<PAGE>
As filed with the Securities and Exchange Commission on June 7, 1996
Registration No. 33-_________
----------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
DECOR GROUP, INC.
(Name of small business issuer in its charter)
Delaware 2590 Applied For
- ------------------------- ---------------------------- -------------------
(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. Lester Morse, P.C.
Bernstein & Wasserman, LLP Steven A. Morse, Esq.
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.
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<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 (1) Offering Price Per Aggregate Offering Price Fee
Security (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, consisting of two (2) shares of
Common Stock, par value $.0001 per
share and one (1) Class A Warrant (3) 287,500 $10.00 $2,875,000 $991.30
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, included in the Units 575,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the Units (4) 287,500 ----- ----- ----
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying the Class A Warrants (5) 287,500 $4.00 $1,150,000 $396.52
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriter's Unit Purchase Option 25,000 $.001 $25.00 $0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Units, each Unit consisting of two (2)
shares of Common Stock, par value $.0001
per share, and one (1) Class A Warrant (6) 25,000 $12.00 $300,000 $103.44
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying Underwriter's Unit
Purchase Option 50,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants, underlying
Underwriter's Unit Purchase Option 25,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying Class A Warrants in
Underwriter's Unit Purchase Option (7) 25,000 $4.00 $100,000 $34.48
- ------------------------------------------------------------------------------------------------------------------------------------
Selling Securityholders
- ------------------------------------------------------------------------------------------------------------------------------------
Unit, consisting of two (2) shares of
Common Stock, par value $.001 per share,
and one (1) Class A Warrant(8) 25,000 $10.00 $250,000 $86.20
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, included in the Units 50,000 ---- ---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants, included in the Units (4) 25,000 ---- ---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying the Class A Warrants 25,000 $4.00 $100,000 $34.48
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants (9) 3,000,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share underlying Class A Warrants 3,000,000 $4.00 $12,000,000 $4,137.93
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per 2,002,000 $5.00 $10,010,000 $3,451.45
share (10)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ----- ------ $26,785,025 $9,235.80
====================================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock and Class A Redeemable Common Stock Purchase
Warrants (the "Class A Warrants") as may be issued by reason of adjustments
in the number of shares of Common Stock and Class A Warrants pursuant to
anti-dilution provisions contained in the Class A Warrants and
<PAGE>
Underwriter's Warrant. Because such additional shares of Common Stock and
Class A Warrants will, if issued, be issued for no additional
consideration, no registration fee is required.
(2) Estimated solely for purposes of calculating registration fee.
(3) Includes 37,500 Units subject to the Underwriter's over-allotment option
(the "Over-Allotment Option"), consisting of 75,000 shares of Common Stock,
37,500 Class A Warrants and 37,500 shares of Common Stock underlying the
Class A Warrants.
(4) The Class A Warrants are exercisable over a four (4) year period commencing
one (1) year following the effective date of this Offering into one (1)
share of Common Stock per Class A Warrant at an exercise price of $4.00 per
share.
(5) The number of shares of Common Stock specified is the number which may be
acquired by the holders of the Units upon exercise of the Class A
Redeemable Common Stock Purchase Warrants ("Class A Warrants") at the
maximum exercise price thereof.
(6) The Underwriter's unit purchase option entitles the Underwriter to purchase
up to 25,000 Units at 120% of the offering price (the "Underwriter's Unit
Purchase Option").
(7) Issuable upon exercise of the Class A Warrants included in the
Underwriter's Unit Purchase Option.
(8) Represents the resale of 25,000 Units held by a Selling Securityholder.
(9) Represents the resale of 3,000,000 Class A Warrants issuable in connection
with certain Bridge Loans.
(10) Shares of Common Stock held by certain Selling Securityholders.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
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
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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
Units by Decor Group, Inc. (the "Company") and Units owned and offered by a
certain holder of Units (the "Unit Holder") and (ii) the concurrent offering of
securities by certain selling securityholders. The Company is registering, under
the primary prospectus ("Primary Prospectus"), (i) 287,500 Units, each Unit
consisting of two (2) shares of Common Stock and one (1) Class A Warrant
(including 37,500 Units subject to the over-allotment) and (ii) 25,000 Units on
behalf of the Unit Holder. The Company is also registering under an alternate
prospectus ("Alternate Prospectus") the resale of (i) 2,002,000 shares of Common
Stock on behalf of certain stockholders (the "Selling Stockholders"), and (ii)
3,000,000 Class A Warrants issuable to certain bridge lenders to the Company
(the "Bridge Lenders") 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
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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 JUNE 7, 1996
DECOR GROUP, INC.
275,000 Units, Each Unit Consists of Two (2) Shares of Common Stock
par value $.0001 per share, and
One (1) Class A Redeemable Common Stock Purchase Warrant
Offering Price Per Unit - $10.00
----------
Decor Group, Inc. ("Decor" or the "Company") is offering 250,000 units (the
"Units") at an offering price of $10.00 per Unit. Each Unit consists of two (2)
shares of common stock, par value $.0001 per share (the "Common Stock") and one
(1) Class A Redeemable Common Stock Purchase Warrant (the "Class A Warrants").
The securities comprising the Units will be separately transferable immediately
upon the date of this offering (the "Offering"). This offering also includes
25,000 Units owned and offered by the holder thereof (the "Unit Holder"). The
Company will not receive any of the proceeds from the sale of the Units by the
Unit Holder. See "Risk Factors" and "Description of Securities." The Risk Factor
section begins on page 14 of this Prospectus.
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 $4.00 per share during the
four (4) year period commencing one (1) year 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 average
closing price or bid price of the Common Stock, as reported by the principal
exchange on which the Common Stock is traded, Nasdaq or the National Quotation
Bureau Incorporated, as the case may be, equals or exceeds $12.00 per share, for
any twenty (20) trading days within a period of thirty (30) 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." Although the Company
has no current plans to reduce the exercise price and/or extend the term of the
Class A Warrants, it may consider taking such action depending upon the
Company's financial condition, its financial needs and based upon general market
conditions.
The Company has applied for inclusion of the Units, the Common Stock and
the Class A Warrants on The Nasdaq SmallCap Market, although there can be no
assurance that an active trading market will develop even if the securities are
accepted for quotation. Additionally, even if an active trading market develops,
the Company is still required to maintain certain minimum
<PAGE>
criteria established by Nasdaq, of which there can be no assurance. See "Risk
Factors - Lack of Prior Market for Units, Common Stock and Class A Warrants; No
Assurance of Public Trading Market" and "Penny Stock Regulations May Impose
Certain Restrictions on Marketability of Securities."
Prior to this Offering, there has been no public market for the Units, the
Common Stock or the Class A Warrants. It is currently anticipated that the
initial public offering price will be $10.00 per Unit. The price of the Units,
as well as the exercise price of the Class A Warrants, have been determined by
negotiations between the Company and VTR Capital, Inc., the underwriter of this
Offering (the "Underwriter"), and do 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. The Underwriter may enter into arrangements
with one or more broker-dealers to act as co-underwriters of this Offering. For
additional information regarding the factors considered in determining the
initial public offering price of the Units and the exercise price of the Class A
Warrants, see "Risk Factors - No Prior Public 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) 3,000,000 Class A Warrants issuable to certain bridge
lenders (the "Bridge Lenders") in connection with the Company's recent bridge
financings (the "Bridge Loans") and 3,000,000 shares of Common Stock issuable
upon exercise of the Class A Warrants and (ii) 2,002,000 shares of Common Stock,
held by certain stockholders (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 250,000 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 Underwriter. 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 UNITS OFFERED HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "DILUTION" and "RISK
FACTORS."
2
<PAGE>
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================
==============================================================================================
Underwriting
Discount and Proceeds to Proceeds to Selling
Price to Public Commissions(1) Company(2) Securityholders(3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Unit Offered by
the Company........
$10.00 $1.00 $9.00 $----
- ----------------------------------------------------------------------------------------------
Per Unit Offered by
Selling
Securityholders
$10.00 $1.00 $---- $9.00
- ----------------------------------------------------------------------------------------------
Total(4).......... $2,750,000 $275,000 $2,250,000 $225,000
==============================================================================================
</TABLE>
The date of this Prospectus is , 1996
-----------
VTR CAPITAL, INC.
Investment Bankers
(Notes to Cover)
- ----------
(1) Does not reflect additional compensation to be received by the Underwriter
in the form of: (i) a non-accountable expense allowance of $75,000 ($86,250
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 25,000 Units
at $12.00 per Unit (the "Underwriter's Unit 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 Underwriter 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 $675,000
3
<PAGE>
including the Underwriter's non-accountable expense allowance ($75,000) 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) The Company will not receive any of the proceeds from the sale of the Units
by the Unit Holder. See "Selling Securityholders" and "Underwriting."
(4) Does not include 37,500 additional Units from the Company to cover
over-allotments which the Underwriter has an option to purchase for thirty
(30) days from the date of this Prospectus at the initial public offering
price, less the Underwriter'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 Underwriter's non-accountable expense allowance will be
$2,875,000, $287,500, and $686,250 (including the financial advisory fee
paid to the Underwriter), respectively, and the total proceeds to the
Company will be $1,901,250. See "Underwriting."
The Units are offered by the Underwriter on a "firm commitment" basis,
when, as and if delivered to and accepted by the Underwriter, and subject to
prior sale, allotment and withdrawal, modification of the offer with notice,
receipt and acceptance by the Underwriter 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 Underwriter on or about
_______ __, 1996.
4
<PAGE>
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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK AND/OR THE CLASS A WARRANTS CONTAINED THEREIN AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED IN THE NASDAQ SMALLCAP MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE UNITS TO BE SOLD IN THIS OFFERING MAY BE SOLD
TO CUSTOMERS OF THE UNDERWRITER 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. SUCH
CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE SALE OR PURCHASE OF
THE UNITS OR THE COMMON STOCK AND/OR THE CLASS A WARRANTS CONTAINED THEREIN
THROUGH AND/OR WITH THE UNDERWRITER.
ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE
5
<PAGE>
MARKET FOR THE UNITS OR THE COMMON STOCK AND CLASS A WARRANTS CONTAINED THEREIN.
HOWEVER, THERE IS NO ASSURANCE THAT THE UNDERWRITER 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
UNDERWRITER'S PARTICIPATION IN SUCH MARKET. SEE "RISK FACTORS - LACK OF PRIOR
MARKET FOR UNITS, COMMON STOCK AND CLASS A WARRANTS; NO ASSURANCE OF PUBLIC
TRADING MARKET." THE UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR
FROM TIME TO TIME.
6
<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 (i) 275,000 shares of Common Stock issuable upon
exercise of the Class A Warrants; (b) 75,000 shares of Common Stock issuable
upon exercise of the Over-Allotment Option; (c) 37,500 shares of Common Stock
issuable upon exercise of the Class A Warrants included in the Over-Allotment
Option; (d) 50,000 shares of Common Stock issuable upon exercise of the
Underwriter's Unit Purchase Option; (e) 25,000 shares of Common Stock issuable
upon exercise of the Class A Warrants included in the Underwriter's Unit
Purchase Option; (f) 3,000,000 shares of Common Stock issuable upon exercise of
Class A Warrants issuable to certain Selling Securityholders, and (g) 500,000
shares of Common Stock issuable upon the conversion of 500,000 shares of Series
A Convertible Preferred Stock. 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 permanent showrooms
located in High Point, NC and San Francisco, CA that are leased and
7
<PAGE>
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. See "Business"
and "Recent Developments."
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, the Company is not currently in
discussions regarding the acquisition of any other business.
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)....................250,000 Units(2)
Securities Offered by the
Unit Holder........................25,000 Units
Redemption of Class A
Warrants ..........................The Class A Warrants are each redeemable
by the Company for $.05 per Warrant, at
any time after ___________, upon thirty
(30) days' prior written notice, if the
average closing price of bid price of
the Common Stock, as reported by the
principal exchange on which the Common
Stock is quoted, The Nasdaq SmallCap
Market or the National Quotation Bureau
Incorporated, as the case may be, equals
or exceeds $12.00 per share for any
twenty (20) trading days within a period
of thirty (30) 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."
- ----------
(1) Concurrently with this Offering, the Company is registering (i) 2,002,000
shares of Common Stock on behalf of certain Selling Stockholders, and (ii)
3,000,000 Class A Warrants on behalf of certain Selling Warrantholders. See
"Selling Securityholders" and "Certain Transactions".
(2) Each Unit consists of two (2) shares of Common Stock and one (1) Class A
Warrant. The securities comprising the Units are separately transferable
immediately upon the Effective Date of this Offering. The Class A Warrants
shall be exercisable commencing one (1) year from the Effective Date. Each
Class A Warrant entitles the holder to purchase one (1) share of Common
Stock at a price of $4.00 per share during the four (4) year period
commencing one (1) year from the Effective Date of this Offering. The
exercise price of the Warrants was determined by negotiations between the
Company and the Representative. Among the factors used in fixing the
exercise price were the market price of the Company's Common Stock, the
general condition of the securities market at the time of this Offering,
demand for similar securities of comparable companies and the benefit to
the Company and purchasers of the Company's securities of an exercise price
which is below the initial offering price of the Common Stock. See
"Description of Securities."
9
<PAGE>
Securities Outstanding Prior to
the Offering:
Series A Convertible
Preferred Stock..............500,000 Shares
Series B Non-Convertible
Preferred Stock...............20,000,000 Shares(1)
Common Stock.......................2,625,000 Shares(2)
Class A Warrants...................25,000 Warrants(3)
Securities Outstanding Subsequent
to the Offering:
Series A Convertible
Preferred Stock..............500,000 Shares
Series B Non-Convertible
Preferred Stock...............20,000,000 Shares(1)
Common Stock.......................3,125,000 Shares(4)
Class A Warrants...................3,275,000 Warrants(5)
Use of Proceeds ...................The net proceeds to the Company from the
sale of the 250,000 Units offered
hereby, after deducting offering
expenses and the $100,000 financial
advisory fee, are estimated to be
$1,575,000. The net
- ----------
(1) Assumes the exercise of an option to purchase 20,000,000 shares of Series B
Non-Convertible Preferred Stock held by Interiors, Inc. See "Certain
Transactions".
(2) Includes 50,000 shares included in the Units held by the Unit Holder.
(3) Includes 25,000 Class A Warrants included in the Units held by the Unit
Holder but does not include 3,000,000 Class A Warrants issuable to the
Bridge Lenders.
(4) Excludes 100,000 shares issuable to Artisan House, Inc. upon the closing of
the Artisan House Transaction.
(5) Assumes the issuance of 3,000,000 Class A Warrants to the Bridge Lenders as
of the Effective Date.
10
<PAGE>
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 Units,
Common Stock and Class A Warrants; 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,
Underwriter's Unit Purchase Option,
"Penny Stock" Regulations May Impose
Certain Restrictions on Marketability of
Securities, 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
included in the Units and should be
considered only by persons who can
afford the loss of their entire
investment. See "Dilution" and "Risk
Factors."
Proposed Nasdaq Small-Cap Market
Symbol(1) .........................Units -_____
11
<PAGE>
Common Stock-_____
Class A Warrants-_____
- ----------
(1) Although the Company intends to apply for inclusion of the Units, the
Common Stock and Class A Warrants on The Nasdaq SmallCap Market, 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 Units, Common Stock and Class A
Warrants; No Assurance of Public Trading Market."
12
<PAGE>
Summary Financial Information
The selected historical financial data as of March 31, 1996 presented below are
derived from financial statements of the Company, which have been audited by
Mortenson and Associates, P.C., independent accountants, whose reports are
included elsewhere herein. 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 March 31, 1996 As of March 31, 1996, As of March 31, 1996,
($) As Adjusted(1)($) As Adjusted(1)(2)($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues ---- 4,809,422 4,809,422
Gross Profit ---- 2,213,039 2,213,039
Operating Profit (Loss) (100,000) 99,448 99,448
Net Income (Loss) (99,750) (20,054) (20,054)
Net Income (Loss) per share (.04) (.01) (.01)
Weighted Average number of 2,625,000 2,725,000 3,225,000
Common Shares outstanding
- ----------------------------------------------------------------------------------------------------
</TABLE>
Summary Balance Sheet Data
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
As of March 31, 1996 As of March 31, 1996, As of March 31, 1996,
($) As Adjusted(1)($) As Adjusted(1)(2)($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working Capital (deficit) (144,750) (1,242,708) 332,292
Total Assets 3,355,250 7,334,080 7,499,080
Total Liabilities 250,000 3,928,830 2,518,830
Stockholder's Equity 3,105,250 3,405,250 4,980,250
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Adjusted to reflect the closing of the Artisan House Transaction.
(2) Adjusted to reflect the sale of 250,000 Units offered hereby and the net
proceeds therefrom of $1,575,000.
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. 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 consist solely of
the assets acquired from Artisan House (the "Artisan House Transaction"). For
the year quarter ended January 31, 1996, Artisan House generated revenues of
$4,809,422, had stockholder's equity of $469,525 and working capital of
$400,879. 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. 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 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 and the proceeds from a certain secured loan
from United Credit Corporation (the "Secured Loan") to close the Artisan House
Transaction. See "Business - Secured Loan Agreement." The Company anticipates,
based on its currently proposed plans, that the proceeds of this Offering
14
<PAGE>
and from the Secured Loan, 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. Numerous manufacturers compete
for customers throughout the United States and internationally. There can be no
assurance that the Company will be able to compete successfully with its
competitors.
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 Underwriter's Unit
Purchase Option, the net tangible book value per share of the Company's Common
Stock will be $.99. At the initial public offering price of $10.00 per Unit,
assuming that no portion of the Unit purchase price is allocated to the Class A
Warrant, investors in this Offering will experience an immediate dilution of
approximately $4.01 or 80% in net tangible book value per share and existing
investors will experience an increase of approximately $.38 per share. The
exercise of the Class A Warrants sold to the public 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 500,000 shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") or 13% of the Company's shares
of Common Stock on an as converted basis and an option to purchase 20,000,000
shares of the Company's of Series B Non-Convertible Preferred Stock (the "Series
B 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), 86.5% of the
total number of voting shares outstanding. In addition, Interiors has agreed
pursuant to the terms of that certain Management Service Agreement between the
Company and Interiors to provide, management, administrative and marketing
services to the Company. In addition, 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.
Because of Interior's ownership interest in the Company, the identity of certain
management and Interior's role under the Management Services Agreement, certain
conflicts of interest may occur between the Company and Interiors. In such
instances, members of
15
<PAGE>
the Board of Directors who are also members of the Interiors Board of Directors
may be precluded from participating in corporate decisions. 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 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
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. 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 gross sales, subject to certain
cashflow restrictions. In the event that the Management Services Agreement is
terminated for any reason, the Company's business may be negatively effected.
See "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. The Company has entered into three (3) year
employment agreement with Mr. Feldman. Should Mr. Feldman not be able to
continue as officers of the Company, its prospects could be adversely affected
and as a result the loss of either of these officers 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. Following this Offering, Interiors will own
500,000 shares of
16
<PAGE>
the Company's Series A Preferred Stock (non-voting shares) and hold an option to
purchase 20,000,000 shares of the Company's Series B Preferred Stock (voting
shares), representing 86.5% of the total voting stock outstanding (based upon
3,125,000 shares of Common Stock outstanding and assuming the exercise of the
option to purchase the shares of Series B Preferred Stock). Since holders of
Class 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. 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."
11. Acquisition of Artisan House. On March 25, 1996, the Company and AAC, a
wholly owned subsidiary of the Company entered into an Asset Purchase Agreement
with the Artisan House, Inc. and Henry Goldman, pursuant to which the Company
intends to close the Artisan House Transaction. In order to consummate the
proposed acquisition, the Company intends to use a significant portion of the
proceeds of this Offering and the proceeds of $1,100,000 from the Secured Loan
to fund the purchase price for the Artisan House Transaction. See "Business -
Acquisition of Artisan House". The Company anticipates that its wholly-owned
subsidiary, ACC, will close the Artisan House Transaction prior to, or
contemporaneously with, the closing of this Offering.
12. 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. See
"Business- Products; Trademarks."
13. Broad Discretion in Application of Proceeds. While the Company
presently intends to use the net proceeds of this Offering, as described in the
"Use of Proceeds" section of this Prospectus, management of the Company has
broad discretion to adjust the application and allocation of the net proceeds of
this Offering as well as any proceeds received upon any exercise of the Class A
Warrants in order to address changed circumstances and opportunities. As a
result of the
17
<PAGE>
foregoing, the success of the Company will be substantially dependent upon the
discretion and judgment of the management of the Company with respect to the
application and allocation of the net proceeds hereof. Pending use of such
proceeds, the net proceeds of this Offering will be invested by the Company in
short-term, low risk marketable securities. See "Use of Proceeds."
14. 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, a deferred financing cost is reflected in the
Balance Sheet dated March 31, 1996 in the amount of $1,500,000 and will be
charged to operations over the life of the loans. See "Bridge Financing" and
"Management's Discussion and Analysis."
15. 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.
16. Significant Customers. During fiscal 1995, two customers purchased
approximately 6% and 5%, respectively, of the net sales of Artisan House. 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.
17. 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".
18. No Prior Public Market; Possible Volatility of Stock Price. Prior to
this Offering, there has been no public market for the Units, Common Stock or
Class A Warrants. The initial public offering price of the Units, as well as the
exercise price for the Class A Warrants was determined by negotiation between
the Company and the representatives of the Underwriter, 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 Units 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 Units, the exercise price of the Class A Warrants and the
Company's net worth,
18
<PAGE>
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 price. See "Underwriting - Determination
of Public Offering Price," "Description of Securities" and "Financial
Statements."
19. Lack of Prior Market for Units, Common Stock and Class A Warrants; No
Assurance of Public Trading Market. Prior to this Offering, no public trading
market existed for the Units, Common Stock and Warrants. There can be no
assurances that a public trading market for the Units, Common Stock and Warrants
will develop or that a public trading market, if developed, will be sustained.
Although the Company anticipates that upon completion of this Offering, the
Units, Common Stock and Warrants will be eligible for inclusion on The Nasdaq
SmallCap Market, no assurance can be given that the Units, Common Stock and
Warrants will be listed on The Nasdaq SmallCap Market as of the Effective Date.
Consequently, there can be no assurance that a regular trading market for the
Units, Common Stock and Warrants, other than the pink sheets, will develop after
the completion of this Offering. If a trading market does in fact develop for
the Units, Common Stock and Class A Warrants offered hereby, there can be no
assurance that it will be maintained. If for any reason the Units, Common Stock
and Warrants are not listed on The Nasdaq SmallCap Market or a public trading
market does not develop, purchasers of the Units, Common Stock and Warrants 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 Units, 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 Underwriter 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 Underwriter 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 Underwriter's
participation in the market. The Underwriter 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 Units may be sold to customers of the Underwriter.
Under prevailing rules of the National Association of Securities Dealers,
Inc ("NASD"), in order to qualify for initial quotation of securities on The
Nasdaq SmallCap Market, a company, among other things, must have at least
$4,000,000 in total assets, $2,000,000 in total capital and surplus, $1,000,000
in market value of public float and a minimum bid price of $3.00 per share.
Although the Company may upon the completion of this Offering qualify for
initial quotation of its securities on The Nasdaq SmallCap Market, for continued
listing on The Nasdaq SmallCap Market, a company, among other things, must have
$2,000,000 in total assets, $1,000,000 in total capital and surplus,
19
<PAGE>
$1,000,000 in market value of public float and a minimum bid price of $1.00 per
share. If the Company is unable to satisfy the requirements for quotation on The
Nasdaq SmallCap Market, trading, if any, in the Units, Common Stock and Class A
Warrants offered hereby would be conducted in the over-the-counter market in
what are commonly referred to as the "pink sheets" or on the NASD OTC Electronic
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
hereby. The above-described rules may materially adversely affect the liquidity
of the market for the Company's securities. See "Underwriting."
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 Underwriter's Unit 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 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 Units 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. In the event of the exercise of a
substantial number of Class A Warrants offered as part of the Units 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."
20
<PAGE>
22. Underwriter's Unit Purchase Option. In connection with this Offering,
the Company will sell to the Underwriter, for nominal consideration, an option
to purchase an aggregate of 25,000 Units (the "Underwriter's Unit Purchase
Option"). The Underwriter's Unit 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 $12.00 per Underwriter's unit (the
"Underwriter's Units") subject to certain adjustment with the underlying
warrants (the "Underwriter's Warrants") exercisable at $4.00 per share. The
holders of the Underwriter's Unit Purchase Option will have the opportunity to
profit from a rise in the market price of the Units, Warrants and/or the Common
Stock, if any, without assuming the risk of ownership. 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 Underwriter's Unit 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 Underwriter's Unit Purchase Option.
See "Dilution" and "Underwriting."
23. "Penny Stock" Regulations May Impose Certain Restrictions on
Marketability of Securities. The Securities and Exchange Commission (the
"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 of less than $5.00 per share, subject to certain
exceptions. Since it is intended that the securities offered hereby will be
authorized for quotation on The Nasdaq Small Cap Market, such securities will
initially be exempt from the definition of "penny stock." If the securities
offered hereby are removed from listing by The Nasdaq SmallCap Market at any
time following the Effective Date, 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 those with assets in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commission 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. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this Offering to sell the Company's
securities in the secondary market and the price at which such purchasers can
sell any such securities.
24. Redemption of Redeemable Warrants. The Class A Warrants are subject to
redemption by the Company, at any time, commencing one (1) year following the
date of this Prospectus, at a price of $.05 per Warrant if the closing bid price
for the Common Stock equals or
21
<PAGE>
exceeds $12.00 per share for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. In the event that the Warrants are called
for redemption by the Company, Warrantholders will have thirty (30) days during
which they may exercise their rights to purchase shares of Common Stock. If
holders of the Warrants elect not to exercise them upon notice of redemption
thereof, and the Warrants are subsequently redeemed prior to exercise, the
holders thereof would lose the benefit of the difference between the market
price of the underlying Common Stock as of such date and the exercise price of
such Warrants, as well as any possible future price appreciation in the Common
Stock. As a result of an exercise of the Warrants, existing stockholders would
be diluted and the market price of the Common Stock may be adversely affected.
If a Warrantholder fails to exercise his rights under the Warrants prior to the
date set for redemption, the Warrantholder will be entitled to receive only the
redemption price, or $.05 per Warrant. In addition, the Warrants may only be
exercised when a Prospectus is current and meets the requirements of Section 10
of the Securities Act of 1933. See "Description of Securities - Class A
Warrants."
25. Limitation on Director Liability. As permitted by Delaware corporation
law, 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. 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."
26. 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, the current management team 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.
27. 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 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 2,625,000 shares of its Common Stock issued and
outstanding, which are "restricted securities", and
22
<PAGE>
2,002,000 shares of which are being registered under the Registration Statement
of which this Prospectus forms a part. The officers and directors of the Company
as well as certain members of their immediate families (including certain
Selling Securityholders holding an aggregate of 250,000 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 Underwriter.
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."
28. 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. 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."
23
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 250,000 Units offered
hereby are estimated to be $1,575,000 (after deducting approximately $250,000 in
underwriting discounts, and other expenses of this Offering estimated to be
$675,000, which includes the Underwriters' non-accountable expense allowance of
$75,000, and a $100,000 financial consulting fee payable to the Underwriter at
the closing) (but not considering any exercise of the Over-Allotment Option, or
the Underwriters' Unit 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) $1,150,000 73.0%
Repayment of Certain Indebtedness (2) 260,000 16.5%
Working Capital (3) 165,000 10.5%
------------ ---------------
Total $1,575,000 100.0%
(1) Represents the payment of $1,150,00 as partial payment of the purchase
price to be paid to close the Artisan House Transaction. In addition, to
the foregoing, the Company intends to use approximately $1,100,000 from the
proceeds of the Secured Loan 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 Underwriter restrict the Company from entering into any acquisition or
merger of the Company or obtaining additional capital financing, without the
prior approval of the Underwriter, for the issuance of additional equity
securities for a period of one (1) year, in either public or private offerings,
which approval may not be unreasonably withheld. The underwriting agreement does
not prevent the Company from seeking bank financing although there can be no
assurance that such financing will
24
<PAGE>
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 by the
Underwriter 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.
25
<PAGE>
DILUTION
At March 31, 1996, the Company had outstanding an aggregate of 2,625,000
shares of Common Stock having an aggregate net tangible book value of $1,605,250
or $.61 per common share, based upon operating activity through March 31, 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 250,000 Units consisting of 500,000
shares of Common Stock and 250,000 Class A Warrants by the Company (assuming no
value is attributable to the Class A Warrants and the 100,000 shares to be
issued in connection with the closing of Artisan House Transaction) with net
proceeds of $1,575,000, the pro forma net tangible book value of the Common
Stock would have been $3,180,250 or approximately $.99 per share. This
represents an immediate increase in pro forma net tangible book value of $.38
per share to the present stockholders and an immediate dilution of $4.01 per
share (80.2%) 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:
Public offering price of per share offered hereby(l)(4) $5.00
Net tangible book value per share $ .61
Increase per share attributable to units offered hereby $ .38
Pro Forma net tangible book value per share after offering(3) $ .99
Dilution of net tangible book value per share to purchasers in
this offering(2)(3) $4.01
- ----------
(1) Before deduction of underwriting discounts, commissions, fees and offering
expenses.
(2) Assuming no exercise of the Over-Allotment Option, the Underwriters' Unit
Purchase Option or Class A Warrants. See "Underwriting" and "Description of
Securities."
(3) Assuming no exercise of the 3,000,000 Class A Warrants issuable in
connection with Bridge Loans. See "Selling Security Holders" and "Certain
Transactions."
(4) The Units offered hereby are comprised of two (2) shares of Common Stock
and one (1) Class A Warrant. No portion of the offering price per Unit
price has been assigned to the Class A Warrants.
26
<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 March 31, 1996 and
to be paid by purchasers pursuant to this Offering (based upon the anticipated
public offering price of $10.00 per Unit before deducting underwriting discounts
and commission and estimated Offering expenses).
<TABLE>
<CAPTION>
Aggregate
Shares of Cash Percent of
Common Percent of Consideration Total cash Average Price
Stock Equity Owned Paid Consideration Per Share
Purchased
<S> <C> <C> <C> <C> <C>
New Stockholders 500,000 16% $2,500,000 96% $5.00
Existing Stockholders 2,625,000 84% $ 103,000 4% $0.04
--------- ----- ---------- ---- -----
Total 3,175,000 100% $2,603,000 100%
</TABLE>
The foregoing table gives effect to the sale of the Common Stock and Class
A Warrants underlying the Units offered hereby but without giving effect to the
exercise of the Underwriters' Unit Purchase Option, or any securities issuable
upon the exercise of the Over-Allotment Option or any outstanding options or
warrants, including those held by the Bridge Lenders.
27
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 and as adjusted gives effect to the sale of 250,000 Units
consisting of Common Stock and Class A Warrants offered hereby and the
application of net proceeds therefrom. The table is not adjusted to give effect
to the exercise of the Over-Allotment Option, the Class A Warrants, the
Underwriters' Unit Purchase Option or any other outstanding warrants or options.
This table should be read in conjunction with the Financial Statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
As of March 31, 1996 As of March 31, 1996, As of March 31, 1996,
($) As Adjusted(1)($) As Adjusted(1)(2) ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes Payable 250,000 2,833,735 1,433,735
Stockholders Equity:
Common Stock 262 272 322
Series A Convertible Preferred 50 50 50
Stock, $.0001 par value per share,
5,000,000 shares authorized,
500,000 shares of Series A
Convertible Preferred Stock issued
and outstanding
Series B Non-Convertible ------ ------ -------
Preferred Stock, $.0001 par value
per share, 20,000,000 shares
authorized, no shares issued and
outstanding (3)
Additional Paid In Capital 3,204,688 3,504,678 5,079,628
Retained Earnings (deficit) (99,750) (99,750) (99,750)
Total Capitalization 3,355,250 6,238,985 6,413,985
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Adjusted to reflect the closing of the Artisan House Transaction.
(2) Adjusted to reflect the sale of 250,000 Units offered hereby and the net
proceeds therefrom of $1,575,000.
(3) Does not include 20,000,000 shares of Series B Non-Convertible Preferred
Stock issuable upon the exercise of an option held by Interiors, Inc. See
"Certain Transactions."
28
<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 and Series B
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)
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 3,000,000 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 3,000,000 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."
29
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected historical financial data as of March 31, 1996 presented below
are derived from financial statements of the Company, which have been audited by
Mortenson and Associates, P.C., independent accountants, whose reports are
included elsewhere herein. 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 March 31, 1996 As of March 31, 1996, As of March 31, 1996,
($) As Adjusted(1)($) As Adjusted(1)(2)($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues ---- 4,809,422 4,809,422
Gross Profit ---- 2,213,039 2,213,039
Operating Profit (Loss) (100,000) 99,448 99,448
Net Income (Loss) (99,750) (20,054) (20,054)
Net Income (Loss) per share (.04) (.01) (.01)
Weighted Average number of 2,625,000 2,725,000 3,225,000
Common Shares outstanding
- ---------------------------------------------------------------------------------------------------
</TABLE>
Summary Balance Sheet Data
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
As of March 31, 1996 As of March 31, 1996, As of March 31, 1996,
($) As Adjusted(1)($) As Adjusted(1)(2)($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working Capital (deficit) (144,750) (1,242,708) 332,292
Total Assets 3,355,250 7,334,080 7,499,080
Total Liabilities 250,000 3,928,830 2,518,830
Stockholder's Equity 3,105,250 3,405,250 4,980,250
- ---------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Adjusted to reflect the closing of the Artisan House Transaction.
(2) Adjusted to reflect the sale of 250,000 Units offered hereby and the net
proceeds therefrom of $1,575,000.
30
<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 for 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.
Artisan is engaged in the manufacture marketing, selling and distributing wall
hanging sculptures.
Results of Operations
Artisan had income for the years ended January 31, 1996 and 1995 of
$451,083 and $330,517, respectively.
The 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, the
Company generated cash of approximately $132,000 and $208,000, respectively,
from operations. During the years ended January 31, 1996 and 1995, the Company
purchased equipment for approximately $17,000 and $67,000, respectively. During
the years ended January 31, 1996, the Company 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.
31
<PAGE>
Decor had a working capital deficit at March 31, 1996 of $144,750. The
Company utilized $148,000 for operating activities for the period March 1, 1996
through March 31, 1996. The Company utilized $150,000 in investing activities
for the deposit with respect to the acquisition of Artisan House, Inc. as of
March 31, 1996 and will incur additional expenditures as follows: (a) 2,250,000
paid to the seller at the Closing Date, (b) $100,000 90 days subsequent to the
Closing Date, (c) 60 equal monthly payments of approximately $11,753 beginning
120 days subsequent to the Closing Date, and (d) $150,000 on the date of the
final [60th] installment. The Company generated $345,000 in cash from financing
activities for the period from 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 of 1996] and proceeds from bridge
loans of $250,000. The cash balance at March 31, 1996 was $47,000.
The Company anticipates that the net proceeds from the proposed public
offering will generate approximately $1,575,000. The proceeds are intended to
retire a portion of the debt incurred for the purchase of Artisan House, and for
working capital needs.
On March 3, 1996, the Company issued to Interiors, Inc. 500,000 shares of
Class A Convertible Preferred Stock and an option to purchase 20,000,000 shares
of Class B NonConvertible 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 and
a guarantee with respect to certain indebtedness [See Note 11A].
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 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].
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. If the
32
<PAGE>
Company does not receive the proceeds from the loan, the Company will require
additional funds to close on the acquisition of Artisan House, Inc.
33
<PAGE>
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. See "Business"
and "Recent Developments."
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, the Company is not currently in
discussions regarding the acquisition of any other business.
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.
34
<PAGE>
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 (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 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; (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 100,000 shares of common stock of the
Company. 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 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 scheduled for May 31, 1996, subject to three extensions of
one month per extension, provided that AAC shall pay $15,000 to AHI for each
such extension (such payment to be deducted from the aggregate purchase price).
As of May 31, 1996, AHI agreed to extend the Closing to a date to be agreed upon
by the parties. 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 a binding arbitration in Los Angeles,
California. The Company anticipates that AAC, the Company's wholly owned
subsidiary, will close on acquisition of the Artisan House Transaction prior to,
or contemporaneously with, the closing of
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this Offering.
The Agreement also provides that AAC enter into an Employment Agreement
with Goldman pursuant to which Goldman is employed as the Director of Export
Marketing at a salary of $50,000 per annum for the first 250 hours per annum,
and, thereafter, at a rate of $200 per hour. In addition, Goldman is to receive
a bonus equal to 5% of the excess of AAC's net export sales for each calendar
quarter over $25,000; provided that Goldman is employed by AAC on the date such
bonus is earned. Goldman is also entitled to (i) reimbursement of all reasonable
out-of-pocket expenses which must either be included in an annual budget or
approved by AAC (if over $100) and (ii) medical coverage for Goldman and his
wife. The Employment Agreement 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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Marketing
Artisan House markets its products through a network of independent
commissioned sales representatives. Domestically, the Company has twenty-two
(22) 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 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 its 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
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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."
Secured Loan Agreement
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.
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Government 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 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 March 31, 1996, the Company had a total of approximately 71 full-time
employees. None of the Company's employees have been on strike, or threatened to
strike, since the Company's inception and 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 principal
facility expires that the Company will be able to negotiate a renewal thereof on
acceptable terms or obtain alternative
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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.
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 31 Director
Michael Lulkin 41 Director and Secretary
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 holds a Bachelor of Architecture from Massachusetts
Institute of Technology and subsequently did graduate level study
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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 Vice President of Sales and Marketing for Interiors, Inc.,
a principal stockholder of, and consultant to, the Company and from December
1995 Mr. Feldman served as a director of Interiors. 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.
There are no family relationships between the officers and directors of the
Company.
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.
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Employment Agreements
The Company intends to enter into a three (3) year employment agreement
with Donald Feldman, pursuant to which Mr. Feldman serves as the Company's
President. The agreement will provide for Mr. Feldman to receive a salary of
$117,000 per annum.
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 500,000 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 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
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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). 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
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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.
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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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 Common Stock 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:
Percentage Percentage
(%) of (%) of
Shares of Common Stock Common Stock
Name and Address Common Owned Before Owned After
of Beneficial Owner Stock Owned Offering Offering
------------------- ----------- -------- --------
M. D. Funding 1,827,500 69.6% 11.7%(1)
5 Old Woods
Harrison, NY 10528
Laurie Munn 200,000 7.6% 3.2%(2)
c/o Interiors, Inc.
320 Washington Street
Mt. Vernon, NY 10553
First National Funding 250,000 9.5% ---(3)
P.O. Box N-4755
Nassau, Bahamas
Matthew Harriton 50,000 1.9% .3%(4)
750 Lexington Avenue
27th Floor
New York, NY 10022
Donald Feldman --- --- ---
Decor Group, Inc.
320 Washington Street
Mt. Vernon, NY 10553
Max Munn 200,000(5) 7.6% 3.2%(2)
Interiors, Inc.
320 Washington Street
Mt. Vernon, NY 10553
Michael Lulkin --- --- ---
750 Lexington Avenue
27th Floor
New York, NY 10022
Interiors, Inc. 500,000(6) 19.0% 16.0%
320 Washington Street
Mt. Vernon, NY 10553
All officers and directors as 250,000(5) 9.5% 8%
a group (4 persons)
- ----------
(1) Assumes the sale of 1,462,000 shares of Common Stock registered under the
Registration Statement of which this Prospectus form a part. See "Selling
Securityholder."
(2) Assumes the sale of 100,000 shares of Common Stock registered under the
Registration Statement of which this Prospectus form a part. See "Selling
Securityholder."
(3) Assumes the sale of 200,000 shares of Common Stock registered under the
Registration Statement of which this
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Prospectus forms a part. See "Selling Securityholder."
(4) Assumes the sale of 40,000 shares of Common Stock registered under the
Registration Statement of which this Prospectus forms a part. See "Selling
Securityholder."
(5) Includes 200,000 shares of Common Stock held by Laurie Munn, Mr. Munn's
wife. Mr. Munn disclaims beneficial ownership over such shares.
(6) Includes 500,000 shares of Common Stock issuable upon conversion of 500,000
shares of the Company's Series A Convertible Preferred Stock.
The foregoing table does not include (i) an option held by Interiors, Inc.
("Interiors") exercisable for 20,000,000 shares of the Company's Series B
Non-Convertible Preferred Stock at an exercise price of $.0001 per share which
when exercised will represent approximately 86% of the voting shares outstanding
and (ii) 500,000 shares of Series A Convertible Preferred stock held by
Interiors. See "Description of Securities."
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CERTAIN TRANSACTIONS
In March, 1996, the Company issued (i) 1,827,500 shares of Common Stock to
M.D. Funding, Inc. for cash consideration of $73,100, (ii) 200,000 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) 122,500 shares of Common
Stock to Judy Pace for cash consideration of $4,900, (iv) 250,000 shares of
Common Stock to First National Funding, Inc. for cash consideration of $10,000,
(v) 125,000 shares of Common Stock to Ulster Investments, Ltd. for cash
consideration of $5,000, (vi) 50,000 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 Units 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 3,000,000 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 3,000,000 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."
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 (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 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; (iii) the delivery of a
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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 100,000 shares of common stock of the Company. 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 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 scheduled for May 31, 1996, subject to three extensions of
one month per extension, provided that AAC shall pay $15,000 to AHI for each
such extension (such payment to be deducted from the aggregate purchase price).
As of May 31, 1996, AHI agreed to extend the Closing to a date to be agreed upon
by the parties. 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 a binding arbitration in Los Angeles,
California. The Company anticipates that AAC, the Company's wholly owned
subsidiary, will close on acquisition of the Artisan House Transaction prior to,
or contemporaneously with, the closing of this Offering.
The Agreement also provides that AAC enter into an Employment Agreement
with Goldman pursuant to which Goldman is employed as the Director of Export
Marketing at a salary of $50,000 per annum for the first 250 hours per annum,
and, thereafter, at a rate of $200 per hour. In addition, Goldman is to receive
a bonus equal to 5% of the excess of AAC's net export sales for each calendar
quarter over $25,000; provided that Goldman is employed by AAC on the date such
bonus is earned. Goldman is also entitled to (i) reimbursement of all reasonable
out-of-pocket expenses which must either be included in an annual budget or
approved by AAC (if over $100) and (ii) medical coverage for Goldman and his
wife. The Employment Agreement 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
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payable to Mr. Goldman is at or below the fair market value for such premises.
In May 1996, the Company entered into a three (3) 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. 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 gross sales, subject to certain cashflow
restrictions.
DESCRIPTION OF SECURITIES
The Company is offering 250,000 Units, each Unit consisting of two (2)
shares of Common Stock, par value $.0001 per share, and one (1) Class A Warrant.
Upon completion of this Offering, the securities comprising the Units will be
separately transferable.
Common Stock
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
of which 2,625,000 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
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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
5,000,000 shares of Series A Convertible Preferred Stock authorized and
20,000,000 shares of Series B NonConvertible Preferred Stock authorized, of
which 500,000 shares issued and outstanding, respectively. The Company does not
anticipate issuing dividends to the holders of its Preferred Stock. See
"Dividends."
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,
500,000 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.
The 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, none of which are issued and outstanding as of the Effective Date of the
offering. Interiors, Inc., a stockholder of, and consultant to, the Company
holds an option to purchase 20,000,000 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.
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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 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.
Class A Warrants
Each Class A Warrant entities the holder to purchase one (1) share of
Common Stock at a price of $4.00 per share for a period of four (4) years
commencing one (1) year from the Effective Date of this Offering. Each Class A
Warrant is redeemable by the Company for $.05 per Class A Warrant at any time
after _______, 1997 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 $12.00 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.
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
$4.00 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.
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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 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
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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.
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 Units owned and offered by Gordon Brothers
Capital Corporations (the "Unit Holder"). The Company will not receive any of
the proceeds from the sale of such Units by the Unit Holder. The registration
statement of which this Prospectus forms a part also covers the sale of (i)
3,000,000 Class A Warrants issuable to the Bridge Lenders and (ii) 2,002,000
shares of Common Stock held by certain investors in the Company (the "Selling
Stockholder"; the Bridge Lenders and the Selling Stockholders are collectively
referred to as the Securityholders"). The officers and directors of the Company
as well as certain members of their immediate families (including certain
Selling Securityholders) 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 Underwriter. 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
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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 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 Underwriter has agreed to purchase from the Company
250,000 Units offered hereby from the Company and 25,000 Units from the Unit
Holder, on a "firm commitment" basis, if any are purchased. The Underwriter has
advised the Company that it proposes to offer the Units to the public at $10.00
per Unit as set forth on the cover page of this Prospectus and that it may allow
to certain dealers who are NASD members concessions not to exceed $____ per
Unit, of which not in excess of $____ per Unit 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 Underwriter.
The public offering price of the Units and the exercise price and other
terms of the Class A
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Warrants was arbitrarily determined by negotiations between the Company and the
Underwriter 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 Underwriter, exercisable during
the thirty (30) day period from the date of this Prospectus, to purchase up to a
maximum of 37,500 additional Units 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 Underwriter 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 Underwriter a non-accountable expense
allowance of three percent (3%) of the aggregate Offering price of the Units
offered hereby, including any Units purchased pursuant to the Over-Allotment
Option.
The Company has agreed to sell to the Underwriter, or its designees, for an
aggregate purchase price of $25, an option (the "Underwriter's Unit Purchase
Option") to purchase up to an aggregate of 25,000 Units. The Underwriter's Unit
Purchase Option shall be exercisable during a four (4) year period commencing
one (1) year from the Effective Date. The Underwriter's Unit Purchase Option may
not be assigned, transferred, sold or hypothecated by the Underwriter until
twelve (12) months after the Effective Date of this Prospectus, except to
officers of the Underwriter or to selling group members in this Offering. Any
profits realized upon the sale of the Units issuable upon exercise of the
Underwriter's Unit Purchase Option may be deemed to be additional underwriting
compensation. The exercise price of the Units issuable upon exercise of the
Underwriter's Unit Purchase Option during the period of exercisability shall be
one hundred twenty percent (120%) of the initial public offering price of the
Units. The exercise of the Underwriter's Unit Purchase Option and the number of
shares covered thereby are subject to adjustment in certain events to prevent
dilution. For the life of the Underwriter's Unit 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 Units, 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 Underwriter's Unit Purchase Option is outstanding. At any time when
the holders of the Underwriter's Unit 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 Underwriter, the Company has agreed to pay the
Underwriter 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
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two percent (2%) of the excess, if any, over $6,000,000.
Upon the closing of the sale of the Units offered hereby, the Company will
enter into a two (2) year financial advisory and investment banking agreement
with the Underwriter, pursuant to which the Company will be obligated to pay the
Underwriter $100,000 in advance upon the closing of the Offering, for financial
and investment advisory services to the Company.
The Company has agreed with the Underwriter that the Company will pay to
the Underwriter 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 Underwriter 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 Underwriter; (c) prior
specific written approval for 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 Underwriter will be
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
Underwriter may have to receive such a fee for the exercise of Class A Warrants
following such solicitation. As a result, the Underwriter 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 Units, 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 two (2)
months from the Effective Date, without the prior written consent of the
Underwriter. The officers and directors of the Company and certain of their
immediate family members (including certain Selling Securityholders) 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 Underwriter.
The Underwriter has limited experience as an underwriter of public
offerings. There can be no assurance that the Underwriter's limited experience
as an underwriter of public offerings will not adversely affect the proposed
public offering of the Units, 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.
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In connection with the Offering, the Underwriter 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 Underwriter 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 Underwriter's Unit Purchase Option which have been filed as
exhibits hereto.
Determination of Public Offering Price
Prior to this Offering, there has been no public market for the Units, the
Common Stock and the Class A Warrants. The initial public offering price for the
Units and the exercise price of the Class A Warrants have been determined by
negotiations between the Company and the Underwriter. 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 Units and
the exercise price of the Class A Warrants 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 Units, the Common Stock and the Class A
Warrants will be listed for quotation on The Nasdaq SmallCap Market under the
symbols,_____ , _____ and _____ , respectively, but there can be no assurances
that an active trading market will develop, even if the securities are accepted
for quotation. The Underwriter 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 Underwriter in matters unrelated to this Offering. Certain legal matters
will be passed upon for the Underwriter by Lester Morse, P.C., 111 Great Neck
Road, Great Neck, NY 11021.
EXPERTS
57
<PAGE>
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 Mortenson &
Associates, 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 Units, the Common Stock and Class A Warrants offered hereby.
Statements contained herein concerning provisions of documents are necessarily
summaries of such documents, and each 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.
58
<PAGE>
DECOR GROUP, INC.
================================================================================
INDEX TO FINANCIAL STATEMENTS
================================================================================
Page to Page
------------
Pro Forma Combined Financial Statements
Introduction....................................................... A-1 ..
Notes to the Pro Forma Financial Statements........................ A-2 ..A-3
Balance Sheet - March 31, 1996..................................... A-4 ..A-5
Statement of Operations - For the Period Ended March 31, 1996...... A-6 ..
Decor Group, Inc.
Independent Auditor's Report....................................... B-1 ..
Balance Sheet as of March 31, 1996................................. B-2 ..
Statement of Stockholders' Equity from Inception [March 1, 1996]
through the period ended March 31, 1996............................ B-3 ..
Statement of Operations for the period from Inception
[March 1, 1996] through the period ended March 31, 1996............ B-4 ..
Statement of Cash Flows from Inception [March 1, 1996] through
the period ended March 31, 1996.................................... B-5 ..
Notes to Financial Statements...................................... B-6 ..B-8
Artisan House, Inc.
Independent Auditor's Report....................................... C-1 ..
Balance Sheet as of January 31, 1996............................... C-2 ..
Statements of Operations for the years ended January 31, 1996
and 1995........................................................... C-3 ..
Statements of Stockholders' Equity for the years ended January 31,
1996 and 1995...................................................... C-4 ..
Statements of Cash Flows for the years ended January 31, 1996
and 1995........................................................... C-5 ..
Notes to Financial Statements...................................... C-6 ..C-8
A-1
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED FINANCIAL STATEMENTS [UNAUDITED]
================================================================================
The following pro forma combined balance sheet as of March 31, 1996, and the pro
forma combined statement of operations for 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
$3,526,400 subject to certain adjustments.
The pro forma information is based on the historical financial statements of
Decor Group, Inc. and Artisan House, Inc. giving effect to the transaction under
the purchase method of accounting and the assumptions and adjustments in the
accompanying notes to the pro forma financial statements.
The acquisition will be accounted for using the purchase method. The pro forma
balance sheet assumes the transaction of closing the acquisition was consummated
by March 31, 1996. The pro forma statement of operations gives effect to this
transaction as if it had occurred at the beginning of the fiscal year presented.
The historical statements of operations will reflect the effect of this
transaction from the date on which it occurred. The pro forma combined
statements are based on the historical financial statements of Decor Group, Inc.
and Artisan House, Inc. Decor Group, Inc. was formed March 1, 1996, therefore,
operations for March 31, 1996 represents one months activity. Artisan House,
Inc.'s operations for the period ended January 31, 1996 represents twelve months
activity.
A-1
<PAGE>
DECOR GROUP, INC.
================================================================================
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS [UNAUDITED]
================================================================================
[A] To calculate net assets acquired of Artisan House, Inc.:
Total Assets at January 31, 1996 $2,150,184
Less: Assets Not Acquired (Outlined Below) (190,084)
----------
Acquired Assets at January 31, 1996 1,960,100
Total Liabilities at January 31, 1996 1,680,659
Less: Accrued Rent Not Assumed (170,733)
Accrued Interest Payable Not Assumed (409,632)
Capitalization of Stockholder's Loan Payable (501,093)
----------
Liabilities Assumed at January 31, 1996 599,201
----------
Net Assets Acquired $1,360,899
------------------- ==========
Assets not acquired:
Cash $ 96,771
Prepaid Expenses 68,923
Property and Equipment - Net 6,581
Other Assets 17,809
----------
Total $ 190,084
===== ==========
[B] To record capitalization of stockholder's loan payable of $501,093.
[C] To record acquisition of net assets of Artisan House, Inc. with annual
amortization of goodwill and other intangible assets of approximately
$200,000.
Amortization of goodwill will be amortized over ten years and amortization
of the other intangible assets will be over fifteen years under the
straight-line method.
Goodwill is computed as follows:
Cash paid on deposit $150,000
Cash paid at closing 2,250,000
Secured note 829,629
Stock [100,000 Shares of Decor] 300,000
-------
Cost of Acquisition 3,529,692
Estimated Value of Tangible Net Assets Acquired 1,360,899
---------
A-2
<PAGE>
Excess Purchase Price $2,168,730
----------
Purchase Price Allocation:
Registered Trademark 150,000
Copyrights and Artwork 150,000
Customer Lists 200,000
----------
Total Other Intangible Assets $500,000
----------
Remainder - Goodwill $1,668,730
==========
The asset purchase agreement calls for total consideration of $3,526,400 subject
to certain adjustments. A component of the aggregate consideration is a secured
note of $926,400 which will be reduced by the cash balance retained by the
seller at the close of the transaction. At January 31, 1996, the cash balance
was $96,771; hence, for pro forma calculation the secured note balance adjusted
for the retained cash account, is $829,629. $100,000 of this secured note is due
in 90 days after the close of the acquisition and $64,601 in principal is due
within one year after the closing.
[D] To record elimination of former President's annual employment contract of
approximately $113,000 and addition of annual employment contract for new
President of $117,000.
[E] To record annual 8% interest expense of $20,000 on $250,000 bridge note
payable and interest expense of $66,000 on acquisition notes of $829,629.
[F] To record annual consulting agreement of $50,000 and minimum annual
management services agreement of $75,000.
[G] To record 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.
A-3
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED BALANCE SHEET AS OF MARCH 31, 1996.
[UNAUDITED]
================================================================================
Historical Financial Statements
<TABLE>
<CAPTION>
Decor Artisan
Group, Inc. House, Inc.
March 31, January 31, Pro Forma
1 9 9 6 1 9 9 6 Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash $ 47,000 $ 96,771 $ (96,771) [A] $ 47,000
Accounts Receivable -- 838,108 -- 838,108
Note Receivable - Related Party 50,000 -- -- 50,000
Stock Subscription Receivable 8,000 -- -- 8,000
Inventory -- 911,951 -- 911,951
Other 250 161,422 (68,923) [A] 92,749
----------- ----------- ----------- -----------
Total Current Assets 105,250 2,008,252 (165,694) 1,947,808
----------- ----------- ----------- -----------
Investments 1,750,000 -- (150,000) [C] 1,600,000
----------- ----------- ----------- -----------
Property and Equipment - Net -- 121,880 (6,581) [A] 115,299
----------- ----------- ----------- -----------
Other Assets:
Goodwill -- -- 1,668,730 [C] 1,668,730
Deferred Financing Costs 1,500,000 -- -- 1,500,000
(17,809) [A]
Other Assets -- 20,052 500,000 [C] 502,243
----------- ----------- ----------- -----------
Total Other Assets 1,500,000 20,052 2,150,921 3,670,973
----------- ----------- ----------- -----------
Total Assets $ 3,355,250 $ 2,150,184 $ 1,828,646 $ 7,334,080
=========== =========== =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-4
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED BALANCE SHEET AS OF MARCH 31, 1996.
[UNAUDITED]
================================================================================
Historical Financial Statements
<TABLE>
<CAPTION>
Decor Artisan
Group, Inc. House, Inc.
March 31, January 31, 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 $ -- $ 193,646 $ -- $ 193,646
Accrued Expenses -- 163,135 -- 163,135
Notes Payable 250,000 169,134 2,414,601 [C] 2,833,735
Loan Payable - Stockholder -- 501,093 (501,093) [B] --
Accrued Interest Payable - Stockholder -- 409,632 (409,632) [A] --
Accrued Rent Payable - Stockholder -- 170,733 (170,733) [A] --
----------- ----------- ----------- -----------
Total Current Liabilities 250,000 1,607,373 1,333,143 3,190,516
----------- ----------- ----------- -----------
Long-Term Liabilities:
Notes Payable -- 73,286 665,028 [C] 738,314
----------- ----------- ----------- -----------
Stockholders' Equity:
Preferred Stock 50 -- -- 50
Common Stock 262 80,000 10 [C] 272
(80,000) [C]
Additional Paid-in Capital 3,204,688 200,000 299,990 [C] 3,504,678
487,052 [A]
501,093 [B]
(1,188,145) [C]
Retained Earnings (99,750) 189,525 (189,525) [C] (99,750)
----------- ----------- ----------- -----------
Total Stockholders' Equity 3,105,250 469,525 (169,525) 3,405,250
----------- ----------- ----------- -----------
Total Liabilities and Stockholders'
Equity $ 3,355,250 $ 2,150,184 $ 1,828,646 $ 7,334,080
----------- ----------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-5
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
[UNAUDITED]
================================================================================
Historical Financial Statements
<TABLE>
<CAPTION>
Decor
Group, Inc. Artisan
for the Period House, Inc.
March 1, 1996 For the
Through Year ended
March 31, January 31, 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 1,684,591 200,000 [C] 2,113,591
4,000 [D]
125,000 [F]
[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 2,625,000 2,725,000
========= =========
Net [Loss] Per Share $ (.04) $ (.01)
=========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-6
<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 and has
negative a working capital deficit of approximately $145,000. These factors
raise 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
B-1
<PAGE>
DECOR GROUP, INC.
================================================================================
BALANCE SHEET AS OF MARCH 31, 1996.
================================================================================
Assets:
Current Assets:
Cash $ 47,000
Stock Subscription Receivable 8,000
Note Receivable - Related Party 50,000
Accrued Interest Receivable - Related Party 250
-----------
Total Current Assets 105,250
-----------
Non-Current Assets:
Investment - Related Party [8] 1,600,000
Investment in Artisan House, Inc. 150,000
Deferred Financing Costs 1,500,000
-----------
Total Non-Current Assets 3,250,000
-----------
Total Assets $ 3,355,250
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Bridge Loan Payable $ 250,000
-----------
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 - 500,000 Shares Issued
and Outstanding; 20,000,000 Non-Convertible Voting Series
B - No Shares Issued and Outstanding [Note 8] 50
Additional Paid-in Capital - Preferred Stock 1,599,950
Common Stock - $.0001 Par Value, Authorized 20,000,000
Shares, Issued and Outstanding, 2,625,000 Shares 262
Additional Paid-in Capital - Common Stock 1,604,738
Retained Earnings [Deficit] (99,750)
-----------
Total Stockholders' Equity 3,105,250
-----------
Total Liabilities and Stockholders' Equity $ 3,355,250
===========
See Notes to Financial Statements.
B-2
<PAGE>
DECOR GROUP, INC.
================================================================================
STATEMENT OF STOCKHOLDERS' EQUITY FROM INCEPTION [MARCH 1, 1996] THROUGH THE
PERIOD ENDED MARCH 31, 1996.
================================================================================
<TABLE>
<CAPTION>
Preferred Stock Additional Common Stock Additional Retained Total
---------------- Paid-in ---------------- Paid-in Earnings Stockholders'
Shares Amount Capital Shares Amount Capital [Deficit] Equity
------ ------ ------- ------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock Issued
to Founders -- $-- $ -- 2,625,000 $262 $ 104,738 $ -- $ 105,000
Bridge Financing Warrants -- -- -- -- -- 1,500,000 -- 1,500,000
500,000 Shares of Class A
Convertible Preferred Stock and
and Option to Purchase 20,000,000
Shares of Class B Non-Convertible
Preferred Stock 500,000 50 1,599,950 -- -- -- -- 1,600,000
Net [Loss] for the period ended
March 31, 1996 -- -- -- -- -- -- (99,750) (99,750)
------- --- ---------- --------- ---- ---------- -------- -----------
Balance - March 31, 1996 500,000 $50 $1,599,950 2,625,000 $262 $1,604,738 $(99,750) $ 3,105,250
======= === ========== ========= ==== ========== ======== ===========
</TABLE>
See Notes to Financial Statements.
B-3
<PAGE>
DECOR GROUP, INC.
================================================================================
STATEMENT OF OPERATIONS FOR THE PERIOD FROM INCEPTION [MARCH 1, 1996] TO
MARCH 31, 1996.
================================================================================
Revenues $ --
Cost of Revenues --
---------
Gross Profit --
---------
Selling, General and Administrative Expenses:
Acquisition Fees 98,000
Professional Fees 2,000
---------
Total Selling, General and Administrative Expenses 100,000
---------
[Loss] from Operations (100,000)
---------
Other Income:
Interest Income - Related Party 250
---------
[Loss] Before Provision for Income Taxes (99,750)
Provision for Income Taxes --
---------
Net [Loss] $ (99,750)
=========
See Notes to Financial Statements.
B-4
<PAGE>
DECOR GROUP, INC.
================================================================================
STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION [MARCH 1, 1996] TO MARCH
31, 1996.
================================================================================
Operating Activities:
Net [Loss] $ (99,750)
---------
Adjustment to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Stock Issued for Services 2,000
Note Receivable (50,000)
Accrued Interest Receivable (250)
---------
Net Cash - Operating Activities (148,000)
---------
Investing Activities:
Partial Payment on Acquisition of Artisan House, Inc. (150,000)
---------
Financing Activities:
Proceeds from Sale of Common Stock 95,000
Proceeds from Bridge Loans 250,000
---------
Net Cash - Financing Activities 345,000
---------
Net Increase in Cash 47,000
Cash - Beginning of Period --
---------
Cash - End of Period $ 47,000
=========
Supplemental Disclosures of Cash Flow Information:
Cash paid for the years for:
Interest $ --
Income Taxes $ --
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the period, the Company incurred deferred financing costs of
$1,500,000 resulting from the issuance of warrants for a $250,000 bridge loan.
On March 3, 1996, the Company issued to Interiors, Inc. 500,000 shares of
Class A Convertible Preferred Stock and an option to purchase 20,000,000 shares
of Class B Non-Convertible 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 and
a guarantee with respect to certain indebtedness.
See Notes to Financial Statements.
B-5
<PAGE>
DECOR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
[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 2,625,000 shares of common
stock to seven parties for total consideration of $105,000. 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 2,625,000 common shares issued in the
initial capitalization and on the 3,000,000 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.
[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 $3,526,400,
subject to adjustment prior to closing of which $150,000 was paid in cash,
$2,250,000 will be paid at the closing of the acquisition and a secured
promissory note for $926,400 will be issued, subject to reduction by the cash
balance of Artisan House at the closing date of which the issuance $100,000 will
be paid 90 days after the closing and the balance will be paid in 60
B-6
<PAGE>
equal monthly installments of $11,753 with final payment of $150,000 at maturity
with interest at 8%, and 100,000 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 $1,668,730 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 consulting 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 year. The pro
forma results give effect to amortization of goodwill and other intangible
assets, interest expense, employment contracts and consulting agreements.
Total Revenues $ 4,809,422
===========
Net [Loss] $ (20,054)
===========
Net [Loss] Per Common Share $ (.01)
===========
Weighted Average Number of Shares Outstanding 2,725,000
===========
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 company who
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
11A].
[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 500,000 shares.
B-7
<PAGE>
[5] Proposed Public Offering
The Company is filing a registration statement for 250,000 units at $10 per
unit. Each unit consists of 2 shares of common stock and one Class A Redeemable
Common Stock purchase warrant exercisable at $4.00 per share for a four year
period commencing one year from the effective date. The Warrants are redeemable
by the company for $.05 per warrant, in 1997, upon 30 days prior written notice,
under certain quoted price conditions. The anticipated net proceeds from this
offering are approximately $1,575,000.
[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 3,000,000 Class A Warrants for 3,000,000 shares of common
stock which will be registered in the Company's first registration statement,
whereby the Company recorded a deferred financing cost of $1,500,000, and will
amortized it over the life of the bridge loan.
[7] Going Concern
As shown in the accompanying financial statements, the Company did not generate
cash from operations and had a working capital deficiency of approximately
$145,000 for the period ended March 31, 1996. These factors create 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 $3,529,629 [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. 500,000 shares of Series
A Non-Voting Convertible Preferred Stock and an option to purchase 20,000,000
shares of Series B Non-Convertible Voting Preferred Stock at an exercise price
of $.0001 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 and a guarantee with respect to certain
indebtedness. The investment is classified as available for sale. As of March
31, 1996, Interiors, Inc. owns approximately 16% of the Company assuming the
500,000 shares of Series A Convertible Preferred Stock were converted into
common stock. Following the proposed public offering Interiors, Inc. will own
approximately 86.5% of the total voting stock outstanding assuming the exercise
of the options to purchase 20,000,000 shares of Class B Preferred Stock [See
Note 11A].
[9] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting
B-8
<PAGE>
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.
[10] Financial Instruments
The carrying amount of cash, notes receivable and notes payable approximates
fair value because of their short maturities.
[11] 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.
[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. If the Company does not receive the proceeds from the loan, the
Company will require additional funds to close on the acquisition of Artisan
House, Inc.
. . . . . . . . . . . . . .
B-9
<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 SHEET AS OF JANUARY 31, 1996.
================================================================================
Assets:
Current Assets:
Cash $ 96,771
Accounts Receivable - Net 838,108
Inventory 911,951
Prepaid Expenses 161,422
----------
Total Current Assets 2,008,252
Property and Equipment - Net 121,880
Other Assets 20,052
----------
Total Assets $2,150,184
==========
Liabilities and Stockholder's Equity:
Current Liabilities:
Accounts Payable $ 193,646
Accrued Expenses 163,135
Loan Payable - Stockholder 501,093
Notes Payable 169,134
Accrued Interest Payable - Stockholder 409,632
Accrued Rent Payable - Stockholder 170,733
----------
Total Current Liabilities 1,607,373
----------
Long-Term Liability:
Notes Payable 73,286
----------
Commitments and Contingencies --
----------
Stockholder's Equity:
Common Stock - No Par Value, 75,000 Shares Authorized,
8,000 Issued and Outstanding 80,000
Additional Paid-in Capital 200,000
Retained Earnings 189,525
Total Stockholder's Equity 469,525
----------
Total Liabilities and Stockholder's Equity $2,150,184
==========
See Notes to Financial Statements.
C-2
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
STATEMENTS OF OPERATIONS
================================================================================
Years ended
January 31,
-----------------------
1 9 9 6 1 9 9 5
------- -------
Sales - Net $ 4,809,422 $ 3,994,909
Total Cost of Goods Sold 2,596,383 2,134,086
----------- -----------
Gross Profit 2,213,039 1,860,823
----------- -----------
Selling, General and Administrative Expenses:
Selling, Advertising and Promotion 1,011,314 856,874
General and Administrative Expenses 673,277 607,350
----------- -----------
Total Selling, General and Administrative Expenses 1,684,591 1,464,224
----------- -----------
Income from Operations 528,448 396,599
----------- -----------
Other [Income] Expenses:
Interest Expense - Stockholder 43,613 44,182
Interest Expense 40,466 23,460
Interest Income (2,218) (1,483)
Other Income (6,751) (2,601)
Loss on Asset Disposals 2,255 2,524
----------- -----------
Other Expenses - Net 77,365 66,082
----------- -----------
Income Before Provision for Pro Forma Income Taxes 451,083 330,517
Provision for Pro Forma Income Taxes 180,000 132,000
----------- -----------
Pro Forma Net Income $ 271,083 $ 198,517
=========== ===========
See Notes to Financial Statements.
C-3
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
STATEMENTS OF STOCKHOLDER'S EQUITY
================================================================================
<TABLE>
<CAPTION>
Total
Common Stock Additional Retained Stockholder's
---------------------- 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
===== ======= ======== ========= =========
</TABLE>
See Notes to Financial Statements.
C-4
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
STATEMENTS OF CASH FLOWS
================================================================================
Years ended
January 31,
--------------------
1 9 9 6 1 9 9 5
------- -------
Operating Activities:
Net Income $ 451,083 $ 330,517
--------- ---------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Bad Debts 19,243 12,691
Depreciation and Amortization 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 (200,224) (118,511)
Inventory (180,278) (43,198)
Other Assets 3,828 7,289
Prepaid Expenses (68,841) (17,251)
Increase [Decrease] in:
Accounts Payable (5,460) (8,505)
Accrued Expenses 55,725 16,459
Accrued Expenses - Stockholder 12,041 5,528
--------- ---------
Total Adjustments (318,816) (122,109)
--------- ---------
Net Cash - Operating Activities 132,267 208,408
--------- ---------
Investing Activities:
Purchase of Property and Equipment (16,952) (67,052)
Increase in Cash Surrender Value of Life Insurance (1,803) --
--------- ---------
Net Cash - Investing Activities (18,755) (67,052)
--------- ---------
Financing Activities:
Repayment of Loan Payable - Stockholder (58,313) (19,342)
Repayment of Notes Payable (42,359) (67,063)
--------- ---------
Net Cash - Financing Activities (100,672) (86,405)
--------- ---------
Net Increase in Cash 12,840 54,951
Cash - Beginning of Years 83,931 28,980
--------- ---------
Cash - End of Years $ 96,771 $ 83,931
========= =========
See Notes to Financial Statements.
C-5
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
STATEMENTS OF CASH FLOWS
================================================================================
Years ended
January 31,
-------------------
1 9 9 6 1 9 9 5
------- -------
Supplemental Disclosures of Cash Flow Information:
Cash paid for the years for:
Interest $44,759 $28,643
Income Taxes $ 4,995 $ 8,977
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
================================================================================
[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.
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 stockholders are liable for federal and state income taxes on their
respective share of 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.
C-7
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
================================================================================
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 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:
Raw Materials $ 297,224
Work-in Process 221,157
Finished Goods 393,570
---------
Total $ 911,951
=========
[3] Property and Equipment
Property and equipment consist of the following:
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.
C-8
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
================================================================================
[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.
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
<TABLE>
<S> <C>
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
----------
Total - Forward $ 212,539
Total - Forward $ 212,539
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
==========
</TABLE>
Bank prime at January 31, 1996 was 8.25%.
C-9
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
================================================================================
[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:
January 31,
1997 $ 277,661
1998 230,056
1999 69,882
2000 36,895
2001 3,008
Thereafter --
---------
Total $ 617,502
=========
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.
C-10
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5
================================================================================
[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.
. . . . . . . . . . . . . . . . . . .
C-11
<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.
250,000 Units
Each Unit Consists of Two (2) Shares of Common Stock, par value $.0001 per
share, and One (1) Class A Redeemable Common Stock Purchase Warrant
DECOR GROUP, INC.
----------
PROSPECTUS
----------
VTR Capital, Inc.
_______, 1996
----------
<PAGE>
SUBJECT TO COMPLETION, DATED _____________, 1996
ALTERNATE
PROSPECTUS
DECOR GROUP, INC.
2,002,000 shares of Common Stock
and
3,000,000 Class A Warrants
This Prospectus relates to the sale of (i) 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 (ii)
2,002,000 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 250,000 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 Underwriter. 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 $4.00 per share during the
four (4) year period commencing one (1) year 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 $12.00 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 Units, the Common Stock and
the Class A Warrants on The Nasdaq Small Cap Market, although there can be no
assurances that an active trading market will develop even if the securities are
accepted for quotation. Additionally, even if the Company's securities are
accepted for quotation and active trading develops, the Company is still
required to maintain certain minimum criteria established by The Nasdaq Small
Cap Market, of which there can be no assurance. See "Risk Factors - Lack of
Prior Market for Units, 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. 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
<PAGE>
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 _____________, 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 250,000 Units by
the Company and 25,000 Units owned and offered by Gordon Brothers Capital
Corporation (the "Unit Holder") was declared effective by the Securities and
Exchange Commission ("SEC"), and the Company commenced the sale of Units offered
thereby. Each Unit is comprised of two (2) shares of Common Stock and one (1)
Class A Warrant. 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)
2,002,000 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 250,000 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 Underwriter. 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 Stock Owned Warrants Common Class A
Stock Owned Owned Stock Offered After Owned After Stock After Warrants
Before Before Offered Hereby Offering Offering Offering After
Offering Offering(1) Hereby Offering
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M.D. Funding, Inc. 1,827,500 480,000 1,462,000 480,000 365,500 0 11.2% 0
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie Munn(2) 200,000 0 100,000 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Judy Pace 122,500 0 100,000 0 22,500 0 .7% 0
- ------------------------------------------------------------------------------------------------------------------------------------
First National 250,000 120,000 200,000 0 50,000 0 1.6% 0
Funding, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Ulster Investments, 125,000 120,000 100,000 120,000 25,000 0 .8% 0
Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Matthew Harriton(3) 50,000 0 40,000 0 10,000 0 .3% 0
- ------------------------------------------------------------------------------------------------------------------------------------
Clint Hill 0 1,000,000 0 1,000,000 0 0 0 0
Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Dune Holdings, Inc. 0 1,200,000 0 1,200,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Yordy 0 20,000 0 20,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Harold Yordy 0 20,000 0 20,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce Ungerleider 0 20,000 0 20,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen Osman 0 20,000 0 20,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total 2,575,000 3,000,000 2,002,000 3,000,000 573,000 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.
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 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 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..........
[ALTERNATE]
2,002,000 Shares of Common Stock
and
3,000,000 Class A Warrants
DECOR GROUP, INC.
----------
PROSPECTUS
----------
VTR Capital, Inc.
___________, 1996
----------------
Alt - vi
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In connection with the Offering, the Underwriter 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 Underwriter 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
The Nasdaq SmallCap Market
filing fee ................................................. $ 11,000
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* ...................................... $ 18,000
--------
Total ........................................................ $500,000
========
- ----------------
* 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) 1,827,500 shares of Common Stock to
M.D. Funding, Inc. for cash consideration of $73,100, (ii) 200,000 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) 122,500 shares of Common
Stock to Judy Pace for cash consideration of $4,900, (iv) 250,000 shares of
Common Stock to First National Funding, Inc. for cash consideration of $10,000,
(v) 125,000 shares of Common Stock to Ulster Investments, Ltd. for cash
consideration of $5,000, (vi) 50,000 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 Units 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 3,000,000 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
II-2
<PAGE>
Prospectus forms a part, relates to the resale of 3,000,000 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."
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 able to bear the economic risk
of his investment and is 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.
3.01 Certificate of Incorporation of the Company dated March 1, 1996.
3.02 By-Laws of the Company.
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 Underwriter's Unit Purchase Option.
4.07+ Option Agreement between the Company and Interiors, Inc.
5.01+ Opinion of Bernstein & Wasserman, 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.
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 Underwriter.
23.01+ Consent of Bernstein & Wasserman, LLP (to be included in Exhibit 5.01).
23.02 Consent of Mortenson & Associates, LLP.
- ----------
+ To be filed by amendment.
II-4
<PAGE>
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) 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;
(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 Underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriter 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 424(b)(1) or
II-5
<PAGE>
(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-6
<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 June 4, 1996.
DECOR GROUP, INC.
By:/s/Donald Feldman
-----------------------------------
Donald Feldman
President and Chief Financial 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 June 4, 1996
- ------------------------------ Chief Financial Officer
Donald Feldman
/s/ Max Munn Chairman of the Board June 4, 1996
- ------------------------------- of Directors
Max Munn
/s/ Matthew L. Harriton Director June 4, 1996
- -------------------------------
Matthew L. Harriton
/s/ Michael Lulkin Director June 4, 1996
- -------------------------------
Michael Lulkin
<PAGE>
EXHIBIT INDEX
Item No. Exhibits.
- -------- ---------
1.01 Form of Underwriting Agreement.
1.02 Form of Selected Dealers Agreement.
3.01 Certificate of Incorporation of the Company.
3.02 By-Laws of the Company.
4.06 Form of Underwriters Unit Purchase Warrant.
10.01 Asset Purchase Agreement.
10.04 Form of Bridge Loan Agreements.
10.05 Form of Subscription Agreements.
10.08 Financial Advisory Series Agreement.
23.02 Consent of Mortenson & Associate, L.L.P.
<PAGE>
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 250,000 Units
(the "Company Units"), each Unit consisting of two shares of Common Stock, par
value $.0001 ("Common Stock"), and one Redeemable Class A Common Stock Purchase
Warrant (the "Warrants") of the Company at a public offering price of $10.00 per
Unit. In addition, 25,000 Units (the "Selling Security Holder Units") 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 Unit.
Each Warrant shall entitle the holder to purchase one share of Common Stock
for a four year period commencing one year from the Effective Date (hereinafter
defined) at a price of $4.00 per share. The Unit Warrants will be immediately
detachable from the Common Stock on the Effective Date. The Warrants may be
called by the Company commencing one year from the Effective Date upon at least
thirty days prior written notice at a price of $.05 per Warrant at any time
provided the closing bid for the Common Stock is at least $12.00 during each day
of the twenty (20) trading day period ending on the fifth day preceding the date
of the written notice. The Warrant Agreement will provide that no such notice
will be given until there is a current Registration Statement and Prospectus on
file with the Securities and Exchange Commission at the time such notice is
given to Warrant Holders and that the notice may not be mailed to Warrant
Holders during the aforesaid one-year period from the Effective Date. The
Company Units and the Selling Security Holder Units are hereinafter sometimes
referred to as the "Firm
1
<PAGE>
Units." 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 37,500 Units for the purpose of covering over-allotments. Such
additional Units are hereinafter sometimes referred to as the "Optional Units."
Both the Firm Units and the Optional Units are sometimes collectively referred
to herein as the "Units." 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 Units as soon as the
Representative deems advisable after the 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
Warrants and other 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- ) with respect to the Units, 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.
2
<PAGE>
The date on which such Registration Statement is declared effective under
the Act and the public offering of the Units 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 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.
3
<PAGE>
(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.
(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
4
<PAGE>
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), 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 Series A Convertible
Preferred Stock are duly authorized and validly issued and outstanding, fully
paid, and non-assessable, and are free of preemptive rights. The Series B
Non-Convertible Preferred Stock which is issuable upon exercise of options to
purchase 20,000,000 share held by Interiors, Inc., will upon payment and
issuance be deemed validly issued and outstanding, fully-paid and non-assessable
and free of pre-emptive rights. (The Series A Convertible Preferred Stock and
Series B Non-Convertible Preferred Stock are hereinafter collectively referred
to as the "Preferred Stock.") The Common Stock and the shares of Common Stock
issuable upon exercise of the Warrants, when paid for, issued and delivered in
accordance with this Agreement and the Warrant Agreement between the Company and
American Stock Transfer & Trust Company, dated as of _______________, 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 Units purchased by them from the Company, free and
clear of all liens, encumbrances,
5
<PAGE>
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 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
Units 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
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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 Units, the Common Stock or
the Warrants 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 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 Units.
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;
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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
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
Units 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
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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 Units.
(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; 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 Units 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.
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SECTION 3. Issuance, Sale and Delivery of the Firm Units, the Optional
Units 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
Units and the Selling Security Holder agrees to sell the Selling Security Holder
Units to the several Underwriters, and the Underwriters, severally and not
jointly, agree to purchase from the Company, the number of the Firm Units set
forth opposite the respective names of the Underwriters in Schedule I hereto,
plus any additional Units which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 14 hereof.
The purchase price of the Units to be paid by the several Underwriters
shall be $9.00 per Unit ($10.00 per Unit less a ten percent discount equal to
$1.00 per Unit).
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 Units, or any portion thereof, at the same
price per Unit as that set forth in the preceding sentence; and each Underwriter
agrees, severally and not jointly, to purchase Optional Units in the same
proportion in which it has agreed to purchase Firm Units. Notwithstanding
anything contained herein to the contrary, you individually and not as
Representative may purchase all or any part of the Optional Units and are not
obligated to offer the Optional Units to the other Underwriters. The Optional
Units 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 Units 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 Units 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
Units to the Representative for the respective accounts of the Underwriters. In
making payment to the Company with respect to the
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Company Units, 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 fifth business day after the
Effective Date which may be extended by the Representative to not later than the
seventh business day or tenth calendar day, whichever last occurs, following the
Effective Date (unless postponed in accordance with the provisions of Section 14
hereof) or at such other time as shall be agreed upon by the Representative and
the Company. 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 Units 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 Units
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 Units 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 Units and for the Optional Units 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 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 Units except upon tender of payment by the Underwriters
for all of the Firm Units agreed to be purchased by them hereunder. The
Representative, however, shall have the sole discretion to determine the number
of Optional Units, if any, to be purchased.
(e) At the time of making payment for the Firm Units, the Company
also hereby agrees to sell to the Representative,
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Warrants to purchase 25,000 Units for an aggregate purchase price of $25
(hereinafter referred to as the "Underwriters' Warrants"). The 25,000 Units
underlying the Underwriters' Warrants shall be identical to the Units sold to
the public. Each Underwriters' Warrant shall entitle the owner thereof to
purchase one Unit of the Company at an exercise price of $12.00 per Unit. 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 Units to the public as soon
as practicable after the Effective Date, at the initial offering price of $10.00
per Unit and upon the terms described in the Prospectus. The Representative may,
from time to time, decrease the public offering price, after 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.
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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 Units
and all dealers to whom any of the Units 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 Units and in
accordance with the applicable provisions of the Act and the applicable Rules
and Regulations and applicable State Securities Laws.
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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 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 Units, 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
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Underwriters' counsel, to qualify the Units 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 Units, provided, however, that the Company shall not be required to
qualify as a foreign corporation or dealer in securities or to file a consent to
service of process in any state in any action other than one arising out of the
offering or sale of the Units.
(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 Units 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
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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.
(g) The Company represents that with respect to the Warrants and 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). In addition, the Company agrees to qualify
its Units, Common Stock and the Warrants for listing on the NASDAQ system and on
the ___________ Exchange on the Effective Date and will take all reasonable and
necessary and appropriate action so that the securities continue to be listed
for trading in the NASDAQ system and the __________ Exchange for at least ten
years from the Effective Date provided the Company otherwise complies with the
prevailing maintenance requirements. In addition, at such time as the Company
qualifies for listing its securities on the National Market System of NASDAQ,
the Company will use its best efforts to have the Company's Units and components
thereof listed on the National Market System of NASDAQ in lieu of both listing
as Small-Cap Issues on NASDAQ and on the _________ Exchange. 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
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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.
(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 (the "Transfer Agent") and as warrant agent
for the Warrants.
(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
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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.
(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 and Warrant 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 Units, shares and Unit Warrants and
have each of the securities eligible for closing through Depository Trust
Company.
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(s) The Company will not issue and sell any of its securities not
contemplated by the Registration Statement for a period of time to be mutually
agreed upon by the Company and the Representative.
The Selling Security Holder covenants and agrees with each Underwriter that
it 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
Units 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 NASD, SEC, NASDAQ and __________ Exchange filing
and/or 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 and Unit Warrants, including original
issue and transfer taxes, if any; (iii) the qualifications of the Company's
Units (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 ($10,000 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; (iv) the fees
and disbursements of counsel for the Company and the accountants for the
Company; and (v) any other costs of qualifying the Units and components thereof
for listing on NASDAQ and the __________ Exchange. 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
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connection with the offering and sale and distribution of the Units 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 from the sale of the Units and Optional Units, 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 Units; 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 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
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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, 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
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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 Units 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 Unit
Price to Public of the Units as set forth on the cover page of the Prospectus
and the number of Units 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 Units upon the public offering to any
person by such Underwriter if such losses, claims, damages, liabilities 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
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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 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
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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 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 Units 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
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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 Units, 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 Units 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 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 Units 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 Unit Price to Public of the Units as set forth on the
cover page of the Prospectus and the number of Units 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
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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.
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 Units, whichever shall first occur. The time of the initial
public offering by the Underwriters of the Units 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 Units,
or the time, after the Registration Statement becomes effective, when the Units
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 Units 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
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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.
(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
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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 Units except to the
extent that any decrease is disclosed in or contemplated by the Prospectus.
(f) The authorization of the Units, the Common Stock and the Warrants, the
Registration Statement, the Prospectus and all corporate proceedings and other
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
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and set aside shares of Common Stock issuable upon exercise of the Warrants and
any other 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, Warrants 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
Units 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.
(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 Units 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
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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 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
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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 Units to the
Underwriters free and clear of all liens and encumbrances; (c) the Company has
full power and lawful authority to authorize, issue and sell the Units 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
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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 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
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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 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
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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 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
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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
(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 Units. 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
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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, 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
each Selling Security Holder Unit, as the case may be, to be delivered on that
date is duly and validly issued, fully paid and the shares of Common Stock
included in the Selling Security Holder Units are non-assessable with no
personal liability attaching to the ownership thereof, and is not issued in
violation of any preemptive rights of stockholders, and the Underwriters have
received good title to the Selling Security Holder Units 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
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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.
(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
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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 Units 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 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 Units.
(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
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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.
SECTION 14. Substitution of Underwriters.
(a) If one or more Underwriters default in its or their obligations to
purchase and pay for Units hereunder and if the aggregate amount of such Units
which all Underwriters so defaulting have agreed to purchase does not exceed 10%
of the aggregate number of Units constituting the Units, the non-defaulting
Underwriters shall have the right and shall be obligated severally to purchase
and pay for (in addition to the Units set forth opposite their names in Schedule
I) the full amount of the Units 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 Units 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 Units hereunder and if the
aggregate amount of such Units which all Underwriters so defaulting shall have
agreed to purchase shall exceed 10% of the aggregate number of Units, or if one
or more Underwriters for any reason permitted hereunder cancel its or their
obligations to purchase and pay for Units 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 Units in such
proportion as may be agreed among them, at the Closing Date. If the Remaining
Underwriters do not purchase and pay for such Units 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 Units, 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 Units 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 Units at such second postponed
Closing Date. If the Company shall not have found
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such purchasers for such Units 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). 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 Units) or
obligate any Underwriter to purchase or find purchasers for any Units 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.
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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
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. Commencing 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
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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 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:
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5% of the first $4,000,000 or portion thereof, of such consideration;
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 2,002,000 shares of Common Stock,
3,000,000 Class A Warrants and 3,000,000 shares of Common Stock issuable upon
exercise of the Class A Warrants. The aforesaid securities 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
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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) 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 Units and the Optional Units 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 Units.
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.
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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 receives the transmission
may rely upon the electronic facsimile as a signed original of this Agreement.
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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 Units to be
------------ Purchased
---------------------
VTR Capital Inc.
-------
Total 275,000
=======
47
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VTR Capital Inc.
99 Wall Street
New York, NY 10005
DECOR GROUP, INC.
275,000 Units
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
Corporations (the "Selling Security Holder"), at the price set forth on the
cover of such Prospectus, 250,000 Units and 25,000 Units, respectively, and up
to an additional 37,500 Units from the Company being called the "Units"). The
Units 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 Units, at the
public offering price less a concession of $___ per Unit. The offering to
Selected Dealers is made subject to the issuance and delivery of the Units 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 Units or an allotment against subscription, or otherwise in our
discretion.
The initial public offering price of the Units is set forth in the
Prospectus. With our consent, Selected Dealers may allow a discount of not in
excess of $___ per Unit in selling the Units 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 discount and
any Selected Dealer from whom you receive such a discount.
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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 Units. 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 Units.
Nothing contained herein shall constitute the Selected Dealers partners with us
or with one another.
Upon release by us, you may offer the Units at the public offering price,
subject to the terms and conditions hereof. We may, and the Selected Dealers
may, with our consent, purchase Units from and sell Units to each other at the
public offering price less a concession not in excess of the concession to
Selected Dealers.
Payment for Units 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 Units 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.
In the event that, prior to the termination of this Agreement we purchase
in the open market or otherwise any Units 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
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with such purchase; which amounts can be withheld from the concession
otherwise payable to you hereunder. Certificates for Units 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 Units 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 Units 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 Units 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 Units in any jurisdiction. We have filed a Further State Notice
with respect to the Units 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 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
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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 Units 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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ACCEPTANCE AND ORDER
VTR Capital Inc.
99 Wall Street
New York, NY 10005
Dear Sirs:
We hereby enter our order for ______ Units 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 Units 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 Units 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)
By:___________________________
(Authorized Signature)
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Address:______________________
______________________________
6
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CERTIFICATE OF INCORPORATION
OF
DECOR GROUP, INC.
----------
FIRST: The name of the corporation (hereinafter called the "Company") is
DECOR GROUP, INC.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, City of Dover, County of Kent; and the name of the
registered agent of the corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 55,000,000, 20,000,000 of which are common shares,
par value $.0001 per share, and 35,000,000 of which are preferred shares, par
value $.0001 per share. Of the 35,000,000 preferred shares, (i) 5,000,000 shall
be designated as shares of "Series A Convertible Preferred Stock", par value
$.0001 per share, and (ii) 20,000,000 shall be designated as "Series B
Non-Convertible Preferred Stock", par value $.0001 per share.
The shares of Preferred Stock may be issued from time to time in one or
more series, in any manner permitted by law, as determined from time to time by
the Board of Directors, and stated in the resolution or resolutions providing
for the issuance of such shares adopted by the Board of Directors pursuant to
authority hereby vested in it. Without limiting the generality of the foregoing,
shares in such series shall have such voting powers, full or limited, or no
voting powers, and shall have such designations, preferences, and relative,
participating, optional, or other special rights, and qualifications,
limitations, or restrictions thereof, permitted by law, as shall be stated in
the resolution or resolutions providing for the issuances of such shares adopted
by the Board of Directors pursuant to authority hereby vested in it. The number
of shares of any
<PAGE>
such series so set forth in such resolution or resolutions may be increased (but
not above the total number of authorized shares of Preferred Stock) or decreased
(but not below the number of shares thereof then outstanding) by further
resolution or resolutions adopted by the Board of Directors pursuant to
authority hereby vested in it.
FIFTH: The shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") shall have the powers, preferences and rights as set forth
below:
1. Dividends
Each issued and outstanding share of Series A Preferred Stock of the
Company shall entitle the holder of record to dividends when and as declared by
the Board of Directors.
2. 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.
3. 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 $.01 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"). After setting apart or paying in full the preferential amounts
aforesaid to the holders of record of the issued and outstanding Series A
Preferred Stock, the remaining net assets (whether stated capital or surplus),
if any, shall be distributed exclusively to the holders of record of the issued
and outstanding Junior Securities, each issued and outstanding Junior Security
entitling the holder of record thereof to receive an equal proportion of said
remaining net assets relative to all other holders of any class or type of
Junior Security. If the net assets of the Company shall be insufficient to pay
in full the preferential amounts among the holders of the Series A Preferred
Stock, the holders of Series A Preferred Stock shall be entitled to a ratable
proportion of said net assets, and the holders of the Junior Securities shall in
no event be entitled to participate in the distribution of said net assets in
respect to their Junior Securities. Without excluding any other proceeding which
does not in fact effect a liquidation, dissolution, or winding up of the
Company, a merger
2
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or consideration of the Company into or with any other corporation, a merger of
any other corporation into the Company, participation by the Company in a plan
for share exchanges with any other corporation, or a sale, lease, mortgage,
pledge, exchange, transfer or other disposition by the Company of all or
substantially all of its assets shall not be deemed, for the purposes of this
paragraph, to be a liquidation, dissolution, or winding up of the Company,
provided that in each case, effective provision is made by the resulting and
surviving corporation or otherwise for the protection of the rights of the
holders of the Series A Preferred Stock.
4. Conversion
(a) 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 fully paid and nonassessable shares of Common
Stock of the Company upon surrender to the Company or its designee of the
certificate or certificates representing the share or shares of Series A
Preferred Stock to be converted, together with a written notice of election to
convert; and, upon receipt by the Company or its designee of such notice and of
such surrendered certificate or certificates with any appropriate endorsement
thereon, as may be prescribed by the Board of Directors, any such holder shall
be entitled to receive a certificate or certificates representing the shares of
Common Stock into which such share or shares of Series A Preferred Stock is
convertible, and any such holder shall be deemed to be a holder of record of
said share of Common Stock as of the time of said receipt by the Company or its
designee. Each share of Series A Preferred Stock shall be convertible into one
(1) share of the Company's Common Stock subject to adjustment in accordance with
Sections 4(c), (d) and (e) below.
(b) In connection with effecting any transfer to the Company for
cancellation of any Series A Preferred Stock upon conversion of the same into
shares of Common Stock, the Company may, but shall not be obliged to, issue a
certificate or certificates for fractions of a share of Common Stock. Any Series
A Preferred Stock which have been converted shall be canceled and shall be
restored to the status of authorized but unissued preferred shares.
(c) Whenever the Company shall (i) pay a dividend in shares of Common Stock
to holders of Common Stock or a dividend to holders of Common Stock payable in
shares of the Company's capital stock other than shares of Common Stock, (ii)
subdivide or combine outstanding shares of Common Stock, (iii) issue to all
holders of shares of Common Stock, rights, warrants or options entitling them
for a period of not more than forty-five (45) days to purchase shares of Common
Stock (or securities convertible into shares of Common Stock) at a price per
share (or having a conversion price per share) less than the then current per
share market price for such shares of Common Stock, (iv) distribute to all
holders of shares of Common Stock evidences of indebtedness or assets
3
<PAGE>
(excluding cash dividends) or rights or warrants (other than those referred to
above) or, (v) take or permit to be taken any other action which will result in
the dilution of the conversion rights and privileges of the Series A Preferred
Stock, then the Board of Directors of the Company shall forthwith cause to be
made any such adjustment on the basis of conversion as it shall determine to be
necessary to preserve to said holders of the Series A Preferred Stock those
rights and privileges which are substantially proportionate to the rights and
privileges of the Series A Preferred Stock existing prior to said event or
events, and an appropriate adjustment shall be made with respect to the
conversion rate of the Series A Preferred Stock such that the percentage
interests of shares of Common Stock of the Company that a holder of Series A
Preferred Stock would own upon the conversion of Series A Preferred Stock
subsequent to the occurrence of any of the events set forth in (i) - (v)
preceding shall be identical as if any such event shall not have occurred. No
adjustment of the conversion rate will be required until cumulative adjustments
would require any increase or decrease of at least 1% in the number of shares of
Common Stock into which each share of Series A Preferred Stock is then
convertible. No adjustment of the conversion rate will be made for cash
distributions or cash dividends.
(d) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the surviving
corporation, in case of any statutory exchange of securities with another
corporation, or in case of any sale or conveyance to another corporation of all
or substantially all of the assets of the Company, there will be no adjustment
of the conversion rate of the Series A Preferred Stock but each holder of a
share of Series A Preferred Stock then outstanding will have the right
thereafter to convert such share of Series A Preferred Stock solely into the
kind and amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance by a holder of the
number of shares of Common Stock into which each such share of Series A
Preferred Stock might have been converted immediately prior to such
consolidation, merger, statutory exchange, sale or conveyance, assuming such
holder of shares of Common Stock failed to exercise his rights of election, if
any, as to the kind or amount of securities, cash or other property receivable
upon such consolidation, merger, statutory exchange, sale or conveyance
(provided, that if the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be the kind and amount
so receivable per share by plurity of the non-electing share).
(e) In the case of a cash merger of the Company into another corporation or
any other cash transaction of the type mentioned above, the effect of these
provisions would be that the conversion features of the Series A Preferred Stock
would thereafter be limited to converting the Series A Preferred Stock at the
conversion rate in effect at such time into the same amount of cash per share
that
4
<PAGE>
such holder would have received had such holder converted the Series A Preferred
Stock into Common Stock immediately prior to the effective date of such cash
merger or transaction. Depending upon the terms of such cash merger or
transaction, the aggregate amount of cash so received on conversion could be
more or less than the liquidation preference of the Series A Preferred Stock.
The Company has the option, exercisable at any time, to increase the conversion
rate, so long as such increase is for a minimum period of twenty (20) days and
is irrevocable during such period and the Company notifies holders of Series A
Preferred Stock at least fifteen (15) days prior to the date on which the
reduced conversion price takes effect.
5. Rank of Series A Preferred Stock
The Series A Preferred Stock shall rank senior to all Junior Securities.
SIXTH: The shares of Series B Non-Convertible Preferred Stock (the "Series
B Preferred Stock") shall have the powers, preferences and rights as set forth
below:
1. Dividends
Each issued and outstanding share of Series B Preferred Stock of the
Company shall entitle the holder of record to dividends when and as declared by
the Board of Directors.
2. 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.
3. 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 B Preferred Stock shall entitle the holder of record thereof to
payment at the rate of $.001 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 shares of Common Stock. After setting apart or paying in full the
preferential amounts aforesaid to the holders of record of the issued and
outstanding Series A Preferred Stock, the remaining net assets (whether stated
capital or surplus), if any, shall be distributed to the holders of record of
the issued and outstanding Series B
5
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Preferred Stock. If the net assets of the Company shall be insufficient to pay
in full the preferential amounts among the holders of the Series B Preferred
Stock, the holders of Series B Preferred Stock shall be entitled to a ratable
proportion of said net assets, and the holders of the Common Stock shall in no
event be entitled to participate in the distribution of said net assets in
respect to their shares. Without excluding any other proceeding which does not
in fact effect a liquidation, dissolution, or winding up of the Company, a
merger or consideration of the Company into or with any other corporation, a
merger of any other corporation into the Company, participation by the Company
in a plan for share exchanges with any other corporation, or a sale, lease,
mortgage, pledge, exchange, transfer or other disposition by the Company of all
or substantially all of its assets shall not be deemed, for the purposes of this
paragraph, to be a liquidation, dissolution, or winding up of the Company,
provided that in each case, effective provision is made by the resulting and
surviving corporation or otherwise for the protection of the rights of the
holders of the Series B Preferred Stock.
4. Conversion
(a) Shares of the Series B Preferred Stock of the Company shall not be
convertible into shares of Common Stock.
5. Rank of Series B Preferred Stock
The Series B Preferred Stock shall rank junior to the Series A Preferred
Stock and senior to all shares of Common Stock.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Company and its creditors or any class of them and/or between the Company and
its stockholders or any class of the, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the Company or
of any creditor or stockholder thereof or on the application of any receiver or
receivers appointed for the Company under the provisions of Section 291 of Title
8 of the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Company under the provisions of
Section 297 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Company, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Company, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Company as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of
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<PAGE>
creditors, and/or on all the stockholders or class of stockholders, of the
Company, as the case may be, and also on the Company.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors an of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the Company shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-Laws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of directors
need be by written ballot.
2. After the original or other By-Laws of the Company have been
adopted, amended or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the Company has received any payment of any of its
stock, the power to adopt, amend, or repeal the By-Laws of the Company may
be exercised by the Board of Directors of the Company; provided, however,
that any provision for the classification of directors of the Company for
staggered terms pursuant to the provisions of subsection (d) of Section 141
of the General Corporation Law of the State of Delaware shall be set forth
in an initial By-Law or in a By-Law adopted by the stockholders entitled to
vote of the Company unless provisions for such classification shall be set
forth in this certificate of incorporation.
3. Whenever the Company shall be authorized to issue only one class of
stock, each outstanding share shall entitle the holder thereof to notice
of, and the right to vote at, any meeting of stockholders. Whenever the
corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under
the provisions of the certificate of incorporation shall entitle the holder
thereof to the right to vote at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of section 242 of the General
Corporation Law of the State of Delaware shall otherwise require; provided,
that no share of any such class which is otherwise denied voting power
shall entitle the holder thereof to
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<PAGE>
vote upon the increase or decrease in the number of authorized shares of
said class.
NINTH: The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The Company shall, to the fullest extent permitted by the provisions
of Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on March 1, 1996.
_______________________________
Alan Forman, Incorporator
8
<PAGE>
BYLAWS
OF
(a Delaware corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing
stock in the corporation shall be signed by, or in the name of, the corporation
by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than
one class of stock or more than one series of any class of stock, and whenever
the corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Board of Directors may
require the owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by
the General Corporation Law, the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any
<PAGE>
uncertificated shares, the corporation shall send to the registered owner
thereof any written notice prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not
be required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in
any of the assets of the corporation in the event of liquidation. The Board
of Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting. In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a
<PAGE>
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors,
the record date for determining the stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by the General Corporation Law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by the General Corporation
Law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action. In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "share of stock" or
"shares of stock" or "stockholder" or "stockholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the corporation is authorized to issue only one class of
shares of stock, and said reference is also intended to include any outstanding
share or shares of stock and any holder or holders of record of outstanding
shares of stock of any class upon which or upon whom the certificate of
incorporation confers such rights where there are two or more classes or series
of shares of stock or upon which or upon whom the General Corporation Law
confers such rights notwithstanding that the certificate of incorporation may
provide for more than one class or series of shares of stock, one or more of
which are limited or denied such rights thereunder; provided, however, that no
such right shall vest in the event of an increase or a decrease in the
authorized number of shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the certificate of Incorporation,
except as any provision of law may otherwise require.
<PAGE>
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the
time fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the directors may, from
time to time, fix. Whenever the directors shall fail to fix such place, the
meeting shall be held at the registered office of the corporation in the State
of Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall
be given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
<PAGE>
- STOCKHOLDER LIST. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before
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entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them. Except as otherwise required by
subsection (e) of Section 231 of the General Corporation Law, the provisions of
that Section shall not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to
one vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The
<PAGE>
Board of Directors shall have the authority to fix the compensation of the
members thereof. The use of the phrase "whole board" herein refers to the total
number of directors which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The initial Board of Directors shall consist of persons. Thereafter
the number of directors constituting the whole board shall be at least one.
Subject to the foregoing limitation and except for the first Board of Directors,
such number may be fixed from time to time by action of the stockholders or of
the directors, or, if the number is not fixed, the number shall be . The
number of directors may be increased or decreased by action of the stockholders
or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
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4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without
the State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
Board. A majority of the directors present, whether or not a quorum is present,
may adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any
committee designated by the Board, may participate in a meeting of the Board, or
any such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
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- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and
if present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the President,
if present and acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by
the General Corporation Law, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
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Unless otherwise provided in the resolution choosing him, each
officer shall be chosen for a term which shall continue until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
his successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and
perform such duties in the management and operation of the corporation as shall
be prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office except
to the extent that such resolutions may be inconsistent therewith. The Secretary
or an Assistant Secretary of the corporation shall record all of the proceedings
of all meetings and actions in writing of stockholders, directors, and
committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to him. Any officer may
be removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of
Directors shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
<PAGE>
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and
the provisions of the General Corporation Law, the power to amend, alter, or
repeal these Bylaws and to adopt new Bylaws may be exercised by the Board of
Directors or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct
copy of the Bylaws of , a Delaware corporation, as in
effect on the date hereof.
Dated:
__________________________________
Secretary of
(SEAL)
<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 (the "Act"), 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).
Warrant No. 1
UNIT PURCHASE WARRANT
To Subscribe for and Purchase Units of
DECOR GROUP, INC.
(Transferability Restricted as Provided in Paragraph 2 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 Units (the "Underwriter's Warrant")
consisting of two fully paid and non-assessable shares of Common Stock of the
Company and one Class A Common Stock Purchase Warrant (the "Underwriter's Class
A Warrants") of the Company, as hereinafter defined, at the "Unit Warrant 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 Underwriter's Warrants identical in all respects
except as to the names of the holders thereof and the number of Units
purchasable thereunder, representing on the original issue thereof rights to
purchase up to 25,000 Units.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to the
Company's common stock as more fully set forth in Section 5 hereof.
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<PAGE>
(b) The "Warrant Agreement" shall refer to the Warrant Agreement dated
as of ___________, 1996 between American Stock Transfer & Trust Co. and the
Company.
(c) Class A Warrants shall refer to the Warrant(s) included in the
Units offered to the public by the Company through VTR CAPITAL INC., pursuant to
a Registration Statement declared effective by the Securities and Exchange
Commission ("SEC") on __________, 1996 and issued or to be issued subject to
terms and conditions of the Warrant Agreement.
(d) "Underwriter's Class A Warrants" shall refer to the Class A
Warrants issuable upon exercise of this Warrant to the holder thereof and shall
be identical in all respects to the Class A Warrants issued in the public
offering.
(e) "Units" shall consist of two shares of Common Stock and one Class
A Warrant. The Common Stock included in the Units and issuable upon the exercise
of the Class A Warrant are subject to adjustment pursuant to Section 4 hereof
and the Warrant Agreement.
(f) "Effective Date" shall mean the date that the Securities and
Exchange Commission declares effective form SB-2, File No. 333-__________.
(g) "Unit Warrant Price" shall be $12.00 which is subject to
adjustment pursuant to Section 4 hereof.
(h) "Underwriter" shall refer to VTR CAPITAL INC.
(i) "Underwriting Agreement" shall refer to the Underwriting Agreement
dated ___________, 1996 between the Company, Gordon Brothers Capital
Corporations and the Underwriter.
(j) "Underwriter's Warrants" shall refer to Warrants to purchase an
aggregate of up to 25,000 Units issued to the Underwriter or its designees by
the Company pursuant to the Underwriting Agreement (including the Warrants
represented by this Certificate), as such may be adjusted from time to time
pursuant to the terms of Section 4 hereof (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
<PAGE>
destroyed Warrant certificate, if any, or to reflect an adjusted number of
Units).
(k) "Underlying Securities" shall refer to and include the Common
Shares and Underwriter's Class A Warrants issuable or issued upon exercise of
the Underwriter's Warrants as well as any Common Shares issued upon the exercise
of the Underwriter's Class A Warrants.
(l) "Holders" shall mean the registered holder of the Underwriter's
Warrants or any issued Underlying Securities.
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 and expiring on ___________, 2001
(the "Expiration Date"), by the surrender 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 Unit Warrant Price for such
Units. 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 Units 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 Underwriter's Warrant
evidencing the rights of the Holder hereof to purchase the balance of the Units
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.
In the event that the Underwriter's Class A Warrants have expired, this
Warrant will entitle the holder to purchase only the shares of Common Stock
included in the Units, subject to adjustment as provided for herein.
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 Underwriter's Warrants of
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<PAGE>
different denominations entitling the Holder thereof to purchase in the
aggregate the same number of Units as are purchasable hereunder; and (ii) this
Warrant may be divided or combined with other Underwriter's Warrants which carry
the same rights, in either case, upon presentation hereof at the aforesaid
office of the Company together with a written notice, signed by the Holder
hereof, specifying the names and denominations in which new Underwriter's
Warrants are to be issued, and the payment of any transfer tax due in connection
therewith.
4. Subject and pursuant to the provisions of the Warrant Agreement, the
Unit Warrant Price, the exercise price per share of the Underwriter's Class A
Warrants and number of shares of Common Stock included in and issuable in
connection with the Units and the exercise of the Underwriter's Class A Warrants
subject to this Warrant shall be subject to adjustment from time to time as set
forth in the Warrant Agreement.
5. For the purposes of this Warrant, the terms "Common Shares" or "Common
Stock" shall mean (i) the class of stock designated as the common stock 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 this
Warrant may be exercised, the Company shall, at all times,
4
<PAGE>
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 the exercise
of the Underwriter's Class A Warrants and at its expense will obtain the listing
thereof on all national securities exchanges on which the Class A Warrants 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 and the exercise of the
Underwriter's Class A Warrants included therein, 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 or upon the exercise of the Underwriter's Class A
Warrants will, upon issuance and payment be validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof (except as may be concurrently discharged by the Company or the
Holder); and,
(c) All original issue taxes payable in respect of the issuance of
Common Shares upon the exercise of the rights represented by this Warrant or the
Underwriter's Class A Warrants 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 Underwriter's 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 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 laws of the Company's state of
incorporation.
8. This Warrant shall not be sold, transferred, assigned or hypothecated
for a period of twelve (12) months from the effective date of the Company's
public offering with respect to which this Warrant has been issued, except to
officers of the Underwriter, and/or the other underwriters and/or selected
dealers who participated in such offering, or the officers or partners of such
5
<PAGE>
underwriters and/or selected dealers. In no event shall this Warrant 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. Section 15 of
the Underwriting Agreement provides for the following rights:
"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
6
<PAGE>
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
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
7
<PAGE>
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."
10. Whenever, pursuant to Section 9 hereof, a registration statement
relating to the Underwriter's Warrant or Underlying Securities is filed under
the Act, 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 arising out of or based upon any untrue
statement of a material fact, or omission to state a material fact required to
be stated, in any such registration statement or prospectus, 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, in the same manner as set forth herein.
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 shares 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 Underwriter's Warrants of like tenor, representing, in the
aggregate, the right to subscribe for and purchase the number of Units or Common
Shares as the case may be that may be subscribed for and purchased hereunder,
each of such
8
<PAGE>
new Underwriter's Warrants to represent the right to subscribe for and purchase
such number of Units or Common Shares as the case may be 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 Underwriter's Warrant of like tenor,
in lieu of this Warrant, representing the right to subscribe for and purchase
the number of Units or Common Shares as the case may be that may be subscribed
for and purchased hereunder. Nothing herein is intended to authorize the
transfer of this Warrant except as permitted under Section 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, Mt. 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, addressed to the holder at the address of the holder shown on the books
of the Company.
15. The Company will not merge or consolidate with or into any other
corporation, or sell or otherwise transfer its property assets and business
substantially as an entirety to another corporation, unless the corporation
resulting from such merger or consolidation (if not the Company), or such
transferee corporation, as the case may be, shall expressly assume, by
supplemental agreement satisfactory in form to the Underwriter, the due and
punctual performance and observance of each and every covenant and condition of
this Warrant to be performed and observed by the Company.
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<PAGE>
16. The validity, construction and enforcement of this Warrant shall be
governed by the laws of the State of New York without giving effect to the
conflict of laws provisions thereof 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
_____________, 1996.
DECOR GROUP, INC.
By:__________________________
Attest:
____________________________________
(Corporate Seal)
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<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase ________________ Common
Shares and _____________ Underwriter's Class A Warrants 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 and warrants 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 and warrants shall not be all the shares and
warrants 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:__________________________
__________________________
11
<PAGE>
Social Security No. ______________
or other identifying number
__________________________________
Signature
12
<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:
______________________________
13
<PAGE>
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
ARTISAN ACQUISITION CO.,
DECOR GROUP, INC.,
ARTISAN HOUSE, INC.
and
HENRY GOLDMAN
Dated as of March 25, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS, PURCHASE OF THE ASSETS,ASSUMPTION OF ASSUMED
LIABILITIES, PURCHASE PRICE..............................................1
1.1. Certain Definitions................................................1
1.2 Purchase of the Assets.............................................7
1.3 Assumption by the Purchaser of Certain Liabilities.................7
1.4 Non-Assumed Liabilities............................................7
1.5 Purchase Price for the Assets......................................7
1.6 Purchase Price Adjustment..........................................9
1.7 Employment Agreement..............................................10
1.8 Allocation of Purchase Price......................................10
1.9 Limitations on Assignment; Further Assurance......................10
1.10 Lease Agreement...................................................10
ARTICLE II
CLOSING.................................................................11
2.1 The Closing.......................................................11
2.2 Additional Actions to be Taken on the Closing Date................12
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE SHAREHOLDER.......................................13
3. Representations and Warranties of the Seller and the
Shareholder.......................................................14
3.1 Organization and Qualification....................................14
3.2 Subsidiaries and Affiliates.......................................14
3.3 Validity and Execution of Agreement...............................14
3.4 No Conflict.......................................................14
3.5 Litigation........................................................15
3.6 The Assets........................................................15
3.7 Intangible Property...............................................15
3.8 Inventory.........................................................16
3.9 Accounts Receivable...............................................16
3.10 Financial Statements..............................................16
3.11 Undisclosed Liabilities...........................................17
3.12 No Material Adverse Change........................................17
3.13 Tax Matters.......................................................17
<PAGE>
3.14 Contracts and Other Agreements....................................18
3.15 Real Estate.......................................................18
3.16 Transactions with Affiliates......................................18
3.17 ERISA.............................................................19
3.18 Employees.........................................................21
3.19 Environmental Matters.............................................21
3.20 Insurance.........................................................21
3.21 Licenses and Permits..............................................22
3.22 Compliance with Laws..............................................22
3.23 Products..........................................................22
3.24 Disclosure........................................................23
3.25 Survival..........................................................23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................23
4.1 Organization and Qualification....................................23
4.2 Validity and Execution of Agreement...............................24
4.3 No Conflict.......................................................24
4.4 Survival..........................................................24
4.5 Disclosure........................................................24
ARTICLE V
RESTRICTIONS ON TRANSFER................................................24
5.1 Legended Certificates.............................................24
ARTICLE VI
COVENANTS PENDING THE CLOSING...........................................25
6. Covenants of Seller and the Shareholder
Pending the Closing...............................................25
6.1 The Seller's Operation of the Business Prior
to Closing........................................................25
6.2 Access to Premises and Information................................26
6.3 Employee Matters..................................................26
6.4 Change of Name....................................................26
6.5 Conditions and Best Efforts.......................................26
ARTICLE VII
CONDITIONS PRECEDENT TO THE CLOSING.....................................27
<PAGE>
7. Conditions Precedent to Purchaser's Obligations...................27
7.1 Representations, Warranties, and Covenants of Seller and
Shareholder.......................................................27
7.2 Licenses and Permits..............................................27
7.3 Consents..........................................................27
7.4 Condition of the Business.........................................27
7.5 Opinions of Counsel...............................................27
7.6 No Suits or Actions...............................................28
7.7 Due Diligence Investigation.......................................28
7.8 Maintenance of Financial Ratios...................................29
7.9 Delivery of Schedule 1.8 to the Seller and
the Shareholder...................................................29
7.10 Delivery of Schedules 3.19 and 3.21 to the Purchaser..............30
ARTICLE VIII
INDEMNIFICATION.........................................................30
8.1 Indemnification...................................................30
8.2 Method of Asserting Claims........................................30
ARTICLE IX
POST-CLOSING COVENANTS OF THE PARTIES...................................33
9.1 Tax Matters.......................................................33
9.2 Non-Competition...................................................33
9.3 Confidentiality...................................................34
9.4 Confidentiality of Information....................................34
9.5 Non-Solicitation of Suppliers and Employees.......................34
9.6 Closing Date Balance Sheet........................................35
ARTICLE X
MISCELLANEOUS...........................................................36
10.1 Sales and Transfer Taxes..........................................36
10.2 Post-Closing Further Assurances...................................36
10.3 Notices...........................................................36
10.4 Publicity.........................................................39
10.5 Entire Agreement..................................................39
10.6 Waivers and Amendments............................................39
10.7 Governing Law.....................................................39
10.8 Binding Effect; No Assignment.....................................40
10.9 Variations in Pronouns............................................40
<PAGE>
10.10 Counterparts......................................................40
10.11 Exhibits and Schedules............................................40
10.12 Effect of Disclosure on Schedules.................................40
10.13 Limited Recourse..................................................40
10.14 Headings..........................................................41
10.15 Severability of Provisions........................................41
10.16 Brokers...........................................................41
10.17 Termination.......................................................41
<PAGE>
TABLE OF CONTENTS
(continued)
EXHIBIT A - FORM OF ASSIGNMENT & ASSUMPTION AGREEMENT
EXHIBIT B - FORM OF BILL OF SALE
EXHIBIT C - FORM OF PROMISSORY NOTE
EXHIBIT D - FORM OF SECURITY AGREEMENT
EXHIBIT E - FORM OF LEASE AGREEMENT
EXHIBIT F - FORM OF EMPLOYMENT AGREEMENT
EXHIBIT G - FORM OF GUARANTY
EXHIBIT H - FORM OF BALANCE SHEET FOR USE IN CALCULATION OF NET
ASSETS
SCHEDULES
1.1(a) EXCLUDED ASSETS
1.1(b) PERMITTED LIENS
1.2 ASSETS
1.3 ASSUMED LIABILITIES
1.8 ALLOCATION OF PURCHASE PRICE
3.1 JURISDICTIONS
3.2 SUBSIDIARIES
3.5 LITIGATION
3.7 INTANGIBLE PROPERTY
3.11 UNDISCLOSED LIABILITIES
3.14 TAX MATTERS
<PAGE>
TABLE OF CONTENTS
(continued)
3.14 MATERIAL AGREEMENTS
3.15 REAL PROPERTY
3.16 TRANSACTIONS WITH AFFILIATES
3.17 LIST OF PLANS
3.18 EMPLOYEES SALARIES
3.19 ENVIRONMENTAL VIOLATIONS
3.20 INSURANCE
3.21 LICENSES AND PERMITS
3.23 PRODUCTS
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of March 25, 1996 by and among Artisan
Acquisition Co., a Delaware corporation (the "Purchaser"), Decor Group, Inc., a
Delaware corporation ("Decor"), Artisan House, Inc., a California corporation
(the "Seller"), and Henry Goldman (the "Shareholder").
W I T N E S S E T H :
WHEREAS, the Seller is engaged in the business of manufacturing,
marketing, selling and distributing wall hanging sculptures(the "Business"); and
WHEREAS, the Shareholder is the owner of all the outstanding
capital stock of the Seller; and
WHEREAS, at the Closing (as hereinafter defined) the Seller will have good
and valid title to all of the assets comprising the Assets (as hereinafter
defined) which are related to the conduct of the Business; and
WHEREAS, the Seller wishes to sell, and the Purchaser wishes to purchase,
the Assets, subject to the assumption by the Purchaser of certain liabilities of
the Seller comprising the Assumed Liabilities (as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, the Seller and the Purchaser hereby agree as
follows:
ARTICLE I
DEFINITIONS, PURCHASE OF THE ASSETS,
ASSUMPTION OF ASSUMED LIABILITIES, PURCHASE PRICE
1.1. Certain Definitions. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:
"Additional Shares" has the meaning specified in Section 1.5(b).
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<PAGE>
"Adjustment Date" has the meaning specified in Section 1.5(b).
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person; provided,
however, that for purposes of Section 3.16, controlling or controlled shall be
deemed to occur if any person holds or has the right to vote ten (10%) percent
or more of the voting stock of such other Person.
"Assets" has the meaning specified in Section 1.2.
"Assigned Contracts and Leases" means the unexpired leases and executory
contracts (including without limitation, licenses and purchase orders) set forth
on Schedule 3.14, unless indicated otherwise therein.
"Assignment and Assumption Agreement" means an instrument substantially in
the form of Exhibit A attached hereto.
"Assumed Liabilities" has the meaning specified in Section 1.3.
"Bill of Sale" means an instrument substantially in the form of Exhibit B
attached hereto.
"Business" has the meaning specified in the Recitals.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks are authorized or required by law to close in New York
City.
"Claim Notice" has the meaning specified in Section 8.2(a).
"Closing" has the meaning specified in Section 2.1(a).
"Closing Date Balance Sheet" has the meaning specified in Section 1.6.
"Code" has the meaning specified in Section 3.13.
"Decor" has the meaning specified in the introductory paragraph of this
Agreement.
2
<PAGE>
"Due Diligence Period" has the meaning specified in Section 7.7.
"Employment Agreement" has the meaning specified in Section 1.7.
"Environmental Law" means any and all present federal, state, local and
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, grants, franchises, licenses or agreements relating to (a) the
protection of the environment, health or workers safety; (b) pollution or
environmental contamination; or (c) the use, processing, distribution,
generation, treatment, storage, recycling, transportation, disposal, handling,
Release or threatened or potential Release of any Material of Environmental
Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means those assets of the Seller set forth on Schedule
1.1(a).
"Extension Payment" has the meaning specified in Section 2.1(a).
"Fair Market Value" has the meaning specified in Section 1.5(b).
"Governmental or Regulatory Body" means any government or political
subdivision thereof, whether federal, state, county, local or foreign, or any
agency, authority or instrumentality of any such government or political
subdivision.
"Guaranty" has the meaning specified in Section 1.5(a).
"Indemnified Party" has the meaning specified in Section 8.2.
"Indemnifying Party" has the meaning specified in Section 8.2.
"Initial Payment" has the meaning specified in Section 1.5(a).
3
<PAGE>
"Intangible Property" has the meaning specified in Section 3.7.
"Interiors" means Interiors, Inc., a Delaware corporation, which is the
parent company of Decor.
"IRS" means the Internal Revenue Service.
"Lease Agreement" means the lease agreement among the Purchaser, Shirley
Goldman, and the Shareholder with respect to the Seller's premises located in
Los Angeles, California, a form of which is attached hereto as Exhibit E.
"Leases" has the meaning specified in Section 3.15.
"Liabilities" has the meaning specified in Section 3.11.
"Lien" means any lien, pledge, hypothecation, mortgage, security interest,
claim, lease, charge, option, right of first refusal, easement, servitude,
transfer restriction under any stockholder or similar agreement, encumbrance or
any other restriction or limitation whatsoever.
"Loss" and "Losses" have the meanings specified in Section 8.1(a).
"Material Adverse Effect" means any change or changes or effect or effects
that individually or in the aggregate are or may reasonably be expected to be
materially adverse to (a) the business or the assets, operations, income,
prospects or conditions (financial or otherwise) of the Seller or the
transactions contemplated by this Agreement or (b) the ability of any of the
Seller or the Shareholder to perform their respective obligations under this
Agreement.
"Material Agreements" has the meaning specified in Section 3.14.
"Material of Environmental Concern" shall have the same meaning as
"Hazardous Substances" as defined in the Lease Agreement.
4
<PAGE>
"Net Asset Amount" has the meaning specified in Section 1.6.
"Non-Assumed Liabilities" has the meaning specified in
Section 1.4.
"Note" has the meaning specified in Section 1.5(a).
"Permitted Liens" means (a) Liens for taxes not yet due and (b) the Liens
set forth on Schedule 1.1(b).
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock Company, trust, unincorporated organization,
Governmental or Regulatory Body or other entity.
"Plan" means any plan, fund, program, understanding, policy, arrangement,
contract or commitment, whether qualified or not qualified for federal income
tax purposes, whether formal or informal, whether for the benefit of a single
individual or more than one individual, which is in the nature of (a) an
employee pension benefit plan (as defined in ERISA ss. 3(2)), (b) an employee
welfare benefit plan (as defined in ERISA ss. 3(1)), or (c) an incentive,
deferred compensation, or other benefit arrangement for employees, former
employees, their dependents or their beneficiaries.
"Product" has the meaning specified in Section 3.23.
"Purchase Price" has the meaning specified in Section 1.5(a).
"Purchaser" has the meaning specified in the introductory paragraph of
this Agreement.
"Purchaser Adjustment Amount" has the meaning specified in Section 1.6.
"Purchaser Group" has the meaning specified in Section 8.1(a).
"Real Estate Documents" has the meaning specified in Section 3.15.
5
<PAGE>
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
"Retained Cash Adjustment Amount" has the meaning specified in Section
1.5.
"Seller" has the meaning specified in the introductory paragraph of this
Agreement.
"Seller Adjustment Amount" has the meaning specified in Section 1.6.
"Senior Management of the Seller" means any vice-president, director or
officer of the Seller.
"Shareholder" has the meaning specified in the introductory paragraph of
this Agreement.
"Shares" has the meaning specified in Section 1.5(a).
"Tax" or "Taxes" mean all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign Taxing Authority,
including, without limitation, gross income, gross receipts, income, capital,
excise, property (tangible and intangible), sales, transfer, value added,
employment, payroll and franchise taxes and such terms shall include any
interest, penalties or additions attributable to or imposed on or with respect
to such assessments.
"Tax Report" means any return, report, information return, or other
document (including any related or supporting information) filed or required to
be filed with any federal, state, or local governmental entity or other
authority in connection with the determination, assessment or collection of any
Tax (whether or not such Tax is imposed on any of the Seller) or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"to the knowledge of the Seller" means to the best knowledge of the
Shareholder and the Senior Management of the Seller.
"Unaudited Balance Sheet" means the balance sheet of the Seller prepared
in-house for the period ending October 31, 1995 and attached hereto as Exhibit
C.
6
<PAGE>
"Unaudited Financials" has the meaning specified in Section 3.10(a).
1.2 Purchase of the Assets. Subject to the terms and conditions set forth
in this Agreement, the Seller agrees that, on the Closing Date, it shall sell,
transfer, assign, convey and deliver to the Purchaser, and Purchaser agrees
that, on the Closing Date, Purchaser shall purchase, acquire and accept from the
Seller, all of the assets owned, used or held by the Seller to conduct the
Business and as set forth on Schedule 1.2, other than the Excluded Assets (said
assets, together with all goodwill in connection with the Business, are
hereinafter collectively referred to as the "Assets"), free and clear of all
Liens other than Permitted Liens.
1.3 Assumption by the Purchaser of Certain Liabilities. Subject to the
terms and conditions set forth in this Agreement, Purchaser agrees that, on the
Closing Date, Purchaser shall assume and thereafter pay, perform or discharge,
as the case may be, the obligations and liabilities of the Seller outstanding on
the Closing Date set forth on Schedule 1.3(the "Assumed Liabilities"). The
Purchaser shall assume those insurance policies listed in Schedule 3.14(4) which
are assumable and shall maintain such policies or shall obtain similar policies
in similar amounts for a period of one (1) year from and after the Closing Date.
1.4 Non-Assumed Liabilities. The Purchaser shall not assume nor be
responsible for any liabilities or obligations of the Seller, other than the
Assumed Liabilities (the "Non-Assumed Liabilities").
1.5 Purchase Price for the Assets. (a) The consideration for the Assets
shall be in the aggregate amount of $3,526,400 (excluding the assumption of the
Assumed Liabilities provided for herein), subject to reduction by the Retained
Cash Adjustment Amount (as defined below)and subject to adjustment as set forth
in Section 1.6 below, payable as follows: (i) $150,000 upon the execution of
this Agreement (the "Initial Payment"), (ii) $2,250,000 at the Closing,(iii) a
secured promissory note in the aggregate principal amount of $926,400 subject to
reduction by the Retained Cash Adjustment Amount (as defined below), a form of
which is attached hereto as Exhibit D (the "Note"),(x) $100,000 of which shall
be payable in full on the date falling ninety (90) days after the Closing Date,
for the avoidance of doubt, without
7
<PAGE>
any entitlement to, or payment of, interest with respect thereto, (y) $676,400
(subject to reduction by the Retained Cash Adjustment Amount (as defined
below))of which shall be payable in full over a period of five (5) years in
sixty (60) equal monthly installments of principal and interest at the rate of
8% per annum, with the first such installment due on the date falling one
hundred twenty (120) days after the Closing Date, and (z) $150,000 of which
shall be payable in full on the date on which the final installment is paid
pursuant to subclause (y) above, for the avoidance of doubt, without any
entitlement to, or payment of, interest with respect thereto and (iv) 100,000
shares of common stock, $.0001 par value per share, of Decor (the "Shares"),
subject to adjustment as set forth in Section 1.5(b) below (collectively, the
"Purchase Price"), which Shares shall bear a restrictive legend as required by
the Securities Act of 1933, as amended. The aggregate amount of the
consideration shall be reduced by the amount of cash shown in the Closing Date
Balance Sheet, which amount shall be retained by the Seller and shall be an
Excluded Asset hereunder (the "Retained Cash Adjustment Amount"). The Note shall
be secured by a second security interest in all of the Assets subordinate to a
first priority security interest in an amount which will not exceed fifty five
percent (55%) of the value of the Assets from time to time; provided that the
amount of such first priority security interest shall be subject to a minimum
amount equal to fifty five percent (55%) of the value of the Assets on the date
of Closing. The Seller and the Shareholder agree to subordinate such second
priority interest to Purchaser's first priority interest and shall execute all
necessary subordination documentation as required by the Purchaser and such
senior secured lender and/or lenders. Performance of the provisions of the Note
shall be guaranteed by Interiors as set forth in the form of guaranty attached
hereto as Exhibit G (the "Guaranty").
(b) If Decor effects a public offering of its shares of Common Stock and
on the second anniversary of the Closing (the "Adjustment Date") the Fair Market
Value(as hereinafter defined) of the Shares is less than $200,000, the Purchaser
shall, at its sole option, either (i) pay to the Seller an amount equal to the
difference between Fair Market Value and $200,000 or (ii) the number of Shares
issued to the Seller or the Shareholder pursuant to Section 1.5 (a)(iv) above
shall be adjusted as follows:
If the Fair Market Value of the Shares on the Adjustment Date is less than
$200,000, the Purchaser shall issue a number of
8
<PAGE>
additional shares of its Common Stock (the "Additional Shares")so that the
Additional Shares combined with the Shares shall have a Fair Market Value equal
to $200,000.
"Fair Market Value" shall mean the average closing price of the
Purchaser's shares of Common Stock for the five (5) trading days prior to the
Adjustment Date.
(c) If Decor has not effected a public offering of its shares of Common
Stock by the second anniversary of the Closing, then, at the Seller's option,
the Purchaser and/or Decor shall repurchase the Shares from the Seller or the
Shareholder, as applicable, for the sum of $200,000.
1.6 Purchase Price Adjustment. As soon as practicable, but in no event
later than thirty (30) days following the Closing, the Seller and the
Shareholder shall deliver (at their expense) to the Purchaser a balance sheet
dated as of the Closing Date prepared by an independent auditing firm reasonably
satisfactory to the Purchaser (the "Closing Date Balance Sheet"). The Closing
Date Balance Sheet shall accurately reflect the assets, liabilities and
stockholders equity of the Seller as of the Closing Date and shall be prepared
in accordance with generally accepted accounting principles, applied in a manner
consistent with Seller's prior practice. If the amount of the Company's net
assets (calculated by reference to the balance sheet items set forth in Exhibit
H attached hereto; provided that (a)the Initial Payment and any Extension
Payment(s) hereunder shall be excluded from such calculation, and (b) the
inventory shall be valued using the same formula used to value the inventory
shown in the Unaudited Financials) reflected on the Closing Date Balance
Sheet(the "Net Asset Amount") is (i) more than $835,000, then the aggregate
consideration set forth in Section 1.5 above shall be increased by an amount
equal to the difference between $835,000 and the Net Asset Amount (the
"Purchaser Adjustment Amount"), or (ii) less than $750,000, then the aggregate
consideration set forth in Section 1.5 above shall be decreased by an amount
equal to the difference between $750,000 and the Net Asset Amount, (the "Seller
Adjustment Amount"). The Purchaser Adjustment Amount, if any, shall be paid
within ninety (90) days following the Closing Date by the Purchaser to the
Seller. The Seller Adjustment Amount, if any, shall be deducted from the sums
due to be paid by the Purchaser to the Seller pursuant to the Note by first
reducing (i) the amounts due pursuant to Section 1.5(a)(ii)(x) hereof, (ii) then
9
<PAGE>
the amount due pursuant to Section 1.5(a)(ii)(y) hereof, and (iii) then the
amount due pursuant to Section 1.5(a)(ii)(z) hereof.
1.7 Employment Agreement. As additional consideration, at the Closing, the
Shareholder shall enter into a three (3) year employment agreement with the
Purchaser in substantially the form set forth in Exhibit F attached hereto (the
"Employment Agreement"). The Employment Agreement shall provide for the payment
to Shareholder of the aggregate amount of $50,000 per annum in exchange for
consulting services of 250 hours per year.
1.8 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in the manner set forth on Schedule 1.8, which allocation shall
be provided to the Seller and the Shareholder by the Purchaser no later than
April 1, 1996 and shall be agreed as set forth in Section 7.9 hereof. Except as
required by law, the parties hereby covenant and agree with each other that none
of them will take a position on any Tax Return, before any taxing authority
charged with the collection of any Tax, or in any judicial proceeding, that is
in any way inconsistent with the negotiated allocation.
1.9 Limitations on Assignment; Further Assurance. To the extent that the
assignment of any Assigned Contract and Lease to be assigned to the Purchaser,
as provided herein, shall require the consent of another party thereto, this
Agreement shall not constitute an agreement to assign the same if an attempted
assignment would constitute a breach thereof. To the extent required, each of
the Seller and the Shareholder agrees that it will use all reasonable efforts to
obtain the written consent of other parties to all Assigned Contracts and Leases
to the assignment thereof to the Purchaser. If any such consent is not obtained,
each of the Seller and the Shareholder shall use all reasonable efforts to
obtain the same and will cooperate with the Purchaser, as appropriate, in any
reasonable arrangement designed by the Purchaser to provide the Purchaser, as
appropriate, with the benefits hereunder and the Purchaser shall assume all
correlative obligations to effectuate such arrangement.
1.10 Lease Agreement. The Purchaser will enter into the Lease Agreement at
the Closing to lease the facilities presently occupied by the Seller, in the
form attached hereto as Exhibit E. The Lease Agreement shall carry a five (5)
year term with a five
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(5) year option to renew with an initial monthly rent of approximately $14,000.
ARTICLE II
CLOSING
2.1 The Closing. (a) Upon satisfaction of the conditions contained in
Article VII of this Agreement, the consummation of the transactions contemplated
by this Agreement (the "Closing") shall be held at 10:00 a.m. (New York City
time) on May 31, 1996 (such date and time being referred to herein as the
"Closing Date") at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue,
New York, NY 10022 or, at the agreement of the parties, at such other place as
the parties may agree or by facsimile transmission, with the original signature
pages to be held in escrow by the Seller's counsel, subject to written release
by the Purchaser of the Purchaser's signature pages. The Closing Date hereunder
shall, at the Purchaser's sole option, be rescheduled up to a maximum of three
times, each by a period of one (1) calendar month, so that the Closing Date
shall be no later than August 31, 1996; provided that, in the event of a
rescheduling of the Closing Date, the Purchaser shall pay the sum of $15,000 to
the Seller on the first day of the calendar month in which the Closing Date is
rescheduled to occur (each, an "Extension Payment"), each such sum of $15,000 to
be deducted from the Purchase Price set forth in Section 1.5(a)(iii)(z) above
and due hereunder.
(b) At the Closing, the Seller and/or the Shareholder shall execute and
deliver or cause to be executed and delivered to the Purchaser, all documents
and instruments necessary to transfer to the Purchaser, all of the right, title
and interest of the Seller in and to the Assets, including, without limitation:
(i) the Assignment and Assumption Agreement, signed by the Seller;
(ii) a Bill of Sale, signed by the Seller;
(iii) the Lease Agreement, signed by the Shareholder and Shirley
Goldman; and
(iv) a legal opinion of the Seller's and the Shareholder's counsel
as set forth in Section 2.2(d)
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hereof.
(c) At the Closing, the Purchaser shall:
(i) execute and deliver to the Seller the Assignment and Assumption
Agreement;
(ii) assume the Assumed Liabilities and pay the outstanding
principal amount and all accrued and unpaid interest due in respect of the
Seller's bank debt referred to in Schedule 1.1(b) hereto;
(iii) execute and deliver to the Shareholder and Shirley Goldman the
Lease Agreement; and
(iv) deliver to the Seller (x)the Note and (y) the Shares;
(v) deliver to the Seller in the form of a cashier's check or by
wire transfer the sum of $2,250,000 as set forth in Section 1.5(a)(ii)
hereof; and
(vi) cause the delivery to the Seller and the Shareholder of a legal
opinion of the Purchaser's counsel as set forth in Section 7.5 hereof.
(d) At the Closing, Interiors shall execute and deliver to the Seller the
Guaranty.
2.2 Additional Actions to be Taken on the Closing Date.
(a) Closing Certificate of Seller. The Seller and the Shareholder shall
have delivered to the Purchaser a certificate signed by the Seller and the Chief
Executive Officer and the Chief Financial Officer of the Seller, as requested by
the Purchaser, dated the Closing Date, stating (i) that no material adverse
change has occurred in the condition (financial or otherwise), results of
operations, business, performance or properties of the Seller since January 31,
1996, and (ii) all of the representations, warranties and covenants of each of
the Seller and the Shareholder contained in this Agreement are true, complete
and correct as of the Closing Date.
(b) Closing Certificate of Purchaser. The Purchaser shall
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have delivered to the Seller and the Shareholder a certificate signed by the
Chief Executive Officer and the Chief Financial Officer of each of the Purchaser
and Interiors, as requested by the Seller and the Shareholder, dated the Closing
Date, stating (i) that no material adverse change has occurred in the condition
(financial or otherwise), results of operations, business, performance or
properties of the Purchaser and Interiors, respectively, since January 31, 1996,
and (ii) with respect to the Purchaser's certificate only, all of the
representations, warranties and covenants of the Purchaser contained in this
Agreement are true, complete and correct as of the Closing Date.
(c) Liens. Each of the Seller and the Shareholder shall have satisfied and
discharged all Liens on the Assets, except for Permitted Liens and provided the
Purchaser with evidence of such satisfaction and discharge in form and substance
satisfactory to the Purchaser.
(d) Legal Opinions. The Purchaser shall have received the legal opinions
of legal counsel to the Shareholder and the Seller in form and substance
satisfactory to the Purchaser relating to the corporate standing and governance
of the Seller.
(e) Shareholder Consent. The Purchaser shall have received a consent to
the transactions contemplated by this agreement signed by all of the
shareholders of the Seller.
(f) Compliance with Bulk Sales Act. The Seller and Shareholder shall
provide Purchaser with evidence of compliance with applicable bulk
sales/transfer laws and regulations in form and substance satisfactory to
Purchaser.
(g) Lease Agreement. The Purchaser and the Shareholder and Shirley Goldman
shall execute the Lease Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE SHAREHOLDER
SECTION 3. Representations and Warranties of the Seller and the
Shareholder. The Seller and the Shareholder represent and warrant to the
Purchaser as follows:
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3.1 Organization and Qualification. The Seller is a corporation validly
existing and in good standing under the laws of the State of California, and has
all requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted and as proposed to be conducted. The
Seller is duly qualified to do business in each jurisdiction in which the nature
of its business or properties makes such qualification necessary, except where
the failure to do so would not have a Material Adverse Effect. The jurisdictions
in which the Seller is so qualified are set forth on Schedule 3.1.
3.2 Subsidiaries and Affiliates. Schedule 3.2 sets forth the name and
jurisdiction of organization of each subsidiary of the Seller.
3.3. Validity and Execution of Agreement. The Seller has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and any other
agreement or instrument contemplated hereby, and to perform fully its
obligations hereunder and thereunder. The stockholders and the board of
directors of the Seller have each approved the transactions contemplated
pursuant to this Agreement and each of the other agreements required to be
entered into pursuant hereto by the Seller. This Agreement and such other
agreements and instruments have been duly executed and delivered by the Seller
and each constitutes the valid and binding obligation of the Seller enforceable
against it in accordance with its terms.
3.4. No Conflict. Neither the execution and delivery of this Agreement nor
the performance by the Seller of the transactions contemplated hereby will: (a)
violate or conflict with any of the provisions of the Articles of Incorporation
or By-Laws or other organizational documents of the Seller; or (b) or result in
the acceleration of, or entitle any party to accelerate the maturity or the
cancellation of the performance of any obligation under, or result in the
creation or imposition of any Lien in or upon the Assets or constitute a default
(or an event which might, with the passage of time or the giving of notice, or
both, constitute a default) under any contract, any order, judgment, regulation
or ruling of any Governmental or Regulatory Body to which the Seller is a party
or by which any of its property or assets may be bound or affected or with any
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provision of any law, rule, regulation, order, judgment, or ruling of any
Governmental or Regulatory Body applicable to the Seller.
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
outstanding orders, judgments, injunctions, investigations, awards or decrees of
any court, Governmental or Regulatory Body or arbitration tribunal by which the
Seller, or any of its securities, assets, properties or business is bound.
Except as set forth on Schedule 3.5, there are no actions, suits, claims,
investigations, legal, administrative or arbitral proceedings pending or, to the
knowledge of the Seller, threatened (whether or not the defense thereof or
liabilities in respect thereof are covered by insurance) against or affecting
the Seller, or any of its assets or properties, that, individually or in the
aggregate, could, if determined adversely to the Seller have a Material Adverse
Effect, nor, to the knowledge of the Seller, are there any facts which are
likely to give rise to any such action, suit, claim, investigation or legal,
administrative or arbitral proceeding.
3.6 The Assets. The Seller owns outright and has good and marketable title
(except for leasehold interests specifically set forth on Schedule 3.15) to all
of the Seller's assets and properties (tangible and intangible), including,
without limitation, all of the assets and properties (except capitalized leases)
reflected on the Unaudited Financials, free and clear of any Lien, other than
Permitted Liens. The Assets sold pursuant hereto constitute all of the assets
necessary and appropriate for the conduct of the Business in substantially the
same manner as the Business has heretofore been conducted.
3.7 Intangible Property. Schedule 3.7 sets forth all patents, trademarks,
service marks, trade names, copyrights, logos and the like and franchises, all
applications for any of the foregoing, and all permits, grants and licenses or
other rights held or owned by running to or from the Seller relating to any of
the foregoing that are necessary in connection with the Business (collectively,
the "Intangible Property"), true and complete copies of which have been
delivered or made available to the Purchaser. To the knowledge of the Seller, no
patent, invention, trademark, service mark or trade name of any other Person
infringes upon, or is infringed upon by, any of the Intangible Property and the
Seller has not received any notice of any claim of infringement of any other
Person with respect to any
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of the Intangible Property or any process or confidential information of the
Seller, and the Seller does not know, after diligent investigation, of any basis
for any such charge or claim. Except for the Intangible Property, no other
intellectual property or intangible property rights are required for the Seller
to conduct the Business in the ordinary course consistent with past practice. To
the knowledge of the Seller, all of the permits, applications and licenses
relating to the Intangible Property have been validly issued and any fees,
relating to them have been fully paid by the Seller. The Seller has not received
any notice or inquiry indicating, or claiming, that the manufacture, sale or use
of any Product infringes upon the patent or other intellectual property rights
of any other Person. Except as separately identified on Schedule 3.7, no
approval or consent of any person is needed so that the interest of the Seller
in the Intangible Property shall continue to be in full force and effect and
enforceable by the Purchaser following the consummation of the transactions
contemplated hereby.
3.8 Inventory. The inventory of the Seller is or was, prior to the sale
thereof, in good and merchantable condition and suitable and usable or saleable
in the ordinary course of business, without mark-down or other discount (except
such mark-downs and discounts as are consistent with the Seller's prior
practices in the ordinary course of business), for the purposes for which
intended. The Seller is not aware of any material adverse condition affecting
the supply of inventory available to the Seller.
3.9 Accounts Receivable. All accounts and notes receivable reflected on
the Unaudited Balance Sheet, and all accounts and notes receivable arising
subsequent to October 31, 1995,(a) have arisen in the ordinary course of
business of the Seller, (b) represent valid obligations due to the Seller
enforceable in accordance with their terms and (c) except to the extent of the
reserves therefor reflected on the Unaudited Balance Sheet, are fully
collectible in the ordinary course of business in the aggregate recorded amounts
thereof in accordance with their terms.
3.10 Financial Statements. To the knowledge of the Seller, the unaudited
balance sheet of the Seller as of October 31, 1995, and the related statement of
income for the three (3) month period then ended, true and complete copies of
which have heretofore been delivered to the Purchaser, fairly present the
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financial position of the Seller as at such date and the results of operations
of the Seller for the three (3) month period then ended, in each case, in
accordance with GAAP consistently applied for the periods covered thereby
(subject to normal year end adjustments and the absence of footnotes) (the
"Unaudited Financials").
3.11 Undisclosed Liabilities. To the knowledge of the Seller, except as
disclosed on Schedule 3.11, the Seller does not have any, direct or indirect,
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise
collectively, the "Liabilities"), that is not fully and adequately reflected or
reserved against on the Unaudited Financials or covered in full by insurance. To
the knowledge of the Seller, except as disclosed on Schedule 3.11, the Seller
does not have any Liabilities, whether or not of a kind required by GAAP to be
set forth on a financial statement, other than (a) Liabilities incurred since
October 31, 1995 in the ordinary course of business (none of which is a
liability for a breach of contract, breach of warranty, tort or infringement
claim or lawsuit), none of which individually or in the aggregate, has had or
could reasonably be expected to have a Material Adverse Effect or (b)
Liabilities disclosed and reflected as liabilities on the Unaudited Financials.
3.12 No Material Adverse Change. Since October 31, 1995, there has been no
material adverse change in the Business, operations or condition (financial or
otherwise) of the Seller, or in the assets, liabilities, net worth or properties
of the Seller, and the Seller does not know of any such change that is
threatened, or has there been any damage, destruction or loss which could have a
Material Adverse Effect, whether or not covered by insurance.
3.13 Tax Matters. Except as disclosed in Schedule 3.13, (a) all Tax
Returns required to be filed with respect to the Seller have been duly filed and
were in all material respects true, complete and correct and filed on a timely
basis, (b) the Seller has paid all Taxes that are due, or claimed or asserted by
the IRS or any Taxing Authority to be due from the Seller for the periods
covered by such Tax Returns or Seller has duly and fully provided reserves
adequate to pay all Taxes in the Unaudited Financials, (c) the Seller has
complied in all material respects
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with all applicable laws relating to withholding of Taxes (including withholding
Taxes pursuant to Sections 1441 and 1442 of the Internal Revenue Service Code of
1986, as amended (the "Code") and similar provisions under any other applicable
laws) and the payment thereof over to the Taxing Authorities (d) the income Tax
Returns of the Seller have not been audited or examined by any the Taxing
Authority (including the IRS) for any period for which the applicable statute of
limitations period has not yet expired and no statute of limitations for any
such period has been extended.
3.14 Contracts and Other Agreements. Schedule 3.14 sets forth all written
agreements (and, to the knowledge of the Seller any oral agreement) and
arrangements to which either the Seller is a party or by or to which the Seller
or any of its assets or properties is bound or subject (collectively, the
"Material Agreements").
3.15 Real Estate. Schedule 3.15 sets forth a list and supplies
descriptions of (a) all real property owned by the Seller; (b) all leases,
subleases or other agreements (the "Leases") under which the Seller is lessor or
lessee of any real property; (c) all options held by the Seller or contractual
obligations on its respective part to purchase or acquire any interest in real
property (as set forth on Schedule 3.15) and (d) all options granted by the
Seller or contractual obligations on any such Persons' part to sell or dispose
of any interest in real property (as set forth on Schedule 3.15) (collectively,
the "Real Estate Documents"). All of the Real Estate Documents, true, correct
and complete copies of which have been delivered or made available to the
Purchaser, are in full force and effect and the Seller has not received any
notice of any default hereunder, nor does the Seller anticipate any such notice
of default. Except as separately identified on Schedule 3.15, no approval or
consent of any person is needed for the Real Estate Documents to continue to be
in full force and effect and such documents will not become unenforceable by the
Purchaser following the consummation of the transactions contemplated by this
Agreement.
3.16 Transactions with Affiliates. Except as set forth on Schedule 3.16,
no Affiliate of the Seller has: (a) borrowed money from or loaned money to the
Seller which remains outstanding; (b) any contractual or other claim, express or
implied, of any kind whatsoever against or by any Affiliate; (c) any interest in
any property or assets used by any Affiliate in
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their respective businesses; or (d) engaged in any other transaction with any
Affiliate (other than employment relationships).
3.17 ERISA. (a) Except as set forth on Schedule 3.17, the Seller does not
sponsor, or maintain, or have any obligation to contribute to, or have any
liability under, nor is Seller otherwise a Party to, any Plan. None of the Plans
is a "multiemployer" plan with the meaning of Section 3(37) of ERISA and none of
the Plans is subject to Title IV of ERISA. Neither the Seller nor any ERISA
Affiliate has ever participated in nor had an obligation to contribute to any
"multiemployer plan" or any plan subject to Title IV of ERISA.
(b) With respect to each Plan, Seller has delivered to Purchaser, or will
make available during the Due Diligence Period, to the extent applicable, a copy
of (i) the plan document as currently in effect (or a written description of any
Plan for which there in no plan document) and all relevant document related
thereto, including but not limited to all current trust agreements, insurance
contracts, investment management contracts and administrative service contracts,
(ii) the three most recent annual reports (Form 5500 Series) filed with the
Internal Revenue Service, together with all schedules, actuarial reports,
accountant's statement and trustee reports, (iii) all IRS determination letters
and pending IRS determination letters, (iv) the most recent summary of material
modifications and other employee materials describing such plan; (v) all
records, notices and filings concerning IRS or Department of Labor audits or
investigations, "prohibited transactions" within the meaning of Section 406 of
ERISA or Section 4975 of the Code and "reportable events" within the meaning of
Section 4043 of ERISA; (vi) a schedule of participants who are no longer active
employees (and the beneficiaries of such participants) listing the following:
name, date of birth, date of hire, social security number and termination date;
(vii) a particularized list of any claims for benefits with respect to which
there is an unresolved dispute together with copies of any written appeal
pertaining thereto; and (viii) a copy of all administrative forms utilized in
the operation of the Plan, together with copies of all participant elections and
beneficiary designations filed pursuant to the Plan.
(c) Each Plan has been maintained, operated and administered in compliance
with its terms and any related
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documents or agreement and in compliance with ERISA and the Code.
(d) Each Plan intended to qualify under Section 401(a) of the Code (as
designated on Schedule 3.17) is so qualified and each trust maintained in
connection with such Plan is tax-exempt under Section 501(a) of the Code.
(e) There are no pending or, to the knowledge of the Seller, threatened
claims (other than routine claims for benefits), assessments, complaints,
proceedings or investigations of any kind by any court or governmental agency
with respect to any Plan.
(f) No Plan provides benefits, including without limitation, death or
medical benefits (whether or not insured), beyond retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits or retirement benefits under any "employee
pension plan" as that term is defined in Section 3 (2) of ERISA, or (ii)
deferred compensation benefits accrued as liabilities on the Unaudited
Financials.
(g) Neither a "prohibited transaction" within the meaning of ERISA Section
406 or Code Section 4975 nor any breach of a duty imposed by Title I of ERISA
has occurred with respect to any Plan.
(h) With respect to each Plan that is a "group health plan" within the
meaning of ERISA Section 607(l) and that is subject to Code Section 4980B,
Seller and each ERISA Affiliate have complied in all material respects with the
continuation coverage requirements of the Code and ERISA.
(i) Except as noted on Schedule 3.17, all contributions to, and payments
from, any Plan that may have been required to be made in accordance with the
Plan, or the Code or ERISA, have been timely made.
(j) Neither Seller nor any ERISA Affiliate has incurred or is reasonably
likely to incur any liability with respect to any plan or arrangement that would
be included in the definition of Plan hereunder but for the fact that such plan
or arrangement was terminated before the date of this Agreement.
3.18 Employees. The Seller is not a party to, and there
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does not otherwise exist, any agreements with any labor organization, collective
bargaining or similar agreement with respect to employees of the Seller.
Schedule 3.18 sets forth: (a) the name and current annual salary, including any
bonus, if applicable, of all present officers and employees of the Seller whose
current annual salary, including any promised, expected or customary bonus,
equals or exceeds $50,000 and (b) the names and titles of all officers of the
Seller and of such trustee, fiduciary or plan administrator of each Plan of the
Seller. All health and health related employee benefits and other costs have
been paid or adequately reserved for on the Unaudited Financials. The Seller is
in compliance in all material respects with its obligations under all Federal,
state, and local statutes and ordinances, executive orders, regulations and
common law governing its employment practices with respect to the Seller. To the
knowledge of the Seller, there are no attempts being made to organize any
employees presently employed by the Seller.
3.19 Environmental Matters. The Seller is not in violation of, or
delinquent in respect to, any Environmental Law which violation or delinquency
would have a Material Adverse Effect and the Seller has obtained all permits,
licenses and other authorizations required under the Environmental Laws.
Schedule 3.19, which shall be provided to the Purchaser by the Seller and the
Shareholder no later than four (4) Business Days following the date of execution
of this Agreement, lists all violations of, or delinquencies with respect to,
any Environmental Law (i) within the twenty four (24) month period prior hereto
and (ii) with respect to any such violation which remains uncorrected, within
the period of ownership by the Shareholder of any shares of capital stock of the
Seller. Schedule 3.21, which shall be provided to the Purchaser by the Seller
and the Shareholder no later than four (4) Business Days following the date of
execution of this Agreement, includes a list of all such permits, licenses and
other authorizations.
3.20 Insurance. Schedule 3.20 sets forth a list and brief description
(specifying the insurer, the policy number or covering note number with respect
to binders and the amount of any deductible, describing the pending claims if
such claims exceed applicable policy limits, setting forth the aggregate amount
paid out under each such policy through the date hereof and the aggregate limit,
if any, of the insurer's liability thereunder) of all policies or binders of
fire, liability, product liability, workmen's compensation, vehicular,
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unemployment and other insurance held by or on behalf of the Seller. Such
policies and binders are valid and enforceable in accordance with their terms in
all material risks and liabilities to the extent and in respect of amount, types
and risks insured, as are customary in the industries in which the Seller
operates. The Seller is not in default with respect to any material provision
contained in any such policy or binder and has not failed to give any notice or
present any claim under any such policy or binder in due and timely fashion.
Except for claims disclosed on Schedule 3.20, there are no outstanding unpaid
claims under any such policy or binder which have gone unpaid for more than
forty-five (45) days or as to which the carrier has disclaimed liability.
3.21 Licenses and Permits. Schedule 3.21 , which shall be provided to the
Purchaser by the Seller and the Shareholder no later than four (4) Business Days
following the date of execution of this Agreement, sets forth a list of the
governmental permits, licenses, registrations and other governmental consents
(federal, state and local) which the Seller has obtained and which are necessary
in connection with its operations and properties, and no others are required.
All such permits, licenses, registrations and consents are in full force and
effect and in good standing, and except as separately identified on Schedule
3.21, shall continue to be in full force and effect and in good standing
following the consummation of the transactions contemplated by this Agreement.
The Seller has not received any notice of any claim of revocation and to the
knowledge of the Seller there is no event which might give rise to such a claim.
3.22 Compliance with Laws. Except as set forth on Schedule 3.19, the
Seller has complied in all respects with all applicable federal, state and local
laws, regulations and ordinances or any requirement of any Governmental or
Regulatory Body, court or arbitrator affecting the Business or the Assets the
failure to comply with which could have a Material Adverse Effect on the
Business or the Assets. Neither the Seller nor any of its representatives,
agents, employees or Affiliates has made or agreed to make any payment to any
Person which would be unlawful.
3.23 Products. Except as disclosed on Schedule 3.23, there are no
statements, citations or decisions by any Governmental or Regulatory Body that
any product manufactured, marketed or distributed at any time by the Seller
("Product") is defective or fails to meet in any material respect any standards
promulgated
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by any such Governmental or Regulatory Body. There have been no recalls ordered
by any such Governmental or Regulatory Body with respect to any Product. There
is no (a) fact relating to any Product that may impose upon the Seller (or the
Purchaser upon consummation of the transactions contemplated hereby) a duty to
recall any Product or a duty to warn customers of a defect in any Product, other
than defects about which the Seller has issued appropriate and adequate warnings
or (b) latent or overt design, manufacturing or other defect in any Product.
3.24 Disclosure. Neither this Agreement, nor any Schedule or Exhibit to
this Agreement contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. All statements, documents, certificates or other items prepared or
supplied by the Seller or the Shareholder with respect to the transactions
contemplated hereby are true, correct and complete and contain no untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein not misleading.
3.25 Survival. All of the representations and warranties of the Seller and
the Shareholder contained herein shall survive the Closing Date until the date
upon which the liability to which any claim relating to any such representation
or warranty is barred by all applicable statutes of limitations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Organization and Qualification. The Purchaser is a corporation validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to (a) own, lease and operate its properties
and assets as they are now owned, leased and operated and (b) carry on its
business as now presently conducted and is duly qualified to do business in each
jurisdiction in which the nature of its business of properties makes such
qualification necessary.
4.2 Validity and Execution of Agreement. The Purchaser has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and any other
agreement or instrument
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contemplated hereby, and to perform fully its obligations hereunder and
thereunder. The Board of Directors of the Purchaser has approved the
transactions contemplated by this Agreement and each of the other agreements
required to be entered into pursuant hereto by the Purchaser. This Agreement and
such other agreements and instruments have been duly executed and delivered by
the Purchaser and each constitutes the valid and binding obligation of the
Purchaser enforceable against it in accordance with its terms.
4.3 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by the Purchaser of the transactions contemplated herein will
(a) violate or conflict with any of the provisions of its Certificate of
Incorporation or By-Laws or other organizational documents; and (b) violate or
conflict with any provision of any law, rule, regulation, order, judgment,
decree or ruling of any court or federal, state or local Governmental or
Regulatory Body applicable to the Purchaser.
4.4 Survival. All of the representations and warranties of the Purchaser
contained herein shall survive the Closing Date until the date upon which the
liability to which any claim relating to any such representation or warranty is
barred by all applicable statutes of limitations.
4.5 Disclosure. Article IV of this Agreement does not contain an untrue
statement of a material fact or omit a material fact necessary to make the
statements contained herein not misleading. All statements, documents,
certificates or other items prepared or supplied by the Purchaser with respect
to the transaction contemplated hereby are true, correct and complete and
contain no untrue statement of a material fact or omit a material fact necessary
to make the statement contained therein not misleading.
ARTICLE V
RESTRICTIONS ON TRANSFER
5.1 Legended Certificates. Seller and Shareholder understand and recognize
that they must bear the economic risk of an investment in the Shares being
acquired pursuant hereto for an indefinite period of time since such securities
have not been registered under the Securities Act of 1933, as amended (the
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"Securities Act") and, therefore, cannot be sold unless they are either
subsequently registered under the Securities Act or an exemption from such
registration is available and favorable opinions of counsel in form and
substance satisfactory to Purchaser to that effect are obtained. Seller and
Shareholder are acquiring the Shares for investment purposes and not with a view
towards distribution and acknowledges that the certificates representing the
Shares shall bear the following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT FOR DISTRIBUTION OR RESALE. THEY MAY NOT BE MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION
OF COUNSEL FOR THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT.
ARTICLE VI
COVENANTS PENDING THE CLOSING
Section 6. Covenants of Seller and the Shareholder Pending the Closing.
Each of Seller and the Shareholder hereby agree and covenant to Purchaser that
prior to the Closing Date:
6.1 The Seller's Operation of the Business Prior to Closing. Each of the
Seller and the Shareholder agree that between the date of this Agreement and the
Closing Date, the Seller will:
(a) continue to operate the Business in the usual and ordinary course and
in substantial conformity with all applicable laws, ordinances, regulations,
rules, or orders, and will use its best efforts to preserve the Business and
preserve the continued operation of the Business with its customers, suppliers,
and others having business relations with Seller;
(b) not assign, sell, lease, or otherwise transfer or dispose of any of
the Assets, whether now owned or hereafter acquired, except in the normal and
ordinary course of business and in connection with its normal operation;
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(c) maintain all of the Assets other than inventories in their present
condition, reasonable wear and tear and ordinary usage excepted, and maintain
the inventories at levels normally maintained; and
(d) not (i) incur any liabilities (contingent or otherwise) outside of the
ordinary course of business, (ii) sell pledge or hypothecate any capital stock
(or securities exercisable or exchangeable for, or convertible into, shares of
capital stock) of the Seller, or (iii) engage in any transaction which could
adversely affect the transactions contemplated by this Agreement.
6.2 Access to Premises and Information. At reasonable times prior to the
Closing Date, Shareholder and Seller will provide Purchaser and its
representatives, with the consent of the Seller (which consent shall not be
unreasonably withheld or delayed), with reasonable access during business hours
to the assets, titles, contracts, and records of Seller and furnish such
additional information concerning the Business as Purchaser from time to time
may reasonably request; provided that Purchaser and its representatives shall
use all reasonable efforts to keep confidential from Seller's employees, the
purpose of any such access.
6.3 Employee Matters. Prior to the Closing Date, the Seller will not,
without Purchaser's prior written consent, enter into any material agreement
with its employees (or independent contractors), increase the rate of
compensation or bonus paid, payable to or to become payable to any employee, or
effect any changes in the management, personnel policies, or employee benefits,
except in accordance with existing employment practices.
6.4 Change of Name. On or prior to the Closing Date, Seller and the
Shareholder will take all action necessary or appropriate to permit Purchaser to
legally commence use of the Seller's name on the Closing Date.
6.5 Conditions and Best Efforts. The Seller and the Shareholder will use
their respective best efforts to effectuate the transactions contemplated by
this Agreement and to fulfill all the conditions of the obligations of the
Seller and the Shareholder under this Agreement, and will do all acts and things
as may be required to carry out their respective obligations under this
Agreement and to consummate and complete this
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Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE CLOSING
Section 7. Conditions Precedent to Purchaser's Obligations. The obligation
of Purchaser to purchase the Assets is subject to the fulfillment, prior to or
at the Closing Date, of each of the following conditions, any one or portion of
which may be waived in writing by Purchaser:
7.1 Representations, Warranties, and Covenants of Seller and Shareholder.
All representations and warranties made in this Agreement by the Seller and the
Shareholder shall be true as of the Closing Date as fully as though such
representations and warranties had been made on and as of the Closing Date, and,
as of the Closing Date, neither the Seller nor the Shareholder shall have
violated or shall have failed to perform in accordance with any covenant
contained in this Agreement.
7.2 Licenses and Permits. Purchaser shall have obtained all licenses and
permits from public authorities necessary to authorize the ownership and
operation of the Business.
7.3 Consents. Purchaser shall have obtained all necessary consents to
assignments of all parties to material contracts with the Seller.
7.4 Condition of the Business. There shall have been no material adverse
change in the business, operations condition (financial and otherwise) or
prospects of the Business since October 31, 1995.
7.5 Opinions of Counsel. The Seller and Shareholder shall have furnished
Purchaser with opinions of counsel for the Seller and the Shareholder in form
and substance reasonably satisfactory to Purchaser's counsel as described in
Section 2.2(d). The Purchaser shall have furnished Seller and Shareholder with
opinions of counsel for the Purchaser in form and substance reasonably
satisfactory to Seller's and Shareholder's counsel.
7.6 No Suits or Actions. At the Closing Date, no suit,
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action, or other proceeding shall have been threatened or instituted to
restrain, enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated thereby.
7.7 Due Diligence Investigation. The Purchaser shall carry out a due
diligence investigation, including, without limitation, an audit of the
Unaudited Financials and the financial statements of the Seller for the two
fiscal years ended July 31, 1994 and July 31, 1995, such investigation to be
concluded no later than April 8, 1996 (the "Due Diligence Period"). The parties
hereto agree that, from execution of this Agreement until March 27, 1996, the
Purchaser's due diligence investigation will be limited to matters relating to
the certification and audit of Seller's financial statements and accounting
procedures. During such period, the Purchaser shall not (subject to the
provisions of the next following sentence hereto), without Shareholder's prior
consent, interview any employees, customers, suppliers or artists on any
matters, including without limitation their past, present and future
relationship with Shareholder, Seller or Purchaser, all of which interviews
shall be deferred until Shareholder returns to Seller's premises on March 28,
1996. Requests for consent to interviews pursuant to this Section 7.7 shall be
made by paging Shareholder at (800) 208-8445 ext. 3 and leaving a text message
with the operator. Shareholder promises to respond to all such requests for
consent telephonically within two hours after receipt of same and such consent
shall not be unreasonably withheld or delayed. Notwithstanding the foregoing,
Purchaser may, during the period from execution of this Agreement until March
27, 1996, interview members of Seller's managerial, bookkeeping, accounting and
production control staff on matters reasonably required to complete Purchaser's
audit of Seller's financial statements and accounting procedures, provided that
such interviews shall not during such period touch on the interviewee's past,
present and future relationship with Shareholder, Seller or Purchaser. In the
event that such due diligence investigation discloses, in the Purchaser's sole
opinion, any material adverse change in the Business, operations or condition
(financial or otherwise) of the Seller or in the assets, liabilities, net worth
or properties of the Seller, the Purchaser shall be entitled, at its sole
option, to terminate this Agreement no later than April 8, 1996. In any event,
the Purchaser shall, on or before such date, notify the Seller and the
Shareholder in writing of the existence of any such material adverse change or
any breach by the Seller or the Shareholder of
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any of their representations, warranties or covenants hereunder of which the
Purchaser then has actual knowledge. In the event of such termination by the
Purchaser, the Seller and/or the Shareholder shall repay to the Purchaser the
Initial Payment within two (2) days of such termination. In the event that the
Purchaser terminates this Agreement after April 8, 1996 for any reason, (other
than (i) the refusal of the Seller or the Shareholder to complete the closing of
the transactions contemplated herein (ii) or the failure by the Seller to fulfil
any of the conditions set forth in Article VII of this Agreement), the Seller
shall be entitled to retain the Initial Payment and any Extension Payment as
liquidated damages and such retention shall constitute the Seller's and the
Shareholder's sole remedy hereunder with respect to such termination. The
parties agree that the sum provided for herein as liquidated damages is a
reasonable sum considering all of the circumstances existing on the date of this
Agreement, including the relationship of the sum to the range of harm to the
Seller that reasonably could be anticipated and the anticipation that proof of
actual damages would be costly or inconvenient.
7.8 Maintenance of Financial Ratios. At the Closing Date, the acid-test
ratio of the Seller, obtained by dividing receivables by current liabilities,
shall be consistent with the acid-test ratio calculated as of October 31, 1995,
except that variance will be permitted to account for the retention by the
Seller of the Retained Cash Adjustment Amount and the Seller shall deliver to
the Purchaser in accordance with Section 1.6, the Closing Date Balance Sheet to
enable the Purchaser to calculate the acid-test ratio as of the Closing Date.
The Seller and the Shareholder shall use their best efforts to (i) maintain the
acid-test ratio as of October 31, 1995, and (ii) maintain the business and
operations of the Seller in the ordinary course of business in the same manner
as such business and operations have previously been conducted.
7.9 Delivery of Schedule 1.8 to the Seller and the Shareholder. The
Purchaser shall have delivered to the Seller and the Shareholder, no later than
April 1, 1996, a copy of Schedule 1.8, and the parties hereto shall have agreed
upon the allocation of the Purchase Price set forth therein and annexed said
Schedule to their respective counterparts of this Agreement.
7.10 Delivery of Schedules 3.19 and 3.21 to the Purchaser. The Seller and
the Shareholder shall have delivered to the
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Purchaser, no later than four (4) Business Days following the date of execution
of this Agreement, a copy of Schedule 3.19 and Schedule 3.21 and the parties
hereto shall have annexed said Schedules to their respective counterparts of
this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. (a) The Seller and the Shareholder agree to jointly
and severally indemnify, defend and hold harmless the Purchaser and its
respective shareholders, officers, directors, employees, and any Affiliates of
the foregoing, and their successors and assigns (collectively, the "Purchaser
Group") from and against any and all losses, liabilities (including punitive or
exemplary damages and fines or penalties and any interest thereon), expenses
(including reasonable fees and disbursements of counsel and expenses of
investigation and defense), claims, Liens or other obligations of any nature
whatsoever (hereinafter individually, a "Loss" and collectively, "Losses")
which, directly or indirectly, arise out of, result from or relate to, (i) any
inaccuracy in or any breach of any representation or warranty of any of the
Seller or the Shareholder contained in Article III, (ii) any breach of any
covenant or agreement of any of the Shareholder or Seller, in each case
contained in this Agreement or in any other document contemplated by this
Agreement and (iii) the conduct of the Business prior to the Closing.
(b) The Purchaser agrees to indemnify, defend and hold harmless each of
the Seller and its directors, officers, employees, and any Affiliates of the
foregoing, and their successors and assigns from and against any and all Losses
which, directly or indirectly, arise out of, result from or relate to any breach
of any covenant or agreement of the Purchaser contained in this Agreement or in
any other document contemplated by this Agreement or the conduct of the Business
by the Purchaser from and after the Closing Date.
8.2 Method of Asserting Claims. The party making a claim under this
Article VIII is referred to as the "Indemnified Party" and the party against
whom such claims are asserted under this Article VIII is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Article
VIII shall be asserted and resolved as follows:
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(a) In the event that any claim or demand for which an Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against or sought
to be collected from such Indemnified Party by a third party, said Indemnified
Party shall with reasonable promptness notify in writing the Indemnifying Party
of such claim or demand, specifying the nature of the specific basis for such
claim or demand, and the amount or the estimated amount thereof to the extent
then feasible (which estimate shall not be conclusive of the final amount of
such claim and demand; any such notice, together with any notice given pursuant
to Section 8.2(b) hereof, collectively being the "Claim Notice"); provided,
however, that any failure to give such Claim Notice will not be deemed a waiver
of any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced. The Indemnifying Party, upon request
of the Indemnified Party, shall retain counsel (who shall be reasonably
acceptable to the Indemnified Party) to represent the Indemnified Party, and
shall pay the fees and disbursements of such counsel with regard thereto,
provided, further, that any Indemnified Party is hereby authorized prior to the
date on which it receives written notice from the Indemnifying Party designating
such counsel, to retain counsel, whose fees and expenses shall be at the expense
of the Indemnifying Party, to file any motion, answer or other pleading and take
such other action which it reasonably shall deem necessary to protect its
interests or those of the Indemnifying Party until the date on which the
Indemnified Party receives such notice from the Indemnifying Party. After the
Indemnifying Party shall retain such counsel, the Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (ii) the named parties of any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The Indemnifying
Party shall not, in connection with any proceedings or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one such
firm for the Indemnified Party (except to the extent the Indemnified Party
retained counsel to protect its (or the Indemnifying Party's) rights prior to
the selection of counsel by the Indemnifying Party). If requested by the
Indemnifying Party, the Indemnified Party agrees to cooperate
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with the Indemnifying Party and its counsel in contesting any claim or demand
which the Indemnifying Party or, where permitted pursuant to this Agreement, by
an Indemnified Party without the consent of the Indemnified Party in the first
case or the consent of the Indemnifying Party in the second case, which consent
shall not be unreasonably withheld, unless such settlement shall be accompanied
by a complete release of the Indemnified Party in the first case or the
Indemnifying Party in the second case. Whether or not such release is obtained,
the Person whose consent is required may reasonably withhold consent if the
proposed settlement would have a Material Adverse Effect on its business or
properties.
(b) In the event any Indemnified Party shall have a claim against any
Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not notify the Indemnified
Party within twenty (20) days of receipt of the Claim Notice that it disputes
such claim, the amount of such claim shall be conclusively deemed a liability of
the Indemnifying Party hereunder.
(c) So long as any right to indemnification exists pursuant to this
Article VIII, the affected parties each agree to retain all books, records,
accounts, instruments and documents reasonably related to the Claim Notice. In
each instance, the Indemnified Party shall have the right to be kept informed by
the Indemnifying Party and its legal counsel with respect to all significant
matters relating to any legal proceedings. Any information or documents made
available to any party hereunder, which information is designated as
confidential by the party providing such information and which is not otherwise
generally available to the public, or which information is not otherwise
lawfully obtained from third parties or not already within the knowledge of the
party to whom the information is provided (unless otherwise covered by the
confidentiality provisions of any other agreement among the parties hereto, or
any of them), and except as may be required by applicable law or requested by
third party lenders to such party, shall not be disclosed to any third Person
(except for the representatives of the party being provided with the
information, in which event the party being provided with the information shall
request its representatives not to disclose any such information which it
otherwise required
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hereunder to be kept confidential).
ARTICLE IX
POST-CLOSING COVENANTS OF THE PARTIES
9.1 Tax Matters. (a) The Seller and the Shareholder shall make available
to Purchaser on demand such information as shall reasonably be requested by
Purchaser to enable Purchaser to prepare and file timely its federal, state and
local income Tax Returns and all forms, schedules and attachments related
thereto.
(b) The Seller shall treat (and shall not make any election inconsistent
with treating) the transfers of the Assets to the Purchaser as a taxable sale.
9.2 Non-Competition. The Shareholder and the Seller acknowledge that the
Seller's ownership of the Assets and their respective operation of the Business
has brought them in close contact with certain confidential affairs of the
Business not readily available to the public, and the Purchaser would not
purchase the Assets, but for the agreements and covenants of the Shareholder and
the Seller contained in this Section 9.2. The Shareholder and the Seller shall
not directly or indirectly, for a period of five (5) years following the Closing
Date,(i) engage in any business which is, or becomes competitive with the
Business, or (ii) become interested in any Person engaged in activities which
is, or becomes competitive with the Business as a partner, officer, director,
shareholder, principal, agent, trustee, consultant, lender or in any other
relationship or capacity, except for investments by the Shareholder, the Seller
or its Affiliates in securities traded on a national stock exchange or the
over-the-counter market which do not exceed five (5) percent of the total
outstanding shares of such securities, or (iii) take any action outside the
ordinary course of business which could have a Material Adverse Effect on the
Business, the Assets or the Purchaser following the Closing Date. If any court
determines that this covenant, or any part thereof, is unenforceable because of
the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
9.3 Confidentiality. From and after the Closing Date, the Shareholder and
the Seller shall not disclose or furnish to any
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other Person, except to the extent required by law or by order of any court or
governmental agency, (a) any information relating to the operations or financial
status of any of the Seller, the Business or the Purchaser which is not
specifically a matter of public record, (b) any trade secrets of the Business or
the Purchaser or (c) the name, address or other information relating to any
supplier of the Business or the Purchaser.
9.4 Confidentiality of Information. In the event that the transactions
contemplated by this Agreement are not consummated, or if this Agreement is
terminated, each party shall return to the other all information, including
without limitation customer lists, related to the other party or the other
party's business obtained by such party from the other party or its
representatives. In such event, each party acknowledges that all such
information is the confidential proprietary, information of the other party and
such party shall maintain such information in strict confidence and shall not
use such information in any business dealings or disclose such information to
any third party; provided however, that the restrictions contained herein shall
not apply to information obtained by such party (i) from public sources or (ii)
from individuals who are not thereby breaching the term of any confidentiality
agreement with the other party or (iii) if required to be disclosed by law. The
provisions of this Section 9.4 shall survive any termination of this Agreement.
9.5 Non-Solicitation of Suppliers and Employees. In the event that the
transactions contemplated by this Agreement are not consummated, or if this
Agreement is terminated, the Purchaser shall not enter into any contract for
supplies or induce any other person to enter into any such contract with any of
the suppliers or vendors of the Seller whose names have been disclosed by the
Seller to the Purchaser as part of the Seller's confidential information. In
addition, the Purchaser hereby agrees not to hire or solicit the hiring of any
employee or salesperson of the Seller for a period of three (3) years from the
date hereof. The provisions of this Section 9.5 shall survive any termination of
this Agreement.
9.6 Closing Date Balance Sheet. Within thirty (30) days from and after the
Closing, the Seller and the Shareholder shall deliver to the Purchaser the
Closing Date Balance Sheet dated as of the Closing Date as set forth in Sections
1.6 and 7.8 hereof.
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ARTICLE X
MISCELLANEOUS
10.1 Sales and Transfer Taxes. All required filings under any applicable
Federal, state, foreign or local sales tax, stamp tax or similar laws or
regulations shall be made in a timely manner by the party responsible therefor
under such laws and regulations, and, at the Closing, such shall deliver to the
other parties either (a) proof of the payment of any sales tax assessed pursuant
to such filings or (b) statements of no sales tax due, as the case may be. The
parties agree to pay any and all transfer, sales or stamp taxes and any similar
taxes or assessments imposed on the transfer of the Assets and the Assumed
Liabilities in accordance with the terms of this Agreement, such taxes and
assessments to be borne equally by (i) the Seller and the Shareholder, and (ii)
the Purchaser; except that the Purchaser shall pay any applicable sales tax.
10.2 Post-Closing Further Assurances. At any time and from time to time
after the Closing Date at the request of the Purchaser, and without further
consideration, the Seller and the Shareholder will execute and deliver, or cause
the execution and delivery of, such other instruments of sale, transfer,
conveyance, assignment and confirmation and take or cause to be taken such other
action as the Purchaser may reasonably deem necessary or desirable in order to
transfer, convey and assign more effectively to the Purchaser, to put the
Purchaser in actual possession and operating control of the Assets and the
Business and to assist the Purchaser in exercising all rights with respect
thereto.
10.3 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telefaxed, sent by facsimile transmission or sent
by prepaid air courier or certified, registered or express mail, postage
prepaid. Any such notice shall be deemed to have been given (a) the succeeding
business day after receipt, if delivered in person, telegraphed, telexed, sent
by facsimile transmission and confirmed in writing within three (3) Business
Days thereafter or sent by prepaid air courier or (b) ten (10) Business Days
following the mailing thereof, if mailed by certified first class mail, postage
prepaid, return receipt requested, in any such case as follows (or to such other
address or addresses as a party may
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have advised the other in the manner provided in this Section 10.3):
If to Shareholder, to:
P.O. Box 7645
Van Nuys, CA 91409
Attention: Henry Goldman
Telephone Number (805) 985-7740
Telecopier Number (805) 984-7262
with a copy to:
Valensi, Rose & Magaram
1800 Avenue of the Stars
Suite 1000
Los Angeles, CA 90067-4212
Attention: Philip Magaram, Esq.
Telephone Number (310) 277-8011
Telecopier Number (310) 277-1706
If to the Seller, to:
Artisan House, Inc.
P.O. Box 7645
Van Nuys, CA 91409
Attention: Henry Goldman
President and CEO
Telephone Number: (805) 985-7740
Telecopier Number: (805) 984-7262
with a copy to:
Valensi, Rose & Magaram
1800 Avenue of the Stars
Suite 1000
Los Angeles, CA 90067-4212
Attention: Philip Magaram, Esq.
Telephone Number (310) 277-8011
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Telecopier Number (310) 277-1706
If to the Purchaser, to:
Artisan Acquisition Co.
320 Washington Street
Mount Vernon, NY 10553
Attention: Max Munn
President
Telephone Number (914) 665-5400
Telecopier Number (914) 665-5469
with a copy to:
Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10553
Attention: Max Munn
President
Telephone Number (914) 665-5400
Telecopier Number (914) 665-5469
Bernstein & Wasserman
950 Third Avenue
New York, NY 10022
Attn: Hartley T. Bernstein, Esq.
Telephone Number (212) 826-0730
Telecopier Number (212) 371-4730
If to Decor, to:
320 Washington Street
Mount Vernon, NY 10553
Attention: Max Munn
President
Telephone Number (914) 665-5400
Telecopier Number (914) 665-5469
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with a copy to:
Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10553
Attention: Max Munn
President
Telephone Number (914) 665-5400
Telecopier Number (914) 665-5469
Bernstein & Wasserman
950 Third Avenue
New York, NY 10022
Attn: Hartley T. Bernstein, Esq.
Telephone Number (212) 826-0730
Telecopier Number (212) 371-4730
10.4 Publicity. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without advance
approval thereof by the Purchaser, the Seller and the Shareholder, unless
required by law.
10.5 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
10.6 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law; provided that all disputes between the parties hereto shall
be submitted
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to binding arbitration before the Judicial Arbitration and Mediation Service in
Los Angeles, California, in accordance with its then current rules.
10.8 Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law and any other purported assignment shall be null and void.
10.9 Variations in Pronouns. All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the context may
require.
10.10 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
10.11 Exhibits and Schedules. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
10.12 Effect of Disclosure on Schedules. Any item disclosed on any
Schedule shall only be deemed to be disclosed in connection with (a) the
specific representation and warranty to which such Schedule is expressly
referenced, (b) any specific representation and warranty which expressly
cross-references such Schedule and (c) any specific representation and warranty
to which any other Schedule to this Agreement is expressly referenced if such
other Schedule expressly cross-references such Schedule.
10.13 Limited Recourse. In no event shall any Affiliate of the Purchaser
or any officer, director or employee of any of them, have any liability to the
Shareholder, the Seller or any shareholder or creditor of any of them pursuant
to this Agreement or any of the transactions contemplated hereby except pursuant
to the Guaranty.
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10.14 Headings. The headings in this Agreement are for reference only, and
shall not affect the interpretation of this Agreement.
10.15 Severability of Provisions. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance, shall be held invalid or unenforceable,
the remaining portion of such provision and the remaining provisions of this
Agreement, or the application of such provision or portion of such provision as
is held invalid or unenforceable to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby.
10.16 Brokers. Each party hereto represents and warrants that no broker or
finder is entitled to any brokerage or finder's fee or other commission from
such party, based on agreements, arrangements or undertakings made by such
party, in connection with the transactions contemplated hereby.
10.17 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual consent of Purchaser, the Shareholder and Seller;
(b) by either Purchaser or Shareholder and Seller if the Closing has not
occurred on or before August 31, 1996, subject to the provisions of Section 2.1
hereof, unless the reason that the Closing has not occurred shall be the failure
of the party seeking to terminate this Agreement to fulfill its obligations
hereunder;
(c) by either Purchaser or Shareholder and Seller if there has been a
material misrepresentation or material breach on the part of the other party in
the representations, warranties or covenants set forth in this Agreement which
is not cured within ten (10) Business Days after such other party has been
notified of the intent to terminate this Agreement pursuant to this clause (c);
or
(d) by either Purchaser or Shareholder and Seller if any legal proceeding
is commenced or threatened by any Governmental or Regulatory Body or other
person directed against the consummation of the Closing or any other material
transaction
40
<PAGE>
contemplated under this Agreement and Purchaser or Shareholder and Seller, as
the case may be, reasonably and in good faith deems it impractical or
inadvisable to proceed in view of such legal proceeding or threat thereof.
41
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DECOR GROUP, INC.
By: /s/ Max Munn
---------------------------
Name: Max Munn
Title: President
ARTISAN ACQUISITION CO.
By: /s/ Max Munn
---------------------------
Name: Max Munn
Title: President
ARTISAN HOUSE, INC.
By: /s/ Henry Goldman
---------------------------
Name: Henry Goldman
Title: President
By: /s/ Henry Goldman
---------------------------
HENRY GOLDMAN
42
<PAGE>
March 18, 1996
Mr. Max Munn
President
Decor Group, Inc.
320 Washington Street
Mt. Vernon, NY 10553
Re: Bridge Loan
Dear Mr. Munn:
This letter summarizes our agreement as follows:
1. Bridge Loan. Upon the execution of this letter, the undersigned
("Lender") shall loan (the "Loan")___________________________________________ to
Decor Group, Inc., a Delaware corporation (the "Company"), pursuant to the terms
of a certain promissory note in the amount of ____________ (i) payable on the
earlier of March 18, 1997 or (ii) the closing of the Company's next public
offering (the "Note"). The form of the Note is attached hereto as Exhibit A.
Concurrently, with the execution of this letter, the Company shall execute and
deliver the Note to Lender.
2. Issuance of Bridgeholder's Warrants. As additional consideration, solely
for making the Loan, the Company hereby grants to Lender the right to receive
____________________ Class A Redeemable Common Stock Purchase Warrants (the
"Bridgeholder's Warrants") of the Company. The terms and conditions of the
Bridgeholder Warrants will be identical to the terms and conditions of the Class
A Warrants being offered to the public pursuant to the Company's next Public
Offering (the "Public Offering"). At any time following the date on which the
next registration statement (the "Registration Statement") filed by the Company
with the Securities and Exchange Commission (the
1
<PAGE>
Mr. Max Munn
March 18, 1996
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") is declared effective by the Commission, Lender may exercise its right to
receive the Bridgeholder's Warrants by delivering notice thereof to the Company
and the Company will deliver to Lender certificates representing each of the
Bridgeholder's Warrants.
3. Registration Rights. The Company agrees to include the Bridgeholder's
Warrants and the shares of the Common Stock issuable upon exercise of the
Bridgeholder's Warrants (collectively, the "Registrable Securities"), in the
Registration Statement at no cost or expense to Lender.
Anything in this Section 3 to the contrary notwithstanding, in the event
that the managing underwriter of the Public Offering informs the Company in
writing that the inclusion of the Registrable Securities in the Public Offering
will result in the inability to effect the Public Offering or qualify the Public
Offering in one or more states which such managing underwriter, in its sole
discretion, deems necessary for the Public Offering to proceed, Lender shall
agree to withhold some or all of the Registrable Securities from registration in
accordance with the instructions of such managing underwriter. In such event,
upon Lender's request, the Company shall file a registration statement with the
Commission for the purpose of registering the Registrable Securities as soon as
practicable after the closing date of such Public Offering at no cost or expense
to Lender.
Lender agrees not to sell, pledge, hypothecate, encumber or otherwise
dispose of any of the Registrable Securities for a period of thirteen (13)
months following the Effective Date, subject to earlier release at the
discretion of the underwriter of the Initial Public Offering.
4. Representations of Lender. Lender represents that he is acquiring the
Bridgeholder's Warrants for investment purposes only and not with a view to any
resale or public distribution thereof. Lender has had full access to the books
and records of the Company and has had the opportunity to question the officers,
counsel and independent accountants of the Company. Lender is an "accredited
investor" as defined in section 2(15) of the Securities Act and Regulation D
promulgated by the Commission.
5. Security. As collateral for the Loan, the Company agrees that Lender
shall have a security interest in 200,000 shares of common stock and 200,000
shares of Class A preferred stock of Interiors, Inc., all of which are owned by
the Company, free and clear of any other liens or encumbrances, other than those
created simultaneously herewith in
<PAGE>
connection with bridge loans to the Company aggregating no more than $250,000.
The Company shall make all filings, at the Company's expense, which are
necessary to reflect such security interest. In addition, in the event of a
default by the Company hereunder or under the Note, Laurie Munn shall personally
guarantee all of the Company's obligations due under the Note.
6. Governing Law; Jurisdiction and Venue. Regardless of the place of
execution or performance, this letter and the Notes shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to such State's conflicts of laws provisions. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of the federal and state
courts located in the State of New York, County of New York.
Please acknowledge your consent to the foregoing terms by countersigning
the enclosed duplicate copy of this letter and returning it to us together with
the Notes.
Very truly yours,
By:_____________________________
Name:
Title:
AGREED TO AND ACKNOWLEDGED:
DECOR GROUP, INC.
By:_____________________________
Max Munn, President
As to Paragraph 5 Above:
________________________________
Laurie Munn
<PAGE>
FORM OF SUBSCRIPTION AGREEMENT
______________, 1996
Decor Group, Inc.
320 Washington Street
Mt. Vernon, New York 10533
Gentlemen:
1. Subscription. Subject to the terms and conditions of this Subscription
Agreement, the undersigned (the "Investor") hereby subscribes for and agrees to
acquire on the Closing Date (as hereinafter defined) ________________ newly
issued shares of Common Stock (the "Shares") of Decor Group, Inc. (the
"Corporation"), at an aggregate purchase price of ___________________ for the
Shares.
2. Acceptance. If the Investor's subscription is accepted, the Corporation
will return to the Investor one executed copy of this Subscription Agreement.
3. Representations and Warranties. The Investor hereby represents and
warrants to the Corporation as follows:
(a) The Investor is fully aware that the Shares have not been registered
under the Shares Act of 1933, as amended (the "Securities Act"), or under any
applicable state securities laws. The Investor further understands that the
Shares are being issued in reliance on the exemption from the registration
requirements of the Shares Act provided by Section 4(2) thereof or Regulation D
promulgated under the Shares Act, and in reliance on exemptions from the
registration requirements of certain state Shares laws, on the grounds that the
offering involved has been made to a limited number of potential investors.
(b) The Investor is acquiring the Shares for his own account as a principal
and not with a present view to resale or distribution.
(c) The Investor is able to bear the economic risk of the investment in the
Shares and has such knowledge and experience in financial and business matters,
and knowledge of the business of the Corporation.
(d) The Investor has received all information with respect to the
Corporation he has requested.
(e) The Investor has been given the opportunity to ask questions of, and
receive answers from, officers of the Corporation concerning the terms and
conditions of the offering and
<PAGE>
to obtain such additional information which the Corporation possesses or can
acquire without unreasonable effort or expense that is necessary to verify
information that was otherwise provided.
(f) The Investor recognizes that investment in the Shares involves
substantial risks. In deciding whether to invest in the Shares, the Investor has
weighed these risks against the potential return. Considering all relevant
factors in his financial and personal circumstances, the Investor is able to
bear the economic risk of the investment. The Investor has adequate means of
providing for his current needs and possible personal contingencies and has no
need in the foreseeable future for liquidity of his investment in the Shares.
(g) The Investor has sought such accounting, legal and tax advice as he has
considered necessary to make an informed investment decision with respect to his
investment in the Shares.
(h) The Investor is aware that no Federal or state agency has (i) made any
finding or determination as to the fairness of any aspect of the investment in
the Shares or (ii) passed on or endorsed the merits of the offering of the
Shares.
(i) The Investor agrees not to sell, pledge, transfer or otherwise encumber
the Shares for a period of two years following the date hereof unless the Shares
are registered for sale to public or an exemption from registration is available
to the holder of the Shares.
(j) The Investor has not retained any broker or finder in connection with
the transactions contemplated herein so as to give rise to any valid claim
against the Corporation or any of its subsidiaries for any broker's or finder's
fee, commission or similar compensation.
(k) Any information that such Investor has heretofore furnished to the
Corporation with respect to their respective financial position, and investment
experience is correct and complete as of the date of this Agreement and, if
there should be any material change in such information prior to the Closing,
such Investor will immediately furnish such revised or corrected information to
the Corporation.
(l) The Investor acknowledges that the Corporation has only recently been
organized and has no operating or financial history.
(m) The Investor has the full legal right and power and all authority and
approval required to enter into, execute and deliver this Subscription Agreement
and to perform fully his obligations hereunder. This Subscription Agreement has
been duly executed and delivered and is the valid and binding obligation of the
Investor, enforceable in accordance with his terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other such laws affecting the enforcement of creditors' rights
generally and by principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity). The execution, delivery and
performance of this Subscription Agreement by such Investor will not: (i)
require the approval or consent of any Person or (ii) conflict with or result in
<PAGE>
any breach or violation of any of the terms and conditions of, or constitute (or
with notice or lapse of time or both constitute) a default under, any statute,
regulation, order, judgment or decree of or applicable to the Investor, or any
instrument, contract or other agreement to which the Investor is a party or by
or to which the Investor is bound or subject.
6. Registration of Shares. The Corporation agrees to include eighty percent
(80%) of the Shares in the first registration statement filed with the
Securities and Exchange Commission in connection with its initial public
offering ("Initial Public Offering"). As a result, the Shares shall be
registered for sale to the public. In the event that the Initial Public Offering
is underwritten, the Investor agrees to comply with any restrictions on the sale
or the transfer of the Shares, requested by the managing underwriter thereof.
7. Modification. This Subscription Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and may not be modified, discharged or terminated except by a written instrument
duly executed by each party.
8. Binding Effect. The provisions of this Subscription Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
9. Governing Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of this ____ day of _________, 1996.
____________________
Accepted and Agreed to as
of the date first above written:
DECOR GROUP, INC.
By: _______________________
Max Munn, President
<PAGE>
Decor Group, Inc.
320 Washington Street
Mt. Vernon, New York 10553
VTR Capital Inc. __________, 1996
99 Wall Street
New York, NY 10005
Gentlemen:
The following sets forth our understanding with respect to your providing
financial advisory services for this corporation.
l. For a period of two (2) years commencing on the date hereof, you will
render financial consulting services to this corporation as such services shall
be required but in no event shall such services require more than two business
days per month. Your services shall include the following:
(a) to advise and assist in matters pertaining to the financial
requirements of our corporation and to assist, as and when required, in
formulating plans and methods of financing;
(b) to prepare and present financial reports required by us and to
analyze proposals relating to obtaining funds for our business, mergers and/or
acquisitions;
(c) to assist in our general relationship with the financial community
including brokers, stockholders, financial analysts, investment bankers, and
institutions; and
(d) to assist in obtaining financial management, and technical and
advisory services, and financial and corporate public relations, as may be
requested or advisable.
2. All services required to be performed hereunder shall be requested by us
in writing and upon not less than seven business days notice, unless such notice
is waived by you. Such notice shall be to the address specified above or to such
other place as you shall designate to us in writing.
3. For the services to be performed hereunder, and for your continued
availability to perform such services, we will pay you a
<PAGE>
VTR Capital Inc.
Page 2
fee of $100,000, which sum is payable in full in advance on the closing date of
our proposed initial public offering. Further, we will reimburse you for such
reasonable out-of-pocket expenses as may be incurred by you on our behalf, but
only to the extent authorized by us.
4. This Agreement has been duly approved by our Board of Directors.
5. You shall have no authority to bind this corporation to any contract or
commitment, inasmuch as your services hereunder are advisory in nature.
6. You will maintain in confidence all proprietary, non-published
information obtained by you with respect to our corporation during the course of
the performance of your services hereunder and you shall not use any of the same
for your own benefit or disclose any of the same to any third party, without our
prior written consent, both during and after the term of this Agreement.
7. This Agreement shall not be assignable by either of us without the other
party's prior written consent.
8. This Agreement shall be binding upon, and shall inure to the benefit of,
our respective successors and permitted assigns.
9. 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. This Agreement
shall be governed by and construed in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of laws of such
State.
Please signify your agreement to the foregoing by signing and returning to
us the enclosed copy of this Agreement which will thereupon constitute an
agreement between us.
<PAGE>
VTR Capital Inc.
Page 3
Very truly yours,
DECOR GROUP, INC.
BY__________________________
Agreed and Consented to:
VTR CAPITAL INC.
BY________________________________
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the heading "Experts" and to
the use of our report dated May 24, 1996, of Decor Group, Inc., modified as to
Decor Group, Inc.'s ability to continue as a going concern, our report dated May
15, 1996, of Artisan House, Inc., in this Registration Statement and related
Prospectus of Decor Group, Inc.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
June 7, 1996
