<PAGE>
As filed with the Securities and Exchange Commission on August 29, 1996
Registration No. 333-5553
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DECOR GROUP, INC.
(Name of small business issuer in its charter)
Delaware 2590 [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. Steven A. Morse, Esq.
Bernstein & Wasserman, LLP Lester Morse, P.C.
950 Third Avenue 111 Great Neck Road
New York, NY 10022 Great Neck, NY 11021
(212) 826-0730 (516) 487-1446
(212) 371-4730 (Fax) (516) 487-1452 (Fax)
Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following box: | X | continued overleaf
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Registered Registered Offering Price Per Aggregate Offering Price Fee
Security (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, consisting of two (2) shares of
Common Stock, par value $.0001 per
share and one (1) Class A Warrant (2) 345,000 $10.00 $3,450,000 $1,189.56
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, included in the Units 690,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the Units (3) 345,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying the Class A Warrants (4) 345,000 $4.00 $1,380,000 $475.82
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Unit Purchase Option 30,000 $.001 $30.00 $0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Units, each Unit consisting of two (2)
shares of Common Stock, par value $.0001
per share, and one (1) Class A Warrant (5) 30,000 $16.50 $495,000 $170.67
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying Representative's Unit
Purchase Option 60,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants, underlying
Representative's Unit Purchase Option 30,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share, underlying Class A Warrants in
Representative's Unit Purchase Option (6) 30,000 $4.00 $120,000 $41.38
- ------------------------------------------------------------------------------------------------------------------------------------
Selling Securityholders
- ------------------------------------------------------------------------------------------------------------------------------------
Unit, consisting of two (2) shares of
Common Stock, par value $.001 per share,
and one (1) Class A Warrant(7) 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 (3) 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 (8) 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 2,062,000 $5.00 $10,310,000 $3,554.89
share (9)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per
share (10) 500,000 ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ----- ------ $27,970,030 $9,690.93
Previously Paid ----- ------ ------- 9,235.80
---------
Amount Due ----- ------ ------- $ 455.13
=========
====================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating registration fee.
<PAGE>
(2) Includes 45,000 Units subject to the Representative's over-allotment
option (the "Over-Allotment Option"), consisting of 90,000 shares of
Common Stock, 45,000 Class A Warrants and 45,000 shares of Common
Stock underlying the Class A Warrants.
(3) 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.
(4) 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.
(5) The Representative's unit purchase option entitles the Representative
to purchase up to 30,000 Units at 165% of the offering price (the
"Representative's Unit Purchase Option").
(6) Issuable upon exercise of the Class A Warrants included in the
Representative's Unit Purchase Option.
(7) Represents the resale of 25,000 Units held by a Selling
Securityholder.
(8) Represents the resale of 3,000,000 Class A Warrants issuable in
connection with certain Bridge Loans.
(9) Represents the resale of 2,062,000 shares of Common Stock held by
certain Selling Securityholders.
(10) Represents the resale of 500,000 shares of Common Stock issuable to
Interiors, Inc. upon the conversion of 500,000 shares of the Company's
Series A Convertible Preferred Stock.
<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) 345,000 Units, each Unit
consisting of two (2) shares of Common Stock and one (1) Class A Warrant
(including 45,000 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) 2,062,000 shares of Common
Stock issued in March 1996 to certain stockholders (the "Selling Stockholders"),
(ii) 3,000,000 Class A Warrants issuable to certain bridge lenders to the
Company (the "Bridge Lenders") upon the effective date of this offering and the
shares of Common Stock issuable upon the exercise thereof, and (iii) 500,000
shares of Common Stock issuable to Interiors, Inc., an affiliate of the Company,
upon the conversion of 500,000 shares of Series A Preferred Stock held thereby.
See "Bridge Financing." The Alternate Prospectus pages, which follow the Primary
Prospectus, are to be combined with all of the sections contained in the Primary
Prospectus, with the following exceptions: the front and back cover pages and
the sections entitled "Concurrent Sales," "Selling Securityholders," and "Plan
of Distribution." Such sections from the Alternate Prospectus pages will be
added to the Primary Prospectus. The "Underwriting" section contained in the
Primary Prospectus will not be included in the Alternate Prospectus.
Furthermore, all references contained in the Alternate Prospectus to "the
Offering" or "this Offering" shall refer to the Company's Offering under the
Primary Prospectus.
iii
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such an offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any State.
PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996
DECOR GROUP, INC.
325,000 Units, Each Unit Consists of Two (2) Shares of Common Stock
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 300,000 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 prospectus. This offering also includes 25,000 Units owned
and offered by the holder thereof (the "Unit Holder"). The Company anticipates
receiving approximately $2,010,000 in net proceeds of the total proceeds of
$3,000,000 from this offering (assuming the Over-Allotment Option is not
exercised by the Underwriters). Of the net proceeds of $2,010,000, approximately
$260,000, or 12.9% of the net proceeds, will be used to repay certain
indebtedness incurred by the Company in March 1996. See "Use of Proceeds." The
Company will not receive any of the proceeds from the sale of the 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
August 29, 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
1
<PAGE>
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 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 representative (the
"Representative") of the underwriters of this Offering (the "Underwriters"), 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.
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, (ii) 2,062,000 shares of Common Stock
held by certain stockholders (the "Selling Stockholders"), and (iii) 500,000
shares of Common Stock issuable to Interiors, Inc. ("Interiors"), an affiliate
of the Company, upon the conversion of 500,000 shares of Series A Preferred
Stock held thereby. The Class A Warrants issuable to the Bridge Lenders are
identical to the Class A Warrants included in the Units offered hereby. The fact
that additional Class A Warrants may become tradeable may have a depressive
effect on the market price of the Class A Warrants. The Bridge Lenders, the
Selling Stockholders and Interiors 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 Representative. The Company will not receive any of the
proceeds on the sale of the securities by the Selling Securityholders. The
resale of the
2
<PAGE>
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."
----------
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 Proceeds to Selling
Discount and Proceeds to Securityholders
Price to Public Commissions(1) Company(2) (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).......... $3,250,000 $275,000 $2,610,000 $225,000
==============================================================================================
</TABLE>
The date of this Prospectus is August 29, 1996
VTR CAPITAL, INC.
Investment Bankers
(Notes to Cover)
- -----------
3
<PAGE>
(1) Does not reflect additional compensation to be received by the
Representative in the form of: (i) a non-accountable expense allowance of
$90,000 ($103,500 if the Over-Allotment Option (as hereinafter defined) is
exercised in full), (ii) a two (2) year financial advisory and investment
banking agreement providing for an aggregate fee of $100,000 payable in
advance at the closing of this Offering, and (iii) an option to purchase
30,000 Units at $12.00 per Unit (the "Representative'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
Representative have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act"). The Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy and is therefore unenforceable. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $690,000 including the Representative's non-accountable expense
allowance ($90,000) 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 45,000 additional Units from the Company to cover
over-allotments which the Representative has an option to purchase for
thirty (30) days from the date of this Prospectus at the initial public
offering price, less the Representative's discount (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total
price to the public, underwriting discounts and commissions and the
estimated expenses including the Representative's non-accountable expense
allowance will be $3,450,000, $1,048,500 (including the financial advisory
fee paid to the Representative), respectively, and the net proceeds to the
Company will be $2,401,500. See "Underwriting."
The Units are offered by the Representative on a "firm commitment" basis,
when, as and if delivered to and accepted by the Representative, and subject to
prior sale, allotment and withdrawal, modification of the offer with notice,
receipt and acceptance by the Representative named herein and subject to its
right to reject orders in whole or in part and to certain other conditions. It
is expected that the delivery of the certificates representing the securities
and payment therefor will be made at the offices of the Representative on or
about _______ __ , 1996.
AVAILABLE INFORMATION
4
<PAGE>
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 MARKET FOR THE UNITS OR THE COMMON STOCK AND CLASS A
WARRANTS CONTAINED THEREIN. HOWEVER, THERE IS NO ASSURANCE THAT THE
5
<PAGE>
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.
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) 325,000 shares of Common Stock issuable upon
exercise of the Class A Warrants; (b) 90,000 shares of Common Stock issuable
upon exercise of the Over-Allotment Option; (c) 45,000 shares of Common Stock
issuable upon exercise of the Class A Warrants included in the Over-Allotment
Option; (d) 60,000 shares of Common Stock issuable upon exercise of the
Representative's Unit Purchase Option; (e) 30,000 shares of Common Stock
issuable upon exercise of the Class A Warrants included in the Representative's
Unit Purchase Option; (f) 3,000,000 shares of Common Stock issuable upon
exercise of Class A Warrants issuable to certain Selling Securityholders, (g)
500,000 shares of Common Stock issuable upon the conversion of 500,000 shares of
Series A Convertible Preferred Stock and (h) 94,167 shares of Common Stock
issuable to Interiors, Inc. upon conversion of 94,167 shares of Series C
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 $3,626,400, 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."
6
<PAGE>
Artisan House, located in Los Angeles, California and founded in 1964, is
engaged in the design, manufacturing and marketing of metal wall, table and
freestanding sculptures. Management believes that Artisan House's products
bridge the gap between high priced gallery art and mass produced decorative
pieces. Artisan House products retail from approximately $100 to over $400. The
primary goal of the Company is to supply a broad spectrum of design driven
sculpture and decorative accessories at moderate prices.
Artisan House markets its products through a network of independent
commissioned sales representatives, both domestically and internationally, as
well as through strategically located showrooms servicing the home furnishing
and decorative accessory industries. Artisan House has permanent showrooms
located in High Point, NC and San Francisco, CA that are leased and controlled
by the Artisan House, as well as sales representative showrooms in Atlanta and
Dallas.
Artisan House's typical customers include fine furniture stores, interior
decorators and major department stores such as Sears and JC Penny, large
furniture chains such as Levitz and Wickes, and catalogue houses. For the fiscal
year ended June 30, 1996, sales to Sears, JC Penny, Levitz and Wickes
represented 5.1%, 4.3%, 8.6%, and 2.7%, respectively of total sales. 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.
7
<PAGE>
The Offering
Securities Offered by the
___ Company (1)............300,000 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) 2,062,000
shares of Common Stock on behalf of certain Selling Stockholders, (ii)
3,000,000 Class A Warrants on behalf of certain Selling Warrantholders and
(iii) 500,000 shares of Common Stock issuable to Interiors, Inc., an
affiliate of the Company, upon the conversion of 500,000 shares of Series A
Preferred Stock held thereby. 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
8
<PAGE>
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."
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)
Series C Convertible
Preferred Stock...................94,167 Shares
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)
Series C Convertible
Preferred Stock...................94,167 Shares
Common Stock.....................3,225,000 Shares(4)
Class A Warrants.................3,325,000 Warrants(5)
Use of Proceeds..................The net proceeds to the Company from the
sale of the 300,000 Units offered
hereby, after deducting offering
expenses and the $100,000 financial
advisory fee, are estimated to be
$2,010,000. The net proceeds are
expected to be applied for the following
purposes: purchase of all
9
<PAGE>
of the operating assets and assumptions
of certain liabilities of Artisan House,
repayment of certain indebtedness, and
working capital. "See use of Proceeds".
- ----------
(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.
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,
Representative'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
10
<PAGE>
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 -_____
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."
11
<PAGE>
Summary Financial Information
The selected historical financial data for the period ended June 30, 1996
and for the period ended March 31, 1996 presented below are derived from the
unaudited pro forma combined financial statements and the historical financial
statements of the Company, certain of which have been audited by Moore Stephens,
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 June As of June 30, As of March As of March
30, 1996 1996, As 31, 1996, (4) 31, 1996, As
($)(1) Adjusted(1)(2)(3) Adjusted(3)
($) (4)(5)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ---- 1,386,976 ---- 4,809,422
Gross Profit ---- 647,262 ---- 2,213,039
Operating Income (Loss) (138,851) 137,886 (100,000) (25,552)
Net (Loss) (246,001) (37,765) (99,750) (275,054)
Net (Loss) per share (.04) (.01) (.02) (.05)
Weighted Average number of 5,625,000 5,725,000 5,625,000 5,725,000
Common Shares outstanding
- ---------------------------------------------------------------------------------------------------
</TABLE>
Summary Balance Sheet Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At June 30, 1996 At June 30, 1996, As
($) Adjusted(2) ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Working Capital (deficit) (216,109) 1,620,547
Total Assets 1,874,399 6,352,822
Total Liabilities 300,850 1,837,681
Stockholder's Equity 1,573,549 4,515,141
- --------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Includes results for the three months ended June 30, 1996 for Decor Group,
Inc.
(2) Adjusted to reflect the closing of the Artisan House Transaction and
adjusted to reflect the sale of 300,000 Units offered hereby and the net
proceeds therefrom of $2,010,000 and preferred stock sale for 706,250.
12
<PAGE>
(3) Includes results for the three months ended June 30, 1996 for Artisan
House.
(4) Includes results for the period March 1, 1996 (Inception) through March 31,
1996 for Decor Group, Inc.
(5) Includes results for the fiscal year ended January 31, 1996 for Artisan
House.
13
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative and involves
a high degree of risk and substantial dilution and should only be purchased by
investors who can afford to lose their entire investment. Prospective
purchasers, prior to making an investment, should carefully consider the
following risks and speculative factors, as well as other information set forth
elsewhere in this Prospectus, associated with this Offering, including the
information contained in the Financial Statements herein.
1. Qualified Auditor's Report of Accountants. As a result of the Company's
current financial condition, the Company's independent auditors have qualified
their report on the Company's financial statement for the period from March 1,
1996 (inception) to March 31, 1996. The Company's ability to continue in the
normal course of business is dependent upon successful completion of its planned
public offering of securities to raise capital and the success of future
operations. These uncertainties raise substantial doubt about its ability to
continue as a going concern. As of June 30, 1996, the Company had a working
capital deficit of approximately $216,000 and a lack of cash flow from
operations. Because of the Company's inability to generate cash from operations,
the Company's auditors have issued a going concern opinion with respect to the
Company's audited financial statements. There can be no assurance that the
Company will not incur net losses in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business, "
"Use of Proceeds, " and "Financial Statements and Notes."
2. Limited Operating History, No Assurance that the Company will
Successfully Commence Business. The Company was organized on March 1, 1996 and
is in its early stage of development. The Company's business consists primarily
of the assets acquired from Artisan House (the "Artisan House Transaction"). For
the five months ended June 30, 1996, Artisan House generated revenues of
$2,310,976, had stockholder's equity of $754,305 and working capital of
$683,605. Like any relatively new business enterprise operating in a specialized
and intensely competitive market, the Company is subject to many business risks
which include, but are not limited to, unforeseen marketing and promotional
expenses, unforeseen negative publicity, competition, product liability and lack
of operating experience. If the Company is successful with its proposed public
offering the Company on a pro forma basis at June 30, 1996 would have working
capital of approximately $1,600,000 and stockholders equity of approximately
$4,500,000 including the finalization of the acquisitions of Artisan House and
the receipt of $706,250 resulting from the sale of Preferred Stock in August of
1996. Many of the risks may be unforeseeable or beyond the control of the
Company. There can be no assurance that the Company will successfully implement
its business plan in a timely or effective manner, or that management of the
Company will be able to market and sell enough products to generate sufficient
revenues and continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business," "Use
14
<PAGE>
of Proceeds," "Certain Transactions" and "Financial Statements."
3. Dependence on Offering Proceeds; Possible Need for Additional Financing.
The Company's cash requirements will be significant. The Company is dependent on
the proceeds from this Offering to close the Artisan House Transaction. The
Company anticipates, based on its currently proposed plans, that the proceeds of
this Offering, together with funds generated from operations, will be sufficient
to satisfy its anticipated cash requirements for approximately twelve (12)
months following the consummation of this Offering. In the event that these
plans change, or the costs of development of operations prove greater than
anticipated, the Company could be required to modify its operations, curtail its
expansion or seek additional financing sooner than currently anticipated. The
Company believes that its operations would be restricted absent expansion. Other
than with respect to obtaining the Secured Loan, the Company has no current
arrangements with respect to such additional financing and there can be no
assurance that such additional financing, if available, will be on terms
acceptable to the Company. See "Use Of Proceeds and "Business - Secured Loan
Agreement"."
4. Significant Industry Competition. The market for sculptures and
decorative art products is highly competitive. Although the Company does not
believe there is significant competition in the wall sculpture market,
management believes that the Company competes with numerous manufacturers of
picture framed art as well as manufacturers of decorative accessories. There can
be no assurance that the Company will be able to continue to be able to generate
interest in wall sculptures or to compete successfully with manufacturers of
picture framed art and decorative accessories. See "Business - Competition."
5. Dilution; Equity Securities Sold Previously at Below Offering Price.
Upon completion of this Offering assuming no exercise of the Over-Allotment
Option, and without giving effect to the exercise of the Representative's Unit
Purchase Option, the net tangible book value per share of the Company's Common
Stock will be $1.09. 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 $3.91 or 78.2% in net tangible book value per share and existing
investors will experience an increase of approximately $.52 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 13.4% of the Company's
shares of Common Stock on an as converted basis, an option (the "Series B
Option") to purchase 20,000,000 shares of the Company's of Series B
Non-Convertible Preferred Stock (the "Series B Preferred Stock") and 94,167
shares of Series C Convertible
15
<PAGE>
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, the Series A
Preferred Stock is converted and the Series B Option is exercised), 88.3% 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 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 two
year Management Services Agreement with Interiors, Inc. ("Interiors"). Interiors
has, pursuant to such agreement, agreed to advise the Company on the
manufacturing, sale, marketing and distribution of the Company's products as
well as providing the Company with accounting and administrative services and
strategic planning with regard to joint ventures, acquisitions, and other long
term business initiatives. In exchange for such services, the Company has agreed
to
16
<PAGE>
pay to Interiors an annual amount equal to the greater of (i) $75,000 or (ii) 1
1/2% of Excess Cashflow (as defined in the agreement). The Management Services
Agreement is automatically renewable for an additional one (1) year term unless
terminated by either party not less than sixty (60) days prior to the end of the
term. In the event that the Management Services Agreement is terminated for any
reason, the Company's business may be negatively effected. In such an event, the
Company may be required to hire additional personnel or engage one or more
independent contractors at an added cost to the Company. See "Business -
Management Services Agreement" and "Certain Transactions."
9. Dependence on Key Personnel. The Company is substantially dependent on
the continued services of Donald Feldman, the Company's Chief Executive Officer
and Chief Financial Officer. 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 (i)
500,000 shares of the Company's Series A Preferred Stock (non-voting shares),
(ii) the Series B Option and (iii) 94,167 shares of Series C Preferred Stock,
representing 88.3% of the total voting stock outstanding (based upon 3,225,000
shares of Common Stock outstanding and assuming conversion of 500,000 of Series
A Preferred Stock and the exercise of the Series B Option). Since holders of
Series B Preferred Stock and Common Stock do not have any cumulative voting
rights and directors are elected by a majority vote of the voting shares
outstanding, Interiors is in a position to control the election of directors as
well as the affairs of the Company. In addition, Max Munn, a member of the
Company's Board of Directors is also the President and director of Interior's
Board of Directors. Such control could also preclude an unsolicited acquisition
of the Company and consequently, adversely affect the market price of the Common
Stock. See "Description of Securities." Further, the Company has entered into a
Management Services Agreement with Interiors, pursuant to which Interiors has
agreed to advise and assist the Company in exchange for payments to be made by
the Company. As a result, Interiors may derive substantial revenue from the
Company and may influence the Company's day-to-day operations. See "Business
Management Services Agreement."
11. Limited Number of Management Personnel. There is currently only one (1)
executive officer of the Company. Following this Offering, there can be no
assurance that, if the Company grows, that current management will be able to
continue to properly manage the Company's affairs. Further, there can be no
assurance that the Company will be able to identify additional qualified
managers on terms economically feasible to the Company.
12. Trademark and Copyright Protection. The trademarks "Artisan House", "C.
Jere", "Sautere", and "Glendale Ironworks" have been registered with the United
States Patent and
17
<PAGE>
Trademark Office ("PTO"). The Company also has copyright protection on virtually
all of its designs used to manufacture the Company's sculptures. The Company
presently intends to make all appropriate filings and registrations and take all
other actions necessary to protect all of its intellectual property rights.
There can be no assurance, however, that the Company will be able to effectively
protect such property rights. The failure by the Company to protect such rights
from unlawful and improper appropriation may have a material adverse effect on
the Company. Although to date no claims have been brought against the Company
alleging that it infringes on the intellectual property rights of others, there
can be no assurance that such claims will not be brought against the Company in
the future, or that if made, such claims will not be successful. In addition to
any potential monetary liability for damage, the Company could be required to
obtain a license in order to continue to use the trademarks in question or could
be enjoined from using such trademarks if such license were not made available
on acceptable terms. If the Company becomes involved in such litigation, it may
divert significant Company resources, which could have a material adverse effect
on the Company and its results or operations, and, if such a claim were
successful, the Company's business could be materially adversely affected. See
"Business- Products; Trademarks."
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 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, the Company recorded a discount on the bridge
notes of $214, 300 at June 30, 1996 which will be amortized over the life of the
loans. See "Bridge Financing" and "Management's Discussion and Analysis."
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. For the period year ending June 1996, Artisan
House's five largest customers purchased approximately 24.5% of the net sales of
Artisan House. The
18
<PAGE>
top five customers Levitz/Homemaker, Sears, JC Penney, Parke Bell, and Wicks
represented 8.6%, 5.1%, 4.3%, 3.8% and 2.7% of net sales, respectively. 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 Representative, and may not be
indicative of the market price for such securities in the future, and does not
necessarily bear any relationship to the Company's assets, book value, net worth
or results of operations of the Company or any other established criteria of
value. Among the factors considered in determining the price of the 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, 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
19
<PAGE>
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 Representative from time
to time may act as a market maker and may otherwise effect and influence
transactions in the Company's securities. However, there is no assurance that
the Representative will continue to effect and influence transactions in the
Company's securities. The prices and liquidity of the Company's securities may
be significantly affected by the degree, if any, of the Representative's
participation in the market. The Representative may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the
Company's securities may be adversely affected by the fact that a significant
amount of the Units may be sold to customers of the Representative.
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, $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 Representative'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
20
<PAGE>
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 May 29, 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. As of the date of this
Prospectus, there will be 3,275,000 Class A Warrants outstanding (including
3,000,000 Class A Warrants issuable to the Bridge Lenders), and there will be
3,275,000 shares of Common Stock issuable upon the exercise thereof. In the
event of the exercise of a substantial number of Class A Warrants offered as
part of the 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."
22. Representative's Unit Purchase Option. In connection with this
Offering, the Company will sell to the Representative, for nominal
consideration, an option to purchase an aggregate of 30,000 Units (the
"Representative's Unit Purchase Option"). The Representative'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
$16.50 per Representative's unit (the "Representative's Units") subject to
certain adjustment with the underlying warrants (the "Representative's
Warrants") exercisable at $4.00 per share. The holders of the Representative'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
21
<PAGE>
Representative'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 Representative'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 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,
22
<PAGE>
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. The Company's Certificate of
Incorporation limits the liability of Directors to the Company or its
stockholders to monetary damages for breach of a Director's fiduciary duty
except for liability in certain instances. Section 145 of the Delaware General
Corporation Law empowers a corporation to indemnify its directors and officers
and to purchase insurance with respect to liability arising out of the
performance of their duties as directors and officers provided that this
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) arising under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. As a result of the Company's
charter provision and Delaware law, stockholders may have a more limited right
to recover against Directors for breach of their fiduciary duty other than as
existed prior to the enactment of the law. See "Description of Securities -
Limitation on Liability of Directors."
26. 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 2,062,000 shares of which
are being registered under the Registration Statement of which this Prospectus
forms a part. Excluding shares of Common Stock issuable upon the exercise of the
Class A Warrants included in the Offering, there are, as of the date of this
Prospectus, a total of 3,500,000 shares of Common Stock issuable (i) upon the
exercise of 3,000,000 Class A Warrants issuable to the Bridge Lenders and (ii)
upon the conversion of 500,000 shares of Series A Preferred Stock and 94,167
shares of Series C Preferred Stock held by Interiors. The officers and directors
of the
23
<PAGE>
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 Representative.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market which may develop, and therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their shares during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share. See "Description of
Securities."
27. Anti-Takeover Effect of General Corporation Law of Delaware. The
Company is governed by the provisions of Section 203 of the General Corporation
Law of Delaware, an anti-takeover law enacted in 1988. In general, the law
prohibits a Delaware public corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three (3) years
after the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions. See "Description of Securities."
28. Inexperience of Representative. This is the ___ public offering
underwritten by VTR Capital, Inc. There can be no assurance that the
Representative's limited experience as an Representative of public offerings
will not adversely affect the proposed public offering of the Company's
securities, the subsequent development of a trading market, if any, or the
market for and liquidity of the Company's securities. Therefore, purchasers of
the securities offered hereby may suffer a lack of liquidity in their investment
or a material diminution of the value of their investment.
24
<PAGE>
USE OF PROCEEDS
This Registration Statement covers the offering of 325,000 Units, 300,000
of which are being offered by the Company, and 25,000 of which are being offered
by the Unit Holder. The net proceeds to the Company from the sale of the 300,000
Units are estimated to be $2,010,000 (after deducting approximately $300,000 in
underwriting discounts, and other expenses of this Offering estimated to be
$690,000, which includes the Representatives' non-accountable expense allowance
of $90,000, and a $100,000 financial consulting fee payable to the
Representative at the closing) (but not considering any exercise of the
Over-Allotment Option, or the Representatives' Unit Purchase Option). The
Company, based upon all currently available information, intends to utilize such
proceeds approximately as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Amount of Net Percentage(%) of
Proceeds Net Proceeds
-------- ------------
<S> <C> <C>
Acquisition of Assets of
Artisan House, Inc. (1) $1,535,000 76.3%
Repayment of Certain Indebtedness (2) 260,000 12.9%
Working Capital (3) 215,000 10.7%
----------- --------
Total $2,010,000 100.0%
</TABLE>
(1) Represents a partial payment, of $1,535,000, which will be financed by the
public offering, of the total purchase price to be paid to close the
Artisan House Transaction. In addition, to the foregoing, the Company
intends to use approximately $700,000 from the proceeds of the sale of the
Series C Non-Voting Convertible Preferred Stock to fund the remainder of
the purchase price to close the Artisan House Transaction. See
"Business-Artisan House Transaction."
(2) Represents the repayment of Bridge Loans in the aggregate principal amount
of $250,000 plus accrued and unpaid interest. The Bridge Loans were made by
nine (9) unaffiliated parties. The Bridge Loans are due and payable upon
the earlier of March 1997 or the closing of the Company's initial public
offering and bear interest at the rate of 8% per annum. The proceeds of the
Bridge Loans were used for working capital and as a source of funds to pay
expenses associated with this Offering. See "Bridge Financing" and See
"Certain Transactions."
(3) To be used for general operating and overhead expenses and the funding of
inventory.
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's Board of Directors, at its discretion.
The Company believes that the proceeds of this Offering will enable the
Company to increase its annual revenues through the expansion of its business
and development of product lines. As a result, the Company believes that the net
proceeds of this Offering, together with
25
<PAGE>
increased revenues generated from operations, will be sufficient to conduct the
Company's operations for at least twelve (12) months. The terms of the
underwriting agreement between the Company and the Representative restrict the
Company from entering into any acquisition or merger of the Company or obtaining
additional capital financing, without the prior approval of the Representative,
for the issuance of additional equity securities for a period of five (5) years,
in either public or private offerings. The underwriting agreement does not
prevent the Company from seeking bank financing although there can be no
assurance that such financing will be available on commercially reasonable
terms. See "Risk Factors - Dependence on Offering Proceeds; Possible Need for
Additional Financing."
To the extent that the Company's expenditures are less than projected
and/or the proceeds of this Offering increase as a result of the exercise of the
Class A Warrants or by the Representative of its Over-Allotment Option, the
resulting balances will be retained and used for general working capital
purposes. Conversely, to the extent that such expenditures require the
utilization of funds in excess of the amounts anticipated, additional financing
may be sought from other sources, such as debt financing from financial
institutions, although there can be no assurance that such additional financing,
if available, will be on terms acceptable to the Company. See "Risk Factors -
Dependence on Offering Proceeds; Possible Need For Additional Financing." The
net proceeds of this Offering that are not expended immediately may be deposited
in interest bearing accounts, or invested in government obligations or
certificates of deposit.
26
<PAGE>
DILUTION
At June 30, 1996, the Company had outstanding an aggregate of 2,625,000
shares of Common Stock having an aggregate net tangible book value of $1,498,891
or $.57 per common share, based upon operating activity through June 30, 1996.
Net tangible book value per share consists of total assets less intangible
assets and liabilities, divided by the total number of shares of Common Stock
outstanding. The shares of capital stock described above do not include any
securities subject to outstanding warrants or options.
After giving effect to the sale of 300,000 Units consisting of 600,000
shares of Common Stock and 300,000 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 $2,010,000, the pro forma net tangible book value of the Common
Stock would have been $3,508,891 or approximately $1.09 per share. This
represents an immediate increase in pro forma net tangible book value of $.52
per share to the present stockholders and an immediate dilution of $3.91 per
share (78.2%) 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:
<TABLE>
<CAPTION>
As
As Adjusted
Adjusted(6) Pro Forma(5)
----------- ------------
<S> <C> <C>
Public offering price of per share
offered hereby(l)(4) $5.00 $5.00
Net tangible book value per share $.57 $.19
Increase per share attributable to
units offered hereby $.52 $.57
Pro Forma net tangible book value
per share after offering(3) $1.09 $.76
Dilution of net tangible book value per
share to purchasers in this offering(2)(3) $3.91 $4.24
</TABLE>
- ----------
(1) Before deduction of underwriting discounts, commissions, fees and offering
expenses.
(2) Assuming no exercise of the Over-Allotment Option, the Representatives'
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.
(5) Gives effect to both the offering and the acquisition of Artisan House,
Inc.
27
<PAGE>
(6) Gives effect to the Offering but not the acquisition of Artisan House, Inc.
The following table shows the number and percentage of shares of Common
Stock purchased and acquired and the amount and percentage of consideration and
average price per share paid by existing stockholders as of June 30, 1996 and to
be paid by purchasers pursuant to this Offering (based upon the anticipated
public offering price of $10.00 per Unit before deducting underwriting discounts
and commission and estimated Offering expenses).
<TABLE>
<CAPTION>
Shares of Aggregate
Common Percent of Cash Percent of Average
Stock Equity Consideration Total cash Price Per
Purchased Owned Paid Consideration Share
<S> <C> <C> <C> <C> <C>
New Stockholders 600,000 9.6% $ 3,000,000 20% $5.00
Existing Stockholders(1) 5,625,000 90.4% $12,103,000 80% $2.15
---------- ------ ----------- ---- -----
Total 6,225,000 100% $15,103,000 100%
</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 Representatives' 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.
(1) Includes 3,000,000 shares of Common Stock assuming exercise by Bridge
Lenders of Class A Warrants at $4.00 per share.
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted gives effect to the sale of 300,000 Units consisting of
Common Stock and Class A Warrants offered hereby and the application of net
proceeds therefrom. The table is not adjusted to give effect to the exercise of
the Over-Allotment Option, the Class A Warrants, the Representatives' Unit
Purchase Option or any other outstanding warrants or options. This table should
be read in conjunction with the Financial Statements of the Company, including
the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
As of June 30, 1996 As of June 30, 1996,
($) As Adjusted(1)(2)
($)(4)
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes Payable 192,850 1,309,462
Stockholders Equity:
Common Stock 262 332
Series A Convertible Preferred 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)
Series C Non-Voting Convertible
Preferred Stock, $.0001 par value 706,250
per share, 1,000,000 shares
authorized, 94,167 shares issued
and outstanding
Additional Paid In Capital 1,918,988 4,154,260
Retained Earnings (deficit) (345,751) (345,751)
Total Capitalization 1,766,399 5,824,603
- --------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Adjusted to reflect the closing of the Artisan House Transaction.
(2) Adjusted to reflect the sale of 300,000 Units offered hereby and the
net proceeds therefrom of $2,010,000.
(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."
(4) Includes equity financing for Series C Non-Voting Convertible
Preferred Stock of $706,250 received in August 1996. See "Certain
Transactions."
29
<PAGE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefore. Holders of the Company's Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock are not entitled to receive dividends. The
Company has not in the past and does not currently anticipate the declaration or
payment of any dividends in the foreseeable future. The Company intends to
retain earnings, if any, to finance the development and expansion of its
business. Future dividend policy will be subject to the discretion of the Board
of Directors and will be contingent upon future earnings, if any, the Company's
financial condition, capital requirements, general business conditions and other
factors. Therefore, there can be no assurance that any dividends of any kind
will ever be paid.
BRIDGE FINANCING
In March 1996, the Company borrowed an aggregate of $250,000 from nine (9)
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."
30
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected historical financial data for the period ended June 30, 1996
and for the period ended March 31, 1996 presented below are derived from the
unaudited pro forma combined financial statements and the historical financial
statements of the Company, certain of which have been audited by Moore Stephens,
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 June As of June 30, As of March As of March
30, 1996 1996, As 31, 1996, (4) 31, 1996, As
($)(1) Adjusted Adjusted(3)
(1)(2)(3)($) (4)(5)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ---- 1,386,976 ---- 4,809,422
Gross Profit ---- 647,262 ---- 2,213,039
Operating Income (Loss) (138,851) 137,886 (100,000) (25,552)
Net (Loss) (246,001) (37,765) (99,750) (275,054)
Net (Loss) per share (.04) (.01) (.02) (.05)
Weighted Average number of 5,625,000 5,725,000 5,625,000 5,725,000
Common Shares outstanding
- ------------------------------------------------------------------------------------------------------
</TABLE>
Summary Balance Sheet Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At June 30, 1996 At June 30, 1996, As
($) Adjusted(2) ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Working Capital (deficit) (216,109) 1,620,547
Total Assets 1,874,399 6,352,822
Total Liabilities 300,850 1,837,681
Stockholder's Equity 1,573,549 4,515,141
- --------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
- ----------
(1) Includes results for the three months ended June 30, 1996 for Decor Group,
Inc.
(2) Adjusted to reflect the closing of the Artisan House Transaction and
adjusted to reflect the sale of 300,000 Units offered hereby and the net
proceeds therefrom of $2,010,000 and preferred stock sale for 706,250.
(3) Includes results for the three months ended June 30, 1996 for Artisan
House.
(4) Includes results for the period March 1, 1996 (Inception) through March 31,
1996 for Decor Group, Inc.
(5) Includes results for the fiscal year ended January 31, 1996 for Artisan
House.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Decor Group, Inc. [the "Company" or "Decor"] was formed in March of 1996.
The primary activities of Decor prior to the acquisition of Artisan House, Inc.
["Artisan"] have been investing and financing activities [See "Liquidity and
Capital Resources"]. In March of 1996, the Company entered into an Asset
Purchase Agreement to acquire Artisan House, Inc. for approximately $3,526,400,
subject to certain adjustments. Artisan is engaged in the manufacture,
marketing, selling and distribution of wall hanging sculptures.
As a result of negotiations between the Company and Interiors, Inc.
("Interiors"), on March 3, 1996, the Company issued to Interiors, Inc., 500,000
shares of Series A Non-Voting Convertible Preferred Stock and an option to
purchase 20,000,000 shares of Series B NonConvertible Voting Preferred Stock at
an exercise price of $.0001 in exchange for the issuance by Interiors to the
Company of 200,000 shares of Common Stock with a market closing price of
$600,000 and 200,000 shares of Series A Convertible Preferred Stock with a
market closing price of $1,200,000. The issuance of options instead of stock was
done at the request of Interiors, Inc. The valuation of the investment in both
classes of Interiors, Inc.'s securities approximated 89% of market closing price
at the time of issuance. Accordingly, aggregate fair value on the investment
approximates carrying value. As disclosed at note 11(A) on May 28, 1996 the
Company entered into a management agreement with Interiors, Inc. whereby
Interiors, Inc. will provide to the Company certain marketing and management
services. The exchange of shares between the Company and Interiors described
above is pursuant to the Company's intentions to ensure the ongoing and
long-term availability of these services. It is the Company's intention to
maintain a long-term position in its investment in Interiors. As of June 30,
1996, the per share closing market price of Interiors's Common Stock and Series
A Convertible Preferred Stock was $4.25 and $7.25, respectively. Accordingly,
gross unrealized holding gains of $250,000 and $450,000 exist of June 30, 1996
for the Common Stock and Series A Convertible Preferred Stock, respectively.
Following the proposed public offering, Interiors will own approximately 88.3%
if the total voting stock outstanding assuming the exercise of the options to
purchase 20,000,000 shares of Class B Preferred Stock and conversion of 500,000
shares of the Series A Preferred Stock. Such ownership is consistent with the
Company's intentions stated above as well as the provision by Interiors, Inc.,
of additional equity contributions disclosed at Note 11E.
On August 9, 1996, the Company agreed to issue to Interiors, Inc. 56,667
shares of Series C Non-Voting Convertible Preferred Stock in exchange for a cash
subscription payment of $425,000.
On August 24, 1996, the Company agreed to issue an additional 37,500 shares
of
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Series C Non-Voting Convertible Preferred Stock in exchange for cash
subscription of $281,250.
Artisan House, Inc. for the fiscal year ended January 31, 1996
Results of Operations
Artisan had income before provision for pro forma income taxes for the
years ended January 31, 1996 and 1995 of $451,083 and $330,517, respectively.
The net sales for Artisan House, Inc. for the years ended January 31, 1996
and 1995 were $4,809,422 and $3,994,909, respectively, an increase of
approximately $800,000 or 20%. Sales increased because of the general acceptance
by the marketplace of new products such as "Casablanca", Norman Rockwell scenes,
and musical scenes. In addition, sales to large catalog houses increased during
the current period.
Artisan's selling, general and administrative expenses for the years ended
January 31, 1996 and 1995 were $1,684,591 and $1,464,224, respectively, an
increase of approximately $220,000 or 15%. Increases in selling, general and
administrative expenses were largely due to increased expenditures for
advertising, to support new product introductions, and increased commissions
resulting from sales increases.
Artisan's interest expense for the years ended January 31, 1996 and 1995
was approximately $84,000 and $68,000, respectively. Interest expense increased
because of the addition of an equipment lease for computer equipment and an
automobile lease for an Artisan House manager.
Liquidity and Capital Resources
Artisan House, Inc. at January 31, 1996 had working capital of
approximately $400,000. During the years ended January 31, 1996 and 1995,
Artisan generated cash of approximately $132,000 and $208,000, respectively,
from operations. During the years ended January 31, 1996 and 1995, Artisan
purchased equipment for approximately $17,000 and $67,000, respectively. During
the years ended January 31, 1996 and 1995, Artisan repaid officers' loans of
$58,313 and $19,342, respectively, and repaid notes payable of $42,359 and
$67,063, respectively. At January 31, 1996, Artisan House's cash balance was
$96,771.
Decor Group, Inc.
Results of Operations for the period March 1, 1996 (Inception) to March 31, 1996
For the month ended March 31, 1996, Decor Group, Inc. generated a loss before
income taxes of $99,750.
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Liquidity and Capital Resources
Decor had positive working capital of $69,550 at March 31, 1996. The
Company utilized $98,000 from operations for the period March 1, 1996 through
March 31, 1996. This largely was due to activities relating to the acquisition
of Artisan House, including expenditures for accounting and legal due diligence,
as well as out-of-pocket expenses relating thereto. Investing activities
required the use of $200,000 for this same period. Of this amount, $150,000 was
a partial payment for the acquisition of Artisan House. The balance of $50,000
related to a note due from an affiliate which was collected subsequent to the
March 31, 1996. The Company generated $345,000 in cash from financing activities
from the period March 1, 1996 through March 31, 1996 resulting from the sale of
stock to the founders of the Company with cash proceeds of $95,000 (balance of
$8,000 received in May 1996) and proceeds from bridge loans of $250,000.
Artisan House, Inc.
Results of Operations for the five months ended June 30, 1996
Artisan had pro forma net income for the five months ended June 30, 1996 of
$170,780.
The net sales for Artisan House, Inc. for the five months ended June 30,
1996 were $2,310,976 and $1,904,832, respectively, an increase of approximately
$400,000 or 21%. Sales increased because of the general acceptance by the
marketplace of new products such as "Casablanca", Norman Rockwell scenes, and
musical scenes. In addition, sales to large catalog houses increased during the
current period.
Artisan's selling, general and administrative expenses for the five months
ended June 30, 1996 and 1995 were $764,625 and $648,671, respectively, an
increase of approximately $116,000 or 18%. Increases in selling, general and
administrative expenses were largely due to increased expenditures for
advertising, to support new product introductions, and increased commissions
resulting from sales increases.
Artisan's interest expense for the five months ended June 30, 1996 and 1995
was approximately $28,000 and $26,000, respectively. Interest expense increased
because of the addition of an equipment lease for computer equipment and an
automobile lease for an Artisan House manager.
Liquidity and Capital Resources
Artisan House, Inc. at June 30, 1996 had working capital of approximately
$684,000.
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During the period, Artisan generated cash of approximately $64,000 and $85,000,
respectively, from operations. During the five months ended June 30, 1996 and
1995, Artisan purchased equipment for approximately $2,000 and $9,000,
respectively. During the five months ended June 30, 1996, Artisan made
repayments on officers' loans of $270,360 and $11,606, respectively, and repaid
notes payable of $64,332 and $14,429, respectively. At June 30, 1996, Artisan
House's cash balance was $37,876. See Note B to Pro Forma Financial Statements.
Decor Group, Inc.
Results of Operations for the three months ended June 30, 1996.
The Company generated a loss before income taxes of $246,001.
Liquidity and Capital Resources
At June 30, 1996, Decor had a working capital deficit of $216,109.
Unamortized bridge loan liabilities, together with expenses accrued in the
finalization of the asset Purchase Agreement (see "Business-General") exceeded
cash and related party receivables by this amount. For the three months ended
June 30, 1996, the Company used $30,601 for operating activities. The Company
incurred approximately $126,000 in fees and expenses relating to the Asset
Purchase Agreement (see "Business-General"), of which $30,851 was paid at June
30, 1996, comprising the primary cause of the operating use of cash for the
period. For the three months ended June 30, 1996, investing activities generated
additional cash of $35,000, due to proceeds of $50,000 from a note with a
related party, partially offset by the payment of $15,000 as an extension
payment to the seller of Artisan House, Inc. For the three months ended June 30,
1996, financing activities required the use of $31,158, caused by the generation
of deferred offering costs of $74,658, partially offset by proceeds of $8,000
from the sale of common stock an $35,500 from stockholder loans. The cash
balance at June 30, 1996 was 20,241.
The Company anticipates that the net proceeds from the proposed public
offering will generate approximately $2,010,000. The proceeds are primarily
intended to finance the purchase of Artisan House, and for working capital
needs.
In March 1996, the Company issued to Interiors, Inc. 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.
[See Note 8].
In May 1996, the Company entered into a management agreement with
Interiors, Inc. which specializes in the home furnishings and decorative
accessories industries. The
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agreement calls for a management fee to Interiors of $75,000 or 1.5% of gross
sales, whichever is greater, per annum. The management fee will be accrued
quarterly and paid quarterly to the extent that there is excess cash flow
available to the Company. Excess cash flow is defined in the agreement to mean
cash flow from operations adjusted to reflect changes in working capital,
interest payments, principal repayments and capital expenditures. No payment in
any quarter will exceed 50% of excess cash flow as defined. The agreement has a
term of two years with renewal options at the mutual consent of both parties
[See Note 8].
In June 1996, the Company entered into an employment contract with the
President of the Company for which an initial base salary of approximately
$117,000 will take effect upon the close of the acquisition of Artisan House.
On May 31, 1996, the Company received a commitment letter for a revolving
credit agreement for a maximum loan amount of $1,100,000. The agreement requires
the satisfaction of a number of conditions prior to funding including the
completion of a due diligence review. The terms of the loan include an annual
interest rate of prime plus 4%, a management fee of 3% of sales, a security
interest in all of the Company's accounts receivable, inventory, and equipment,
and any proceeds therefrom, a guaranty of the Company's Chairman of the Board,
and a prepayment fee of $25,000 in the event of a prepayment. In the event that
the Company is unable to satisfy such conditions, the Company will not receive
the proceeds from such loan. Subsequent to the Offering contemplated herein, the
Company will have sufficient funding to complete the transaction without the
benefit of the proceeds from the Secured Loan.
Management believes that the proceeds of the Offering and the other
transactions contemplated herein will provide the Company with sufficient
capital to fund ongoing operations for at least 12 months from the Effective
Date. Management believes that capital requirements relating to research and
development and capital expenditures will be met by funds derived from
operations.
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BUSINESS
General
Decor Group, Inc., a Delaware corporation (the "Company" or "Decor"), was
incorporated in March 1996. Artisan Acquisition Corporation, a Delaware
corporation wholly owned by the Company ("AAC"), was incorporated in March 1996
for the purpose of entering into an Asset Purchase Agreement with Artisan House,
Inc. ("Artisan House") pursuant to which AAC has agreed to purchase
substantially all of the operating assets, and assume certain liabilities, of
Artisan House (the "Artisan House Transaction") for an aggregate purchase price
of $3,626,400, 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.
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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 (the "Cash Amount"); (iii) the delivery of a promissory note issued by
AAC in the principal amount of $926,400 less the Retained Cash Amount and
subject to the Balance Sheet Adjustment; and (iv) the issuance of 100,000 shares
of common stock of the Company (the "Shares") which for purposes of the
Agreement is valued at $200,000 (the fair market value utilized in the pro forma
statements herein values this component of the Purchase Price at $300,000). With
respect to the Note, $100,000 is payable ninety days after the Closing without
any payment of interest; $676,400 (subject to the Balance Sheet Adjustment) is
payable over a five year period in sixty equal monthly installments, the first
installment of which is due one hundred twenty days after the Closing; and
$150,000 is payable on the date on which the last installment is paid as set
forth above, without any payment of interest. The Note is secured by a second
security interest in the assets purchased pursuant to the Agreement which is
subordinate to a first priority security interest, such first interest not to
exceed 55% of the value of said assets from time to time (subject to a minimum
of 55% of the value of said assets on the date of closing). In the event that
the shares of the Company issuable to AHI are worth less than $200,000 on the
second anniversary of the Closing, AAC shall, at its option, either pay the
difference to AHI in cash or the Company shall issue additional shares having a
fair market value equal to such difference to AHI. If the Company has not
effected a public offering of its common stock by said second anniversary, AHI
can require that AAC or Decor repurchase the shares for the sum of $200,000.
The Closing was originally scheduled for May 31, 1996. In exchange for the
payments of $15,000, in each of June, July and August, AHI has agreed to extend
the Closing Date to August 30, 1996. These payments will reduce the Cash Amount
of the Purchase Price due by the Company at Closing. The Company anticipates
amending the agreement to postpone the Closing to October 30, 1996. In exchange
for such extension, the Company has agreed to pay $40,000 which will reduce the
Cash Amount of the Purchase Price. In addition, the Company has agreed to amend
Mr. Goldman's employment agreement as described in the following paragraph. It
also contemplated that prior to the Effective Date, the Company and Artisan
House will execute and deliver all documents necessary to consummate the
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Transaction. Such documents will then be held in escrow pending delivery of the
Cash Amount and the Shares. It is anticipated that the Cash Amount and the
Shares will be delivered contemporaneously with the closing of this Offering.
The Closing is subject to AAC's due diligence investigation, which permitted AAC
to terminate the Agreement without penalty prior to April 8, 1996, if such
investigation disclosed any material change in AHI's business, operations or
conditions or in its assets, liabilities, net worth or properties. If the
Agreement is terminated prior to the Closing, (other than due to the fault of
AHI or Goldman), AHI may retain any payments made by AAC. The Agreement also
contains restrictions on AHI and Goldman from competing with AAC for a five year
period after the Closing. The Agreement further contains provisions relating to
the confidentially of information and the non-solicitation of suppliers and
employees by AAC should the transaction fail to close. Any disputes are to be
submitted to 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 will be employed as the President and
Chief Executive Officer of AAC with (I) an annual salary of $75,000; (ii) a
signing bonus of $70,000, $30,000 of which is to be paid at Closing and $40,000
of which is to be paid in equal monthly installments of $3,333.33 during the
first year of the employment agreement, (iii) reimbursement of expenses incurred
by Mr. Goldman for lease and insurance payments with respect to his automobile,
(iv) an annual performance bonus equal to 1% of the Company's sales in excess of
those achieved by Artisan as of the Closing on an annualized basis, and (v) 2.5%
of the consideration paid by the Company in connection with an acquisition of an
unrelated third party introduced to the Company by Goldman. The Employment
Agreement also contains provisions protecting the confidential information of
AAC and restricting Goldman from competing with AAC. The Agreement further
provides for AAC to lease facilities from Goldman and his wife for a five year
term, with an initial monthly rent of approximately $14,000. The Company
believes that the rent payable to Mr. Goldman is at or below the fair market
value for such premises.
Manufacturing
Artisan House manufactures substantially all of its sculptures and
decorative pieces at its facility in Glendale, California. Virtually all of
Artisan House's products are made of assorted metals, such as brass, bronze,
steel and aluminum which are then formed and hand finished. Artisan House's
manufacturing operations include customized proprietary metal fabrication
equipment, using tools, jigs and dies especially created for the Company.
Production also includes finishing, which involves hand painting and toning. The
Company has developed and installed a finishing process which uses proprietary
techniques and management believes the results of this process substantially
improves the appearance of the product.
The Company maintains an inventory of various metal such as brass, bronze
and stainless steel and other materials for use in its manufacturing processes.
The Company's tool and die inventory allows for the manufacturing of a broad
range of designs. These tools can be used to produce over hundreds of styles of
decorative wall sculptures.
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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.
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.
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Competition
The sculpture and decorative accessory industry in the United States is
highly fragmented and consists primarily of small, local manufactures and
assemblers. Only a few companies are basic manufacturers of metal wall hangings
and sculptures. However, there can be no assurance that the Company's position
in this industry will continue.
Management believes that the sale of decorative accessories in the
wholesale market is also highly fragmented, with thousands of small, specialized
manufacturers and distributors and management is not aware of a manufacturer of
upscale decorative accessories similar to those distributed by Artisan House.
The Company believes that its competitive advantage lies in its ownership
of a substantial number of models, tools, jigs and dies and its continuing
ability to manufacture quality products. Management also believes that the
Company is further protected by what the Company considers to be its excellent
reputation with its customer base and management's estimation that the cost to
build tools, jigs, dies and molds, make the entry of meaningful competition
extremely difficult. Management also believes that it would be difficult to
establish a trained work force of skilled crafts people. However, there can be
no assurance that such assets will continue to afford the Company any
competitive advantage. See "Business-Manufacturing."
Management Services Agreement
In May 1996, the Company entered into a two year Management Services
Agreement with Interiors, Inc. ("Interiors"). Interiors has, pursuant to such
agreement, agreed to advise the Company on the manufacturing, sale, marketing
and distribution of the Company's products as well as providing the Company
accounting and administrative services and strategic planning with regard to
joint natures, acquisitions, and other long term business initiatives. In
exchange for such services, the Company has agreed to pay to Interiors an annual
amount equal to the greater of (I) $75,000 or (ii) 1 1/2% of Excess Cashflow (as
defined in the agreement). The Management Services Agreement is automatically
renewable for an additional one (1) year term unless terminated by either party
not less than sixty (60) days prior to the end of the term may be terminated by
the Company or Interiors upon sixty (60) days prior written notice. In the event
that the Management Services Agreement is terminated for any reason, the
Company's business may be negatively effected. In such an event, the Company may
be required to hire additional personnel or engage one or more independent
contractors at an added cost to the Company. See "Business - Management Services
Agreement" and "Certain Transactions."
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.
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The terms of the Secured Loan include (I) an annual interest rate of the prime
rate, plus 4%, (ii) a collateral management fee of 3% of sales, (iii) a security
interest in all of the Company's accounts receivable, inventory and equipment,
and any proceeds therefrom, (iv) a guaranty of the Company's obligations by Max
Munn, the Company's Chairman of the Board, Laurie Munn, the wife of Max Munn,
Interiors, Inc. and Italia Collection, Inc., a wholly owned subsidiary of
Interiors, (v) a prepayment fee of $25,000 in the event of a prepayment and (vi)
a borrowing base to be agreed upon by the parties.
Trademark Protection
The trademarks "Artisan House", "C. Jere", "Sautere", and "Glendale
Ironworks" have been registered with the United States Patent and Trademark
Office ("PTO"). The Company presently intends to make all appropriate filings
and registrations and take all other actions necessary, to protect all of its
intellectual property rights. There can be no assurance, however, that the
Company will be able to effectively protect such property rights. The failure by
the Company to protect such rights from unlawful and improper appropriation may
have a material adverse effect on the Company. Although to date no claims have
been brought against the Company alleging that it infringes on the intellectual
property rights of others, there can be no assurance that such claims will not
be brought against the Company in the future, or that if made, such claims will
not be successful. In addition to any potential monetary liability for damage,
the Company could be required to obtain a license in order to continue to use
the trademarks in question or could be enjoined from using such trademarks if
such license were not made available on acceptable terms. If the Company becomes
involved in such litigation, it may divert significant Company resources, which
could have a material adverse effect on the Company and its results or
operations, and, if such a claim were successful, the Company's business could
be materially adversely affected.
Research and Development
The Company continually seeks to develop additional designs and related
tooling. The Company estimates that it expends approximately $100,000 per annum
on such activities. So long as the Company generates sufficient cash flow, the
Company expects to continue to increase its expenditures for product development
as it expands its in-house manufacturing to expand its finishing and fabrication
capabilities. However, there can be no assurance that such product development
will yield profitable growth.
Government Regulation
The Company's operations are subject to numerous Federal, state and local
laws and 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
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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. The Company and its employees are not parties to any collective
bargaining agreements. The Company believes its relationship with all of its
personnel is satisfactory.
Legal Proceedings
There are no legal proceedings pending, or to the Company's knowledge
threatened, against the Company.
Properties
The Company has its principal offices at 320 Washington Street, Mt. Vernon,
New York, where it has sub-leased approximately 500 square feet of
administrative offices from Interiors, Inc., a stockholder of the Company. The
Company's manufacturing and warehousing facilities and factory showroom are
located at 1755 Glendale Boulevard, Los Angeles, California in a 38,000 square
foot leased facility. The Company's lease with Henry Goldman on the Los Angeles
facility expires five years following the date of closing of the Artisan House
Transaction. The Company has determined that there is substantial manufacturing
and warehousing space available in the vicinity if the Company were required to
expand or relocate some or all of its current facilities. However, there can be
no assurances that when the current sublease for the Company's principal
facility expires that the Company will be able to negotiate a renewal thereof on
acceptable terms or obtain alternative manufacturing and warehousing space on
terms acceptable to the Company.
The Company also operates two (2) leased showrooms, which are in San
Francisco, CA and High Point, NC.
The Company believes all of such facilities are adequate for its current
needs; however, there can be no assurance that the Company will be able to
obtain appropriate facilities on terms
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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 32 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 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. Commencing on the Effective
Date, Mr. Feldman will work for the Company on a full time basis. From April
1990 to May 1995, he served as Vice President of Sales and
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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.
Employment Agreement
The Company intends to enter into a three (3) year employment agreement
with Donald Feldman to be effective as of the Effective Date of this offering.
Mr. Feldman is the President and will continue to serve as the President of the
Company. The agreement will provide for Mr. Feldman to receive a salary of
$117,500 per annum and an annual bonus equal to two percent (2%) of the amount
by which the Company's net sales exceed the sales
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recorded by the Company for the year ending June 30, 1997. In addition, Mr.
Feldman will be granted options to purchase 10,000 shares of Common Stock of the
Company at an exercise price of $2.50 per share for each full year of employment
under the agreement. The Company also agreed to reimburse Mr. Feldman for bona
fide business expenses including up to $400 a month for the use of an automobile
and $200 a month for insurance.
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
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of shares subject to each Option grant, the prices at which Options may be
exercised (which shall not be less than the fair market value of shares of
common Stock on the date of grant), whether an Option will be an Incentive
Option or a Non-Incentive Option, time or times and the extent to which Options
may be exercised and all other terms and conditions of options will be
determined by the Committee.
Each Incentive Option shall terminate no later than ten (10) years from the
date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined No Incentive Option may be
granted at any time after October 2005. Each Non-Incentive Option shall
terminate no later than ten (10) years from the date of grant. The exercise
price at which the shares may be purchased may not be less than the Fair Market
Value of shares of Common Stock at the time the Option is granted, except as
provided below with respect to Incentive Options granted to 10% Stockholders.
Options granted to executive officers may not be exercised at any time prior to
six (6) months after the date of grant.
The exercise price of an Incentive Option granted to a person possessing
more than 10% of the total combined voting power of all shares of stock of the
Company or a parent or subsidiary of the Company ("10% Stockholder") shall in no
event be less than 110% of the Fair Market Value of the shares of the Common
Stock at the time the Incentive Option is granted. The term of an Incentive
Option granted to a 10% Stockholder shall not exceed five (5) years from the
date of grant.
The exercise price of the shares to be purchased pursuant to each Option
shall be paid (i) in full in cash, (ii) by delivery (i.e., surrender) of shares
of the Company's Common Stock owned by the option at the time of the exercise of
the Option (iii) in installments, payable in cash, if permitted by the Committee
or for any combination of the foregoing. The stock-for-stock payment method
permits an optionee to deliver one (1) or more shares of previously owned Common
Stock of the Company in satisfaction of the exercise price of subsequent
Options. The optionee may use the shares obtained on each exercise to purchase a
larger number of shares on the next exercise. (The foregoing assumes an
appreciation in value of previously acquired shares). 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.
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Limited Stock Appreciation Rights. The Committee is authorized, in
connection with any Option granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the Common Stock on the effective date of the Change in Control. The
LSAR may be granted in tandem with an Option or subsequent to grant of the
Option. The LSAR will only be exercisable to the extent the related Option is
exercisable and will terminate if and when the Option is exercised.
Restricted and Deferred Stock. An award of restricted stock or deferred
stock may be granted under the 1996 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions by the Committee at the
time of grant. In the event that the holder of restricted stock cease to be
employed by the Company during the applicable restrictive period, restricted
stock that is at the time subject to restrictions shall be forfeited and
reacquired by the Company. Except as otherwise provided by the Committee at the
time of the grant, a holder of restricted stock shall have all the rights of a
stockholder including, without limitation, the right to vote restricted stock
and the right to recover dividends thereon. An award of deferred stock is an
award that provides for the issuance of stock upon expiration of a deferral
period established by the Committee. Except as otherwise determined by the
Committee, upon termination of employment of the recipient of the award during
the applicable deferral period, all stock that is at the time subject to
deferral shall be forfeited until such time as the stock which is the subject of
the award is issued, the recipient of the award has no rights as a stockholder.
Dividend Equivalent Awards. A dividend equivalent gives the recipient the
right to receive cash or other property equal in value to the dividends that
would be paid if the recipient held a specified number of shares of Common
Stock. A dividend equivalent right may be granted as a component of another
award or as a freestanding award.
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, Inc.(7) 1,827,500 69.6% 11.3%(1)
5 Old Woods
Harrison, NY 10528
Laurie Munn 200,000 7.6% 1.2%(2)
c/o Interiors, Inc.
320 Washington Street
Mt. Vernon, NY 10553
First National 250,000 9.5% 1.6% (3)
Funding(8)
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 700,000(5)(6) 26.6% 18.6%(2)
Interiors, Inc.
320 Washington Street
Mt. Vernon, NY 10553
Michael Lulkin --- --- ---
750 Lexington Avenue
27th Floor
New York, NY 10022
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Interiors, Inc. 500,000(6)(9) 19.0% 13.4%
320 Washington Street
Mt. Vernon, NY 10553
All officers and 250,000(5) 9.5% 8%
directors as 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 160,000 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 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 held by
Interiors, Inc.
(7) M.D. Funding, Inc. is wholly owned by Donna Fields.
(8) First National Funding is wholly owned by Greg Roberts and Noel Roberts.
(9) Interiors also holds 94,167 shares of Series C Preferred Stock and an
option 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 88.3% of the voting
shares outstanding. See "Description of Securities."
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CERTAIN TRANSACTIONS
In March, 1996, the Company issued to certain investors (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, and (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. In addition, the Company also issued
in March 1996 25,000 Units to Gordon Brothers Capital Corporation for management
services rendered valued at an aggregate of $2,000.
In March 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 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.
The Company intends to enter into a three (3) year employment agreement
with Donald Feldman to be effective as of the Effective Date of this offering.
Mr. Feldman is the President and will continue to serve as the President of the
Company. The agreement will provide for Mr. Feldman to receive a salary of
$117,500 per annum and an annual bonus equal to two percent (2%) of the amount
by which the Company's net sales exceed the sales recorded by the Company for
the year ending June 30, 1997. In addition, Mr. Feldman will be granted options
to purchase 10,000 shares of Common Stock of the Company at an exercise price of
$2.50 per share for each full year of employment under the agreement. The
Company also agreed to reimburse Mr. Feldman for bona fide business expenses
including up to $400 a month for the use of an automobile and $200 a month for
insurance.
In May 1996, the Company entered into a two year Management Services
Agreement with Interiors, Inc. ("Interiors"). Interiors has, pursuant to such
agreement, agreed to advise the Company on the manufacturing, sale, marketing
and distribution of the Company's products as well as providing the Company
accounting and administrative services and strategic planning with regard to
joint ventures, acquisitions, and other long term business initiatives. In
exchange for such services, the Company has agreed to pay to Interiors an annual
amount equal to the greater of (I) $75,000 or (ii) 1 1/2% of Excess Cashflow (as
defined in the agreement). The Management Services Agreement is automatically
renewable for an additional one (1) year term unless terminated by either party
not less than sixty (60) days prior to the end of the term may be terminated by
the Company or Interiors upon sixty (60) days prior written notice. In the event
that the Management Services Agreement is terminated for any reason, the
Company's business may be negatively effected. In such an event, the Company may
be required to hire additional personnel or engage one or more
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independent contractors at an added cost to the Company. See "Business -
Management Services Agreement."
In June 1996, the Company borrowed an aggregate of $50,000 from the
Company's stockholders, other than Gordon Brothers Capital Corporation, on a pro
rata basis based upon ownership of the Company's shares of Common Stock. Each
lender received a promissory note obligating the Company to repay the loan on
the earlier of (I) fifteen (15) months following the Effective Date of (ii) June
21, `998. The Company utilized the proceeds from the loan for working capital
purposes.
In August 1996, the Company agreed to issue 94,167 shares of Series C
Preferred Stock to Interiors, Inc. in exchange for the payment of $706,250.
With respect to each of the foregoing transactions, the Company believes
that the terms of such transactions were as fair to the Company as could be
obtained from an unrelated third party. Future transactions with affiliates will
be on terms no less favorable than could be obtained from unaffiliated parties
and will be approved by a majority of the independent and/or disinterested
members of the board of directors.
DESCRIPTION OF SECURITIES
The Company is offering 300,000 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 3,225,000 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.
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Holders of shares of Common Stock are entitled to cast one (1) vote for
each share held at all stockholders' meetings including the annual meeting, for
all purposes, including the election of directors. The Common Stock does not
have cumulative voting rights.
Preferred Stock
The Company's Certificate of Incorporation authorizes 35,000,000 shares of
Preferred Stock, whereby the Board of Directors of the Company shall have the
authority, without further action by the holders of the outstanding shares of
Common Stock, to issue shares of Preferred Stock from time to time in one or
more classes or series, to fix the number of shares constituting any class or
series and the stated value thereof, if different from the par value, and to fix
the term of any such series or class, including dividend rights, dividend rates,
conversion or exchange rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price and the liquidation
preference of such class or series. As of the date of this Prospectus, there are
(I) 5,000,000 shares of Series A Convertible Preferred Stock authorized, of
which 500,000 shares are issued and outstanding, (ii) 20,000,000 shares of
Series B Non-Convertible Preferred Stock authorized, all of which are issuable
upon exercise of the Series B Option held by Interiors, and (iii) 1,000,000
shares of Series C Convertible Preferred Stock authorized, of which 94,167
shares are issued and outstanding. 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").
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Conversion. Shares of the Series A Preferred Stock of the Company shall be
convertible from time to time, subject to adjustment, at the option of the
holders of record thereof into one (1) share of the Company's Common Stock,
subject to certain anti-dilution provisions.
Series B Non-Convertible Preferred Stock
The number of shares constituting the Series B Non-Convertible Preferred
Stock (the "Series B Preferred Stock") is 20,000,000, par value $.0001 per
share, 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.
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.
Series C Convertible Preferred Stock
The number of shares constituting the Series C Convertible Preferred Stock
(the "Series A Preferred Stock") is 1,000,000, $.0001 par value per share,
94,167 of which are issued and outstanding as of the Effective Date of the
Offering.
Dividends. Each issued and outstanding share of Series C Preferred Stock of
the Company shall not be entitled to receive dividends.
Voting. The holders of Series C Preferred Stock shall not have the right to
vote on matters presented to the stockholders of the Company, except as provided
by the General Corporation Law of the State of Delaware.
Rights on Liquidation, Dissolution or Winding Up. In the event of any
liquidation,
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<PAGE>
dissolution, or winding up of the affairs of the Company, whether voluntary or
involuntary, each issued and outstanding share of Series C Preferred Stock shall
entitle the holder of record thereof to payment at the rate of $.0001 dollars
per share, plus an amount equal to all accrued and unpaid annual dividends, if
any, before any payment or distribution of the net assets of the Company
(whether stated capital or surplus) shall be made to or set apart for the
holders of record of the issued and outstanding of any other shares of preferred
stock and shares of Common Stock ("Junior Securities").
Conversion. Shares of the Series C Preferred Stock of the Company shall be
convertible commencing on September 1, 1997, subject to adjustment, at the
option of the holders of record thereof into one (1) share of the Company's
Common Stock, subject to certain anti-dilution provisions.
Class A Warrants
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 August 29, 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.
57
<PAGE>
Article Ninth of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section 102
of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
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"). In March 1996, the Unit Holder
rendered management services to the Company in exchange for which the Company
issued 25,000 Units thereto. Following this offering, the Unit Holder will not
hold any of the Company's securities. 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, (ii) 2,062,000 shares
of Common Stock held by certain investors in the Company (the "Selling
Stockholders") and (iii) 500,000 shares of Common Stock issuable to Interiors,
Inc. ("Interiors"), an affiliate of the Company, upon the conversion of 500,000
shares of Series A Preferred Stock held thereby;
58
<PAGE>
(the Bridge Lenders, the Selling Stockholders and Interiors are collectively
referred to as the "Selling Securityholders"). The officers and directors of the
Company as well as certain members of their immediate families (including
certain Selling Securityholders) have agreed not to sell or transfer the
securities of the Company held thereby for a period of twenty-four (24) months
following the Effective Date, subject to earlier release by the Representative.
The Company will not receive any of the proceeds on the sale of the securities
by the Selling Securityholders. The resale of the securities of the Selling
Securityholders are subject to Prospectus delivery and other requirements of the
Securities Act of 1933, as amended (the "Act"). Sales of such securities or the
potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Risk Factors - Shares Eligible for
Future Sale May Adversely Affect the Market."
The securities offered hereby may be sold from time to time directly by the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through Representatives, dealers or agents.
The distribution of securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (C) ordinary brokerage transactions
and transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling Securityholders
and intermediaries through whom such securities are sold may be deemed
"Representatives" 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 Representatives, dealers or agents,
if any, the purchase price paid by any Representative 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.
59
<PAGE>
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 Representative has agreed to purchase from the Company
300,000 Units offered hereby from the Company and 25,000 Units from the Unit
Holder, on a "firm commitment" basis, if any are purchased. The Representative
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
Representative. The Underwriter does not intend to sell any of the securities
offered hereby to accounts for which it exercises discretionary authority.
The public offering price of the Units and the exercise price and other
terms of the Class A Warrants was arbitrarily determined by negotiations between
the Company and the Representative and do not necessarily relate to the assets,
book value or results of operations of the Company or any other established
criteria of value.
The Company has granted an option to the Representative, exercisable during
the thirty (30) day period from the date of this Prospectus, to purchase up to a
maximum of 45,000 additional 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 Representative against certain liabilities in connection
with the Registration Statement, including liabilities arising under the Act.
Insofar as indemnification for liabilities arising under the Act may be provided
to officers, directors or persons controlling the Company, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay to the Representative a non-accountable
expense allowance of three percent (3%) of the aggregate Offering price of the
Units offered hereby, including any Units purchased pursuant to the
Over-Allotment Option.
The Company has agreed to sell to the Representative, or its designees, for
an aggregate purchase price of $30, an option (the "Representative's Unit
Purchase Option") to purchase up to an aggregate of 30,000 Units. The
Representative's Unit Purchase Option shall be exercisable during a four (4)
year period commencing one (1) year from the Effective Date. The
Representative's Unit Purchase Option may not be assigned, transferred, sold or
hypothecated by the Representative until twelve (12) months after the Effective
Date of this Prospectus,
60
<PAGE>
except to officers of the Representative or to selling group members in this
Offering. Any profits realized upon the sale of the Units issuable upon exercise
of the Representative's Unit Purchase Option may be deemed to be additional
underwriting compensation. The exercise price of the Units issuable upon
exercise of the Representative's Unit Purchase Option during the period of
exercisability shall be one hundred sixty five percent (165%) of the initial
public offering price of the Units. The exercise of the Representative'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
Representative'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
Representative's Unit Purchase Option is outstanding. At any time when the
holders of the Representative'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 Representative, the Company has agreed to pay
the Representative a finder's fee equal to five percent (5%) of the first
$4,000,000 of consideration involved in the transaction, ranging in $1,000,000
increments down to two percent (2%) of the excess, if any, over $6,000,000.
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 Representative, pursuant to which the Company will be obligated to pay
the Representative $100,000 in advance upon the closing of the Offering, for
financial and investment advisory services to the Company.
The Company has agreed with the Representative that the Company will pay to
the Representative a warrant solicitation fee (the "Warrant Solicitation Fee")
equal to four percent (4%) of the exercise price of the Class A Warrants
exercised beginning one (1) year after the Effective Date and to the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission. Such Warrant Solicitation Fee will be paid to the Representative
if (a) the market price of the Common Stock on the date that any Class A
Warrants is exercised is greater than the exercise price of the Class A Warrant;
(b) the exercise of such Class A Warrant was solicited by the Representative;
(C) prior specific written approval for exercise is received from the customer
if the Class A Warrant is held in a discretionary account; (d) disclosure of
this compensation agreement is made prior to or upon the exercise of such Class
A Warrant; (e) solicitation of the exercise is not in violation of Rule 10b-6 of
the Exchange Act; and (f) solicitation of the exercise is in compliance with
NASD Notice to Member 81-38. In addition, unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Representative 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
61
<PAGE>
nine (9) business days prior to the exercise of any Class A Warrant based on a
prior solicitation until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Representative may have to receive such a fee for the exercise of Class A
Warrants following such solicitation. As a result, the Representative may be
unable to continue to provide a market for the Company's securities during that
certain period while the Class A Warrants are exercisable. See "Risk Factors -
Lack of Prior Market for 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 five (5)
years from the Effective Date, without the prior written consent of the
Representative. 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 Representative.
The Representative has limited experience as an Representative of public
offerings. There can be no assurance that the Representative's limited
experience as an Representative of public offerings will not adversely affect
the proposed public offering of the 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.
In connection with the Offering, the Representative has agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Securities Act with respect to any statement in or omission
from the registration statement or the Prospectus or any amendment or supplement
thereto if such statement or omission was made in reliance upon information
furnished in writing to the Company by the Representative specifically for or in
connection with the preparation of the registration statement, the prospectus,
or any such amendment or supplement thereto.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and Representative's 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 Representative. Among the factors
considered in the negotiations were the market price of the Company's Common
Stock, an analysis of the areas of activity in which the Company is engaged, the
present state of the Company's business, the Company's financial condition, the
Company's prospects, an assessment of management, the general condition of the
securities market at the time
62
<PAGE>
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 Representative intends to make a market in all
of the publicly-traded securities of the Company.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022.
Bernstein & Wasserman, LLP, has served, and continues to serve, as counsel to
the Representative in matters unrelated to this Offering. Certain legal matters
will be passed upon for the Representative by Lester Morse, P.C., 111 Great Neck
Road, Great Neck, NY 11021.
EXPERTS
Certain of the financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been examined by Moore Stephens,
P.C., independent certified public accountants, whose reports contain an
explanatory paragraph regarding uncertainties as to the ability of the Company
to continue as a going concern, which appear elsewhere herein and in the
Registration Statement.
63
<PAGE>
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.
64
<PAGE>
DECOR GROUP, INC.
================================================================================
INDEX TO FINANCIAL STATEMENTS
================================================================================
Page to Page
------------
Pro Forma Combined Financial Statements
Introduction......................................................... A-1 ..
Notes to the Pro Forma Combined Financial Statements................. A-2 ..
Pro Forma Combined Balance Sheet as of June 30, 1996................. A-3 ..A-4
Pro Forma Combined Statement of Operations for the three months
ended June 30, 1996.................................................. A-5 ..
Pro Forma Statement of Operations for the year ended March 31, 1996.. A-6 ..
Decor Group, Inc.
Independent Auditor's Report......................................... B-1 ..
Balance Sheets as of June 30, 1996 [Unaudited] and March 31, 1996.... B-2 ..
Statements of Stockholders' Equity for the three months ended
June 30, 1996 [Unaudited] and for the period from Inception
[March 1, 1996] through the period ended March 31, 1996.............. B-3 ..
Statements of Operations for the three months ended June 30, 1996
and 1995 [Unaudited] and for the period from Inception [March 1,
1996] through the period ended March 31, 1996........................ B-4 ..
Statements of Cash Flows for the three months ended June 30, 1996
and 1995 [Unaudited] and for the period from Inception [March 1,
1996] through the period ended March 31, 1996........................ B-5 ..
Notes to Financial Statements........................................ B-6 ..B-10
Artisan House, Inc.
Independent Auditor's Report......................................... C-1 ..
Balance Sheets as of June 30, 1996 [Unaudited] and January 31, 1996.. C-2 ..
<PAGE>
Statements of Operations for the five months ended June 30, 1996
and 1995 [Unaudited] and the years ended January 31, 1996 and 1995... C-3 ..
Statements of Stockholders' Equity for the five months ended
June 30, 1996 [Unaudited] and for the years ended
January 31, 1996 and 1995............................................ C-4 ..
Statements of Cash Flows for the five months ended June 30, 1996 and
1995 [Unaudited] and for the years ended January 31, 1996 and 1995 .. C-5 ..C-6
Notes to Financial Statements........................................ C-7 ..C-10
. . . . . . . . . . . . . . .
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED FINANCIAL STATEMENTS [UNAUDITED]
================================================================================
The following pro forma combined balance sheet as of June 30, 1996, and the pro
forma combined statements of operations for the three months ended June 30, 1996
and the year ended March 31, 1996 give effect to Decor Group, Inc. [the
"Company"] entering into an agreement to acquire certain assets and assume
certain liabilities of Artisan House, Inc. ["Artisan"] on March 25, 1996. The
agreement calls for a purchase price of $3,626,400 subject to certain
adjustments.
The pro forma information is based on the historical financial statements of the
Company and Artisan giving effect to the transaction under the purchase method
of accounting and the assumptions and adjustments in the accompanying notes to
the pro forma combined financial statements.
The acquisition will be accounted for using the purchase method. The pro forma
combined balance sheet assumes the acquisition was consummated on June 30, 1996.
The pro forma combined statements of operations give effect to this transaction
as if it had occurred at the beginning of the earliest period presented. The
historical statements of operations will reflect the effect of this transaction
from the date on which it occurred. The pro forma combined financial statements
are based on the historical financial statements of the Company and Artisan. The
pro forma combined statement of operations for the year ended March 31, 1996
include the operations of the Company for the one month period from inception on
March 1, 1996 to March 31, 1996 and the operations of Artisan for the year ended
January 31, 1996. The pro forma combined statement of operations for the three
months ended June 30, 1996 include the operations of the Company for the three
month period and the operations of Artisan for the five month period from
January 31, 1996 to June 30, 1996 [the latter have been adjusted to a three
month period ended June 30, 1996]. These pro forma combined financial statements
may not be indicative of the results that actually would have occurred if the
acquisition had taken place on the dates indicated.
A-1
<PAGE>
DECOR GROUP, INC.
================================================================================
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS [UNAUDITED]
================================================================================
<TABLE>
<S> <C> <C>
[A] Assets and liabilities not acquired:
Deferred Revenues $ 165,000
Loan Payable - Stockholder 230,733
Accrued Rent 170,733
Interest Payable 423,018
Prepaid Expenses $ 71,615
Property and Equipment - Net 5,980
Other Assets 19,335
Paid-in Capital 854,678
Cash 37,876
[B] To reflect acquisition:
Net Assets Acquired 1,608,983
Trademark 150,000
Copyrights and Artwork 150,000
Customer Lists 200,000
Covenant 100,000
Goodwill 1,379,541
Cash 2,400,000
Note Payable [$926,400 - $37,876] 888,524
Common Stock: Par 10
Additional Paid-in Capital 299,990
[* C.S.$80,000 + P.I.C.$1,054,678 + R.E.$474,305]
[C] To adjust Decor's investment in Artisan House:
Cash 165,000
Investments 165,000
[D] To adjust short-term classification of note payable:
Note Payable - Long-Term 208,192
Note Payable - Short-Term 208,192
</TABLE>
[E] To reflect annual 8% interest expense of $20,000 on $250,000 bridge note
payable and interest expense of $66,000 on acquisition notes of $888,524
or ($926,400 - $37,876).
[F] To reflect annual consulting agreement of $50,000 and minimum annual
management services agreement of $75,000.
[G] To reflect annual savings on stockholder's loan payable which has been
converted to equity and carried an annual interest cost of $43,613.
[H] To adjust pro forma income taxes.
[I] To reflect elimination of former President's annual employment contract
of approximately $113,000 and addition of annual employment contract for
new President of $117,000.
[J] To reflect annual amortization of goodwill and other intangibles of
approximately $175,000 annually, under the straight-line method with a
range of 10 to 15 years for the intangibles acquired.
A-2
<PAGE>
[K] To reflect net proceeds of public offering of approximately $2,010,000 and
to reflect offset of deferred offering costs.
[L] To adjust five months operations of Artisan House, Inc. to three months of
operations.
[M] To reflect sale of Series C Non-Voting, Convertible, Preferred Stock in
August of 1996 with proceeds of $706,250.
A-3
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1996.
[UNAUDITED]
================================================================================
<TABLE>
<CAPTION>
Historical Financial Statements
-------------------------------
Decor Artisan
Group, Inc. House, Inc.
----------- -----------
June 30, June 30, Pro Forma Pro Forma
1996 1996 Adjustments Combined
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash $ 20,241 $ 37,876 $ 165,000 [C] $
(37,876) [A]
706,250 [M]
2,010,000 [K]
(2,400,000) [B] 501,491
Accounts Receivable -- 1,102,652 -- 1,102,652
Receivable - Related Party 14,500 -- -- 14,500
Inventory -- 968,081 -- 968,081
Other -- 144,060 (71,615) [A] 72,445
---------- ---------- ---------- ----------
Total Current Assets 34,741 2,252,669 371,759 2,659,169
---------- ---------- ---------- ----------
Investments 1,765,000 -- (165,000) [C] 1,600,000
---------- ---------- ---------- ----------
Property and Equipment - Net -- 113,128 (5,980) [A] 107,148
---------- ---------- ---------- ----------
Other Assets:
Goodwill -- -- 1,379,541 [B] 1,379,541
Deferred Offering Costs 74,658 -- (74,658) [K] --
---------- ---------- ---------- ----------
(19,335) [A]
Other Assets -- 26,299 600,000 [B] 606,964
---------- ---------- ---------- ----------
Total Other Assets 74,658 26,299 1,885,548 1,986,505
---------- ---------- ---------- ----------
Total Assets $1,874,399 $2,392,096 $2,086,327 $6,352,822
========== ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-4
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1996.
[UNAUDITED]
================================================================================
<TABLE>
<CAPTION>
Historical Financial Statements
-------------------------------
Decor Artisan
Group, Inc. House, Inc.
----------- -----------
June 30, June 30, Pro Forma Pro Forma
1996 1996 Adjustments Combined
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ -- $ 202,457 $ -- $ 202,457
Accrued Expenses 108,000 217,762 -- 325,762
Notes and Bridge Loan Payable 142,850 159,361 208,192 [D] 510,403
Loan Payable - Stockholder -- 230,733 (230,733) [A] --
Accrued Interest Payable - Stockholder -- 423,018 (423,018) [A] --
Accrued Rent Payable - Stockholder -- 170,733 (170,733) [A] --
Deferred Revenue -- 165,000 (165,000) [A] --
---------- ---------- ---------- ----------
Total Current Liabilities 250,850 1,569,064 (781,292) 1,038,622
---------- ---------- ---------- ----------
Long-Term Liabilities:
(208,192) [D]
Notes Payable 50,000 68,727 888,524 [B] 799,059
---------- ---------- ---------- ----------
Stockholders' Equity:
Preferred Stock 50 -- 706,250 [M] 706,300
Common Stock 262 80,000 60 [K]
(80,000) [B]
10 [B] 332
Additional Paid-in Capital 1,918,988 200,000 854,678 [A]*
(1,054,678) [B]
299,990 [B]
1,935,282 [K] 4,154,260
Retained Earnings [Deficit] (345,751) 474,305 (474,305) [B] (345,751)
---------- ---------- ---------- ----------
Total Stockholders' Equity 1,573,549 754,305 2,187,287 4,515,141
---------- ---------- ---------- ----------
Total Liabilities and Stockholders'
Equity $1,874,399 $2,392,096 $2,086,327 $6,352,822
========== ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-5
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 1996.
[UNAUDITED]
================================================================================
<TABLE>
<CAPTION>
Historical Financial Statements
-------------------------------
Decor Artisan
Group, Inc. House, Inc.
----------- -----------
For the For the
Three months Five months
Ended Ended
June 30, June 30, Pro Forma Pro Forma
1996 1996 Adjustments Combined
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Sales - Net $ -- $2,310,976 $(924,000) [L] $1,386,976
Cost of Goods Sold -- 1,233,714 494,000 [L] 739,714
---------- ---------- --------- ---------
Gross Profit -- 1,077,262 (430,000) 647,262
---------- ---------- --------- ---------
(37,500) [M]
(305,850) [L]
(18,750) [J]
Selling, General and Administrative (1,000) [I]
Expenses 138,851 764,625 (31,000) [F] 509,376
---------- ---------- --------- ---------
[Loss] Income from Operations (138,851) 312,637 (35,900) 137,886
---------- ---------- --------- ---------
Other [Income] Expense:
Interest Expense - Stockholder -- 13,356 (13,356) [G] --
Interest Income -- (774) -- (774)
Interest Expense 107,150 15,275 21,500 [E] 176,425
---------- ---------- --------- ---------
32,500 [M]
Other Expense - Net 107,150 27,857 40,644 175,651
---------- ---------- --------- ---------
[Loss] Income Before Pro Forma
Income Taxes (246,001) 284,780 (76,544) (37,765)
Provision for Pro Forma Income Taxes -- (114,000) 114,000 [H] --
---------- ---------- --------- ---------
Net [Loss] Income $ (246,001) $ 170,780 $ 37,456 $ (37,765)
========== ========== ========= =========
Number of Shares 5,625,000 5,725,000
========== =========
Net [Loss] Per Share $ (.04) $ (.01)
========== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-6
<PAGE>
DECOR GROUP, INC.
================================================================================
PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
MARCH 31, 1996.
[UNAUDITED]
================================================================================
<TABLE>
<CAPTION>
Historical Financial Statements
-------------------------------
Decor
for the Period
March 1, 1996 Artisan
[Inception] For the
Through Year ended
March 31, January 31, Pro Forma Pro Forma
1996 1996 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 150,000 [M]
100,000 1,684,591 175,000 [J]
4,000 [I]
125,000 [F] 2,238,591
[Loss] Income from Operations (100,000) 528,448 (454,000) (25,552)
---------- ---------- --------- ----------
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] 256,466
130,000 [M]
Other (4,496) -- (4,496)
---------- --------- ----------
Other Expense - Net (250) 77,365 172,387 249,502
---------- ---------- --------- ----------
[Loss] Income Before Pro Forma
Income Taxes (99,750) 451,083 (626,387) (275,054)
Provision for Pro Forma Income Taxes -- 180,000 180,000 [H] --
---------- ---------- --------- ----------
Net [Loss] Income $ (99,750) $ 271,083 $(446,387) $ (275,054)
========== ========== ========= ==========
Number of Shares 5,625,000 5,725,000
========== ==========
Net [Loss] Per Share $ (.02) $ (.05)
========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
A-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of
Decor Group, Inc.
New York, New York
We have audited the accompanying balance sheet of Decor Group, Inc. as of
March 31, 1996, and the related statements of operations, stockholders' equity,
and cash flows for the period from inception [March 1, 1996] through March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Decor Group, Inc. as of
March 31, 1996, and the results of its operations, and its cash flows for the
period from inception [March 1, 1996] to March 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has not generated cash from operations. This
factor raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 7. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
May 24, 1996
B-1
<PAGE>
DECOR GROUP, INC.
================================================================================
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
----------- -----------
[Unaudited]
-----------
<S> <C> <C>
Assets:
Current Assets:
Cash $ 20,241 $ 47,000
Stock Subscription Receivable -- 8,000
Note Receivable - Related Party -- 50,000
Accrued Interest Receivable - Related Party -- 250
Related Party Receivable 14,500 --
----------- -----------
Total Current Assets 34,741 105,250
----------- -----------
Non-Current Assets:
Investment - Related Party [8] 1,600,000 1,600,000
Investment in Artisan House, Inc. 165,000 150,000
Deferred Offering Costs 74,658 --
----------- -----------
Total Non-Current Assets 1,839,658 1,750,000
----------- -----------
Total Assets $ 1,874,399 $ 1,855,250
=========== ===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accrued Expenses $ 108,000 $--
Bridge Loan Payable [Net of Discount of $107,150 and
$214,300 for June 30, 1996 and March 31, 1996, Respectively] 142,850 35,700
----------- -----------
Total Current Liabilities 250,850 35,700
----------- -----------
Long-Term:
Stockholders' Loans Payable 50,000 --
----------- -----------
Commitments and Contingencies -- --
----------- -----------
Stockholders' Equity:
Preferred Stock, $.0001 Par Value Per Share, 35,000,000 Blank
Check Shares Authorized of which 5,000,000 are Convertible
Non-Voting Series A - 500,000 Shares Issued and Outstanding;
20,000,000 Non-Convertible Voting Series B - No Shares Issued
and Outstanding [Note 8] 50 50
Additional Paid-in Capital - Preferred Stock 1,599,950 1,599,950
Common Stock - $.0001 Par Value, Authorized 20,000,000 Shares,
Issued and Outstanding, 2,625,000 Shares 262 262
Additional Paid-in Capital - Common Stock 319,038 319,038
Retained Earnings [Deficit] (345,751) (99,750)
----------- -----------
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
----------- -----------
[Unaudited]
-----------
<S> <C> <C>
Total Stockholders' Equity 1,573,549 1,819,550
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,874,399 $ 1,855,250
=========== ===========
</TABLE>
See Notes to Financial Statements.
B-3
<PAGE>
DECOR GROUP, INC.
================================================================================
STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------- --------------------
Additional Additional Retained Total
Stockholders' E a r n i n g s
Paid-in Paid-in -----------------------
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 -- -- -- -- -- 214,300 -- 214,300
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 2,625,000 262 319,038 (99,750) 1,819,550
Net [Loss] for the three months
ended June 30, 1996 [Unaudited] -- -- -- -- -- -- (246,001) (246,001)
------- ------ ---------- ----------- ------ --------- --------- ----------
Balance - June 30, 1996
[Unaudited] 500,000 $ 50 $1,599,950 2,625,000 $ 262 $ 319,038 $(345,751) $1,573,549
======= ====== ========== =========== ====== ========= ========= ==========
</TABLE>
See Notes to Financial Statements.
B-4
<PAGE>
DECOR GROUP, INC.
================================================================================
STATEMENTS OF OPERATIONS
================================================================================
For the
For the Period From
Three Months March 1,
Ended 1996 to
June 30, March 31,
1 9 9 6 1 9 9 6
--------- ---------
[Unaudited]
Revenues $ -- $ --
Cost of Revenues -- --
--------- ---------
Gross Profit -- --
--------- ---------
Selling, General and Administrative Expenses:
Acquisition Fees and Expenses 52,829 98,000
Professional Fees 73,000 2,000
Administrative Expenses 13,022 --
--------- ---------
Total Selling, General and Administrative Expenses 138,851 100,000
--------- ---------
[Loss] from Operations (138,851) (100,000)
--------- ---------
Other Income [Expense]:
Interest Income - Related Party -- 250
Interest Expense (107,150) --
--------- ---------
Total Other [Expense] Income (107,150) 250
--------- ---------
[Loss] Before Provision for Income Taxes (246,001) (99,750)
Provision for Income Taxes -- --
--------- ---------
Net [Loss] $(246,001) $ (99,750)
========= =========
[Loss] Per Share $ (.04) $ (.02)
========= =========
See Notes to Financial Statements.
B-5
<PAGE>
DECOR GROUP, INC.
================================================================================
STATEMENTS OF CASH FLOWS
================================================================================
For the
For the Period From
Three Months March 1,
Ended 1996 to
June 30, March 31,
1 9 9 6 1 9 9 6
--------- ---------
[Unaudited]
Operating Activities:
Net [Loss] $(246,001) $ (99,750)
Adjustment to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Stock Issued for Services -- 2,000
Accrued Interest Receivable 250 (250)
Interest - Cost of Bridge Warrants 107,150 --
--------- ---------
Accrued Expenses 108,000 --
--------- ---------
Net Cash - Operating Activities (30,601) (98,000)
Investing Activities:
Collection of Note Receivable 50,000 --
Partial Payment on Acquisition of Artisan House, Inc. (15,000) (150,000)
Note Receivable -- (50,000)
--------- ---------
Net Cash - Investing Activities 35,000 (200,000)
--------- ---------
Financing Activities:
Deferred Offering Costs (74,658) --
Proceeds from Sale of Common Stock 8,000 95,000
Proceeds from Bridge Loans -- 250,000
Proceeds from Stockholder Loan 35,500 --
--------- ---------
Net Cash - Financing Activities (31,158) 345,000
--------- ---------
Net [Decrease] Increase in Cash (26,759) 47,000
Cash - Beginning of Periods 47,000 --
--------- ---------
Cash - End of Periods $ 20,241 $ 47,000
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ -- $ --
--------- ---------
Income Taxes $ -- $ --
--------- ---------
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the period ended March 31, 1996, the Company recorded a discount on
the bridge loan of $214,300 resulting from the issuance of warrants for the
$250,000 bridge loan. For the three months ended June 30, 1996, the Company
amortized $107,150 as interest expense.
On March 3, 1996, the Company issued to Interiors, Inc. 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.
In March 1996, the Company issued 2,625,000 shares of common stock to seven
parties for $105,000
B-6
<PAGE>
of which $103,000 was in cash and $2,000 was for the fair value of services. At
March 31, 1996, $8,000 is reflected as a stock subscription receivable, which
was received May 21, 1996.
See Notes to Financial Statements.
B-7
<PAGE>
DECOR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
[Information Relating to June 30, 1996 is Unaudited]
================================================================================
[1] Summary of Significant Accounting Policies
[A] Nature of Operations - Decor Group, Inc., a Delaware corporation [the
"Company" or "Decor"], was formed March 1, 1996.
[B] Capital Stock - In March 1996, the Company issued 2,625,000 shares of common
stock to seven parties for a total of $105,000 of which $103,000 was in cash and
$2,000 was for the fair value of services. At March 31, 1996, $8,000 is
reflected as a stock subscription receivable, which was received May 21, 1996.
[C] Earnings Per Share - The number of shares to be used for earnings per share
calculation purposes will be based on the 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.
[G] Stock Options and Similar Equity Instruments Issued to Employees - The
Company uses the intrinsic value method to recognize cost in accordance with APB
25 [Accounting for Stock Issued to Employees].
[H] Deferred Offering Costs - If the offering is not completed, such costs will
be expensed and not recorded as a reduction of the net proceeds of the offering.
[2] Business Combination - Artisan House
On March 25, 1996, the Company entered into an agreement to acquire certain
assets and assume certain liabilities of Artisan House, Inc. for $3,626,400,
subject to adjustment prior to closing of which $150,000 was paid in cash, and
an additional $2,250,000 will be paid in extension payments and at the closing
of the acquisition. A secured promissory note for $926,400 will be issued,
[subject to
B-8
<PAGE>
reduction by a cash balance of Artisan House at the closing date estimated at
$37,876 at June 30, 1996] of which $100,000 will be paid 90 days after the
closing and the balance will be paid in 60 equal monthly installments of $12,947
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.
B-9
<PAGE>
DECOR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[Information Relating to June 30, 1996 is Unaudited]
================================================================================
[2] Business Combination - Artisan House [Continued]
Goodwill of approximately $1,400,000 will be amortized over 10 years under the
straight-line method. Operations of Artisan will be included with the Company
from the date of the close of the acquisition onward.
Simultaneously with the execution of the Artisan House Asset Purchase Agreement,
on March 25, 1996 the Company entered into a three year employment agreement
with the Seller for base annual compensation of $50,000.
The following unaudited pro forma combined results of operations accounts for
the acquisition as if it had occurred at the beginning of the periods presented.
The pro forma results give effect to amortization of goodwill and other
intangible assets, interest expense, employment contracts and consulting
agreements.
<TABLE>
<CAPTION>
Three months Ended Year ended
June 30, March 31,
1 9 9 6 1 9 9 6
------- -------
<S> <C> <C>
Total Revenues $1,386,976 $4,809,422
========== ==========
Net [Loss] $ (37,765) $ (275,054)
========== ==========
Net [Loss] Per Common Share $ (.01) $ (.05)
========== ==========
Weighted Average Number of Shares Outstanding 5,725,000 5,725,000
========== ==========
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 firm that
renders management services to the Company. The Company was repaid on April 16,
1996. Interest income of $250 was recorded as of March 31, 1996 [See Notes 8 and
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.
[5] Proposed Public Offering
The Company is filing a registration statement for 300,000 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
B-10
<PAGE>
$2,010,000.
DECOR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
[Information Relating to June 30, 1996 is Unaudited]
================================================================================
[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 discount on the bridge notes at June 30, 1996 of
$214,300, which will be amortized it over the life of the bridge loan, which is
anticipated to be six months. For the three months ended June 30, 1996, the
Company amortized the discount of $107,150. as interest expense.
[7] Going Concern
As shown in the accompanying financial statements, the Company did not generate
cash from operations for the period ended March 31, 1996. This factor creates an
uncertainty about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern. The Company acquired
Artisan House, Inc. for $3,626,400 [See Note 2], and is pursuing a public
offering of common stock as a vehicle for financing future operations [See Note
5]. The continuation of the Company as a going concern is dependent upon the
success of these plans.
[8] Investment - Related Party
On March 3, 1996, the Company issued to Interiors, Inc. 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. The valuation of the investment in both
classes of Interiors, Inc's securities approximated the market closing price at
the time of issuance with an 11% discount. Accordingly, aggregate estimated fair
value of the investment approximates carrying value. As disclosed in Note 11A,
on May 28, 1996, the Company entered into a management agreement with Interiors,
Inc. whereby Interiors, Inc. will provide the Company certain marketing and
management services. The exchange of shares between the Company and Interiors,
Inc. is pursuant to the Company's intentions to secure the ongoing and long-term
availability of these services. Accordingly, the Company's intention is to
maintain a long-term position in its investment in Interiors, Inc. As of June
30, 1996, the per share market value of Interiors, Inc.'s common stock and
Series A Convertible Preferred Stock was 4.25 and 7.25, respectively.
Accordingly, gross unrealized holding gains of $250,000 and $450,000 exist at
June 30, 1996 of the common stock and Series A Convertible Preferred Stock,
respectively. As of June 30, 1996, Interiors, Inc. owns approximately 16% of the
Company assuming the 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. Such ownership is consistent with the Company's intentions stated above
as well as the provision by
B-11
<PAGE>
Interiors, Inc. of additional equity contributions disclosed in Note 11E.
DECOR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[Information Relating to June 30, 1996 is Unaudited]
================================================================================
[9] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has not decided if it will adopt SFAS No. 123 or continue to apply APB
Opinion No. 25 for financial reporting purposes. SFAS No. 123 will have to be
adopted for financial note disclosure purposes in any event. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.
The FASB has also issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Adoption on January 1, 1997 is not
expected to have a material impact on the Company.
[10] Financial Instruments
The carrying amount of cash, notes receivable and notes payable approximates
fair value because of their short maturities.
[11] Subsequent 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
B-12
<PAGE>
of a prepayment. In the event that the Company is unable to satisfy such
conditions, the Company will not receive the proceeds from such loan.
Prime rate at June 30, 1996 was approximately 8%.
DECOR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5
[Information Relating to June 30, 1996 is Unaudited]
================================================================================
[11] Subsequent Events [Unaudited] [Continued]
[D] Stockholder Loan Payable - On June 21, 1996, the Company received
commitments from its stockholders for an additional $50,000 in loan proceeds.
The Company received $35,500 as of June 30, 1996, and the balance of $14,500 was
received in July of 1996. The notes have interest of 12% per annum and a
maturity date which is the earlier of 15 months following the close of the
proposed public offering or June 21, 1998.
[E] Additional Equity Contribution - On August 9, 1996, the Company agreed to
issue to Interiors, Inc. 56,667 shares of Series C Non-Voting, Convertible,
Preferred Stock for cash of $425,000. On August 23, 1996, the Company agreed to
issue to Interiors, Inc. an additional 37,500 shares of Series C NonVoting,
Convertible, Preferred Stock for cash of $281,250.
[12] Unaudited Interim Statements
The financial statements as of June 30, 1996 and for the three months ended June
30, 1996 are unaudited; however, in the opinion of management all adjustments
[consisting solely of normal recurring adjustments] which are necessary in order
to make the interim financial statements not misleading have been made. The
results of the interim period are not necessarily indicative of the results to
be obtained for a full fiscal year.
. . . . . . . . . . .
B-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholder of
Artisan House, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of Artisan House, Inc. as
of January 31, 1996, and the related statements of operations, stockholder's
equity, and cash flows for each of the two fiscal years in the period ended
January 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Artisan House, Inc. as of
January 31, 1996, and the results of its operations and its cash flows for each
of the two fiscal years in the period ended January 31, 1996, in conformity with
generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants.
Cranford, New Jersey
May 15, 1996
C-1
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
BALANCE SHEETS
================================================================================
June 30, January 31,
1996 1996
---------- ----------
[Unaudited]
Assets:
Current Assets:
Cash $ 37,876 $ 96,771
Accounts Receivable - Net 1,102,652 838,108
Inventory 968,081 911,951
Prepaid Expenses 144,060 161,422
---------- ----------
Total Current Assets 2,252,669 2,008,252
---------- ----------
Property and Equipment - Net 113,128 121,880
Other Assets 26,299 20,052
---------- ----------
Total Assets $2,392,096 $2,150,184
========== ==========
Liabilities and Stockholder's Equity:
Current Liabilities:
Accounts Payable $ 202,457 $ 193,646
Accrued Expenses 217,762 163,135
Loan Payable - Stockholder 230,733 501,093
Notes Payable 159,361 169,134
Accrued Interest Payable - Stockholder 423,018 409,632
Accrued Rent Payable - Stockholder 170,733 170,733
Deferred Revenue 165,000 --
---------- ----------
Total Current Liabilities 1,569,064 1,607,373
---------- ----------
Long-Term Liability:
Notes Payable 68,727 73,286
Commitments and Contingencies -- --
Stockholder's Equity:
Common Stock - No Par Value, 75,000 Shares
Authorized, 8,000 Issued and Outstanding 80,000 80,000
Additional Paid-in Capital 200,000 200,000
Retained Earnings 474,305 189,525
---------- ----------
Total Stockholder's Equity 754,305 469,525
---------- ----------
Total Liabilities and Stockholder's Equity $2,392,096 $2,150,184
========== ==========
See Notes to Financial Statements.
C-2
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
STATEMENTS OF OPERATIONS
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Five months ended Years ended
June 30, January 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Sales - Net $ 2,310,976 $ 1,904,832 $ 4,809,422 $ 3,994,909
Total Cost of Goods Sold 1,233,714 1,024,672 2,596,383 2,134,086
----------- ----------- ----------- -----------
Gross Profit 1,077,262 880,160 2,213,039 1,860,823
----------- ----------- ----------- -----------
Selling, General and Administrative
Expenses:
Selling, Advertising and Promotion 460,954 395,179 1,011,314 856,874
General and Administrative Expenses 303,671 253,492 673,277 607,350
----------- ----------- ----------- -----------
Total Selling, General and
Administrative Expenses 764,625 648,671 1,684,591 1,464,224
----------- ----------- ----------- -----------
Income from Operations 312,637 231,489 528,448 396,599
----------- ----------- ----------- -----------
Other [Income] Expenses:
Interest Expense - Stockholder 13,356 18,540 43,613 44,182
Interest Expense 15,275 8,104 40,466 23,460
Interest Income (774) (963) (2,218) (1,483)
Other Income -- -- (6,751) (2,601)
Loss on Asset Disposals -- -- 2,255 2,524
----------- ----------- ----------- -----------
Other Expenses - Net 27,857 25,681 77,365 66,082
----------- ----------- ----------- -----------
Income Before Provision for
Pro Forma Income Taxes 284,780 205,808 451,083 330,517
Provision for Pro Forma Income
Taxes 114,000 82,000 180,000 132,000
----------- ----------- ----------- -----------
Pro Forma Net Income $ 170,780 $ 123,808 $ 271,083 $ 198,517
=========== =========== =========== ===========
Pro Forma Earnings Per Share $ 21.35 $ 15.48 $ 33.89 $ 24.81
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
C-3
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
STATEMENTS OF STOCKHOLDER'S EQUITY
================================================================================
<TABLE>
<CAPTION>
Total
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
----- --------- --------- --------- ---------
Net Income -- -- -- 284,780 284,780
----- --------- --------- --------- ---------
Balance at June 30, 1996
[Unaudited] 8,000 $ 80,000 $ 200,000 $ 474,305 $ 754,305
===== ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
C-4
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Five months ended Years ended
June 30, January 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ 284,780 $ 205,808 $ 451,083 $ 330,517
----------- ----------- ----------- -----------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Provision for Bad Debts 22,458 18,265 19,243 12,691
Depreciation and Amortization 10,729 12,319 35,895 20,865
Interest Capitalized into Notes
Payable -- -- 7,000 --
Loss on Asset Disposals -- -- 2,255 2,524
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (287,002) (52,237) (200,224) (118,511)
Inventory (56,130) (76,721) (180,278) (43,198)
Other Assets (4,721) 797 3,828 7,289
Prepaid Expenses 17,362 (16,472) (68,841) (17,251)
Increase [Decrease] in:
Accounts Payable 8,811 2,300 (5,460) (8,505)
Accrued Expenses 54,627 (27,638) 55,725 16,459
Accrued Expenses - Stockholder 13,386 18,541 12,041 5,528
----------- ----------- ----------- -----------
Total Adjustments (220,480) (120,846) (318,816) (122,109)
----------- ----------- ----------- -----------
Net Cash - Operating Activities 64,300 84,962 132,267 208,408
----------- ----------- ----------- -----------
Investing Activities:
Purchase of Property and Equipment (1,977) (8,661) (16,952) (67,052)
Increase in Cash Surrender Value of
Life Insurance (1,526) -- (1,803) --
Deferred Revenue 165,000 -- -- --
Net Cash - Investing Activities 161,497 (8,661) (18,755) (67,052)
----------- ----------- ----------- -----------
Financing Activities:
Repayment of Loan Payable -
Stockholder (270,360) (11,606) (58,313) (19,342)
----------- -----------
Repayment of Notes Payable (64,332) (14,429) (42,359) (67,063)
----------- -----------
Borrowings Under Notes Payable 50,000 -- -- --
----------- ----------- ----------- -----------
Net Cash - Financing Activities (284,692) (26,035) (100,672) (86,405)
----------- ----------- ----------- -----------
Net [Decrease] Increase in Cash (58,895) 50,266 12,840 54,951
----------- -----------
Cash - Beginning of Periods 96,771 83,931 83,931 28,980
----------- ----------- ----------- -----------
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Five months ended Years ended
June 30, January 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Cash - End of Periods $ 37,876 $ 134,197 $ 96,771 $ 83,931
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
C-6
<PAGE>
ARTISAN HOUSE, INC.
================================================================================
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Five months ended Years ended
June 30, January 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ 21,435 $ 8,963 $ 44,759 $ 28,643
Income Taxes $ 1,500 $ 4,995 $ 4,995 $ 8,977
</TABLE>
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
During the year ended January 31, 1996, the Company acquired $35,033 of
equipment utilizing financing arrangements.
During the year ended January 31, 1996, $7,000 of accrued interest payable was
added into the principal amount of a new note payable.
See Notes to Financial Statements.
C-7
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS
[Information Relating to June 30, 1996 and 1995 is Unaudited]
================================================================================
[1] Organization and Summary of Significant Accounting Policies
Organization - Artisan House, Inc. [the "Company"] a California Corporation, was
incorporated on November 18, 1982. The Company is engaged in the business of
manufacturing, marketing, selling and distributing wall hanging sculptures. The
Company manufacturers its products at one location in southern California and
sells through sales representatives and from its showrooms in San Francisco and
North Carolina to furniture retailers and department stores throughout the
United States and internationally.
Cash and Cash Equivalents - The Company classifies all highly liquid debt
instruments purchased with an initial maturity of three months or less to be
cash equivalents. The Company had no cash equivalents at January 31, 1996.
Inventory - Inventory is stated at the lower of cost or market, is comprised of
materials, labor and factory overhead, and is determined on the first-in,
first-out ["FIFO"] basis. At June 30, 1996, inventory was calculated utilizing
the gross profit method.
Property and Equipment - Property and equipment is stated at cost and is net of
accumulated depreciation. The cost of additions and improvements are capitalized
and expenditures for repairs and maintenance are expensed in the period
incurred. Depreciation and amortization of property and equipment is provided
utilizing the straight-line method over the estimated useful lives of the
respective assets as follows:
Vehicles 3 Years
Machinery and Equipment 5 - 10 Years
Furniture and Fixtures 7 Years
Leasehold improvements are amortized utilizing the straight-line method over the
shorter of the remaining term of the lease or the useful life of the
improvement.
Income Taxes - The Company has elected to be taxed as an S corporation whereby
the stockholder is liable for federal and state income taxes on the Company's
taxable income. A California S corporation is subject to a nominal tax on
income. The pro forma effects of income tax expense as if the entity had been a
C corporation are shown based on an effective tax rate of 40% for the years
ended January 31, 1996 and 1995.
Risk Concentrations - Financial instruments that potentially subject the Company
to concentrations of credit risk include cash and accounts receivable arising
from its normal business activities. The Company places its cash with a high
credit quality financial institution and periodically has cash balances subject
to credit risk beyond insured amounts.
The Company routinely assesses the financial strength of its customers, and
based upon factors surrounding the credit risk of its customers, has established
an allowance for uncollectible accounts of $57,182 and as a consequence,
believes that its accounts receivable credit risk exposure beyond this allowance
is limited. The Company does not obtain collateral on its accounts receivable.
C-8
<PAGE>
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.
C-9
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[Information Relating to June 30, 1996 and 1995 is Unaudited]
================================================================================
[2] Inventories
The components of inventory are as follows:
<TABLE>
<CAPTION>
June 30, January 31,
1 9 9 6 1 9 9 6
----------- ----------
[Unaudited]
<S> <C> <C>
Raw Materials $ 443,067 $ 297,224
Work-in Process 207,245 221,157
Finished Goods 317,769 393,570
----------- ----------
Totals $ 968,081 $ 911,951
=========== ==========
</TABLE>
[3] Property and Equipment
Property and equipment consist of the following at January 31, 1996:
Machinery and Equipment $ 171,088
Leasehold Improvements 125,727
Furniture and Fixtures 108,149
Office and Computer Equipment 66,058
Vehicles 76,040
----------
Total - At Cost 547,062
Less: Accumulated Depreciation (425,182)
----------
Net $ 121,880
==========
Depreciation and amortization was $35,895 and $20,865 for the years ended
January 31, 1996 and 1995, respectively.
[4] Related Party Transactions
The Company was indebted to its sole stockholder and president in the amounts of
$501,093 and $409,632 for principal and accrued interest, respectively at
January 31, 1996. The loan carries interest at 8% with no fixed repayment plan
or maturity date. Interest expense on the loan was $43,613 and $44,182 for the
years ended January 31, 1996 and 1995, respectively.
The Company rents its principal premises from its sole stockholder and president
under a lease expiring in October 1997. Monthly rent is $16,500 and the Company
is responsible for maintenance, utilities and real estate taxes. Accrued but
unpaid rent at January 31, 1996 was $170,733. Future minimum lease payments
included in future lease commitments are $198,000 and $148,500 for the years
ended January 31, 1997 and January 31, 1998, respectively.
The Company had sales of $13,034 and $6,344 during the years ended January 31,
1996 and 1995,
C-10
<PAGE>
respectively, to a company owned by the sole stockholder and president of the
Company. The related party relationship ceased in July 1995.
C-11
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
[Information Relating to June 30, 1996 and 1995 is Unaudited]
================================================================================
[5] Notes Payable
Revolving line of credit [A] $ 136,539
Note payable with interest at bank prime plus 1.25% maturing
in April 1999, collateralized by substantially all the assets
of the Company and guaranteed by the Company's stockholder. 76,000
Note payable with interest ranging from 9.5% to 13.4% maturing
through 2001, collateralized by various equipment, and
guaranteed by the Company's stockholder. 29,881
----------
Total 242,420
Less: Current Portion 169,134
----------
Long-Term Portion $ 73,286
==========
Bank prime at January 31, 1996 was 8.25%.
[A] The Company is party to a revolving line of credit agreement. The line of
credit provides for advances based on a percentage of accounts receivable as
defined in the agreement to a maximum available balance of $350,000. At January
31, 1996, the Company can borrow up to the full $350,000. The line of credit
carries interest at bank prime plus 1%, matures November 6, 1996, is
collateralized by substantially all the assets of the Company, and is guaranteed
by the stockholder of the Company. The weighted average interest rate on
short-term borrowings for the year ended January 31, 1996 was 11.6%.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
January 31,
- -----------
<S> <C>
1997 $ 169,134
1998 34,525
1999 28,613
2000 7,572
2001 2,576
Thereafter --
---------
Total $ 242,420
=========
</TABLE>
[6] Commitments and Contingencies
The Company leases office space under operating leases which expire through
2000. The leases provide for various terms including additional rent based on
increases in operating costs. The Company also leases equipment under operating
leases expiring through 2001.
Future minimum lease payments under noncancelable operating leases with
remaining terms of one year or more are as follows at January 31, 1996:
C-12
<PAGE>
<TABLE>
<CAPTION>
January 31,
- -----------
<S> <C>
1997 $ 277,661
1998 230,056
1999 69,882
2000 36,895
2001 3,008
Thereafter --
---------
Total $ 617,502
=========
</TABLE>
C-13
<PAGE>
ARTISAN HOUSE, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[Information Relating to June 30, 1996 and 1995 is Unaudited]
================================================================================
[6] Commitments and Contingencies [Continued]
Rent expense, including real estate taxes and escalation charges, for the years
ended January 31, 1996 and 1995 was $285,800 and $282,691, respectively.
[7] Financial Instruments
The carrying amount of cash, accounts receivable and trade payables approximates
fair value because of their short maturities. The carrying amount of notes
payable and loan payable - stockholder approximates their fair value because
they bear interest at various rates that approximates the Company's cost of
capital.
[8] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.
[9] Subsequent Event
On March 25, 1996, the Company agreed to sell substantially all of its assets
and certain liabilities for an aggregate of $3,626,400 less the amount of cash
held by the Company on the closing date [the retained cash amount] and subject
to adjustment based on certain net asset requirements. The sale price will be
paid by (I) the payment of $150,000 upon execution of the agreement, (ii) the
payment of $2,250,000 in extension payments and at the closing, (iii) the
delivery of a promissory note in the principal amount of $926,400 less the
retained cash amount and any adjustment based on net assets bearing interest at
8%, and (iv) the issuance of 100,000 shares of the parent company of the
acquiror valued at $300,000.
[10] Unaudited Interim Statements
The financial statements as of June 30, 1996 and for the five months ended June
30, 1996 and 1995 are unaudited; however, in the opinion of management all
adjustments [consisting solely of normal recurring adjustments] necessary in
order to make the interim financial statements not misleading have been made.
The results of the interim periods are not necessarily indicative of the results
to be obtained for a full fiscal year.
. . . . . . . . . . . . . . . . . . .
C-14
<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 Representative. 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 Representatives and with respect to their unsold allotments or
subscriptions.
325,000 Units
Each Unit Consists of Two (2) Shares of Common
Stock 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.
2,562,000 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"), (ii)
2,062,000 shares of Common Stock which are held by certain stockholders of the
Company (the "Selling Stockholders") and (iii) 500,000 shares of Common Stock
issuable to Interiors, Inc. ("Interiors"), an affiliate of the Company, upon the
conversion of 500,000 shares of Series A Preferred Stock held thereby. The
Bridge Lenders, the Selling Stockholders and Interiors 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 Representative. The Company
will not receive any of the proceeds on the sale of the securities by the
Selling Securityholders. The resale of the securities of the Selling
Securityholders are subject to Prospectus delivery and other requirements of the
Securities Act of 1933, as amended (the "Act"). Sales of such securities or the
potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Selling Securityholders" and "Risk
Factors - Shares Eligible for Future Sale May Adversely Affect the Market."
The Class A Warrants shall be exercisable commencing one (1) year after the
date hereof (the "Effective Date"). Each Class A Warrant entitles the holder to
purchase one (1) share of Common Stock at a price of $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
Alt - i
<PAGE>
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
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 "Representatives" 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 August 29, 1996
Alt - ii
<PAGE>
ALTERNATE
COMPANY OFFERING
On the date of this Prospectus, a Registration Statement under the Act with
respect to an underwritten public offering (the "Offering") of 300,000 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"), (b) 2,062,000
shares of Common Stock which are held by certain stockholders of the Company
(the "Selling Stockholders") and (C) 500,000 shares of Common Stock issuable to
Interiors, Inc., an affiliate of the Company, upon the conversion of 500,000
shares of Series A Preferred Stock held thereby. 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 Representative. The Company will not receive any of the proceeds on the
sale of the securities by the Selling Securityholders. The resale of the
securities of the Selling Securityholders are subject to Prospectus delivery and
other requirements of the Securities Act of 1933, as amended (the "Act"). Sales
of such securities or the potential of such sales at any time may have an
adverse effect on the market prices of the securities offered hereby. See
"Selling Securityholders" and "Risk Factors - Shares Eligible for Future Sale
May Adversely Affect the Market."
The following table sets forth the holders of the shares of Common Stock
which are being offered by the Selling Securityholders and the number of shares
owned before the Offering, the number of shares being offered and the number of
shares and the percentage of the class to be owned after the Offering is
complete.
Alt - iii
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name Shares of Class A Shares of Class A Shares of Class A Percent of Percent of
Common Warrants Common Warrants 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 11.3% 0
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie Munn(2) 200,000 0 160,000 0 40,000 0 1.3% 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, Ltd. 125,000 120,000 100,000 120,000 25,000 0 .8% 0
- ------------------------------------------------------------------------------------------------------------------------------------
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 2,062,000 3,000,000 513,000 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 Representatives, dealers or agents.
The distribution of securities by the Se lling Securityholders may be effected
in one or more transactions that may ta ke 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
"Representatives" 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 Representatives, dealers or agents,
if any, the purchase price paid by any Representative 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 Representative. 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]
2,562,000 Shares of Common Stock
and
3,000,000 Class A Warrants
DECOR GROUP, INC.
-----------------
PROSPECTUS
-----------------
August 29, 1996
-----------------
Alt - vi
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In connection with the Offering, the Representative agreed to indemnify the
Company, its directors, and each person who controls it within the meaning of
Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Representative specifically for or in connection
with the preparation of the registration statement, the prospectus, or any such
amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (I) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
II-1
<PAGE>
Items 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this Offering are as follows:
SEC filing fee*.......................... $ 10,000
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
II-2
<PAGE>
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."
In August 1996, the Company agreed to issue 94,167 shares of Series C
Preferred Stock to Interiors, Inc. in exchange for the payment of $706,500.
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.
1.03 Agreement Among Underwriters.
1.04 Warrant Exercise Fee Agreement.
3.01* Certificate of Incorporation of the Company dated March 1, 1996.
3.02* By-Laws of the Company.
4.01+ Specimen Certificate for shares of Common Stock.
4.02+ Specimen Certificate for shares of Series A Convertible
Preferred Stock.
4.03+ Specimen Certificate for shares of Series B Non-Convertible
Preferred Stock.
4.04+ Specimen Certificate for Class A Redeemable Common Stock Purchase
Warrant.
4.05+ Form of Warrant Agreement by and among the Company and American
Stock Transfer & Trust Company.
4.06 Form of Representative's Unit Purchase Warrant.
4.07+ Option Agreement between the Company and Interiors, Inc.
5.01+ Opinion of Bernstein & Wasserman, LLP, counsel to the Company.
10.01* Asset Purchase Agreement among the Company, Artisan Acquisition Co.,
Artisan House, Inc. and Henry Goldman dated as of March 25, 1996.
10.02 Management Services Agreement between the Company and Interiors, Inc.
10.03+ Employment Agreement between the Company and Donald Feldman.
10.04* Form of Bridge Loan Agreements.
10.05* Form of Subscription Agreements.
10.06+ 1996 Stock Plan.
10.07+ Commitment Letter from United Credit Corporation.
10.08* Financial Advisory Agreement with the Representative.
10.09+ Amendment to Asset Purchase Agreement.
II-4
<PAGE>
23.01+ Consent of Bernstein & Wasserman, LLP
(to be included in Exhibit 5.01).
23.02 Consent of Moore Stephens, P.C.
- ----------
+ To be filed by amendment.
* Previously filed.
Item 28. Undertakings.
(a) Rule 415 Offering
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or
in the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) Include any additional or changed material information on the plan of
distribution.
2. For determining liability under the Act, treat each such post-effective
amendment as a new registration statement of the securities offered, and the
Offering of such securities at that time shall be deemed to be the initial bona
fide offering.
3. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The undersigned Registrant will provide to the Representative at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Representative to
permit prompt delivery to each purchaser.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 22 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
II-5
<PAGE>
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 (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 August 29, 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 August 29, 1996
- ------------------------------ Chief Financial Officer
Donald Feldman
/s/Max Munn Chairman of the Board August 29, 1996
- ------------------------------ of Directors
Max Munn
/s/Matthew L. Harriton Director August 29, 1996
- ------------------------------
Matthew L. Harriton
/s/Michael Lulkin Director August 29, 1996
- ------------------------------
Michael Lulkin
<PAGE>
----------------
EXHIBIT VOLUME
TO
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
----------------
DECOR GROUP, INC.
(Name of small business issuer in its charter)
<PAGE>
INDEX
Exhibit Name
Exhibit
Number
- ------
1.01 Form of Underwriting Agreement.
1.02 Form of Selected Dealers Agreement.
1.03 Agreement Among Underwriters.
1.04 Warrant Exercise Fee Agreement.
4.06 Form of Representative's Unit Purchase Warrant.
10.02 Management Services Agreement between the Company and Interiors, Inc.
23.02 Consent of Moore Stephens, P.C
<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 300,000 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 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 45,000 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
1
<PAGE>
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. 333-5553) 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.
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
2
<PAGE>
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties contained in
this subsection (b) shall extend to the Underwriters in respect of any
statements in or omissions from the Registration Statement and/or the
Prospectus, based upon information furnished in writing to the Company by the
Underwriters specifically for use in connection with the preparation thereof.
(c) The Company has been duly incorporated and is now, and on the
Closing Date will be, validly existing as a corporation in good standing under
the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in good standing in all of the
jurisdictions in which it conducts its business or the character or location of
its properties requires such qualifications except where the failure to so
qualify would not materially adversely affect the Company's business, properties
or financial condition. The Company has no subsidiaries, except as are set forth
in the Prospectus.
(d) The financial statements of the Company (audited and unaudited)
included in the Registration Statement and Prospectus present fairly the
financial position and results of operations and changes in financial condition
of the Company at the respective dates and for the respective periods to which
they apply; and such financial statements have been prepared in conformity with
generally accepted accounting principles, consistently applied throughout the
periods involved, and are in accordance with the books and records of the
Company.
(e) To the best of the Company's knowledge, Mortenson & Associates,
P.C., independent auditors, who have given their report on certain financial
statements which are included as a part of the Registration Statement and the
Prospectus are independent public accountants as required under the Act and the
Rules and Regulations.
(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.
3
<PAGE>
(g) Except as otherwise set forth in the Prospectus, the real and
personal properties of the Company as shown in the Prospectus and Registration
Statement to be owned by the Company are owned by the Company by good and
marketable title free and clear of all liens and encumbrances, except those
specifically referred to in the Prospectus, and except those which do not
materially adversely affect the use or value of such assets and except the lien
for current taxes not now due, or are held by the Company by valid leases, none
of which is in default. Except as disclosed in the Prospectus and Registration
Statement, the Company in all material respects has full right and licenses,
permits and governmental authorizations required to maintain and operate its
business and properties as the same are now operated and, to its best knowledge,
none of the activities or business of the Company is in material violation of,
or causes the Company to violate any laws, ordinances and regulations applicable
thereto, the violation of which would have a material adverse impact on the
condition (financial or otherwise), business, properties or net worth of the
Company.
(h) The Company has no material contingent obligations, nor are its
properties or business subject to any material risks, which may be reasonably
anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
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,
4
<PAGE>
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, 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 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
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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; 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
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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 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.
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(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.
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
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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 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.
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(e) At the time of making payment for the Firm Units, the Company
also hereby agrees to sell to the Representative, Warrants to purchase 30,000
Units for an aggregate purchase price of $30 (hereinafter referred to as the
"Underwriters' Warrants"). The 30,000 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 $16.50 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.
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
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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 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.
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(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 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 __________
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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 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.
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(l) Prior to the Effective Date, the Company will enter into an
employment contract with Donald Feldman satisfactory to the Representative.
(m) Within ninety (90) days subsequent to the Effective Date, the
Company will furnish "Key Man" Life Insurance in the amount of $1,000,000 on the
life of Donald Feldman with the Company as the beneficiary thereof and the
Company shall pay the annual premiums, therefore, for a period of not less than
five years from the Effective Date.
(n) The Company will for a period of five years:
(i) Furnish to the Representative and to the Company's
shareholders annual audited financial statements contained in an annual report
and unaudited financial statements contained in quarterly reports for each of
the Company's first three quarters.
(ii) Designate an Audit Committee (the members of which shall
be subject to our reasonable approval) which will generally supervise the
financial affairs of the Company.
(iii) At its expense, shall cause its regularly engaged
independent certified public accountants to examine (but not audit) the
Company's financial statements for each of the first three (3) fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's Form 10-Q or 10- QSB quarterly report and the mailing of quarterly
financial information to security holders.
(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.
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(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.
(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 ($30,000) Dollars ($______ 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 connection
with the offering and sale and distribution of the Units on an accountable
basis. After closing of the public offering, the
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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 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
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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 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,
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in respect to such statement, omission or alleged omission, the Prospectus
differs in a material respect from such preliminary prospectus and a copy of the
Prospectus has not been sent or given to such person at or prior to the
confirmation of such sale to such person. This indemnity agreement will be in
addition to any liability which the Company and the Selling Stockholder may
otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
each director of the Company, and each officer of the Company who signs the
Registration Statement and the Selling Stockholder, to the same extent as the
foregoing indemnity from the Company and the Selling Stockholder to each
Underwriter, but only insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or omission or alleged
untrue statement or omission which was made in any Preliminary Prospectus, any
Rule 430A Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, which were made in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter for specific use therein; provided,
however, that the obligation of each Underwriter to indemnify the Company
(including any controlling person, director or officer thereof) and the Selling
Stockholder shall be limited to the net proceeds received by the Company and the
Selling Stockholder, respectively, from such Underwriter. For all purposes of
this Agreement, the amounts of the selling concession and reallowance set forth
in the Prospectus constitute the only information furnished in writing by or on
behalf of any Underwriter expressly for inclusion in any Preliminary Prospectus,
any Rule 430A Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto.
(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit or 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
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party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and the approval by the indemnified party of such counsel, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in connection with
the defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party, or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the reasonable fees and expenses of counsel shall be at the expense of the
indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its written
consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections 9(a) and (b)
is due in accordance with its terms but for any reason is held to be unavailable
from the Company, the Selling Stockholder 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
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which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the Selling Stockholder and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the Offering (net of underwriting discounts but before deducting
expenses) received by the Company or the Selling Stockholder from the sale of
the 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 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
21
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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 performance of, all of its
covenants, undertakings and agreements contained in this Agreement that are
required to be complied with or performed on or prior to each of the Closing
Dates and to the following additional conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
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(b) The Representative shall not have disclosed in writing to the
Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contained, as of the date thereof, an untrue statement of a
fact which, in the opinion of counsel to the Underwriters, is material, or omits
to state a fact which, in the opinion of such counsel, is material and is
required to be stated therein, or is necessary to make the statements therein
not materially misleading.
(c) Between the date hereof and the Closing Date, the Company shall
not have sustained any loss on account of fire, explosion, flood, accident,
calamity or other cause, of such character as materially adversely affects its
business or property, whether or not such loss is covered by insurance.
(d) Between the date hereof and the Closing Date, there shall be no
litigation instituted or threatened against the Company, and there shall be no
proceeding instituted or threatened against the Company before or by any federal
or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Closing Date, (A) the Company shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the filing of the initial Registration Statement and
(B) except in the ordinary course of its business, the Company shall not have
incurred any material liabilities or obligations (direct or contingent), or
disposed of any of its assets, or entered into any material transaction, and (C)
the Company shall not have suffered or experienced any material adverse change
in its business, affairs or in its condition, financial or otherwise. On the
Closing Date, the capital stock and surplus accounts of the Company shall be
substantially as great as at its last financial report without considering the
proceeds from the sale of the 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:
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(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware
with full corporate power and authority to own and operate its properties and to
carry on its business as set forth in the Registration Statement and Prospectus;
it has authorized and outstanding capital as set forth in the Registration
Statement and Prospectus; and the Company is duly licensed or qualified as a
foreign corporation in all jurisdictions in which the ownership or leasing of
its properties requires such qualification or license, except where failure to
be so qualified or licensed would have no material adverse effect on the
business of the Company.
(ii) The Company has an authorized, issued and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus.
All of the outstanding shares of Common Stock and Preferred Stock are duly
authorized, validly issued, fully paid, and non-assessable, and do not have any
preemptive rights. The Company will have duly authorized, reserved and set aside
shares of Common Stock issuable upon exercise of 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
24
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in effect and no proceedings for that purpose have been instituted or are
pending before or threatened by, the Commission;
(viii) To the best of such counsel's knowledge and based upon
the investigation described below, the Registration Statement and Prospectus,
and each amendment thereof and supplement thereto, comply as to form in all
material respects with the applicable requirements of the Act and the Rules and
Regulations (except that no opinion need be expressed as to financial
statements, notes thereto, and financial data contained in the Registration
Statement or Prospectus). Such counsel has participated in conferences with
officers and representatives of the Company and with its certified public
accountants in the preparation of the Registration Statement and the Prospectus.
At such conferences counsel has made inquiries of such officers, representatives
and accountants, and discussed the contents of the Registration Statement and
the Prospectus. Such counsel has not independently verified, and, accordingly,
does not assume any responsibility for, the accuracy, completeness or fairness
of the information contained in the Registration Statement or the Prospectus,
other than as set forth the Prospectus insofar as such statements relate to the
contents of particular documents therein described. On the basis of the
foregoing, nothing has come to the attention of such counsel to cause such
counsel to believe that the Registration Statement, the Prospectus or any
amendment or supplement thereto contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make 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
25
<PAGE>
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 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.
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(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 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.
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(iv) Except as set forth or contemplated in the Registration
Statement and Prospectus, since the respective dates as of which, or periods for
which, information is given in the Registration Statement and Prospectus and
prior to the date of such certificate (A) there has not been any material
adverse change, financial or otherwise, in the business, business prospects,
earnings, general affairs or condition (financial or otherwise), of the Company
(in each case whether or not arising in the ordinary course of business), and
(B) the Company has not incurred any material liabilities, direct or contingent,
or entered into any material transactions, otherwise than in the ordinary course
of business other than as referred to in the Registration Statement or
Prospectus and except changes which the Registration Statement and Prospectus
indicate might occur.
(i) The Company shall have furnished to the Representative on the
Closing Date, such other certificates of executive officers of the Company
additional to those specifically mentioned herein, as the Representative may
have reasonably requested, as to: the accuracy and completeness of any statement
in the Registration Statement or the Prospectus, or in any amendment or
supplement thereto; the representations and warranties of the Company herein;
the performance by the Company of its obligations hereunder; or the fulfillment
of the conditions concurrent and precedent to the obligations of the
Underwriters hereunder, which are required to be performed or fulfilled on or
prior to the Closing Date.
(j) At the time this Agreement is executed, and on each Closing Date
you shall have received a letter from Mortenson & Associates, P.C., addressed to
the Representative, as Representative of the Underwriters, and dated,
respectively, as of the date of this Agreement and as of each Closing Date in
form and substance reasonably satisfactory to the Representative, to the effect
that:
(i) They are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations of the Commission;
(ii) In their opinion, the financial statements and related
schedules of the Company included in the Registration 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
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the minutes of all such meetings through that date were set forth therein, (3)
consultations with officials of the Company responsible for financial and
accounting matters of the Company, which procedures do not constitute an
examination in accordance with generally accepted accounting standards, and
would not necessarily reveal material adverse changes in the financial position
or results of operations or inconsistencies in the application of generally
accepted accounting principles, nothing has come to their attention which in
their judgment would lead them to believe that (a) the unaudited financial
statements and related schedules of the Company included in the Registration
Statement and Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the published Rules and
Regulations of the Commission issued thereunder, or were not prepared in
accordance with generally accepted accounting principles and practices
consistent in all material respects with those followed in the preparation of
the comparable financial statements and schedules covered by their reports
included in the Registration Statement and Prospectus, or would require any
material adjustments for a fair presentation of the information purported to be
shown thereby or (b) during the period from the date of the Capitalization table
included in the Prospectus to a specified date not more than four business days
prior to the date of such letter, there has been any material change in the
capital stock or debt of the Company, or (c) during the period from the date of
the latest balance sheet and related statements of operations, changes in
stockholders' equity and changes in financial position included in the
Prospectus and covered by their reports contained therein to the date of the
letter, there has been any material adverse change in the financial condition,
or results of operations, of the Company; and
(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
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<PAGE>
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 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 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
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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
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
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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
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
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<PAGE>
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
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,
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<PAGE>
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 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 at the time of the offering and at the time of
exercise of the
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<PAGE>
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:
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.
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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 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)
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<PAGE>
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.
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 325,000
=======
39
<PAGE>
VTR Capital Inc.
99 Wall Street
New York, NY 10005
DECOR GROUP, INC.
325,000 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, 300,000 Units and 25,000 Units, respectively, and up
to an additional 45,000 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.
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
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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 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
2
<PAGE>
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 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:_________________________________
3
<PAGE>
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)
Address:____________________
____________________
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DECOR GROUP, INC.
325,000 Units, Each Unit Consisting of two Shares of Common
Stock and one Class A Common Stock Purchase Warrant
AGREEMENT AMONG UNDERWRITERS
____________, 1996
To each of the Underwriters named in Schedule I
to the attached Underwriting Agreement
Dear Sirs:
1. Underwriting Agreement. Decor Group, Inc., a Delaware corporation (the
"Company"), proposes to enter into an underwriting agreement in the form of the
Underwriting Agreement attached hereto as Exhibit "A" (the "Underwriting
Agreement") with the underwriters named in Schedule I to the Underwriting
Agreement (the "Underwriters"), acting severally and not jointly, with respect
to the purchase from the Company of 300,000 Units and from a selling security
holder an additional 25,000 Units for a total of 325,000 Units, each unit
consisting of two shares of Common Stock and one Class A Common Stock Purchase
Warrant (the "Firm Units"). Upon our request, and as provided in Section 3 of
the Underwriting Agreement, the Company will also issue and sell to the
Underwriters up to a maximum of an additional 45,000 Units (the "Optional
Units"). Both the Firm Units and the Optional Units are sometimes collectively
referred to herein as the "Units." All of the Units which are the subject of
this Agreement are more fully described in the Prospectus of the Company
described below. Under the terms of the Underwriting Agreement, each of the
Underwriters will agree, in accordance with the terms thereof to purchase the
aggregate number of Firm Units set forth opposite its name in said Schedule I,
subject to adjustment pursuant to Section 12 hereof and Section 14 of the
Underwriting Agreement.
2. Registration Statement and Prospectus. The Units are described in a
registration statement and related prospectus which have been filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). An amendment to such registration statement has
been or will be filed in which you have been or will be named as one of the
Underwriters of the Units. Copies of the registration statement as filed and as
amended have been delivered to you, and you hereby authorize us to approve on
your behalf any further amendments or supplements which may be necessary or
appropriate. The registration statement, as amended at the time it becomes
effective, is called the "Registration Statement" and the final prospectus
relating to the Units as filed by the Company with the
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Commission pursuant to Rule 424(b) under the Act is referred to as the
"Prospectus."
3. Authority of Representative. You authorize us as your Representative to
execute the Underwriting Agreement with the Company in the form attached with
such insertions, deletions or other changes as we may approve (but not as to the
number of, and price of, the Units to be purchased by you except as provided
herein and therein) and to take such action as in our discretion we may deem
advisable in respect of all matters pertaining to the Underwriting Agreement,
this Agreement, the transactions for the accounts of the several Underwriters
contemplated thereby and hereby, and the purchase, carrying, sale and
distribution of the Units.
4. Public Offering. In connection with the public offering of the Units,
you authorize us, in our discretion:
(a) To determine the time and manner of the initial public offering
(after the Registration Statement become effective), the initial public offering
price, and the concessions and reallowances to dealers, to change the public
offering price and such concessions and reallowances after the initial public
offering, to furnish the Company with the information to be included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) with respect to the terms of the public offering, and to determine all
matters relating to the public advertisement of the Units and any communications
with dealers or others;
(b) To reserve all or any part of your Units for sale to retail
purchasers (including institutions) and to dealers selected by us ("Selected
Dealers") among which may be included any Underwriter (including ourselves) and
each of which shall be a member of the National Association of Securities
Dealers, Inc., and each of which shall agree that in making sales to purchasers
in the United States it will conform to the Rules of Fair Practice of said
Association (or, in the case of a foreign dealer not eligible for membership in
such Association, which shall agree not to reoffer, resell or deliver Units in
the United States, its territories or its possessions, or to persons whom it has
reason to believe are citizens thereof or residents therein), such reservations
for sales to retail purchasers to be as nearly as practicable in proportion to
the respective underwriting obligations of the Underwriters and such
reservations for sales to Selected Dealers to be in such proportion as we
determine, and from time to time to add to the reserved Units such Units
retained by you remaining unsold and to release to you any of your Units
reserved but not sold;
(c) To sell reserved Units as nearly as practicable in proportion to
the respective reservations to retail purchasers at the public offering price,
and to Selected Dealers at the public
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offering price less the Selected Dealer's concession pursuant to the Selected
Dealers Agreement in substantially the form attached; and
(d) To buy Units for your account from Selected Dealers at the
public offering price less such amount not in excess of the Selected Dealer's
concession as we may determine.
After advice from us that the Units are released for public offering, you
will offer to the public in conformity with the terms of offering set forth in
the Prospectus, or any amendment or supplement, such of your Units as we advise
you are not reserved.
You recognize the importance of a broad distribution of the Units among
bona fide investors and you agree to use your best efforts to obtain such broad
distribution and to that end, to the extent you deem practicable, to give
priority to small orders. In offering the Units to Selected Dealers we will take
such action as we deem appropriate to effect a broad distribution.
5. Repurchase of Units Not Effectively Placed for Investment. You are
requested to place for investment those of your Units which are not reserved as
aforesaid. Any Units sold by you (otherwise than through us) which may be
delivered to us against a purchase contract made by us for the account of any
Underwriter prior to termination of the provisions referred to in Section 11 of
this Agreement, shall be purchased by you upon demand from us at the cost of
such purchase plus brokerage commissions and transfer taxes on redelivery. Units
delivered on such repurchase need not be identical to those purchased by you. In
lieu of demand repurchase by you we may in our discretion (i) sell for your
account the Units so purchased by us, at such price and upon such terms as we
may determine, and debit or credit your account with the loss and expense or net
profit resulting from such sale, or (ii) charge your account with an amount not
in excess of the Selected Dealer's concession with respect to such Units plus
brokerage commissions and transfer taxes paid in connection with such purchase.
6. Payment and Delivery. We shall give you at least 24 hours prior notice
of the Closing Date. You agree to deliver to us at or before 9:00 a.m., New York
City time, on such Closing Date and at or before 9:00 a.m. New York City time,
on the Additional Closing Date referred to in the Underwriting Agreement if the
Optional Units are purchased, at the office of VTR Capital, Inc., 99 Wall
Street, New York, NY 10005 (or such other office as we may direct), a certified
check or bank cashier's check payable in New York Clearing House funds to the
order of VTR Capital Inc., as Representative, for the full purchase price of the
Units which you shall have agreed to purchase from the Company less the
concession to selected dealers. If you are a member or clear through a member
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of the Depository Trust Company ("DTC"), you may, in your discretion, deliver
payment and receive Units through the facilities of DTC. The proceeds shall be
delivered in the amounts required in each case for payment of the full purchase
price by us to the Company against delivery of the Units to us for your account.
We are authorized to accept that delivery and to give a receipt therefor. We may
in our discretion make such payment on your behalf with our own funds, in which
event you will reimburse us promptly upon request. You authorize us, as your
custodian, to take delivery of your Units, registered as we may direct in order
to facilitate deliveries. You also authorize us to hold for your account such of
your Units as we have reserved for sale to retail purchasers and to Selected
Dealers, and to deliver your reserved Units against such sales. We will deliver
your unreserved Units to you promptly and, after we receive payment for reserved
Units sold by us for your account, we will remit to you, as promptly as
practicable, an amount equal to the price paid by you for such Units. As soon as
practicable after termination of Sections 4, 5 and 9 and the first and
penultimate sentences of Section 8 of this Agreement (pursuant to Section 11
hereof) we will deliver to you any of your Units reserved but not sold. All
Units delivered to you pursuant to this Section will be evidenced by
certificates in such denominations as you shall direct by written notice
received by us not later than the second full business day preceding the Closing
Date.
7. Authority to Borrow. In connection with the purchase or carrying of any
Units purchased hereunder for your account, you authorize us, in our discretion,
to advance funds for your account, charging current interest rates, or to
arrange loans for your account, and in connection therewith to execute and
deliver any notes or other instruments and hold or pledge as security any of
your Units. Any lender may rely on our instructions in all matters relating to
any such loan. Any of your Units held by us for your account may be delivered to
you for carrying purposes only, and subject to our further direction.
8. Stabilization and Over-Allotment. To facilitate the distribution of the
Units, you authorize us during the term of this Agreement, or for such longer
period as may be necessary in our discretion, to make purchases and sales of the
Units for your account in the open market or otherwise, for long or short
account, on such terms as we deem advisable and, in arranging sales, to
over-allot. You also authorize us to cover any short position incurred pursuant
to this Section on such terms as we deem advisable. Included in the authority
granted to us by you is the authority to exercise the over-allotment option to
purchase the Optional Units granted by Section 3 of the Underwriting Agreement.
Except with respect to the exercise of such over-allotment option, all such
purchases and sales (other than purchases and sales of the Optional Units) shall
be made for the accounts of the several Underwriters as nearly as practicable in
proportion to their
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respective underwriting obligations. Your net commitment under this Section
shall not, at the end of any business day, exceed 15% of your maximum
underwriting obligation. You will on our demand take up at cost or deliver
against payment any Units purchased or sold or over-allotted for your account
and, if any such other Underwriter defaults in its corresponding obligation, you
will assume your proportionate share of such obligation without relieving the
defaulting Underwriter from liability. You will be obligated in respect to
purchases and sales made for your account hereunder whether or not the proposed
purchase of the Units is consummated. Upon request you will advise us of Units
retained by you and unsold and will sell to us for the account of one or more of
the Underwriters such of your unsold Units as we may designate, at the public
offering price thereof less such amount as we may determine, but not in excess
of the Selected Dealer's concession with respect thereto. Until the termination
of this Agreement pursuant to Section 11 hereof, or prior notification by us, we
shall have the sole right to effect stabilizing transactions in the Units. You
agree that until such time you will not make any purchases or sales of any of
such Units except as provided in Section 9 hereof. You also agree to timely
provide us with the information required by Rule 17a-2(d) under the Securities
Exchange Act of 1934, as amended (the "1934 Act").
9. Open Market Transactions. You agree not to bid for, purchase, attempt
to induce others to purchase, or sell, directly or indirectly, any Units, except
as brokers pursuant to unsolicited orders and as otherwise provided in this
Agreement or in the Underwriting Agreement. You further agree not to offer the
Units for sale until notified by us, as the Representative of the Underwriters,
that they are released for that purpose.
10. Expenses and Settlement. We may charge your account with Selected
Dealer's concessions and all transfer taxes on sales made by us for your account
and with your proportionate share (based upon your underwriting obligation) of
all other expenses incurred by us under the terms of this Agreement or the
Underwriting Agreement, in excess of those reimbursed by the Company pursuant to
Section 8 of the Underwriting Agreement, or in connection with the purchase,
carrying, sale or distribution of the Units. Our determination of the amount and
allocation of expenses shall be conclusive. As soon as practicable after
termination of the provisions referred to in Section 11, the accounts hereunder
will be settled, but we may reserve from distribution such amount as we deem
advisable to cover possible additional expenses. We may at any time make partial
distribution of credit balances or call for payment of debit balances. Any of
your funds in our hands may be held with our general funds without
accountability for interest. Notwithstanding any settlement, you will pay (i)
your proportionate share (based upon your underwriting obligation) of any
liability which may be incurred by the Underwriters, or any of them, based on
the claim that the Underwriters constitute an association,
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partnership, unincorporated business or other separate entity, and of any
expenses incurred by us, or by any other Underwriter with our approval, in
contesting any such liability, and (ii) any transfer taxes which may be assessed
and paid after such settlement on account of any sale or transfer for your
account.
11. Termination and Settlement. This Agreement will terminate (a) at the
close of business on the 30th day after the date of the Underwriting Agreement;
or (b) on such earlier or later date, not more than 30 days after the date
specified in (a), as we may determine; or (c) on the date of termination of the
Underwriting Agreement, if the same shall be terminated as provided by its
terms.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder will cease, except (a) the mutual obligation to settle
accounts hereunder, (b) your obligation to pay any claims referred to in the
last paragraph of this Section, (c) the obligations with respect to indemnity
set forth in Section 15 hereof (all obligations of which will continue until
fully discharged), and (d) your obligation with respect to purchases which may
be made by us from time to time thereafter to cover any short position with
respect to the offering, all of which will continue until fully discharged, and
except our authority with respect to matters to be determined by us, or by us
and the Company, pursuant to the terms of the Underwriting Agreement, which will
survive the termination of this Agreement.
The accounts arising pursuant to this Agreement will be settled and paid
as soon as practicable after termination. The determination by us of the amounts
to be paid to or by you will be final and conclusive.
Notwithstanding any settlement upon the termination of this Agreement, you
will pay your proportionate share of any amount asserted against and discharged
by the Underwriters, or any of them, based upon the claim that the Underwriters
constitute an association, unincorporated business or other separate entity, or
based upon or arising out of a claim that this Agreement or the Underwriting
Agreement is invalid or illegal for any reason, including any expense incurred
in defending against such claim, and will pay any transfer taxes which may be
assessed thereafter on account of any sale or transfer of Units for our account.
12. Default by Underwriters. Default by one or more Underwriters hereunder
or under the Underwriting Agreement shall not release the other Underwriters
from their obligations or affect the liability of any defaulting Underwriter to
the other Underwriters for damages resulting from such default. In case of
default under the Underwriting Agreement by one or more Underwriters, we may
arrange for the purchase by others, including non-defaulting Underwriters, of
Units not taken up by such
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defaulting Underwriter and you will, at our request, increase pro rata with the
other non-defaulting Underwriters the aggregate principal amount of Units which
you are to purchase, or both, by an amount not exceeding one-ninth of your
original underwriting obligations. In the event any such arrangements are made,
the respective Units to be purchased by non-defaulting Underwriters and by such
others shall be taken as the basis for the underwriting obligations under this
Agreement.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement, each non-defaulting Underwriter shall assume
its proportionate share of the obligations under this Agreement of each such
defaulting Underwriter (other than, to the extent stated in the first paragraph
of this Section, the purchase obligation of such defaulting Underwriter).
13. Position of Representative. We shall be under no liability to you for
any act or omission except for obligations expressly assumed by us in this
Agreement, but no obligation on our part shall be implied or inferred. Nothing
shall constitute the Underwriters, or any of them, an association, partnership,
unincorporated business or other separate entity and the rights and liability of
ourselves and each of the Underwriters are several and not joint.
14. Compensation to Representative. As compensation for our services as
Representative, you agree to pay us $____ per Unit out of the aggregate
underwriting discount attributable to Units which you agree to purchase from the
Company under the Underwriting Agreement. We are authorized to charge your
account with such an amount.
15. Indemnification. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act to the extent and upon the terms by which each
Underwriter agrees to indemnify the Company in the Underwriting Agreement. Such
indemnity agreement shall survive the termination of any of the provisions of
this Agreement.
In the event that at any time any claim shall be asserted against us as or
as a result of our having acted as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Units or any of the transactions
contemplated by this Agreement, you authorize us to make such investigation, to
retain such counsel and to take such other action as we shall deem necessary or
desirable under the circumstances, including settlement of any claim or claims
if such course of action shall be recommended by counsel retained by us. You
agree to pay to us, on request, your proportionate share (based upon your
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underwriting obligation) of all expenses incurred by us (including, but not
limited to, the disbursements and fees of counsel so retained) in investigating
and defending against such claim or claims, and your proportionate share (based
upon your underwriting obligation) of any liability incurred by us in respect of
such claim or claims, whether such liability shall be the result of a judgment
against us or as a result of any such settlement.
16. Blue Sky Matters. We shall not have any responsibility with respect to
the right of any Underwriter or other person to sell Units in any jurisdiction,
notwithstanding any information we may furnish in that connection. You hereby
authorize us to take such action as may be necessary or advisable to qualify the
Units for offering and sale in any jurisdiction. We have caused to be filed
Further State Notices respecting the Units to be offered to the public in New
York in the form required by, and pursuant to, the provisions of Article 23A of
the General Business Law of the State of New York.
17. Title to Units. The Units purchased for the respective accounts of the
several Underwriters shall remain the property of those Underwriters until sold;
and no title to such Units shall in any event pass to us, as Representative, by
virtue of any of the provisions of this Agreement.
18. Capital Requirements. Unless the provisions of clause (b) of the
second sentence of the last paragraph of this Agreement are applicable to you,
you confirm that your commitment hereunder will not result in any violation of
Section 8(b) or 15(c) of the 1934 Act or in any violation of any of the rules
and regulations promulgated under the 1934 Act, including, without limitation,
Rule 15c3-1, or any provision of any applicable rules of any securities exchange
to which you are subject or of any restriction imposed upon you by such
exchange.
19. Notices and Governing Laws. Any notice from you to us shall be mailed
or transmitted by any standard form of written telecommunication to us at 99
Wall Street, New York, NY 10005. Any notice from us to you shall be mailed or
transmitted by any standard from of written telecommunication to you at your
address as set forth in your Underwriter's Questionnaire. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. You represent that you are (a) a member
in good standing of such Association or (b) a foreign dealer which is not
eligible for membership in such Association, in which event you will make sales
of any Units only outside the United States and its territories and possessions
to persons who are not citizens or residents of the United States or its
territories or possessions, and that in making any such sales,
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you will comply with such Association's Interpretation with respect to
Free-Riding and Withholding. You further represent that: (i) you will notify
each of your customers with respect to whose account you have investment
discretion and to whose account you intend to sell any Units that you propose to
sell Units to such account as a principal and you will obtain the customer's
written consent to such sale; and (ii) you will comply with the requirements of
Rule 15c2-8 under the 1934 Act and have distributed or are distributing copies
of a Preliminary Prospectus to all persons to whom you then expected to mail
confirmations of sale, not less than 48 hours prior to the time it is expected
to mail such confirmations.
Very truly yours,
VTR CAPITAL, INC.
By:________________________________
As Representative of the several
Underwriters
Confirmed and accepted as of the date first above written.
________________________________
Attorney-in-fact for the several
Underwriters named in Schedule I
to the Underwriting Agreement
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WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated as of the ____ day of _________, 1996, by and among VTC
Capital, Inc. ("VTR"), Decor Group, Inc. (the "Company") and American Stock
Transfer & Trust Co. (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 325,000 Units, 25,000 of
which will be sold on behalf of a selling security holder (a maximum of 370,000
Units including the over-allotment option), each Unit consisting of two shares
of the Company's Common Stock ("Common Stock"), and one Class A Common Stock
Purchase Warrant (the "Warrants"), the Company proposes to issue, in accordance
with an agreement dated as of __________, 1996 by and between the Company and
the Warrant Agent (the "Warrant Agreement"), Warrants to purchase shares of
Common Stock; and
WHEREAS, the Company also will be issuing an additional 3,000,000 Class A
Warrants to certain bridge lenders; and
WHEREAS, the parties hereto wish to provide VTR, a member of the National
Association of Securities Dealers, Inc. ("NASD") with certain rights on an
exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Description of the Warrants. The Company's Warrants may be
exercised on or after ___________, 1997 and expire at 5:00 p.m. New York time on
__________, 2001 (the "Expiration Date"), subject to (i) the Company's right to
extend the Expiration Date, at which time all rights evidenced by the Warrants
shall cease and the Warrants shall become void and (ii) certain redemption
rights commencing on or after ____________, 1997. In accordance with the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Company, and the Company shall issue and sell to such
holders of Warrants, one fully paid and non-assessable share of the Company's
Common Stock for every Warrant exercised at an Exercise Price of $4.00 per
share, subject to adjustment as provided in the Warrant Agreement.
Section 2. Notification of Exercise. Within five (5) days of the last day
of each month commencing __________, 1997 (one year from the date of the
Company's Prospectus), the Warrant Agent or the Company will notify VTR of each
Warrant certificate which has been properly completed and delivered for exercise
by holders of Warrants during each such month, the determination of the proper
completion to be in the sole and absolute reasonable discretion of the Company
and the Warrant Agent. The Company or the Warrant
<PAGE>
Agent will provide VTR with such information, in connection with the exercise of
each Warrant, as VTR shall reasonably request.
Section 3. Payment to VTR. The Company hereby agrees to pay to VTR an
amount equal to four (4%) percent of the exercise price (i.e. $.16 per share
based on the initial exercise price of the Warrants which is $4.00 per share)
for each Warrant exercised (the "Exercise Fee") a portion of which may be
allowed by VTR to the dealer who solicited the exercise (which may also be VTR)
provided that:
(a) such Warrant is exercised on or after __________, 1997, which
represents one year from the effective date of the Company's Registration
Statement;
(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
(c) the holders of Warrants being exercised have indicated in writing,
either in the Form of Election contained on the specimen Warrant Certificate
attached hereto as Exhibit A, or by written documents signed and dated by the
holders and specifically stating that the exercise of such Warrants were
solicited by VTR or another member of the NASD; and
(d) VTR, and/or the member of the NASD which solicited the exercise of
Warrants delivers a certificate to the Company within five (5) business days of
receipt of information relating to such exercised Warrants from the Company or
the Warrant Agent in the form attached hereto as Exhibit B, stating that:
(1) the Warrants exercised were not held in a discretionary account;
(2) VTR or the member of the NASD which solicited the exercise of
Warrants did not, (unless granted an exemption by the Securities and Exchange
Commission from the provisions thereof), within the applicable number of
business days under Rule 10b-6 immediately preceding the date of exercise of the
Warrant bid for or purchase the Common Stock of the Company or any securities of
the Company immediately convertible into or exchangeable for the Common Stock
(including the Warrants) or otherwise engage in any activity that would be
prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as amended,
with one engaged in a distribution of the Company's securities; and
(3) in connection with the solicitation, it disclosed the
compensation it would receive upon exercise of the Warrant.
Section 4. Payment of the Exercise Fee. The Company hereby agrees to pay
over to VTR within two (2) business days after receipt by the Company of the
certificate described in Section 3(d) above, the Exercise Fee out of the
proceeds it received from the
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applicable Exercise Price paid for the Warrants to which the certificate
relates.
Section 5. Inspection of Records. VTR may at any time during business
hours, at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
Section 6. Termination. VTR shall be entitled to terminate this Agreement
prior to the exercise of all Warrants at any time upon five (5) business days'
prior notice to the Company and the Warrant Agent. Notwithstanding any such
termination notice, VTR shall be entitled to receive an Exercise Fee for the
exercise of any Warrant for which it has already delivered to the Company prior
to any such termination the certificate required by Section 3(d) of this
Agreement.
Section 7. Notices. Any notice or other communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed sufficiently given if sent by first class certified mail, return
receipt requested, postage prepaid, addressed as follows: if to the Company at
320 Washington Street, Mt. Vernon, NY 10553, copy to Hartley T. Bernstein, Esq.,
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022; if to VTR at
99 Wall Street, New York, NY 10005; and if to the Warrant Agent at American
Transfer & Trust Company, 40 Wall Street, New York, New York 10005 or such other
address as such party shall have given notice to other parties hereto in
accordance with this Section. All such notices or other communications shall be
deemed given three (3) business days after mailing, as aforesaid.
Section 8. Supplements and Amendments. The Company, the Warrant Agent and
VTR may from time-to-time supplement or amend this Agreement by a written
instrument signed by the party to be charged, without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein or to make any other provisions in regard to
matters or questions arising hereunder which the Company, the Warrant Agent and
VTR may deem necessary or desirable and which do not adversely affect the
interests of the holders of Warrants.
Section 9. Assignment. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that VTR may
assign this Agreement to its successors.
Section 10. Governing Law. This Agreement will be deemed made under the
laws of the State of New York with respect to matters of contract law and for
all purposes shall be governed by and construed in accordance with the internal
laws of said State, without regard to the conflicts of laws provisions thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company, the Warrant
Agent and VTR any legal or
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equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of, and be binding upon, the Company, the
Warrant Agent and VTR and their respective successors and permitted assigns.
Section 12. Descriptive Headings. The descriptive headings of the sections
of this Agreement are inserted for convenience only and shall not control or
affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and all
prior agreements between the parties with respect to the subject matter hereof.
Section 14. Exclusive Agreement. It is understood that this agreement is
on an exclusive basis to solicit the exercise of the Warrants and that the
Company may not engage other broker-dealers to solicit the exercise of Warrants
without the consent of VTR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
DECOR GROUP, INC.
By:___________________________________
VTR CAPITAL, INC.
By:___________________________________
AMERICAN STOCK TRANSFER & TRUST CO.
By:___________________________________
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CERTIFICATE
The undersigned, being the ________________ of VTR Capital, Inc. ("VTR")
pursuant to Section 3(d) of the Warrant Exercise Fee Agreement relating to the
exercise of Warrants dated ____________, 1996 between Decor Group, Inc. (the
"Company") and American Stock Transfer & Trust Co. (the "Warrant Agent") hereby
certifies that:
1. The Company or the Warrant Agent has notified VTR that ______________
Warrants (as defined in the Agreement) have been exercised during _____________,
199___.
2. The exercise of ______________ of such Warrants was solicited by VTR.
3. Such Warrants were not held in a discretionary account.
4. ______________ did not, within _____ business days immediately
preceding _______________ 199___, bid for or purchase the Common Stock of the
Company or any securities of the Company immediately convertible into or
exchangeable for the Common Stock (including Warrants) or otherwise engage in
any activity that would be prohibited by Rule 10b-6 under the Securities
Exchange Act of 1934, as amended, to one engaged in a distribution of the
Company's securities.
5. In connection with the solicitation of the exercise of the Warrants,
_____________ disclosed the compensation it will receive to holders of the
Warrants.
DATED: __________________, 199___
VTR CAPITAL, INC.
By:________________________
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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 30,000 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.
(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.
<PAGE>
(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. 333-5553.
(g) "Unit Warrant Price" shall be $16.50 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 30,000 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 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
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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 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
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<PAGE>
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, 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
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<PAGE>
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 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 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
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<PAGE>
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 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
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<PAGE>
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 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,
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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.
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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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:_________________________
_________________________
Social Security No.______________
or other identifying number
_________________________________
Signature
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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:
_________________________________
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MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is entered into
as of this day of May 1996, by and between Decor Group, Inc, a Delaware
corporation, having an office at 320 Washington Street, Mt. Vernon, New York
10553 (hereinafter "Decor"), and Interiors, Inc. , a Delaware corporation,
having offices at 320 Washington Street, Mt. Vernon, New York 10553 (hereinafter
"Interiors").
NOW, THEREFORE, in consideration of the mutual promises of the
parties hereinafter set forth, Decor and Interiors hereto agree as follows:
1.Retention as Management Advisor. Subject to each of the terms,
conditions and provisions of this Agreement, Decor hereby retains Interiors and
Interiors hereby agrees to be retained by Decor to perform those managerial
functions set forth in Section 4 of this Agreement.
2. Term. Subject to the provisions for termination set forth herein,
this Agreement shall be from the date of this Agreement through the second
anniversary hereof, and automatically renewable annually thereafter unless the
non-terminating party receives written notice from the terminating party of
termination at least sixty (60) days prior to the renewal date.
3. Compensation. As compensation to Interiors for its management and
advisory services to Decor under this Agreement, Decor agrees to pay to
Interiors an annual fee (the "Management Fee") equal to the greater of (i)
$75,000 or (ii) 1 1/2% of Excess Cashflow of Artisan Acquisition Corporation.
"Excess Cashflow" shall mean operating cashflow as defined by generally accepted
accounting principles (a) less (i) principal and interest payable with respect
to indebtedness, (ii) taxes, and (iii) capital expenditures, and (b) adjusted to
reflect changes in working capital. The Management Fee shall be paid annually
within 90 days following the end of the relevant fiscal year.
4. Duties as Management Advisor. Interior's shall provide assistance
in the design, manufacturing marketing and distribution of Decor's products, as
well as providing accounting and administrative services and strategic planning
with regard to joint ventures, acquisitions and other long term business
initiatives (the "Services"). The Services shall be rendered upon the reasonable
request of Decor, and Interiors shall devote as much time as reasonably
necessary to complete its management services obligations to Decor.
5. Decisions. Decor reserves the right to make all decisions
<PAGE>
with regard to any matter upon which Interiors has rendered its advice and
consultation, and there shall be no liability to Interiors for any such advice
accepted by Decor pursuant to the provisions of this Agreement, unless such
advice was the result of willful misconduct or gross negligence on the part of
Decor.
6. Authority of Management Advisor. Interiors shall have authority
only to act as a consultant and advisor to Decor. Interiors shall have no
authority to enter into any agreement or to make any representation, commitment
or warranty binding upon Decor or to obtain or incur any right, obligation or
liability on behalf of Decor.
7. Independent Contractor. Except as may be expressly provided
elsewhere in this Agreement, Interiors shall act as an independent contractor
and shall have complete charge of its personnel engaged in the performance of
the Services.
8. Books and Records. Interior's books and records with respect to
the Services and any reimbursable costs ("Books and Records") shall be kept at
Interior's offices located at 320 Washington Street, Mt. Vernon, New York. The
Books and Records shall be kept in accordance with recognized accounting
principles and practices, consistently applied, and shall be made available for
Decor or Decor's representatives, with inspection and copying at all times being
made available during regular office hours. Interiors shall not be required to
maintain the Books and Records for more than three (3) years after termination
of this Agreement.
9. Confidential Information.
9.1 The parties acknowledge that during the course of provision of
the Services, Decor may disclose information to Interiors or its affiliated
companies. Interiors shall treat such information as Decor's confidential
property and safeguard and keep secret all such information about Decor,
including reports and records, customer lists, trade lists, trade practices, and
prices pertaining to Decor's business.
9.2 Interiors shall exercise its best efforts and shall cause any of
its affiliated companies to exercise their best efforts to prevent any
confidential information from being disclosed to third parties, except as
necessarily required in the performance of the Services and except under terms
of confidentiality satisfactory to Decor. This obligation shall remain in effect
until Decor shall release Interiors or its affiliated companies from their
obligations under this paragraph 9, but in no event later than three (3) years
after the completion of the
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Services. Interiors shall not use any of Decor's confidential information in any
way that is or may be detrimental to the interests of Decor, directly or
indirectly, either during the term of this Agreement or at any time thereafter.
10. Indemnification. Decor agrees to indemnify and hold Interiors
and its officers, directors and agents harmless from damages, losses or
expenses, including, without limitation, reasonable attorneys' fees and
expenses, incurred or paid directly or indirectly, by Interiors as a result of
or arising out of any actions taken by Interiors in connection with the
performance of the Services under this Agreement. Interiors agrees to indemnify
and hold Decor and its officers, directors and agents harmless from damages,
losses or expenses, including, without limitation, reasonable attorneys' fees
and expenses, incurred or paid directly or indirectly, by Decor as a result of
or arising out of any actions taken by Interiors in connection with the
performance of the Services under this Agreement.
11. Notices and Communications.
11.1 All communications relating to the day-today activities
necessary to render the Services shall be exchanged between the respective
representatives of Decor and Interiors, who will be designated by the parties
promptly upon commencement of the Services.
11.2 All other notices, demands, and communications required or
permitted hereunder shall be in writing and shall be delivered personally to the
respective representatives of Decor and Interiors set forth below or shall be
sent by a nationally recognized overnight courier or mailed by registered mail,
postage prepaid, return receipt requested. Notices, demands and communications
hereunder shall be effective: (i) if delivered personally, on delivery; or (ii)
if mailed, forty-eight (48) hours after deposit thereof in the United States
mail addressed to the party to whom such notice, demand, or communication is
given. Until changed by written notice, all such notices, demands and
communications shall be addressed as follows:
If to Decor:
320 Washington Street
Mt. Vernon, New York 10553
Attn: Donald Feldman
President
If to Interiors:
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320 Washington Street
Mt. Vernon, New York 10553
Attn: Max Munn
President
12. Assignments. Interiors shall not assign this Agreement in whole
or in part without the prior written consent of Decor.
13. Applicable Law and Severability. This document shall, in all
respects, be governed by the laws of the State of New York applicable to
agreements executed and to be wholly performed within the State of New York.
Nothing contained herein shall be construed so as to require the commission of
any act contrary to law, and wherever there is any conflict between any
provisions contained herein and any contrary present or future statute, law,
ordinance or regulation, the latter shall prevail, but the provision of this
document which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
14. Further Assurances. Each of the parties hereto shall execute and
deliver any and all additional papers, documents and other assurances, and shall
do any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder and to carry out the intent of the
parties hereto.
15. Attorneys' Fees. In the event any action is instituted by a
party to enforce any of the terms and provisions contained herein, the
prevailing party in such action shall be entitled to such reasonable attorneys'
fees, costs and expenses as may be fixed by the court.
16. Successors and Assigns. Subject to the foregoing, all the terms
and conditions contained herein shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
17. Captions. The captions appearing at the commencement of the
paragraphs hereof are descriptive only and for convenience and reference. Should
there be any conflicts between any such caption and the paragraph at the head of
which it appears, the paragraph and not such caption shall control and govern in
the construction of this document.
18. Modifications or Amendments. No amendment, change
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or modification of this document shall be valid unless it is in writing and
signed by all the parties hereto and expressly states that it is an amendment,
change or modification of this Agreement is intended.
19. Separate Counterparts. This document may be executed in one or
more separate counterparts, each of which, when so executed, shall be deemed to
be an original. Such counterparts shall, together, constitute and be one and the
same.
20. Entire Agreement. This Agreement shall constitute the entire
understanding and agreement between the parties hereto and shall supersede any
and all letters of intent, whether written or oral, pertaining to the subject
matter of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers on the date first appearing above.
DECOR GROUP, INC.
By ______________________________________
Donald Feldman,
President
INTERIORS, INC.
By ______________________________________
Max Munn
President
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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.
On July 1, 1996, the firm of Mortenson and Associates, P.C. changed its
name to Moore Stephens, P.C.
/s/ Moore Stephens, P.C.
-----------------------------------
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
August 29, 1996
