrees to comply and maintain compliance with the quality
standards and specifications of Licensor in respect to all usage of
the Licensed Property on or in relation to the Licensed Product(s)
throughout the Term
#7635-WBLT - Page 7
<PAGE>
of this Agreement and any renewals or extensions thereof. Licensee
agrees to furnish to Licensor free of cost for its written approval as
to quality and style, samples of each of the Licensed Product(s),
together with their packaging, hangtags, and wrapping material, as
follows in the successive stages indicated (a) rough sketches/layout
concepts; (b) finished artwork or final proofs; (c) pre-production
samples or strike-offs; (d) finished products, including packaged
samples.
(b) No Licensed Product(s) and no material whatever utilizing the Licensed
Property shall be manufactured, sold, distributed or promoted by
Licensee without prior written approval. Licensee may, subject to
Licensor's prior written approval, use textual and/or pictorial matter
pertaining to the Licensed Property on such promotional, display and
advertising material as may, in its reasonable judgment, promote the
sale of the Licensed Product(s). All advertising and Promotional
material relating to the Licensed Product(s) must be submitted to the
Licensor for its written approval at the following stages appropriate
to the medium used: (a) rough concepts (b) layout, storyboard, script;
and (c) finished materials.
(c) Approval or disapproval shall lie in Licensor's sole discretion. Any
Licensed Product(s) not approved in writing shall be deemed
unlicensed and shall not be manufactured or sold. If any unapproved
Licensed Product(s) are being sold, Licensor may, together with other
remedies available to it including, but not limited to, immediate
termination of this Agreement, require such Licensed Product(s) to be
immediately withdrawn from the market and to be destroyed, such
destruction to be attested to in a certificate signed by an officer of
Licensee.
(d) Any modification of a Licensed Product must be submitted in advance
for Licensor's written approval as if it were a new Licensed Product.
Approval of a Licensed Product which uses particular artwork does not
imply approval of such artwork for use with a different Licensed
Product.
(e) Licensed Product(s) must conform in all material respects to the final
production samples approved by Licensor. If in Licensor's reasonable
judgement, the quality of a Licensed Product originally approved has
deteriorated in later production runs, or if a Licensed Product has
otherwise been altered, Licensor may, in addition to other remedies
available to it, require that such Licensed Product be immediately
withdrawn from the market.
(f) Licensee shall permit Licensor, upon reasonable notice, to inspect
Licensee's manufacturing operations and testing records (including
those operations and records of any supplier or manufacturer approved
pursuant to Paragraph 10 below) with respect to the Licensed
Product(s).
(g) If any changes or modifications are required to be made to any
material submitted to Licensor for its written approval in order to
ensure compliance with Licensor's specifications or standards of
quality, Licensee agrees promptly to make such changes or
modifications. Subsequent to final approval, no fewer than three (3)
production samples of Licensed Product(s) will be sent to Licensor, to
ensure quality control simultaneously upon distribution to the public.
In addition, Licensor shall have the right to purchase any and all
Licensed
#7635-WBLT - Page 8
<PAGE>
Product(s) in any quantity at the price Licensee charges its best
customer at the maximum discount price.
(h) To avoid confusion of the public, Licensee agrees not to associate
other characters or licensed properties with the Licensed Property on
the Licensed Product(s) or in any packaging, promotional or display
materials unless Licensee receives Licensor's prior written approval.
Furthermore, Licensee agrees not to use the Licensed Property (or any
component thereof) on any business sign, business cards stationery or
forms, nor to use the Licensed Property as part of the name of
Licensee's business or any division thereof.
(i) Licensee shall use its best efforts to notify its customers of the
requirement that Licensor has the right to approve all promotional,
display and advertising material pursuant to this Agreement.
(j) It is understood and agreed that any animation used in electronic
media, including but not limited to animation for television
commercials and character voices for radio commercials, shall be
produced by Warner Bros. Animation pursuant to a separate agreement
between Licensee and Warner Bros. Animation, subject to Warner Bros.
Animation customary rates. Any payment made to Warner Bros. Animation
for such animation shall be in addition to and shall not offset the
Consideration set forth in Paragraph 4.
(k) Licensor's approval of Licensed Product(s) (including without
limitation, the Licened Product(s) themselves as well as Promotional,
display and advertising materials) shall in no way constitute or
be construed as an approval by Licensor of Licensee's use of any
trademark, copyright and/or other proprietary materials not owned by
Licensor.
l0. DISTRIBUTION; SUB-LICENSE MANUFACTURE.
(a) Within the Channels of Distribution as set forth in Paragraph 1(a)
hereof, Licensee shall sell the Licensed Product(s) either to jobbers,
wholesalers, distributors or retailers for sale or resale and
distribution directly to the public. Unless explicitly set forth in
Paragraph 1(a) hereof, Licensee shall not sell the Licensed Product(s)
through any cable home shopping service without the prior written
consent of Licensor, it being expressly understood that Licensor will
consent to the sale of individual Licensed Products, but will not
consent to a "full show" dedicated to the sale of a line of the
Licensed Products. If Licensee sells or distributes the Licensed
Product(s) at a special price, directly or indirectly, to itself,
including without limitation, any subsidiary of Licensee or to any
other person, firm, or corporation affiliated with Licensee or its
officers, directors or major stockholders, for ultimate sale to
unrelated third parties, Licensee shall pay royalties with respect to
such sales or distribution, based upon the price generally charged to
the trade by Licensee.
(b) Licensee shall not be entitled to sub-license any of its rights under
this Agreement. In the event Licensee is not the manufacturer of the
Licensed Product(s), Licensee shall be, subject to the prior written
approval of Licensor (which approval shall not be unreasonably
withheld), be entitled to utilize a third party manufacturer in
connection with the manufacture and production of the Licensed
Product(s) provided that such manufacturer shall execute a letter in
the form of
#7635-WBLT - Page 9
<PAGE>
Exhibit 1 attached hereto and by this reference made a part hereof. In
such event, Licensee shall remain primarily obligated under all of the
provisions of this Agreement. In no event shall any such sublicense
agreement include the right to grant any further sublicenses.
11. GOODWILL.
Licensee recognizes the great value of the publicity and goodwill
associated with the Licensed Property and, acknowledges (i) such goodwill
is exclusively that of Licensor and (ii) that the Licensed Property have
acquired a secondary meaning as Licensor's trademarks and/or
identifications in the mind of the purchasing public. Licensee further
recognizes and acknowledges that a breach by Licensee of any of its
covenants, agreements or undertakings hereunder will cause Licensor
irreparable damage, which cannot be readily remedied in damages in an
action at law, and may, in addition thereto, constitute an infringement of
Licensor's copyrights, trademarks and/other proprietary rights in, and to
the Licensed Property, thereby entitling Licensor to seek equitable
remedies and costs.
12. LICENSOR'S WARRANTIES AND REPRESENTATIONS.
Licensor represents and warrants to Licensee that:
(a) It has, and will have throughout the Term of this Agreement, the right
to license the Licensed Property to Licensee in accordance with the
terms and provisions of this Agreement; and
(b) The making of this Agreement by Licensor does not violate any
agreements, rights or obligations existing between Licensor and any
other person, firm or corporation.
13. LICENSEE'S WARRANTIES AND REPRESENTATIONS.
Licensee represents and warrants to Licensor that, during the Term and
thereafter:
(a) It will not attack the title of Licensor or its Grantors in and to the
Licensed Property or any copyright or trademark pertaining thereto,
nor will it attack the validity of the license granted hereunder;
(b) It will not harm, misuse or bring into disrepute the Licensed
Property, but on the contrary, will maintain the value and reputation
thereof to the best of its ability;
(c) It will manufacture, sell, promote and distribute the Licensed
Product(s) in an ethical manner and in accordance with the terms and
intent of this Agreement, and in compliance with all applicable
government regulations and industry standards;
(d) It will not create any expenses chargeable to Licensor without the
prior written approval of Licensor;
(e) It will protect to the best of its ability its right to manufacture,
sell, promote, and distribute the Licensed Product(s) hereunder;
(f) It will at all times comply with all government laws and regulations,
including but not limited to product safety, food, health, drug,
cosmetic, sanitary or other similar laws, and all voluntary industry
standards relating or pertaining to the manufacture, sale, advertising
or use of the Licensed Product(s), and shall maintain its
#7635-WBLT - Page 10
<PAGE>
appropriate customary high quality standards. It shall comply with any
regulatory agencies which shall have jurisdiction over the Licensed
Product(s) and shall procure and maintain in force any and all
permissions, certifications and/or other authorizations from
governmental and/or other official authorities that may be required in
relation thereto. Each Licensed Product and component thereof
distributed hereunder shall comply with all applicable laws,
regulations and voluntary industry standards. Licensee shall follow
reasonable and proper procedures for testing that all Licensed
Product(s) comply with such laws, regulations and standards. Upon
reasonable notice, Licensee shall permit Licensor or its designees to
inspect testing records and procedures with respect to the Licensed
Product(s) for compliance. Licensed Product(s) that do not comply with
all applicable laws, regulations and standards shall automatically be
deemed unapproved;
(g) It shall, upon Licensor's request, provide credit information to
Licensor including, but not limited to, fiscal year-end financial
statements (profit-and-loss statement and balance sheet) and operating
statements;
(h) It will provide Licensor with the date(s) of first use of the Licensed
Product(s) in interstate and intrastate commerce, where appropriate;
(i) It will, pursuant to Licensor's instructions, duly take any and all
necessary steps to secure execution of all necessary documentation for
the recordation of itself as user of the Licensed Property in any
jurisdiction where this is required or where Licensor reasonably
requests that such recordation shall be effected. Licensee further
agrees that it will at its own expense cooperate with Licensor in
cancellation of any such recordation at the expiration of this
Agreement or upon termination of Licensee's right to use the Licensed
Property. Licensee hereby appoints Licensor its Attorney-in-fact for
such purpose; and
(j) It will not deliver or sell Licensed Products outside the Territory or
knowingly sell Licensed Products to a third party for delivery outside
the Territory.
14. TERMINATION BY LICENSOR.
(a) Licensor shall have the right to terminate this Agreement without
prejudice to any rights which it may have in the premises, whether
pursuant to the provisions of this Agreement, in law, or in equity, or
otherwise, upon the occurrence of any one or more of the following
events (herein called "defaults"):
(i) If Licensee defaults in the performance of any of its obligations
provided for in this Agreement; or
(ii) Licensee shall have failed to deliver to Licensor or to maintain
in full force and effect the insurance referred to in Paragraph
7(c) hereof; or
(iii) If Licensee shall fail to make any payments due hereunder on the
date due; or
(iv) If Licensee shall fail to deliver any of the statements
hereinabove referred to or to give access to the premises and/or
license records pursuant to the provisions hereof to Licensor's
authorized representatives for the purposes permitted hereunder;
or
#7635-WBLT - Page 11
<PAGE>
(v) If Licensee shall fail to comply with any laws, regulations or
voluntary industry standards as provided in Paragraph 13(f) or if
any governmental agency or other body, office or official vested
with appropriate authority finds that the Licensed Product(s) are
harmful or defective in any way, manner or form, or are being
manufactured, sold or distributed in contravention of applicable
laws, regulations or standards, or in a manner likely to cause
harm; or
(vi) If Licensee shall be unable to pay its debts when due, or shall
make any assignment for the benefit of creditor, or shall file
any petition under the bankruptcy or insolvency laws of any
jurisdiction, county or place, or shall have or suffer a receiver
or trustee to be appointed for its business or property, or be
adjudicated a bankrupt or an insolvent; or
(vii) In the event that Licensee does not commence in good faith to
manufacture, distribute and sell the Licensed Product(s) and
utilize the Characters set forth in the Licensed Property within
the Territory on or before the Marketing Date and thereafter
fails to diligently and continuously manufacture, distribute and
sell the Licensed Products and utilize the characters within the
Territory. Such default and Licensor's resultant right of
termination (or recapture) shall only apply to the specific
Character(s) and/or the specific Licensed Product(s), which or
wherein Licensee fails to meet said Marketing Date retirement; or
(viii) If Licensee shall manufacture, sell or distribute, whichever
first occurs, any of the Licensed Products(s) without the prior
written approval of Licensor as provided in Paragraph 9 hereof;
or
(ix) If Licensee undergoes a substantial change of management; or
(x) If a manufacturer approved pursuant to Paragraph 10(b) hereof
shall engage in conduct, which conduct if engaged in by Licensee
would entitle Licensor to terminate this Agreement; or
(xi) If Licensee delivers or sells Licensed Product(s) outside the
Territory or knowingly sells Licensed Products(s) to a third
party for delivery outside the Territory; or
(xii) If Licensee has made a material misrepresentation or has omitted
to state a material fact necessary to make the statements not
misleading; or
(xiii) If Licensee shall breach any other agreement in effect between
Licensee and Licensor.
(b) In the event any of these defaults occur, Licensor shall give notice
of termination in writing to Licensee by certified mail. Licensee
shall have ten (10) days from the date of receiving notice in which to
correct any of these defaults (except subdivisions (vii), (viii), (xi)
and (xii) above which are not curable), and failing such, this
Agreement shall thereupon immediately terminate, and any and all
payments then or later due from Licensee hereunder (including
Guaranteed Consideration) shall then be promptly due and payable and
no portion of prior payments shall be repayable to Licensee.
#7635-WBLT - Page 12
<PAGE>
15. FINAL STATEMENT UPON TERMINATION OR EXPIRATION.
Licensee shall deliver, as soon as practicable, but not later than
thirty (30) days following expiration or termination, a statement
indicating the number and description of Licensed Product(s) on hand
together with a description of all advertising and promotional materials
relating thereto. Following expiration or termination, Licensee shall not
continue to manufacture the Licensed Product(s). However, if Licensee has
complied with all the terms of this Agreement, including, but not limited
to, complete and timely payment of the Guaranteed Consideration then,
Licensee may continue to distribute and sell its remaining inventory on a
non-exclusive basis for a period not to exceed SIXTY (60) days following
such termination or expiration, subject to payment of applicable royalties
thereto. In no event, however, may Licensee distribute and sell during such
period an amount of Licensed Product(s) that exceeds the average amount of
Licensed Product(s) sold during a consecutive SIXTY (60) day period during
the Term. If Licensee has any remaining inventory of the Licensed
Product(s) following such SIXTY (60) day period, Licensee shall, at
Licensor's option, make available such inventory to Licensor for purchase
at cost, deliver up to Licensor for destruction said remaining inventory or
furnish to Licensor an affidavit attesting to the destruction of said
remaining inventory. Licensor shall have the right to conduct a physical
inventory in order to ascertain or verify such inventory and/or physical
inventory. In the event this Agreement is terminated by Licensor for cause,
Licensee shall be deemed to have forfeited its sell-off rights hereunder.
In addition to the forfeiture, Licensor shall have recourse to all other
legal remedies available to it.
16. NOTICES.
Except as otherwise specifically provided herein, all notices which
either party hereto is required or may desire to give to the other shall be
given by addressing the same to the other at the address set forth above,
or at such other address as may be designated in writing by any such party
in a notice to the other given in the manner prescribed in this paragraph.
All such notices shall be sufficiently given when the same shall be
deposited so addressed, postage prepaid, in the United States mail and/or
when the same shall have been delivered, so addressed, to a facsimile or
over-night delivery service and the date of said mailing shall be the date
of the giving of such notice and/or transmitted via facsimile with receipt
of a confirming copy.
17. NO PARTNERSHIP, ETC.
This Agreement does not constitute and shall not be construed as
constitution of a partnership or joint venture between Licensor and
Licensee. Neither party shall have any right to obligate or bind the other
party in any manner whatsoever, and nothing contained herein shall give, or
is intended to give, any rights of any kind to any third persons.
18. NON-ASSIGNABILITY.
This Agreement shall bind and inure to the benefit of Licensor, its
successors and assigns. This Agreement is personal to Licensee, and
Licensee shall not sub-license nor franchise its rights hereunder, and
neither this Agreement nor any of the rights of Licensee hereunder shall be
sold, transferred or assigned by Licensee and no rights hereunder shall
devolve by operation of law or otherwise upon any receiver, liquidator,
trustee or other party.
#7635-WBLT - Page 13
<PAGE>
19. CONSTRUCTION.
This Agreement shall be construed in accordance with the laws of the
State of California of the United States of America.
20. WAIVER, MODIFICATION ETC.
No waiver, modification or cancellation of any term or condition of
this Agreement shall be effective unless executed in writing by the party
charged therewith. No written waiver shall excuse the performance of any
acts other than those specifically referred to therein. The fact that the
Licensor has not previously insisted upon Licensee expressly complying with
any provision of this Agreement shall not be deemed to be a waiver of
Licensor's future right to require compliance in respect thereof and
Licensee specifically acknowledges and agrees that the prior forbearance in
respect of any act, term or condition shall not prevent Licensor from
subsequently requiring full and complete compliance thereafter. If any term
or provision of this Agreement is held to be invalid or unenforceable by
any court of competent jurisdiction or any other authority vested with
jurisdiction, such holding shall not affect the validity or enforceability
of any other term or provision hereto and this Agreement shall be
interpreted and construed as if such term or provision, to the extent the
same shall have been held to be invalid, illegal or unenforceable, had
never been contained herein. Headings of paragraphs herein are for
convenience only and are without substantive significance.
21. ACCEPTANCE BY LICENSOR;
This instrument, when signed by Licensee shall be deemed an
application for license and not a binding agreement unless and until
accepted by Warner Bros. Consumer Products by signature of a duly
authorized officer and the delivery of such a signed copy to Licensee. The
receipt and/or deposit by Warner Bros. Consumer Products of any check or
other consideration given by Licensee and/or delivery of any material by
Warner Bros. Consumer Products to Licensee shall not be deemed an
acceptance by Warner Bros. Consumer Products of this application. The
foregoing shall apply to any documents relating to renewals or
modifications hereof.
This Agreement shall be of no force or effect unless and until it is signed
by all of the parties listed below:
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
LICENSOR: LICENSEE:
WARNER BROS. CONSUMER PRODUCTS, A ARTISAN HOUSE
TIME WARNER ENTERTAINMENT COMPANY
as Agent for Warner Bros., a
division of Time Warner
Entertainment Company, L.P.
By: /s/ Gary R. Simon By: /s/ Henry Goldman
------------------ ------------------
Gary R. Simon
Vice President, Legal Affairs
Date: 9/24/96 Date: 9/16/96
#7635-WBLT - Page 14
<PAGE>
EXHIBIT 1 #7635-WBLT
Dated
Warner Bros. Consumer Products
4000 Warner Boulevard
Burbank, CA 91522
RE: Approval for Third Party Manufacturer
Gentlemen:
This letter will serve as notice to you that pursuant to Paragraph 10(b) of
the License Agreement dated _____________ 199_ between your client WARNER BROS.
and ARTISAN HOUSE ("Licensee"), we have been engaged as the manufacturer for
LICENSEE in connection with the manufacture of the Licensed Product(s) as
defined in the aforesaid License Agreement. We hereby acknowledge that we may
not manufacture Licensed Product(s) for, or sell or distribute Licensed
Product(s) to, anyone other than Licensee. We hereby further acknowledge that we
have received a copy and are cognizant of the terms and conditions set forth in
said License Agreement and hereby agree to observe those provisions of said
License Agreement which are applicable to our function as manufacturer of the
Licensed Product(s). It is understood that this engagement is on a royalty free
basis.
We understand that our engagement as the manufacturer for LICENSEE is
subject to your written approval. We request, therefore, that you sign in the
space below, thereby showing your acceptance of our engagement as aforesaid.
Sincerely,
/s/ Artisan House, Inc.
-------------------------
MANUFACTURER/COMPANY NAME
By: /s/ Henry Goldman
------------------
signature
Henry Goldman
------------
printed name
1755 Glendale Blvd
------------------
address
Los Angeles, CA 90026
---------------------
9/16/96
-------
dated
AGREED TO AND ACCEPTED:
WARNER BROS. CONSUMER PRODUCTS
By: __________________________
Gary R. Simon
Vice President, Legal Affairs
Date: __________________
#7635-WBLT - Page 15
<PAGE>
ARTISAN AQUISITION CO.
EMPLOYMENT AGREEMENT
(with HENRY GOLDMAN)
This Employment Agreement ("Agreement") is entered into as of ____________,
1996, between Artisan Acquisition Co., a Delaware corporation ("Company") and
Henry Goldman ("Employee").
RECITALS
A. Company is engaged in the business of producing and distributing
wall-hanging sculptures and other art products (the "Business").
B. Concurrently herewith, the Company has acquired the Business pursuant
to that certain Asset Purchase Agreement (the "Purchase Agreement"), dated as of
March 25, 1996 and amended as of September 10, 1996, among Company, Decor Group,
Inc., a Delaware corporation ("Decor"), Artisan House, Inc., a California
corporation ("Seller"), and Employee. Unless otherwise defined herein, all terms
used herein with initial capital letters shall have the respective meanings
assigned them in the Purchase Agreement.
C. Company desires to employ Employee, and Employee desires to accept
such employment, on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual convenants
hereinafter set forth, the parties agree as follows:
1. Employment.
1.1 Hiring of Employee; Title. Company hereby hires and employs
Employee, to perform the duties set forth in Section 1.2 hereof. Employee hereby
accepts such employment. During the term hereof, Employee shall be entitled to
use the titles "President" and "Chief Executive Officer," and shall have the
right to use those titles in all negotiations on behalf of Company.
1.2 Duties and Powers. In consideration of his Base Salary and Bonus
payable hereunder, Employee agrees to provide to Company 250 hours per year of
services as Company's President and Chief Executive Officer. Employee's duties
will include all the usual duties associated with the aforesaid titles, as well
as
<PAGE>
soliciting orders from customers, developing and furthering customer and
vendor relations, and assisting and advising the officers of the Company in
connection with product development, the management, administration and
operation of the Business, seeking new major accounts, and export marketing.
Employee will also continue to be involved in associations of which Seller is
currently a member, in the same capacities as he has heretofore held (i.e. he
shall continue to be involved in ART as Treasurer).
1.3 Supervision. Employee shall report directly to Company's board
of directors, and shall accept supervision from them.
1.4 Location. Employee shall perform his duties hereunder at
Company's principal office in Los Angeles, California; provided, however, that
Employee also may perform such services at home and travel (and recover his
reasonable expenses in connection therewith as provided in Section 3.5 hereof),
to the extent that he reasonably seems it necessary or appropriate in the
performance of his duties hereunder; and further provided, that Employee
acknowledges that Company may move its principal office to any location it
chooses, but it may not require Employee to relocate (and will make reasonable
arrangements for Employee to continue to perform his duties in Los Angeles); and
further provided that Employee acknowledges that his duties may from time to
time require travel to other locations. Travel time (excluding travel to and
from Employee's home to the Company's present offices) shall be included in
computing the hours that Employee is required to work hereunder.
1.5 Office Facilities. Employee shall be entitled to the use, at
the Company's principal offices, of an office appropriate to his position and
secretarial support for work related to his services on an "as needed" basis at
the Company's sole cost.
2. Term of Agreement. Subject to extension as provided below and to
earlier termination as provided in Section 5 hereof, Employee shall be employeed
for a term begining on the date hereof and ending on the last day of the
calendar quarter in which the third anniversary of the date hereof falls. The
term can be extended by mutual agreement of the parties.
3. Compensation. In consideration for the performance of Employee's
duties and the rendition by Employee of the services to be provided under this
Agreement, Company shall compensate Employee as follows:
3.1 Signing Bonus. In consideration for Employee's entering into
this Agreement, Company shall pay Employee a signing bonus of $70,000, payable
$30,000 concurrently with the execution of this Agreement, and the balance in 12
equal monthly installments of $3,333.33 each. The first such installment shall
be paid on the date one month after the execution of this
2
<PAGE>
Agreement, and subsequent payments shall be made on the same date in
each month as the date in the month of execution hereof on which the
execution hereof took place.
3.2 Base Salary. Company shall pay Employee an annual base salary
("Base Salary") at the rate of $75,000 per year, payable in accordance
with the Company's regular payroll practices, but no less often than
monthly. For any partial period during the term of Employee's
employment, Employee's Base Salary shall be prorated.
3.3 Additional Salary. For each additional hour of services
performed by Employee during any year of the term hereof, Company shall
pay Employee additional salary ("Additional Salary") in the amount equal
to $300 per hour, provided that no such additional services shall be
provided without the Company's approval. Payment of additional salary
shall be made at the end of the year during which the additional hours
of service were performed.
3.4 Bonus Compensation.
3.4.1 Annual Bonus. Company shall pay Employee, within 60 days
after the end of each fiscal year of Company during the term hereof, and
within 60 days after the end of the term hereof, a bonus (the "Annual
Bonus") in an amount equal to the sum of:
3.4.1.1. 1% of the excess, if any, of Company's net
sales for such period over Seller's net sales for the 12-month period ended
June 30, 1996; plus
3.4.1.2 5% of the excess, if any, of Company's net
export sales for such period over Seller's net export sales for the 12-month
period ended June 30, 1996.
The first Annual Bonus, which shall relate to sales from the date
of execution of this Agreement through the Company's first fiscal year
end during the term hereof, and the last Annual Bonus, which shall
relate to sales from the Company's last fiscal year end during the term
hereof through the expiration of the term hereof, shall be calculated
based on pro-rated sales figures. For purposes of calculating Employee's
Annual Bonus under this Section 3.4.1, at the expiration or earlier
termination of the term hereof, the Company's net sales or net export
sales shall be adjusted to include all sales for which the Company
received orders before such expiration or termination, irrespective of
when the merchandise is scheduled to be shipped. Company shall adopt a
general ledger accounting procedure to segregate export sales. Employee
shall have the right from time to time (but no more often than once per
year) to engage an auditor to audit Company's books and records to
determine its net sales or net export sales. An Annual Bonus will be
payable to Employee
3
<PAGE>
hereunder only if Employee is employed by Company on the date such Bonus
is earned.
3.4.2 Acquisition Bonuses.
3.4.2.1 In addition to the sums described above,
Company shall also pay Employee an amount equal to 2.5% of the total
consideration paid by Company, Decor, Interiors, Inc., a Delaware corporation,
or any affiliate of them (the "Group"), in connection with an acquisition by
the group of an unrelated third party introduced to the Group by Employee.
The compensation payable under this Section 3.4.2.1 shall be paid
concurrently with the consummation of the acquisition to which such
compensation relates.
3.4.2.2 In addition to the sums described above,
Company shall also pay Employee an amount equal to 1% of the total
consideration paid by the Group in connection with an acquisition by the Group
of an unrelated third party (other than a party introduced to the Group by
Employee), where the Group has asked Employee to take a material and substantial
part in analyzing, negotiating, documenting or closing the acquisition.
The compensation payable under this Section 3.4.2.2 shall be paid
concurrently with the consummation of the acquisition to which such
compensation relates.
3.5 Reimbursement of Expenses. Company agrees to pay, or promptly
to reimburse Employee for, all reasonable out-of-pocket expenses
incurred by Employee in connection with the performance of his duties
hereunder, including lease and insurance payments on Employee's 1996
Jeep Grand Cherokee automobile, home telephone, fax, office supplies and
other expenses necessary to enable Employee to work from his home,
business-related entertainment expenses, travel expenses, food and
lodging while away from home, all subject to such reasonable policies as
Company's board of directors may from time to time adopt. Employer
acknowledges and agrees that Employee is authorized to stay at major
hotel chains such as Hilton, Sheraton, Marriott, or the like, which
hotels shall be deemed reasonable for purposes of reimbursing Employee
for his travel expenses. When flying internationally or for more than
five hours at any one time, Employees may fly business class or, if
business class is not available, first class. Within 30 days after the
date hereof, and annually thereafter, Employee shall prepare, and submit
to Company for its approval, a budget for Employee's anticipated
expenses during the following year. Expenses in excess of $100 that are
not provided for in the approved budget will be reimbursed only if
approved by Company in advance.
3.6 Benefits. Employee shall be entitled to participate in all
pension or retirement plans, profit-sharing plans, disability insurance,
life insurance, medical insurance, dental insurance and any other plans
or benefits that Company provides from time to time to its employees.
Employee may, however, at
4
<PAGE>
his election, continue the current coverage of Employee and his wife
under Employee's existing medical insurance plan, and Company shall pay
all premiums associated therewith, provided, however, that Company shall
not be obligated under this sentence for premiums in excess of the
premiums currently being paid for the current coverage of Employee and
his wife under Employee's existing medical insurance plan, plus an
inflation factor of 10% per year.
Employee's compensation hereunder is in consideration of services
to be provided by him to Company, and Company shall have no right to set
off against such compensation any claim asserted against Employee or
Seller in connection with the transactions described in the Purchase
Agreement.
4. Non-Exclusive Services.
4.1 Outside Business Activities. Company acknowledges that,
except as set forth in Section 4.2 hereof, Employee will be free, during
the term hereof, to engage in business activities and to pursue business
opportunities other than on behalf of the Company, and Employee shall
in no way be obligated to share the revenues or profits from any such
activities or to present any such opportunities to Company.
4.2 Restrictions on Activities
4.2.1 Covenant Not to Compete. As noted in Recital B, Employee
has caused Seller to sell all or substantially all of the its operating
assets, together with its goodwill to the Company pursuant to the
Purchase Agreement and, as a condition of his employment hereunder and
in connection with the sale described in the Purchase Agreement,
Employee agrees to refrain from carrying on a business similar to that
of the Company within each city and county of each state of the United
States of America in which the Business has been carried on, for as long
as the Company, or any successor in interest of the Company, carries on
a like business therein.
4.2.2 Proprietary Information. During the term of this
Agreement, Employee will have access to and become acquainted with the
Company's confidential and proprietary information (collectively, the
"Proprietary Information"), including information or plans regarding the
Company's customer relationships, personnel, or sales, marketing and
financial operations and methods, trade secrets, formulas, devices,
inventions, processes, client lists and other compilations of
information, records and specifications. Employee shall not, directly or
indirectly, disclose any of the Proprietary Information, or use it in
any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment or as
authorized by the Company. All files, records, documents,
computer-recorded information, drawings, specifications, equipment and
similar items relating to the business of
5
<PAGE>
the Company, whether prepared by Employee or otherwise coming into his
possession, shall remain the exclusive property of the Company and shall
not be removed from the Company's premises without the Company's
consent, except when (and only for the period) necessary to carry out
Employee's duties hereunder, and if removed shall be immediately
returned to the Company upon termination of his employment, and Employee
shall keep no copies thereof.
4.2.3 Non-solicitation and Unfair Competition. In
consideration of the Company's employment of Employee hereunder,
Employee agrees as follows, and acknowledges and agrees that a breach of
any of the following would constitute an act of unfair competition
against the Company. During the term of Employee's employment hereunder
and for a period of 12 months thereafter (the "Covenant Period"),
Employee shall not:
4.2.3.1 Directly or indirectly induce or attempt to
induce any person engaged or employed (whether full-time or part-time)
by the Company, or any successor in interest of the Company, whether as
an officer, employee, consultant, adviser or independent contractor, to
leave the employ of the Company or such successor, or to cease providing
the services to the Company or such successor, then provided by such
person, or in any other manner seek to engage or employ any such person
(whether or not for compensation) as an officer, employee, consultant,
adviser or independent contractor, such that such person would
thereafter be unable to continue his employment or other engagement with
the Company or such successor; or
4.2.3.2 Engage or employ (whether or not for
compensation) as an officer, employee, consultant, adviser or
independent contractor, any person who, during the two years before such
date, served as an officer, employee, consultant, adviser or independent
contractor, of the Company, or any successor in interest of the Company.
5. Termination of Employment by Company. Company may terminate
Employee's employment only:
5.1 Death. Upon the death of the Employee.
5.2 Disability. During the duration of any Disability
that shall have persisted for more than three months. As used herein,
the term "Disability" means an illness, injury or similar incapacity of
Employee, including without limitation physical or mental incompetence,
by reason of which Employee is rendered substantially unable to perform
his essential duties hereunder.
5.3 Cause. For Cause (as hereinafter defined). As used
herein, the term "Cause" shall mean: (a) (i) Employee's conviction of,
or plea of nolo contendere (or its equivalent) to, any misdemeanor
involving moral turpitude or any felony; (ii) Employee's commission of
any act of embezzlement, theft or mis-
6
<PAGE>
appropriation of Company's funds; (iii) Employee's acceptance of
kickbacks, bribery or any other "off the books" payment relating
directly or indirectly to the Company's business; (iv) Employee's
conviction of, or plea of nolo contendere (or its equivalent) to, any
crime related to Employee's employment hereunder; (v) Employee's
material breach of, or fraud or misrepresentation in connection with,
the Purchase Agreement; or (vi) drug, alcohol or other substance abuse
affecting Employee's performance of his duties hereunder; or (b) any of
the following that is not cured within 30 days after Employee's receipt
of notice thereof from Company: (i) Employee's material breach of this
Agreement; (ii) Employee's gross negligence or malfeasance in the
performance of his duties hereunder; or (iii) any other willful breach
of duty in the course of employment, habitual neglect of employment
duties or continued incapacity to perform employment duties.
6. Effect of Termination. If Employee's employment is terminated
pursuant to Section 5.1 or 5.2 hereof, Employee shall be entitled to his
Base Salary, Additional Salary and Bonus through the date 90 days after
the date of termination. If Employee's employment is terminated pursuant
to Section 5.3 hereof, Employee shall be entitled to his Base Salary,
Additional Salary and Bonus only through the effective date of
termination. All compensation payable pursuant to this Section 6 shall
be paid immediately upon termination of Employee's employment or after
such time as is specified herein or is reasonably necessary to complete
the calculation of the amount of such compensation.
7. Effect of Merger etc.
7.1 This Agreement shall not be terminated by any voluntary
or involuntary dissolution of Company resulting from either a merger or
consolidation in which Company is not the consolidated or surviving
corporation, or a transfer of all or substantially all of the assets of
Company.
7.2 In the event of any such merger or consolidation or
transfer of assets, Company's rights, benefits and obligations hereunder
shall be assigned to the surviving or resulting corporation or the
transferee of Company's assets.
8. Indemnification. Company shall, to the maximum extent
permitted by law, indemnify, defend and hold harmless Employee from and
against expenses, including reasonable attorney's fees, judgments,
fines, settlements, and other amounts incurred by Employee in connection
with any proceeding arising out of any action taken by Company or by
Employee (within the course and scope of Employee's employment with
Company). Company shall advance to Employee any expense incurred in
defending any such proceeding.
7
<PAGE>
9. Miscellaneous.
9.1 Availability of Injunctive Relief. Employee's
obligations and duties hereunder are of a unique and extraordinary
character, which give this Agreement peculiar value. A breach by
Employee of any provision of Section 4.2 hereof cannot be reasonably or
adequately compensated in damages in an action at law. Accordingly, in
addition to other remedies provided by law or this Agreement, Company
shall have the right to obtain injunctive relief against any breach of
the provisions of the aforementioned section by Employee.
9.2 Captions. The captions of the sections hereof are
included for convenience only and shall not affect the construction or
interpretation of any provision hereof.
9.3 Notices. All notices, requests, demands, consents,
approvals, authorizations and other communications required or permitted
under this Agreement ("Notices") shall be in writing and shall be
delivered in person, telegraphed or sent by fax or courier or by
certified, registered or express mail, postage prepaid. A Notice shall
be deemed given: (a) the succeeding business day after receipt, if
telegraphed or sent by fax and confirmed by regular mail within three
business days thereafter or if delivered in person or by courier; or (b)
ten business days following the mailing thereof, if mailed by certified,
registered or express mail, postage prepaid, return receipt requested,
to the party to whom the same is so delivered or mailed, as follows:
9.3.1 If the Company:
Artisan Acquisition Co.
320 Washington St.
Mt. Vernon, NY 10533
Attention: Max Munn
fax: 914-665-5469
with a copy to:
Hartley T. Bernstein
Bernstein & Wasserman
950 Third Ave.
New York, NY 10022
fax: 212-371-4730
8
<PAGE>
9.3.2 If to Employee:
Henry Goldman
P.O. Box 7645
Van Nuys, CA 91409
fax: 805-984-7262
with a copy to:
Philip S. Magaram
Valensi, Rose & Magaram
1800 Ave. of the Stars, Ste. 1000
Los Angeles, CA 90067-4212
fax: 310-277-1706
or to such other address or fax number as any of the above shall have specified
by notice duly given hereunder.
9.4 Severability. Should any provisions or portion of this Agreement
be held unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
9.5 Arbitration of Disputes. Any controversy or claim arising out of
or related to this Agreement, or the breach thereof, including both contract and
tort claims, shall be settled by arbitration at Los Angeles, California, in
accordance with the then current rules of the Judicial Arbitration and Mediation
Service ("JAMS"), the award from which arbitration shall be binding upon both
parties and their successors, regardless of whether one of said parties fails or
refuses to participate therein, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. In addition
to the rules governing such arbitration, the parties shall have at their
disposal the broadest pretrial discovery rights as are then available under the
laws and judicial rules of the jurisdiction in which the arbitration is to be
held (including but not limited to those set forth in Section 1283.05 of the
California Code of Civil Procedure); provided, that any dispute between the
parties relating to discovery shall be submitted to the arbitration panel for
resolution. Disputes regarding interim or ancillary relief pending final
decision of the arbitration panel in a matter hereunder shall also be
submitted to the arbitration panel for resolution. The arbitrators shall have
the power to award fees and costs to the prevailing party.
9.6 Entire Agreement; Amendment. This Agreement, together with the
other instruments and documents delivered in connection herewith, embodies the
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof. This Agreement cannot be amended or terminated orally,
but only by a writing duly executed by the parties hereto.
9
<PAGE>
9.7 Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of
California. The parties irrevocably submit to the jurisdiction of, and waive
objection to the laying of venue in, any state or federal court sitting in the
County of Los Angeles, State of California, for the confirmation of any
arbitration award rendered under Section 9.5 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY: ARTISAN ACQUISITION CO.,
a Delaware corporation
By: _________________________________
_________________________________
EMPLOYEE:
_____________________________________
Henry Goldman
